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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Pinnacle Data Systems, Inc.
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(Exact name of small business issuer in its charter)
Ohio 31-1263732
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6600 Port Road, Groveport, Ohio 43125
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (614) 748-1150
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
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PART I
Item 1. Description of Business...............................................................................1
BACKGROUND.....................................................................................................1
DEVELOPMENT OF THE BUSINESS....................................................................................2
BACKGROUND OF INDUSTRY.........................................................................................3
PRODUCTS.......................................................................................................4
SOFTWARE.......................................................................................................4
SERVICES.......................................................................................................5
CONTRACTUAL RELATIONSHIPS WITH SUN MICROSYSTEMS, INC. AND ITS AFFILIATES.......................................6
SALES AND MARKETING............................................................................................7
COMPETITION....................................................................................................8
EMPLOYEES......................................................................................................8
Item 2. Management's Discussion and Analysis or Plan of Operation.............................................9
RESULTS OF OPERATIONS..........................................................................................9
YEAR 2000 IMPACT ON COMPUTER RESOURCES........................................................................17
Item 3. Description of Property..............................................................................19
Item 4. Security Ownership of Certain Beneficial Owners and Management.......................................19
Item 5. Directors and Executive Officers, Promoters and Control Persons......................................20
Item 6. Executive Compensation...............................................................................22
SUMMARY COMPENSATION TABLE....................................................................................23
OPTION GRANTS IN LAST FISCAL YEAR.............................................................................24
STOCK OPTION EXERCISES AND YEAR END OPTION VALUES.............................................................24
SAVINGS PLAN..................................................................................................25
1995 STOCK OPTION PLAN........................................................................................25
COMPENSATION OF DIRECTORS.....................................................................................26
Item 7. Certain Relationships and Related Transactions.......................................................26
Item 8. Description of Securities............................................................................26
COMMON SHARES.................................................................................................27
. PART II
Item 1. Market price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters......27
Item 2. Legal Proceedings....................................................................................28
Item 3. Changes in and Disagreements With Accountants........................................................28
Item 4. Recent Sales of Unregistered Securities..............................................................29
Item 5. Indemnification of Directors and Officers............................................................32
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PART F/S
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Financial Statements.............................................................................................33
PART III
Item 1. Index to Exhibits....................................................................................57
Item 2. Description of Exhibits..............................................................................57
SIGNATURES.......................................................................................................58
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
The Company provides leading-edge technology and service solutions primarily to
Original Equipment Manufacturers (OEMs) in industries such as
telecommunications, medical systems, process control, and governmental.
The Company's technology solutions build on high performance computer
workstation processor technology from Sun Microsystems, Inc. Often customers
have special requirements that can not be met by off-the-shelf products alone.
By adding its own internally developed products and engineering capabilities to
Sun's off-the-shelf board technology, the Company is able to offer solutions
with minimal non-recurring engineering (product design) charges. These are
turnkey, application-specific computer circuit boards and entire computer
systems that the Company's customer imbeds into the customer's products.
The Company also offers end-of-life management and complete service and support
to OEMs. Many manufacturers will include Sun Microsystems' boards and components
in their own products. If Sun stops manufacturing that board or component, then
the equipment manufacturer is left without a source to supply it with the parts
needed to build its own products. The Company's end of life management allows
the Company's customers to maximize their investment in technology by providing
continued support for products no longer supported by the manufacturer. This
allows OEMs to eliminate or delay the engineering and software development
charges required to integrate new technology.
The Company also provides repair services for advanced technology systems, and
printed circuit board assemblies. The Company's repair services are all depot
repair, which means that the malfunctioning part is sent to the Company for
repair. The Company does not provide any repairs outside of its facilities. The
Company's repair services are focused on UNIX computer equipment and currently
are limited predominantly to equipment manufactured by Sun Microsystems, Inc.
The Company is partnering with Sun Microsystems to provide streamlined
distribution of Sun parts to Sun customers using an online information
management system that connects the two companies. The Company also offers a
repair service whereby it will, overnight, exchange a malfunctioning or broken
electronic component or part for a similar component or part in the Company's
inventory. The Company will then repair the malfunctioning or broken component
and include that part in its inventory as a replacement. The Company also
generates revenue from the sale of spare parts and components.
The Company believes that its strong relationship with Sun Microsystems provides
a significant advantage to the Company. The Company has a number of contracts
with Sun under which Sun provides the Company proprietary designs for its
products or which enable the Company to utilize
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and sell Sun circuit board technology and operating systems or other software to
its customers. Additionally, in 1997, the Company was accepted into the Sun
Microelectronics' Partners Program. As a member of this program, Company
personnel make marketing calls on Fortune 500 companies, together with sales
representatives of Sun, to provide complete technology solutions to mutual
customers. In March 1999, the Company entered into a Repair Services Agreement
with Sun Microsystems, Inc. under which the Company provides repair and testing
services on Sun circuit boards and related components, and maintains an
inventory for Sun of repaired boards and components. The Company then provides
streamlined distribution of these components and parts to Sun Enterprise Service
Division's stocking locations, field engineers or customers using an online
information management system that connects the two companies. Almost all of the
Company's products and services are based on the Sun platform. If for any reason
Sun or its products began to experience significant difficulties in the market
place or in operations or otherwise it could materially and adversely affect the
Company.
DEVELOPMENT OF THE BUSINESS
The Company was incorporated as an Ohio corporation on March 9, 1989. Initially,
the Company focused on providing electronic repair services to universities,
which primarily had installed networks of Sun Microsystems workstations.
Gradually, the Company expanded its services to other users of Sun Microsystems
workstations who were self-maintaining such equipment. In 1992, the Company
began providing engineering and manufacturing services for CPU board designs for
OEMs. In 1994, the Company began engineering and manufacturing computer systems
patterned after Sun Microsystems workstations. In 1995, the Company focused its
product sales efforts on custom-designed circuit boards. Also in 1995, the
Company re-focused its repair marketing efforts from sales to universities and
end users to sales to Third Party Maintainers (TPM's), and Fortune 500
self-maintainers. In 1996, the Company began providing depot repair services to
OEMs. In 1997, the Company began designing and manufacturing custom integrated
computer systems for OEMs and found significant interest for these products in
the growing telecommunications market.
In early 1997, the Company entered into a joint venture as a minority partner of
LogistixPDSi Services in Northern California to provide repair services to the
OEM marketplace. In connection with this venture, the Company established a
repair depot facility within the headquarters of the majority partner in
Fremont, California. The Company also provided services outside of the joint
venture to TPM's from this facility. While the incremental services performed by
the Company for its own TPM customers at that facility was profitable, the level
of business generated by the joint venture entity from OEM customers failed to
meet the Company's expectations. The joint venture entity was not successful and
losses accumulated during 1997.
In November 1997, the company was offered an opportunity to establish a
dedicated depot for Sun Microsystems in California. The Company terminated its
participation in the joint venture, hired the joint venture employees and
established a facility within the distribution center of the Company's customer,
Sun Microsystems. In late 1998, in anticipation of accepting a larger role in
Sun's service business model, the Company closed the California facility and
consolidated its operations in Columbus, Ohio.
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In early 1999 the Company entered into a 10-year lease for 56,000 spare feet of
space for its operations in a building in a free-trade zone in Groveport Ohio, a
suburb of Columbus. The Company sold the building in which it previously housed
operations.
BACKGROUND OF INDUSTRY
Original equipment manufacturers in the telecommunications, medical systems,
process control and government markets embed advanced technology systems in
their products to enhance functionality and performance. OEMs select a platform
for their products based on the performance and availability required by the
application. OEMs who choose Sun Microsystem's SPARC platform make this decision
based on the speed of Sun Microsystems processor technology and the stability of
the UNIX operating system. The reliability and speed of Sun processors combined
with the stability of Sun's Solaris operating systems provides excellent
performance and system availability.
To fully integrate these systems into their products, OEMs often have special
requirements that cannot be met by off-the-shelf products manufactured by Sun
Microsystems. Traditionally, these companies modified off-the-shelf components
to meet their specific needs, utilizing either in-house engineering resources or
outside engineering firms to create custom system configurations. In doing so,
these OEMs incurred significant non-recurring engineering (NRE) charges to cover
development costs. As the pace of technology has increased and competition has
intensified in these markets, OEMs are now less willing to incur the time and
expense required to develop custom systems. Instead, they are looking for
sources, such as the Company, that can provide application-specific systems and
products with minimal engineering development time and expense. The Company
believes OEMs will continue to look for ways to reduce product development time
and cost without compromising their ability to customize technology to their
application.
At the same time, there is a growing base of OEM products built around
technology that is no longer being supported by the manufacturer. These OEMs are
faced with having to modify software and reconfigure their product to
incorporate new technology that does not enhance their systems' performance
simply because their existing technology is no longer being supported by the
manufacturer. As a result, OEMs are looking for ways to extend the life of their
current technology. Some of these OEM's contract with entities to provide end of
life management, that may include manufacturing and/or repair of the products
not supported or manufactured by the OEM.
In the repair business there has been a trend during the last several years
towards outsourcing in the electronics repair industry which the Company
believes will continue in the future. The Company believes that this is due to:
(1) the desire of OEMs to focus resources on their primary business, (2) the
accelerated pace of new product introductions which is necessary for OEMs to
keep pace with competition, (3) the need to reduce costs, which can be
accomplished by converting fixed costs of an internal service department into
variable costs by outsourcing the service, and (4) the difficulties inherent in
servicing a wide range of equipment produced by
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multiple vendors, as data centers have moved from using predominantly one
company's hardware to using equipment from multiple vendors in many locations.
PRODUCTS
The Company's products include complete systems, specially designed products,
including boards and attach cards, and software. The Company resells some
hardware and software manufactured by Sun Microsystems and other OEM's, as well
as products developed internally by the Company's engineers. Complete systems
bring together hardware and software from multiple sources into fully integrated
systems.
One type of product developed and manufactured by the Company is known as a
"High Availability" system. This includes redundant system components with
sophisticated failover software. This allows systems to continue to operate
despite failure of any component by the instantaneous transfer of system
functions to the redundant backup system. These products have been purchased by
companies primarily in the telecommunications industry that cannot afford a
system failure or even the time delay involved in rebooting a system.
The Company has also developed products that allow OEMs to more fully integrate
SPARC technology into their technology systems. These products include power
supplies, specially modified motherboards, transition cards, and I/O boards.
The Company engages in research and development in connection with designing new
products for customers. This work is done in response to requests from customers
with specific product requirements. Upon completion of design and testing of the
newly developed product, the Company typically receives orders for production of
that product from the customer. During 1998 and 1997 the Company incurred
$191,557 and $144,703 respectively, for research and development. These expenses
were not paid by the Company's customers but are typically recouped over time as
part of the cost of the developed products that are sold to customers.
SOFTWARE
The Company is a SunSoft Master Distributor and is authorized to provide its
customers with the right to use Solaris, Sun Microsystem's UNIX operating
system. The Company also resells failover software as part of its "High
Availability" systems.
SERVICES
The Company repairs products that have been developed, manufactured, marketed
and sold by other companies, and which generally have a well-established
installed base as well as products developed internally. The Company also
designs and manufactures customized modifications to products of other companies
for integration into existing systems. Due in part to the capital costs
necessary to maintain adequate inventory and equipment to service large OEMs and
TPMs, the
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Company has focused its services on products manufactured primarily by Sun
Microsystems, Inc. and has built an inventory of Sun Microsystems components and
parts.
DEPOT REPAIR SERVICES: The Company provides OEMs, TPMs and end users who
maintain their own equipment the opportunity to outsource repairs of their
proprietary products or products produced by third parties. The entity that is
actually providing the maintenance service in the field will place an order with
the Company for the repair of defective components or parts. The time of
completion of the repair will be scheduled, with higher charges being incurred
for shorter time frame repairs. The Company offers its customers a choice of
5-day and 15-day repair and return services. The Company also maintains an
extensive inventory of spare components and offers the ability to provide
replacement components or parts overnight from its existing inventory in
exchange for the defective component or part, which is then repaired and
included in inventory. For repairs not requiring overnight service, the entity
maintaining the equipment in the field sends the defective component or part to
the Company. The Company's electronic technicians then repair the component or
part, test it, and ship it back to the customer. Since inception, the Company
has specialized in the repair of hardware manufactured by Sun Microsystems, Inc.
These systems are typically high end-user workstations able to perform
multi-tasking functions.
SUN MICROSYSTEMS LOGISTICS MANAGEMENT SERVICES: In August 1999, the Company
entered into an agreement with Sun Microsystems, Inc. to provide to Sun's
Enterprise Services Division test and repair services, and inventory and
logistics management services. Under this program, called the Virtual Logistics
Network (VLN), the Company is partnering with Sun Microsystems to provide
streamlined distribution of Sun components and parts to Sun customers using an
online information management system that connects the two companies. The
Company also provides management and logistics services to other
vendors/partners of Sun that participate in the VLN.
SPARE PARTS SALES: Spare parts sales include sales of repaired parts, new parts,
and reclaimed parts. There is a demand in the computer industry for the
necessary parts and components to provide repair services. New components are
often difficult to obtain and costly to purchase. The Company is able to provide
a wide variety of parts at a significant discount compared to the cost of
comparable new parts. The Company's spare parts capabilities enhance the
efficiency of its other service offerings. The Company either supplies the spare
parts from its own inventory when it has a surplus of a particular part or
component, or it acquires the requested parts from brokers or other suppliers of
used equipment. The Company sometimes dismantles used equipment to obtain used
components. The Company maintains an inventory consisting primarily of Sun
Microsystems' spare parts and components.
CONTRACT MANUFACTURING AND ENGINEERING: In certain cases, an OEM will outsource
the design and manufacture of a product to the Company. The outsourcing of
manufacturing enables the OEM to transfer its internal manufacturing
responsibilities to the Company, thereby enabling the OEM to reduce
manufacturing costs and improve its return on assets. The Company's contract
manufacturing services primarily involve products which have high engineering,
technical and test content, and low to medium production requirements. The
Company will also merge technology from a standard workstation to a customer's
product with private labeling. In connection with these services, the Company
will obtain orders for custom engineering and manufacturing services
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from entities which are customers of Sun Microsystems. These customers are using
the Sun operating system software and want to continue to use the sun software
in workstations, data servers or other applications not manufactured and sold by
Sun. The Company will design and engineer modifications to the Sun component
boards to fit the desired customized use and will then build the custom designed
products for the customer. The end product is a component board or computer
system that does not resemble the original Sun Microsystems board or system, but
operates the Sun software and performs the same functions as the Sun board or
system. Each product is unique and custom designed to the customer's
specifications. Some of these products use commercially available parts
configured to produce the desired function. In other cases, the custom-built
product contains components or functions conceived and developed by Company
personnel.
END OF LIFE MANAGEMENT: End of Life Management services bring together the
Company's board design and manufacturing, parts stocking, and repair
capabilities to extend the life of technology that is no longer supported by the
manufacturer. The Company will enter into an end of life service contract with
its customers which may include depot repair of installed technology as well as
acquisition or manufacture of products that have been end-of-lifed by the
manufacturer.
EXTENDED WARRANTY SERVICES. In 1992, the Company began initial marketing efforts
to provide customers with extended warranty support services. Generally, the
Company will extend warranty of the OEM's product for a fixed fee. The Company
is willing to develop warranty programs specifically tailored to meet a
customer's needs with the goal of fulfilling as many of the customer's repair
needs as is required.
CONTRACTUAL RELATIONSHIPS WITH SUN MICROSYSTEMS, INC. AND ITS AFFILIATES
In May 1994, the Company entered into a microprocessor platform design license
agreement with Sun Microsystems Computer Corporation, acting through its SPARC
Technology Business Division, pursuant to which the Company has been licensed to
develop, manufacture and sell products based upon and using the Sun SPARC
microprocessor technology. The Company uses this license in the custom design of
products. The license enables the Company to use Sun technology and make
engineering or design changes to meet customers' specific needs. A license fee
in the amount of $35,000 was paid in full upon execution of the license. This
license agreement is for a term of 7 years expiring in 2001, subject to
automatic renewal for one-year periods unless either party gives notice of
non-renewal. The license can be terminated earlier upon default.
In October 1997, the Company entered into a Development and Manufacturing
License Agreement with Sun Microelectronics, a division of Sun Microsystems,
Inc. pursuant to which the Company has been licensed to develop, manufacture and
sell products based upon and using the Sun PCI card and Open Boot PROM
technology. The Company uses this license in the custom design of products. The
license enables the Company to use the Sun technology and make engineering or
design changes to meet customers' specific needs. This license agreement expires
in 2000, subject to automatic renewal for one-year periods unless either party
gives notice of non-renewal. The license can be terminated earlier upon default.
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In January 1999, the Company entered into a technology license and distribution
agreement with Sun Microsystems, Inc., that authorizes the Company to duplicate
and distribute the Sun operating system environment and certain other software
used in connection with Sun workstation equipment. This enables the Company to
transfer the Sun software to its customers in connection with products designed
by the Company. This license agreement expires in 2002, subject to automatic
renewal for two successive one-year terms unless either party gives notice of
non-renewal. The license can be terminated earlier upon default. The software
license agreement provides the Company with a discount off of royalty amounts
listed in Sun's price list based upon the Company's annual activity level in
aggregate gross dollars. These discounts are based on an annual net activity
level of $299,000. Sun has the right under the license agreement to change its
price list, discount schedule and/or royalties at any time upon 30 days notice.
The design licenses and the software license remain important in the Company's
business. If any of these agreements is terminated it would significantly impede
the Company's ability to perform its design and manufacturing services.
In August 1999, the Company entered into an agreement with Sun Microsystems,
Inc. to provide to Sun's Enterprise Services Division test and repair services,
and inventory and logistics management services. The agreement has a one-year
term and renews automatically for additional one-year terms. See "Services - Sun
Microsystems Logistics Management Services".
SALES AND MARKETING
The Company focuses its marketing efforts on large OEMs and on TPMs. Since
marketing is primarily to large OEMs or TPMs, the Company does not maintain a
large field sales organization. The Company currently uses four independent
manufacturers representative firms to generate sales opportunities. The Company
employs three in-house sales representatives, who are focused on targeted
accounts. During 1998, the Company had revenue from three customers that
represented approximately 59% of sales. The Company's largest customer, Computer
Network Technologies, Inc., accounted for approximately 22% of the Company's
sales. In 1997, the Company's three largest customers represented approximately
49% of sales. In 1997, the Company was accepted into the Sun Microelectronics'
Partners Program. As a member of this program, Company personnel make marketing
calls on Fortune 500 companies, together with sales representatives of Sun, to
provide complete technology solutions to mutual customers.
COMPETITION
Competition for the specially designed products of the Company come from two
primary sources: (1) other companies that provide similar products, and (2)
products that are competitive with Sun Microsystem's products.
A number of companies are now targeting the telecommunications industry, due to
the continued growth in this market that is expected in the future. Many of
these companies are more established than the Company and have substantially
greater financial and other resources than the
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Company. The Company believes it can differentiate itself from the competition
through the strength of its close relationship with Sun Microsystems, its
ability to offer a complete turnkey product/service solution, its unique product
set, and its focus on providing off-the-shelf solutions wherever possible.
Primary competition for the Company's products also comes indirectly from
increased performance and acceptance of the "Wintel" platform. OEMs who are
choosing a platform for their products increasingly narrow their choice down to
SPARC-based systems sold by Sun Microsystem and systems using Intel processors
with Windows NT. If the Wintel platform were to gain acceptance in the
telecommunications industry it would erode the Company's potential market as the
Company does not provide products or services to support this platform.
Primary competitive factors in the repair industry are price, scope and quality
of a company's repair services and know-how. The Company competes with the
in-house repair centers of OEMs and TPMs for end-of-life programs and for repair
services. While the Company believes it offers a cost-effective repair solution
to OEMs and TPMs and, therefore, believes these entities are the Company's
primary potential customers, there is no assurance that these entities will
choose to outsource their repair needs and will not become competitors of the
Company. These entities could also choose to compete directly with the Company
for the services of unrelated OEMs and TPMs and for end-users. In addition to
competing with OEMs and TPMs, the Company also competes with a number of
independent organizations similar to the Company.
In the contract manufacturing area, the Company competes against numerous
entities that focus specifically on turnkey contract manufacturing. Many of the
OEMs, TPMs and contract manufacturers with which the Company competes have
significantly greater manufacturing, financial, technical and marketing
resources than the Company. Similarly, some of the independent depot repair
businesses may generate significantly more revenues than the Company and may
have greater manufacturing, financial, technical and marketing resources than
the Company.
EMPLOYEES
As of November 17, 1999, the Company had a total of 72 employees, 66 of whom
were full-time. None of its employees are subject to collective bargaining
agreements, and the Company considers its relationship with its employees to be
good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and Notes contained herein.
The following sections contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties, and the cautionary statements set
forth below identify important factors that could
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cause actual results over the next few quarters to differ materially from those
predicted in any such forward-looking statements. Such factors include, but are
not limited to, adverse changes in general economic conditions, including
adverse changes in the specific markets for the Company's products and services,
adverse business conditions, decreased or lack of growth in the computing
industry, adverse changes in customer order patterns, including any decline or
change in product orders from any of the three customers that make up
approximately 59% of the Company's revenue, increased competition, any adverse
change in Sun Microsystems' business or the Company's relationship with Sun,
around whose operating systems the Company's business is based, lack of
acceptance of new products, pricing pressures, lack of adequate financing to
take advantage of business opportunities that may arise, lack of success in
technological advancements, risks associated with the Company's efforts to
comply with Year 2000 requirements, risks associated with the Company's new
business practices, processes and information systems, and other factors.
RESULTS OF OPERATIONS
The interim financial information contained herein is unaudited. The financial
statements included in this report reflect all adjustments (consisting of normal
recurring accruals) that the Company considers necessary for a fair presentation
of the results of operations for the interim periods covered and of the
financial condition of the Company at the date of the interim balance sheet. The
results for the interim periods are not necessarily indicative of the results
for the entire year.
In 1999 the Company adopted a new fiscal calendar in which each fiscal quarter
consists of four-week periods for the first two fiscal months of the quarter and
a five-week period for the third fiscal month of the quarter. The Company
previously reported on straight calendar quarters.
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1999 (UNAUDITED) COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1998 (UNAUDITED)
SALES
Sales were $7,962,540 for the thirty-nine weeks ended October 1, 1999, an
increase of 26% over sales for the first nine months of 1998.
Product sales were $5,681,529 for the first thirty-nine weeks of 1999, an
increase of 34% over the first nine months of 1998. The 34% increase in product
sales was fully attributable to new customers obtained since September 1998.
Service sales for the first thirty-nine weeks of 1999 were $2,205,310, which was
12% higher than the first nine months in 1998. The increase in service sales
resulted primarily from higher volumes of repairs from the Company's largest OEM
customer. The Company provides repairs and logistics management services for a
specific list of electronic computer circuit boards and other computer
components for one large and several smaller OEM customers. The volumes of those
listed components grew in 1999, more components were added to the list, and the
Company provided services for additional customers. The Company expects sales
volumes to continue to
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grow from each of those three sources. The Company experienced a non-recurring
decline in OEM service revenue early in 1999 as the Company's largest customer
undertook a transition to a new vendor model. The Company believes that the new
model will result in sales growth from the customer in the future.
The relative levels of growth of product and service sales continued a
multi-year trend of an evolution in the mix of the two types of sales. Product
sales, as a percentage of total sales have grown from 56% in 1996, to 65% in
1997, to 68% in 1998, to 71% through the first thirty-nine weeks of 1999.
Service sales, as a percentage of total sales, have gone from 41 %, to 32%, to
30%, to 28% over the same period.
GROSS PROFIT
Total gross margin was 26% for the first thirty-nine weeks of 1999, up from 19%
for the first nine months of 1998.
The gross margin on product sales was 21% for the first thirty-nine weeks of
1999, compared to 18% for the first nine months of 1998. The improvement is
primarily attributable to declines in component costs.
The gross margin on service sales increased to 43% in for the first thirty-nine
weeks of 1999, from 22% for the first nine months of 1998. The predominant
factor in the difference in margins on service sales resulted from an inventory
writedown of $300,000 the Company took in the 3rd quarter of 1998. Without the
writedown, the gross margin on service sales through the first nine months of
1998 would have been 38%. A major factor in the gross margin improving to 43% in
the first thirty-nine weeks of 1999 was a significant reduction in labor and
overhead costs, resulting from the Company's decision to close its depot repair
facility in California. That facility was opened at the request of the Company's
largest service customer in the first quarter of 1998. When that customer
elected in late 1998 to implement its new vendor model that did not require a
West Coast depot, the Company closed the California facility, thereby reducing
labor and overhead costs.
OPERATING EXPENSES
Operating expenses totaled $1,733,057 for the first thirty-nine weeks of 1999,
compared with $1,305,805 for the first nine months of 1998. The 33% increase
from 1998 to 1999 exceeded the rate of growth of sales. The increase came
primarily from higher wages from an expanded professional technical staff,
higher depreciation resulting from fixed asset purchases, facility costs
resulting from the Company's relocation to a larger facility, and higher
professional fees, which included one-time recruiting fees relating to
professional technical staff hiring. As a percentage of sales, operating
expenses increased from 21% in 1998 to 22% in 1999.
Income from operations improved to $346,149 (4% of sales) for the first
thirty-nine weeks of 1999, from a loss of $76,303 for the first nine months of
1998.
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OTHER INCOME AND EXPENSE
In May 1999, the Company sold its building in which it conducted operations, and
relocated to a larger facility, which it leases. The sale of the building
resulted in a gain before taxes of $85,922.
In anticipation of higher sales volumes, the Company entered into a new
financing package with Star (now Firstar) Bank in the first fiscal quarter of
1998. The package included an installment loan of $300,000 and a revolving line
of credit. The two new loans were used to liquidate loans the Company had with
its previous bank, which included a mortgage loan on the Company's building.
After making the initial draw against the line of credit to liquidate the
mortgage loan, the Company made modest drawings against its line of credit for
the remainder of the first nine months of 1998. In July 1998, the Company
obtained another mortgage loan on its building. The Company used the proceeds of
the mortgage loan to pay down the line of credit balance, but then continued to
make draws against the line to support working capital through the last nine
months of 1998 and the first thirty-nine weeks of 1999. At October 1, 1999 the
balance of the line of credit was $1,170,000. Primarily as a result of the
Company's increased use of its line of credit, interest expense in the first
thirty-nine weeks of 1999 grew 14% from the first nine months of 1998.
INCOME TAXES AND NET INCOME
The improved income from operations, combined with the one-time gain on the sale
of the Company's building, resulted in income before income taxes of $363,596
for the first thirty-nine weeks of 1999, compared to a loss of $137,132 for the
first nine months of 1998. The Company accrued income tax expense at the same
rate in 1999 as it had in 1998. Net income was $214,697 for the first
thirty-nine weeks of 1999, compared to a loss of $80,609 for the first nine
months of 1998.
The Company's basic earnings per share improved from a $0.07 loss for the first
nine months of 1998, to $0.18 for the first thirty-nine weeks of 1999. Fully
diluted earnings per share improved from a $0.07 loss for the first nine months
of 1998, to $0.14 for the first thirty-nine weeks of 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES
Sales of the Company in 1998 increased 38% over 1997, from $6,551,490 in 1997 to
$9,032,332 in 1998. During 1998, the Company achieved a 43% increase in product
sales and a 28% increase in service sales.
The 43% increase in product sales resulted from two primary factors: (1)
obtaining new significant orders from existing customers during the year, and
(2) producing products during the year which were in the design stage at year
end 1997.
-11-
<PAGE> 15
The 28% increase in service sales resulted from management's decision to focus
on increasing sales to OEM's. Sales to this target market increased 234% during
the year. By contrast, repair sales to TPM's and to self-maintainers declined by
45% from the previous year, as management de-emphasized sales to this market
segment.
GROSS PROFIT
Management's decision to direct its marketing efforts toward the OEM marketplace
and away from the TPM marketplace was intended to improve the Company's
long-term prospects for growth and profitability. Management believes the OEM
segment holds greater opportunities for growth than the TPM segment, and also
believes that OEM sales will be more profitable with greater labor efficiencies
and greater returns on investments in inventory and capital equipment.
The transition from a TPM focus to an OEM focus in 1998 had a short-term
negative impact on the Company's financial results. For several years the
Company maintained an inventory of spare parts exclusively for the purpose of
supporting TPM sales. Due to the Company's sharp decline in revenue from the TPM
market segment from 1997 levels, the Company elected to record a writedown of
the value of that segment of its inventory of $300,000 during the third fiscal
quarter of 1998. The writedown was recorded as a charge to cost of goods sold.
The writedown resulted in an operating loss of $126,240 in the third quarter.
For the total of the other three fiscal quarters of 1998 the Company posted
operating income of $127,211.
While some of the inventory items that were written down were sold in the
ordinary course of business during the fourth quarter of 1998, others were
scrapped or sold at reduced prices as part of a specific effort to liquidate
this inventory.
Largely as a result of this inventory writedown, cost of goods sold increased
substantially during 1998, and gross margin was thereby reduced, dropping to 20%
from 27% in 1997. The gross margin on product sales decreased from 23% to 18%.
In addition to providing custom-designed circuit boards, in 1998 the Company
began providing entire custom-designed computer systems, which had lower margins
than the circuit board products. The gross margin on service sales declined from
39% to 29%, due in part to the inventory writedown, and due in part to having
two depot repair facilities open throughout most of 1998. The second repair
facility, located in Northern California, was closed by the Company in late
1998.
Therefore, despite a 38% increase in sales during 1998, the Company's gross
profit increased by only 5.4%. Another factor contributing to the Company's
reduced gross profit margin in 1998 was the fact that product sales grew in 1998
at a higher rate than repair sales. Product sales typically have lower gross
profit margins than repair sales.
OPERATING EXPENSES
During 1998, while the gross profit of the Company remained relatively constant
in total dollars, operating expenses of the Company increased by 33% over 1997
levels, primarily as a result of increased wage and benefit expenses associated
with an expanded work force. However, because
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<PAGE> 16
operating expenses increased by less than the rate of increase of sales during
1998, operating expenses as a percentage of each sales dollar declined from 20%
in 1997 to 19% in 1998.
Because operating expenses increased by more than the relatively modest increase
in gross profit, the Company's income from operations dropped by $338,147, or
79%, from 1997. Income from operations declined from $427,670, or 7% of sales,
in 1997, to $89,523 in 1998, which was 1% of sales.
OTHER INCOME AND EXPENSE
The Company made minimal drawings against its line of credit in 1997, and at
year-end 1997 the balance on the Company's line of credit was zero. During 1998,
the line of credit was used often and extensively by the Company to support the
higher receivables resulting from higher sales volumes and to fund fixed asset
acquisitions. At year-end 1998, the outstanding balance stood at $150,000.
Primarily as a result of the Company's increased use of its line of credit, net
interest expense in 1998 grew by 21% over 1997 levels, from $68,853 in 1997 to
$83,552 in 1998.
The increased interest expense, combined with the Company's reduced income from
operations, resulted in lower income before income taxes during 1998 of $5,971,
compared to $280,869 in 1997.
INCOME TAXES AND NET INCOME
Because its income before income taxes was lower, the Company's income tax
expense was only $5,000 in 1998, compared to $114,000 in 1997.
The Company's net income was $971 in 1998, or 8/100ths of one cent per share,
both basic and diluted, while the 1997 net income was $166,869, or 14 cents per
share, both basic and diluted.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
SALES
Sales of the Company in 1997 were $6,551,490, up from $4,661,261 in 1996.
Product sales increased 64% and service sales increased 11%. Product sales made
up 65% of total sales in 1997, compared to 56% in 1996.
The 64% increase in product sales resulted from two primary factors: (1) winning
new significant product orders from existing customers during the year, and (2)
producing products during the year which were in the design stage at year end
1996.
Most of the service sales growth resulted from marketing efforts directed toward
OEM's.
-13-
<PAGE> 17
GROSS PROFIT
The gross margin on product sales in 1997 was 21%, compared to 26% in 1996. The
product sales margin decreased primarily because new projects were priced more
competitively than older projects. The service sales gross margin declined from
41% to 39%. Because product sales grew in 1997 at a much higher rate than repair
sales, the gross margin of the Company declined to 27% in 1997, compared to 32%
in 1996. However, due to higher sales volume, the gross profit of the Company
(in dollars) grew by 16% in 1997.
OPERATING EXPENSES
Operating expenses of the Company in 1997 were $1,318,106, compared to
$1,401,820 in 1996, a 6% decrease. As a percentage of sales, such expenses were
20% in 1997, compared to 30% in 1996. The decline of operating expenses in 1997
as a percentage of sales was primarily the result of economies of scale and a
restructuring of certain employee compensation arrangements.
In 1997 income from operations increased 319% over 1996. As a percentage of
sales, income from operations was 7% in 1997, compared to 2% in 1996.
OTHER INCOME AND EXPENSE
Net interest expense in 1997 grew by 19% over 1996 levels ($68,853 in 1997 vs.
$57,664 in 1996). The increase was primarily the result of a capital equipment
lease that originated in the fourth quarter of 1996.
Income before income taxes increased to $280,869, or 4% of sales in 1997,
compared to $62,127, or approximately 1% of sales in 1996.
INCOME TAXES AND NET INCOME
The Company incurred significantly higher income tax expense in 1997 than it did
in 1996 ($114,000 in 1997 vs. $12,000 in 1996). Most of the increase was
attributable to higher tax rates on higher income levels.
The Company's income before income taxes was reduced by a loss of approximately
$78,000 from its participation in a joint venture with Software Logistix
Corporation. The Company had approximately a 40% ownership position and reported
results under the equity method of accounting. The Company terminated its
participation in the joint venture as of December 31, 1997.
The Company's 1997 net income was $166,869, compared to $50,127 in 1996. Both
basic and fully diluted earnings per share were $0.14 in 1997. Both per share
calculations were $0.05 in 1996.
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<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
During the first thirty-nine weeks of 1999, the Company consumed $816,689 of
cash in its operating activities. In the first nine months of 1998, the Company
used only $463,774 of cash in its operating activities. The foremost use of cash
in 1999 was inventory, which increased by $1,157,857 from the beginning of 1999.
Much of the increase in inventory was attributable to current and anticipated
future sales growth. Another minor factor in the increase in inventory was an
increased number of requests from product customers for delivery of
prototype/evaluation systems. Another factor was the request of some product
customers that the Company hold in stock a quantity of their specific-designed
systems on hand for immediate delivery. In these cases, the customer is
committed to purchase these products within a specified period of time under a
volume purchase agreement. The Company also made some one-time component
purchases, in some cases to take advantage of price discounts, and in other
cases to secure the availability of components that were no longer going to be
manufactured. The Company expects to maintain a substantial investment in
inventory for the foreseeable future in order to support its expected growth in
product sales.
Other asset categories that increased, thereby using cash, were accounts
receivable and prepaid expenses, which increased by $599,772 and $149,656,
respectively. These uses of cash were partially offset by increases in accounts
payable of $521,561, in accrued liabilities and taxes of $177,224, and in
unearned revenues of $26,763.
For the entire year of 1998 the Company consumed $50,684 of cash in its
operating activities. The Company used $30,711 and $391,970 in its operating
activities in 1997 and 1996, respectively. The largest use of cash among
operating activities over the three-year period was an increase in inventory,
which increased by more than $650,000 in both 1996 and 1997. In 1996, the growth
in inventory was fueled primarily by the growth of the TPM repair business, in
which the Company would maintain a stock of replacement computer components in
order to provide an overnight exchange of parts for customers. In 1997, the
inventory growth was driven primarily by the increase in product sales. In 1998,
as a result of the inventory writedown and of efforts by the Company to
liquidate older inventory components, the Company's investment in inventory
declined by approximately $150,000.
The Company's accounts receivable increased in each year from 1996 to 1998. In
1996, the increase was only $55,202, but in both 1997 and 1998, the increase was
greater than $400,000. The rate of increase in accounts receivable from December
31, 1996 to December 31, 1997 was 69%, which was greater than the 40% increase
in annual sales, but far less than the 156% increase in sales from the month of
December 1996 to the month of December 1997. Likewise, accounts receivable
increased 46% from December 31, 1997 to December 31, 1998, which was more than
the 38% increase in annual sales, but was less than the 57% increase in sales
from the month of December 1997 to the month of December 1998.
The Company's investing activities in the first thirty-nine weeks of 1999
consumed $205,088 in cash. Purchases of furniture and computer equipment
consumed $338,640 of cash, but were offset by the Company's sale of its land and
building, which generated $133,552. In the first nine months of 1998 the
Company's investing activities consumed cash of $150,157.
-15-
<PAGE> 19
The Company's investing activities throughout 1997 and 1998 consisted entirely
of purchases of furniture and computer equipment. Total expenditures of capital
assets, all of which were made with cash, were $153,779 in 1997 and $168,664 in
1998.
In April 1996, the Company completed a public offering of 250,000 of its common
shares at $5.00 per share, resulting in gross proceeds of $1,250,000. Five
months earlier (November 1995), the Company sold 100,000 units consisting of 1
share and 1 warrant in a private offering at $2.50 per unit. The warrants, which
were exercised in May 1996 following the public offering, had a striking price
of $2.50 per share. The net proceeds of the three sales of common shares (net of
related expenses) were $1,523,393. The Company also received proceeds of
approximately $77,000 from the exercise of employee incentive stock options.
These proceeds funded the Company's operating activities throughout 1996 and
1997, which consumed approximately $420,000 over the two-year period. The
proceeds also funded approximately $288,000 of capital equipment purchases over
the same period. They were also used to liquidate a note payable to a vendor of
approximately $253,000 and to reduce short-term bank debt of $45,000 and
long-term bank debt of approximately $240,000. As of the end of 1997, these
proceeds were essentially depleted.
Through the last half of 1997, in anticipation of the depletion of the stock
sale proceeds, and in anticipation of higher sales volumes, the Company sought a
new financing package, and in early 1998 completed an agreement with Star (now
Firstar) Bank. The initial package with Star included a revolving line of credit
and a $300,000 term loan requiring 60 monthly payments of $5,000 plus variable
interest. Both instruments had an interest rate of prime. The combined package
had a limit of the lower of $1,500,000, or a percentage of the Company's
eligible accounts receivables. The loan agreements require the Company to meet
certain financial targets and to comply with certain other covenants, including
restrictions on paying dividends, incurring additional indebtedness and liens,
guarantees of other obligations, and reorganizations. The Company's obligations
under these loan agreements are secured by substantially all of the Company's
assets.
The initial draw on the line of credit was approximately $241,000. Combined with
the $300,000 term loan, the proceeds were used to retire a term loan and a
mortgage loan at Huntington Bank. The payoff of those loans were approximately
$180,000 and $361,000, respectively.
In July 1998, the Company obtained a mortgage loan from Firstar Bank on the
Company's building in the amount of $412,500. The mortgage loan had a 5-year
maturity and was amortized on a 15-year basis. The building was sold in May
1999, and the mortgage loan was retired by the proceeds of the sale.
During 1998, the line of credit was used often and extensively by the Company to
support the higher receivables resulting from higher sales volumes and to fund
fixed asset acquisitions. At year-end 1998, the outstanding balance stood at
$150,000. For the year 1998, net of regularly scheduled principal payments, the
Company's bank debt increased by approximately $238,000 to fund operating
activities and capital equipment purchases.
-16-
<PAGE> 20
For the first thirty-nine weeks of 1999 principal payments on the Company's
long-term debt and capital lease totaled $65,974. Those payments were partially
offset by proceeds of $43,500 from the exercise of employee incentive stock
options. However, The Company's principle means of funding its operations in the
first six months of 1999 were draws on its bank line of credit, which totaled
$1,020,000. At October 1, 1999, the balance was $1,170,000.
These draws consumed most of the Company's borrowing capacity under the formulas
of its initial financing package with Firstar. Consequently, in September 1999,
the Company renegotiated its financing agreement with Firstar to increase the
maximum amount available on a revolving basis through September 2000 to
$2,000,000, and to include the Company's inventory as part of the borrowing base
calculation, in addition to its accounts receivable, thereby significantly
increasing the Company's borrowing capacity. This amount and the $300,000 term
loan are secured by a security interest in substantially all of the Company's
assets and by the collateral assignment of $1,000,000 of coverage of a
$2,000,000 life insurance policy on the life of John Bair.
The Company believes this new agreement will meet its immediate financing needs.
However, the Company's management believes that it would need to raise
additional debt and/or equity capital in order to fund larger sales
opportunities that may arise. The Company is currently investigating several
alternatives.
YEAR 2000 IMPACT ON COMPUTER RESOURCES
A potential problem exists for all companies that rely on computers as the year
2000 approaches. The "Year 2000" problem is the result of the past practice in
the computer industry of using two digits rather than four to identify the
applicable year. This practice could result in incorrect results when the
Company's computers or those of the third parties with which it deals perform
arithmetic operations, comparisons or data field sorting involving years later
than 1999.
The Company believes that all of its product offerings are Year 2000 compliant,
in that its products will not produce errors in the processing of date data
related to the year change from December 31, 1999 to January 1, 2000. The
Company believes its products are Year 2000 compliant in large part because its
products incorporate hardware and software products and technology that are
produced by Sun Microsystems, Inc., and that have been warranted by Sun to be
Year 2000 compliant. However, if the Company's products are embedded into or
otherwise combined with other hardware or software products that are not Year
2000 compliant, the Company's products may fail to function properly.
The Company cannot be sure that its products or Sun's products do not contain
undetected errors or defects associated with Year 2000-related operations that
may result in material costs to the Company. Nor can the Company be sure that
its products will not be combined with other products that contain undetected
errors or defects. The Company's operations and financial condition could be
adversely affected if its customers become dissatisfied with its products and
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<PAGE> 21
services as a result of Year 2000 issues, or if customers are unable to pay the
Company for services rendered or products sold because of their own year 2000
issues.
The Company has assessed the Year 2000 readiness of those third parties that
could have a material impact on the Company's operations. The Company has sent
Year 2000 questionnaires to these third parties with the intent to evaluate the
steps these parties have taken to assess their preparedness for the Year 2000.
The Company is in the process of evaluating these questionnaires. The areas in
which the Company is most dependent on third parties is in the supply of
electronic components and accounts receivable. Most of the Company's purchases
and most of its sales are from and to large companies who have already made
assurances of Year 2000 compliance. Nonetheless, the Company is continuing to
evaluate the readiness of these organizations. The Company's operations and
financial condition could be adversely affected if any of its suppliers cannot
timely provide products or services which are critical to the Company.
The Company has partially assessed the potential operational and financial
effects that it may encounter with respect to its internal information systems
as a result of the "Year 2000" issue, and believes that these will be material.
The Company has replaced its management information/accounting system with a
Year 2000-compliant system at a cost of approximately $30,000 in the past year.
The Company has completed all phases except for the installation of a business
management system, which has been purchased. The Company's operations and
financial condition could likewise be adversely affected if any of its internal
systems fail to achieve Year 2000 compliance.
The Company will utilize both internal and external resources to reprogram or
replace and test all of its software. The Company expects to incur costs up to
$40,000 to replace its existing business management system.
Such costs are being financed through a lease with the Company's bank.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases approximately 56,000 square feet of office, warehouse,
laboratory and production space in a building located at 6600 Port Road,
Groveport, Ohio. The Company entered into a ten-year lease commencing May 1,
1999. The Company has the option to extend the term of the lease for an
additional five years. The building is in good condition. The Company believes
that this space is adequate for the foreseeable future and that additional space
could be obtained within its existing building if additional space became
necessary. See Item 2, Management Discussion and Analysis.
In May 1999, the Company sold a 19,200 square foot building in which it formerly
conducted its operations. The sale resulted in a gain of $85,922 to the Company.
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<PAGE> 22
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 22, 1999, with
respect to the Shares held of record by (a) the Company's chief executive
officer and the three persons serving as its other executive officers during
1998, (b) each of the directors of the Company, (c) all executive officers and
directors as a group, and (d) each shareholder known to the Company to own more
than 5% of the Company's common shares, including Shares subject to outstanding
Options or Warrants that can be exercised within a 60 day period:
NAME AND NUMBER OF PERCENT
ADDRESS OF OWNER SHARES OWNED (1) (2) (3) OF CLASS
---------------- ------------------------ --------
John D. Bair 359,431 24.2 %
6600 Port Road
Groveport, OH 43125
C. Robert Hahn 31,831 2.1 %
6600 Port Road
Groveport, OH 43125
Thomas J. Carr 38,031 2.6 %
6600 Port Road
Groveport, OH 43125
James A. Olding 0 0 %
5625 Pleasant Hill Drive
Hilliard, Ohio 43026
Thomas M. O'Leary 15,500 1.0 %
868 Paisley Place
Worthington, OH 43085
Robert V.R. Ostrander 14,500 1.0 %
1585 Bethel Road
Columbus, OH 43220
Executive officers and directors 453,631 30.6 %
as a group (_6_ persons)
-
The following table sets forth certain information as of November 22, 1999, with
respect to the Shares held of record by any other shareholder known to the
Company to own more than 5% of the Company's common shares, including Shares
subject to outstanding Options or Warrants:
David J. Richards 111,320 7.5 %
765 North Hamilton Rd.
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<PAGE> 23
Columbus, Ohio 43230
- ----------------------------------------------------------
(1) The persons listed in the foregoing two tables have the sole right to vote
and to dispose of the common shares of the Company listed in that person's
name.
(2) As trustees of the Pinnacle Data Systems, Inc. 401(K) Profit Sharing Plan,
Messrs. Bair, Hahn and Carr have the power to vote the Pinnacle shares held
in the plan. Each of these individuals is shown as beneficially owning the
2,831 shares in the Plan due to their shared voting power. However, they
have no investment power with respect to such shares.
(3) The shares set forth in the foregoing two tables include the following
numbers of Shares which may be acquired by the following persons upon the
exercise of stock options, which are exercisable within the next 60 days:
John D. Bair 35,000 2.4 %
C. Robert Hahn 29,000 1.9 %
Thomas J. Carr 34,000 2.3 %
Thomas M. O'Leary 15,000 1.0 %
Robert V.R. Ostrander 14,500 1.0 %
David J. Richards 37,000 2.5 %
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and key personnel of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR
---- --- -------- SINCE
-----
<S> <C> <C> <C>
John D. Bair 33 Chairman, President, Chief 1989
Executive Officer and Director
C. Robert Hahn 47 Chief Operating Officer, Vice 1995
President and Director
Thomas J. Carr 45 Treasurer, Chief Financial Officer 1996
and Director
John C. Kniley 51 Vice President of Sales and
Marketing
Michael L. Antill 38 Vice President of Engineering
Joy Bair 29 Secretary
</TABLE>
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<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Thomas M. O'Leary 55 Director 1996
Robert V.R. Ostrander 53 Director 1997
</TABLE>
John D. Bair, one of the founders of the Company, currently serves as Chief
Executive Officer and President of the Company. He has served as a director
since inception, as the Chairman of the Board and Chief Executive Officer since
May 1996, and as President since 1998. He served as Secretary from inception
until October 1998. Mr. Bair holds a Bachelor of Science Degree in Computer and
Information Science from the College of Engineering from the Ohio State
University.
C. Robert Hahn is an executive officer and has served as Chief Operating Officer
and Vice President of the Company since June 1998. He served as President of the
Company from June 1996 to June 1998, and as Vice President of Sales and
Marketing from October 1994 to June 1996. He has served as a director since
December 1995. Mr. Hahn previously worked for six years as general manager of
Cranel, Inc., a distributor of computer peripheral products. Mr. Hahn holds a
Bachelor Degree in Business Administration and a Master of Business
Administration degree, both from Ohio University, and has been certified as a
Certified Production and Inventory Manager by the American Production and
Inventory Control Society.
Thomas J. Carr is an executive officer and has served as Treasurer and Chief
Financial Officer and as a director of the Company since May 1996. He joined the
Company as Controller in September 1995. Previously, Mr. Carr was President for
three years of Celtic Resources, a business consulting firm. Mr. Carr taught
general computer courses at Columbus State Community College for two years. He
served as Controller and Director of Financial Planning for six years at
CompuServe Incorporated of Columbus, Ohio. Mr. Carr holds a Bachelor Degree in
Accounting and a Master of Business Administration degree, both from The Ohio
State University.
John C. "Skip" Kniley is an executive officer and has served as Vice President
of Sales and Marketing since March 1999. Mr. Kniley has 27 years of experience
in various sales and marketing positions, the most recent five years with the
Bucci-Augustyn group of companies, a medical technology firm, as Director of
Sales and Marketing. Mr. Kniley holds a Bachelor of Science in Marketing from
the University of Connecticut.
Michael L. Antill is an executive officer and has served as Vice President of
Engineering since August 1999. Mr. Antill has 17 years experience in various
engineering and engineering management positions, including the last 11 years as
Manager of Electronic Systems at Chiron Diagnostics Corp., a medical technology
company. Mr. Antill holds a Bachelor of Electrical Engineering Technology from
The Ohio Institute of Technology and a Masters of Electrical Engineering degree
from Cleveland State University.
Joy S. Bair has served as Secretary of the Company since October 1998. From
October 1997 until October 1998 she served as Assistant Secretary. Ms. Bair was
previously employed with the Company from June 1990 until April 1993, serving in
several positions including Accounting
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<PAGE> 25
Manager. Ms. Bair holds a Bachelor of Science Degree in Actuarial Science and a
Master of Education Degree in Mathematics, both from The Ohio State University.
Thomas M. O'Leary has served as a director of the Company since September 1996.
Mr. O'Leary retired from ATT/Lucent after 30 years of service in 1996. While
employed by ATT/Lucent, Mr. O'Leary acquired extensive experience in the areas
of management of manufacturing operations, engineering, product development,
project management, product repair and support and sales. He is currently on the
school board of the Worthington City School system and served as President in
1998. He is also a board member of Liberty Communications Services, Inc. in
Gahanna, Ohio. Mr. O'Leary now serves as a private consultant for a number of
local companies in areas related to his accumulated experience.
Robert V.R. Ostrander has served as a director of the Company since July 1997.
Mr. Ostrander is currently serving as Chairman of Manex Financial Management,
Inc. and President of Manex Risk Management, Inc., Manex Management Services,
Inc., Manex Advisors, Inc. and Omni Financial Securities, Inc., which positions
he has held for more than five years. He is a Certified Financial Planner, a
licensed securities principal, and is licensed to sell several forms of
insurance by the State of Ohio. He was the founding president of The Central
Ohio Chapter of Society for Certified Financial Planners. He is also the author
of Omni's Business Navigator, and has been involved in numerous business
start-ups.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended December 31, 1998,
1997 and 1996, the compensation of the Company's Chief Executive Officer and the
only other two executive officers whose compensation exceeded $100,000 during
1998. No other executive officer of the Company received salary and bonus
compensation in excess of $100,000 in the most recent completed fiscal year.
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<PAGE> 26
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
(**) SECURITIES (***)
UNDER- ALL
OTHER LYING OTHER
NAME AND FISCAL SALARY BONUS ANNUAL OPTIONS/ COMPEN-
POSITIONS YEAR ($) ($) COMPEN- SAR'S SATION
SATION ($)
($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John D. Bair 1998 135,520 7,370 35,000(*) 3,000
Chairman of the 1997 100,000 5,181 30,000 3,000
Board of Directors, 1996 90,385 0 0 2,683
President, and Chief
Executive Officer
- -------------------------------------------------------------------------------------------------------------------------
C. Robert Hahn 1998 125,481 7,370 24,000(*) 3,000
Chief Operating 1997 120,000 5,181 20,000 3,000
Officer,Vice 1996 95,769 0 13,267 0 6,397
President
- -------------------------------------------------------------------------------------------------------------------------
James A. Olding 1998 91,731 19,998 9,000(*) 3,000
Vice President (****) 1997 87,771 17,000 5,000 3,000
1996 16,149 0 193,393 0 9,000
</TABLE>
* In 1998, 30,000 of the options granted to Mr. Bair, 20,000 of the options
granted to Mr. Hahn, and 5,000 of the options granted to Mr. Olding were
replacement grants for options granted to them in 1997, which were re-priced to
reflect then-current market values.
** Amounts in this column reflect sales commissions earned during 1996.
*** Amounts in this column reflect matching contributions made by the Company
to its 401 (k) plan.
**** Mr. Olding left the Company at the end of 1998 and is no longer employed
by the Company.
- -------------------------------------------------------------------------------
The Company has entered into an employment agreement with John D. Bair, its
President and Chief Executive Officer. The agreement is for a term of three
years ending on September 1, 2000, and provides for an annual salary of $100,000
or such higher amount as shall be determined by the Board of Directors plus a
bonus of 3% of pre-tax net income, and provides for those benefits generally
available to other employees. If the Company terminates Mr. Bair's employment
without cause, he is entitled to a severance payment equal to one year's base
salary.
The Company has entered into an employment agreement with C. Robert Hahn, its
Vice President and Chief Operating Officer. The agreement is for a term of three
years ending on September 1, 2000, and provides for an annual salary of $120,000
or such higher amount as shall be determined by the Board of Directors plus a
bonus of 3% of pre-tax net income, and provides for those benefits generally
available to other employees. If the Company terminates Mr. Hahn's employment
without cause, he is entitled to a severance payment equal to one year's base
salary.
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<PAGE> 27
OPTION GRANTS IN LAST FISCAL YEAR
The following table indicates information about stock options granted to the
Company's chief executive officer and the other officers named in the summary
compensation table during 1998:
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
---- ---------- ----------- ------ ----
<S> <C> <C> <C> <C>
John D. Bair 5,000 shares 6.7% $3.30 2003
John D. Bair (*) 30,000 shares 24.6% $3.30 2002
C. Robert Hahn 4,000 shares 5.4% $3.00 2008
C. Robert Hahn (*) 20,000 shares 11.1% $3.00 2007
James A. Olding 4,000 shares 5.4% $3.00 2008
James A. Olding (*) 5,000 shares 2.3% $3.00 2007
</TABLE>
* These options were replacement grants for options granted in 1997, which were
re-priced to reflect then-current market values.
STOCK OPTION EXERCISES AND YEAR END OPTION VALUES
The following table indicates stock option exercises during 1998 by the
Company's chief executive officer and the other officers named in the summary
compensation table, and the value, as of December 31, 1998, of in-the-money
stock options held by them.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 12/31/98(#) 12/31/98(#)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED(1) UNEXERCISABLE UNEXERCISABLE(2)
---- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C>
John D. Bair 0 0 30,000/5,000 0
C. Robert Hahn 0 0 25,000/4,000 0
James A. Olding 0 0 5,000/4,000 0
</TABLE>
(1) Aggregate market value of the shares covered by the option less the
aggregate price paid by such person.
(2) The value of in-the-money options was determined by subtracting the
exercise price from the average of the closing bid and asked prices of
the shares on December 31, 1998.
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<PAGE> 28
SAVINGS PLAN
The Company has adopted the Pinnacle Data Systems, Inc. 401(k) Savings and
Profit Sharing Plan (the "Savings Plan"). The Savings Plan is a defined
contribution plan (within the meaning of the Employee Retirement Income Security
Act of 1974) and is intended to be a qualified plan under Sections 401(a) and
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). Under the
Savings Plan, each participant is eligible to enter into a written salary
reduction agreement with the Company whereby the participant's salary will be
reduced by up to 12%, as elected by the participant, in accordance with the
rules governing cash or deferred arrangements under Section 401(k) of the Code.
The amount deferred by a participant is contributed by the Company to a trust
fund for the Savings Plan and invested by the trustee in accordance with the
investment guidelines established under the Savings Plan. Participants have the
right to direct the trustee to invest such participant's deferred amounts in the
investment funds the administrator directs the trustee to make available for the
Savings Plan. Mr. Bair, Mr. Carr and Mr. Hahn serve as the trustees of the
Savings Plan. Certified Pension Services serves as the administrator of the
Savings Plan, and McDonald & Company serves as investment advisor.
During 1997, the Savings Plan was amended to provide that if the Company is
profitable, the Company will match 100% of employee contributions up to 6% of
wages deferred with a maximum contribution of $3,000 per employee. Contributions
of $21,865, $29,165 and $43,204 have been accrued for 1998, 1997 and 1996,
respectively. The amounts contributed on behalf of Mr. Bair and the other
executive officers are reflected in the "All Other Annual Compensation" column
of the foregoing Summary Compensation Table. While a participant is always
vested in his or her own salary reduction contributions, contributions by the
Company become fully vested only after five years.
Upon retirement or other termination of employment, vested benefits are
disbursed in a single lump sum to the participant. The amounts payable to a
participant will be determined by the amount credited to his bookkeeping account
in the trust fund, including his allocable share of trust fund earnings or
losses.
1995 STOCK OPTION PLAN
On December 19, 1995, the Company adopted the Pinnacle Data Systems, Inc. Stock
Option Plan (the "Plan"). Under the Plan the Company has reserved 300,000 common
shares for issuance pursuant to which options may be granted to employees of the
Company or its subsidiaries. The purpose of the Plan is to attract and retain
qualified individuals to serve on behalf of the Company. The Plan is currently
administered by the Board of Directors. Options granted under the plan can
qualify as incentive stock options under ss.422 of the Code, or at the option of
the directors, be non-qualified options. Directors of the Company who are not
employees of the Company or its subsidiaries are not eligible to participate in
the Plan.
Subject to the requirement that the price per share of any common shares to be
received upon the exercise of any incentive option will not be less than the
fair market value of the common shares at the time the option is granted, the
board or committee administering the Plan has the exclusive
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<PAGE> 29
authority, consistent with law and the terms of such Plan, to designate
recipients of options to be granted thereunder and to determine the number and
type of options and the number of common shares subject thereto. As of October
1, 1999 all options under the Plan have been granted. See Note 7 of Notes to
Financial Statements.
COMPENSATION OF DIRECTORS
Directors who are officers of the Company receive no separate compensation for
their services as directors. Compensation of the outside directors is determined
by the whole Board after receiving the recommendations of the President.
Currently, outside directors receive a fee of $250.00 for each Board Meeting
attended. In 1996, upon his initial election to the Board of Directors, Mr.
O'Leary received options for 5,000 shares of the Company's common stock that are
exercisable at $4.13 per share until October 1, 2006. Mr. O'Leary also received
options for 10,000 shares in September 1997 that are exercisable at $3.00 per
share until September 2007, and received options for 4,000 shares in June 1999
that are exercisable at $4.13 per share until September 2009. Mr. Ostrander
received options for 14,500 shares in September 1997 that are exercisable at
$3.00 per share until September 2007. Mr. Ostrander also received options for
4,000 shares in June 1999 that are exercisable at $4.13 per share until
September 2009.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1998, the Company refinanced three loans aggregating $540,585 in principal
amount. In addition to being collateralized by the Company's land, building,
rents, leases, general business assets and profits thereof, these loans were
guaranteed by two shareholders of the Company, one of whom was John Bair, the
President and principal shareholder of the Company. These guarantees were
released at the time of the refinancing.
On July 22, 1998, the Company entered into an agreement with David J. Richards,
an advisor who is a shareholder, but otherwise unrelated to a director or
executive officer, to provide to the Company consulting and advisory services
with respect to the Company's communications with its stockholders and with
members of the financial community. The agreement expired on July 22, 1999. In
exchange for his services, the advisor was granted options to purchase 37,000
shares of common stock at the then market price.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON SHARES
The aggregate number of shares of capital stock that the Company has authority
to issue is 5,000,000 shares, all of which are common shares, without par value.
Holders of the common shares are entitled to receive such dividends as may be
declared by the board of directors out of funds legally available therefor. Upon
dissolution and liquidation of the Company, holders of the common shares are
entitled to a ratable share of the net assets of the
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<PAGE> 30
Company remaining after payments to creditors of the Company. All outstanding
common shares are validly issued, fully paid and nonassessable.
The holders of common shares are entitled to one vote per share for the election
of directors and on all other matters submitted to a vote of shareholders.
Holders of common shares are not entitled to preemptive rights or to cumulative
voting for the election of directors. The absence of cumulative voting, together
with the ownership of approximately 24% of the common shares by Mr. Bair
(approximately 30% when included with shares owned by all directors and
executive officers), has enabled him to control the affairs and policies of the
Company and could have the effect of delaying, averting or preventing a change
in control or management of the Company unless Mr. Bair is in favor of such
change.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. Since April 1996, the Shares have been traded
on the over-the-counter market and since April 1996, the Shares have been
included on the NASDAQ OTC Bulletin Board under the trading symbol PNDS. Prior
to April 1996, there was no established trading market in the Shares. Set forth
below is the range of high and low bid prices for the Shares for each quarterly
period since January 1996, as reported by National Quotation Bureau. These
quotations reflect interdealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
BID PRICES
----------
HIGH LOW
---- ---
Fiscal Year 1999
First quarter (ended March 31)......................... $5.50 $2.25
Second quarter (ended June 30)......................... 5.375 2.75
Third quarter (ended September 30)..................... 5.25 3.00
Fiscal Year 1998
First quarter (ended March 31)......................... $5.25 $3.75
Second quarter (ended June 30)......................... 5.25 3.375
Third quarter (ended September 30)..................... 3.75 0.875
Fourth quarter (ended December 31)..................... 2.75 0.875
Fiscal Year 1997
First quarter (ended March 31)......................... $8.75 $5.50
Second quarter (ended June 30)......................... 5.625 4.00
-27-
<PAGE> 31
Third quarter (ended September 30)..................... 9.00 5.00
Fourth quarter (ended December 31)..................... 7.25 3.625
(b) HOLDERS. On November 17, 1999, there were 51 holders of record
of the Shares. Most of the Shares not held by officers and directors of the
Company are held in street name.
(c) DIVIDENDS. During the past three years, the company has not
paid any cash dividends. Payments of dividends are within the discretion of the
Company's board of directors and depend upon the earnings, capital requirements,
and operating and financial condition of the Company, among other factors. The
Company currently expects to retain its earnings to finance the growth and
development of its business and does not expect to pay cash dividends in the
foreseeable future. In addition, under the terms of a loan agreement with a
bank, the Company is prohibited from declaring or paying dividends to common
shareholders and from redeeming stock from shareholders.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not currently a party to any legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following is information about all securities that the Company sold within
the past three years without registration under the Securities Act of 1933, as
amended:
(a) On April 23, 1996, the Company sold 250,000 common shares,
without par value, to the public at a price of $5.00 per share. The aggregate
offering price was $1,250,000 and the total underwriting commissions were
$100,000, plus underwriters warrants for 25,000 common shares exercisable at a
price of $5.50 per share, plus a $10,000 nonaccountable expense allowance. Corna
Securities, Inc. acted as the underwriter in the sale of the shares. The shares
were sold pursuant to the exemption from registration under the Securities Act
of 1933, as amended, set forth in Regulation A. In addition, the shares were
registered for sale in the State of Ohio.
(b) On May 23, 1996, the Company issued 100,000 common shares,
without par value, to Microcap, Ltd. upon exercise by Microcap of warrants to
purchase such shares at $2.50 per share. The shares were sold at a price of
$2.50 per share and an aggregate of $250,000. The
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<PAGE> 32
shares were issued pursuant to the exemption from registration under the
Securities Act of 1933, as amended, set forth in Regulation A. In addition, the
issuance of such shares was registered in the State of Ohio.
(c) On August 7, 1996, 10,000 common shares, without par value,
were issued to Robert Henkel, a former officer and principal shareholder of the
Company, upon his exercise of stock options at $2.75 per share. The aggregate
amount received by the Company in connection therewith was $27,500, which it
received in the form of 4,400 common shares of the Company valued at market
price at the time of the transaction. The 10,000 shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Rule 701. The
Company recorded the receipt of the 4,400 shares as treasury shares.
(d) On October 1, 1996, the Company granted an option for 5,000
common shares to Thomas M. O'Leary, upon his election as a director of the
Company. The Company received no consideration for the grant of the option. The
exercise price of the option was $7.00 per share and the option expires on
October 1, 2006. The option was issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and Rule 701 promulgated thereunder. On June
23, 1999, the option was re-priced at $4.13 per share.
(e) On May 16, 1997, the Company granted options pursuant to the
Pinnacle Data Systems, Inc. 1995 Stock Option Plan for 77,800 common shares,
without par value, to employees of the Company. Options for 10,000 of the shares
were issued to John D. Bair at an exercise price of $6.60 per share, and the
exercise price for the remainder of 67,800 shares was $6.00 per share. The
Company received no consideration for the grant of the options. The options were
issued pursuant to the exemption from registration under the Securities Act of
1933, as amended, set forth in Regulation D, Rule 504. In addition, the shares
underlying such options were registered with the state of Ohio and a filing was
made with the Securities and Exchange Commission on Form D under Rule 504. On
July 30, 1998, 61,750 of the options were re-priced at $3.00 per share. The
10,000 options issued to John D. Bair were re-priced at $3.30 per share. Prior
to the re-pricing, 6,050 of the options originally issued in 1997 had been
forfeited by terminated employees. The repriced options were issued pursuant to
the exemption from registration under the Securities Act of 1933, as amended,
set forth in Rule 701.
(f) On June 4, 1997, the Company issued 9,500 common shares,
without par value, to Corsair Associates, Ltd., an advisor to the Company. On
October 13, 1995, the Company had entered into an agreement with the advisor to
assist the Company in its efforts to fund the growth of its business. A
provision in the agreement required the Company to retain the advisor for two
additional years if the Company received at least $1 million in equity capital
in 1996. In exchange, the advisor would receive 19,000 shares of common stock of
the Company in two annual installments of 9,500 shares. The first installment
was made in 1997 and the second installment of 9,500 shares was made in 1998.
The shares were issued pursuant to Regulation D, Rule 504, and a Form D was
filed with the Securities and Exchange Commission. In addition, the shares were
registered under Ohio law.
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<PAGE> 33
(g) During 1997, the Company issued 29,600 common shares, without
par value, to employees of the Company pursuant to their exercise of stock
options previously granted to them. The aggregate amount received by the Company
upon such exercise was $77,475. The shares were registered under Ohio law and
were the subject of a Form D filing under Rule 504 with the Securities and
Exchange Commission.
(h) On September 12, 1997, under separate Stock Option Agreements,
the Company granted an option for 10,000 common shares to Thomas M. O'Leary, a
director of the Company, and 14,500 options to Robert V.R. Ostrander, another
director of the Company. The Company also granted options for 50,000 common
shares to three employees who are also directors. Options for 20,000 of the
shares were issued to John D. Bair at an exercise price of $6.53 per share.
Options for 10,000 shares were granted to Robert Hahn and options for 20,000
shares were granted to Thomas Carr at an exercise price of $5.94 per share. The
Company received no consideration for the grant of the options. The options were
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Rule 701 promulgated thereunder. On July 30, 1998, all of the options were
re-priced. The 20,000 options issued to John D. Bair were re-priced at $3.30 per
share. The remaining options of O'Leary, Ostrander Hahn and Carr were repriced
at $3.00 per share. The repriced options were issued pursuant to the exemption
from registration under the Securities Act of 1933, as amended, set forth in
Rule 701.
(i) On May 20, 1998, the Company issued 9,500 common shares,
without par value, to Corsair Associates, Ltd., an advisor to the Company. On
October 13, 1995, the Company had entered into an agreement with the advisor to
assist the Company in its efforts to fund the growth of its business. A
provision in the agreement required the Company to retain the advisor for two
additional years if the Company received at least $1 million in equity capital
in 1996. In exchange, the advisor would receive 19,000 shares of common stock of
the Company in two annual installments of 9,500 shares. The first installment
was made in 1997 and the second installment of 9,500 shares was made in 1998.
The shares were issued pursuant to Regulation D, Rule 504 and a Form D was filed
with the Securities and Exchange Commission. The shares were also registered
under Ohio law.
(j) On July 30, 1998, the Company granted options pursuant to the
Pinnacle Data Systems, Inc. 1995 Stock Option Plan for 74,500 common shares,
without par value, to employees of the Company. Options for 5,000 of the shares
were issued to John D. Bair at an exercise price of $3.30 per share and the
exercise price for the remainder of 69,500 shares was $3.00 per share The
Company received no consideration for the grant of the options. The options were
issued pursuant to the exemption from registration under the Securities Act of
1933, as amended, set forth in Rule 701. In addition, the shares underlying such
options were registered with the State of Ohio and a filing was made with the
Securities and Exchange Commission on Form D under Rule 504.
(k) On June 23, 1999, the Company granted options pursuant to the
Pinnacle Data Systems, Inc. 1995 Stock Option Plan for 67,450 common shares,
without par value, to employees of the Company. Options for 4,000 of the shares
were issued to John D. Bair and 2,000 of the shares to Joy Bair at an exercise
price of $4.54 per share. The exercise price for the
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<PAGE> 34
remainder of 61,450 shares was $4.125 per share. The Company received no
consideration for the grant of the options. The options were issued pursuant to
the exemption from registration under the Securities Act of 1933, as amended,
set forth in Rule 701.
(l) On June 23, 1999, under separate Stock Option Agreements, the
Company granted options for 4,000 common shares to both Thomas M. O'Leary and to
Robert V.R. Ostrander, directors of the Company, at an exercise price of $4.13
per share. The Company received no consideration for the grant of the options.
The options were issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and Rule 701 promulgated thereunder.
(m) On August 12, 1999, the Company granted options pursuant to
the Pinnacle Data Systems, Inc. 1995 Stock Option Plan for 3,000 common shares,
without par value, to employees of the Company. The exercise price was $4.625
per share. The Company received no consideration for the grant of the options.
The options were issued pursuant to the exemption from registration under the
Securities Act of 1933, as amended, set forth in Rule 701.
(n) During 1999, the Company has issued 14,500 common shares,
without par value, to employees of the Company pursuant to their exercise of
stock options previously granted to them. The aggregate amount received by the
Company upon such exercise was $43,500. The shares were registered under Ohio
law, and were the subject of a Form D filing under Rule 504 with the Securities
and Exchange Commission.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio Revised Code sets forth conditions and
limitations governing the indemnification of officers, directors, and other
persons.
Article 8 of the Amended and Restated Code of Regulations of the Company, a copy
of which is filed as Exhibit 3(b), contains certain indemnification provisions
adopted pursuant to authority contained in Section 1701.13(E) of the Ohio
Revised Code. The Company's Code of Regulations provides for the indemnification
of its officers, directors, employees, and agents, or persons who are serving or
have served at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, against all
expenses with respect to any judgements, fines, and amounts paid in settlement,
or with respect to any threatened, pending, or completed action, suit, or
proceeding to which they were or are parties or are threatened to be made
parties by reason of acting in such capacities, provided that it is determined,
either by a majority vote of a quorum of disinterested directors of the Company
or by the shareholders of the Company or otherwise as provided in Section
1701.13(E) of the Ohio Revised Code, that: (a) they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company; (b) in any action, suit, or proceeding by or in the right of the
Company, they were not, and have not been adjudicated to have been, negligent or
guilty of misconduct in the performance of their duties to the Company; (c) with
respect to any criminal
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<PAGE> 35
action or proceeding, that they had no reasonable cause to believe that their
conduct was unlawful. Section 1701.13(E) provides that expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding, may be
paid by the Company in advance of the final disposition of such action, suit, or
proceeding, upon receipt of an undertaking by the indemnified person to repay
such amount in the event that indemnification shall be deemed improper.
The Company maintains directors and officers liability insurance.
At present, there are no claims, actions, suits, or proceedings pending where
indemnification would be required under these provisions, and the Company does
not know of any threatened claims, actions, suits, or proceedings which may
result in a request for such indemnification.
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<PAGE> 36
PART F/S
FINANCIAL STATEMENTS.
-33-
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT..........................................................35
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1997 and 1998 and
October 1, 1999 (Unaudited).........................................................36
Statements of Income for the Years Ended December 31, 1997 and 1998 and for
the Nine Months Ended September 30, 1998 (Unaudited) and the Thirty-nine Weeks
ended October 1, 1999 (Unaudited)...................................................38
Statements of Changes in Stockholders' Equity For the Years Ended December 31,
1997 and 1998 and for the Thirty-nine Weeks Ended October 1, 1999 (Unaudited).......39
Statements of Cash Flows For the Years Ended December 31, 1997 and 1998 and
for the Nine Months Ended September 30, 1998 (Unaudited) and the Thirty-nine
Weeks Ended October 1, 1999 (Unaudited).............................................40
Notes to Financial Statements.......................................................42
</TABLE>
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<PAGE> 38
To the Board of Directors
Pinnacle Data Systems, Inc. (dba PDSi)
Columbus, Ohio
Independent Auditors' Report
We have audited the accompanying balance sheets of Pinnacle Data
Systems, Inc. (dba PDSi) as of December 31, 1997 and 1998, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pinnacle Data
Systems, Inc. (dba PDSi) as of December 31, 1997 and 1998, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Hausser & Taylor LLP
Columbus, Ohio
February 23, 1999
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<PAGE> 39
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, October 1,
1997 1998 1999
---- ---- ----
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 16,149 $ 35,101 $ 10,846
Accounts receivable, net of allowance for doubtful
accounts of $10,000, $9,000 and $18,000, respectively 1,008,807 1,469,674 2,060,446
Inventory 1,730,185 1,427,792 2,591,241
Prepaid software costs (Note 2) 56,456 - 29,739
Other prepaid expenses 17,299 115,017 234,935
Deferred income taxes (Note 10) 66,000 91,000 91,000
---------- ---------- ----------
2,894,896 3,138,584 5,018,207
---------- ---------- ----------
PROPERTY AND EQUIPMENT (Note 8)
Land 13,230 13,230 -
Building and improvements 522,179 522,179 -
Leasehold improvements - - 24,566
Furniture and fixtures 95,728 117,396 214,013
Computer equipment 546,080 675,414 880,418
Shop equipment 207,675 265,366 277,819
Vehicle 21,846 21,846 21,846
---------- ---------- ----------
1,406,738 1,615,431 1,418,662
Less accumulated depreciation 309,515 556,013 702,118
---------- ---------- ----------
1,097,223 1,059,418 716,544
---------- ---------- ----------
OTHER ASSETS
Product design costs, less accumulated amortization
of $12,124, $12,825 and $13,175, respectively (Note 3) 1,401 700 175
---------- ---------- ----------
$3,993,520 $4,198,702 $5,734,927
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 40
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, October 1,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Line of credit (Note 5) $ - $ 150,000 $1,170,000
Current portion of long-term debt (Note 6) 120,727 79,148 64,182
Current portion of capital lease obligation (Note 8) 19,112 20,635 7,614
Accounts payable 962,994 1,054,942 1,348,331
Accounts payable - joint venture (Note 14) 18,892 - -
Accrued expenses:
Wages and payroll taxes 72,296 105,738 77,215
Vacation 28,628 33,197 50,197
Profit sharing plan (Note 9) 29,165 21,865 36,377
Property taxes 24,709 4,539 -
Income taxes 102,425 25,401 138,034
Other 76,821 37,760 332,075
Unearned software revenue (Note 4) 15,250 - -
Unearned service revenue (Note 13) 15,481 45,130 71,893
---------- ---------- ----------
1,486,500 1,578,355 3,295,918
---------- ---------- ----------
LONG-TERM LIABILITIES
Long-term debt, less current portion (Note 6) 439,463 586,500 146,965
Capital lease obligation, less current portion (Note 8) 18,681 - -
Deferred income taxes (Note 10) 37,000 21,000 21,000
---------- ---------- ----------
495,144 607,500 167,965
---------- ---------- ----------
1,981,644 2,185,855 3,463,883
---------- ---------- ----------
STOCKHOLDERS' EQUITY (Note 7)
Common stock; no par value; 5,000,000 shares authorized;
1,194,701, 1,204,201 and 1,218,701 shares issued
and outstanding, respectively 1,555,450 1,555,450 1,598,950
Additional paid-in capital 214,506 214,506 214,506
Retained earnings 241,920 242,891 457,588
---------- ---------- ----------
2,011,876 2,012,847 2,271,044
---------- ---------- ----------
$3,993,520 $4,198,702 $5,734,927
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-37-
<PAGE> 41
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------
Nine Months Thirty-nine
Years Ended Ended Weeks Ended
--------------------------- ------------- --------------
December 31, December 31, September 30, October 1,
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES
Service sales $ 2,122,096 $ 2,721,388 $ 1,962,371 $ 2,205,310
Product sales 4,286,577 6,141,722 4,227,201 5,681,529
Other sales 142,817 169,222 139,505 75,701
----------- ----------- ----------- -----------
6,551,490 9,032,332 6,329,078 7,962,540
----------- ----------- ----------- -----------
COST OF SALES
Service sales 1,296,944 1,936,882 1,522,351 1,263,621
Product sales 3,380,609 5,017,652 3,456,258 4,498,879
Other sales 128,161 237,700 120,967 120,252
----------- ----------- ----------- -----------
4,805,714 7,192,234 5,099,576 5,882,753
----------- ----------- ----------- -----------
GROSS PROFIT 1,745,776 1,840,098 1,229,502 2,079,788
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 1,318,106 1,750,575 1,305,805 1,733,057
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 427,670 89,523 (76,303) 346,731
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Loss on investment in joint venture (Note 14) (77,948) - - -
Gain on sale of building - - - 85,922
Interest expense (68,853) (83,552) (60,829) (69,057)
----------- ----------- ----------- -----------
(146,801) (83,552) (60,829) 16,865
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 280,869 5,971 (137,132) 363,598
INCOME TAXES (Note 10) 114,000 5,000 (56,523) 148,901
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 166,869 $ 971 $ (80,609) $ 214,697
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE (Note 11) $ 0.14 $ - $ (0.07) $ 0.18
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 11) $ 0.14 $ - $ (0.07) $ 0.14
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-38-
<PAGE> 42
<TABLE>
<CAPTION>
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1998 and Thirty-nine Weeks Ended October 1,
1999 (Unaudited)
Common Stock
------------------------- Total
Outstanding Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
----------- ----------- ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1996 1,155,601 $ 1,505,475 $ 214,506 $ 75,051 $(27,500) $ 1,767,532
Issuance of common stock, net of offering costs
of $55,813 (Note 12) 9,500 - - - - -
Net income - - - 166,869 - 166,869
Options exercised 29,600 77,475 - - - 77,475
Treasury stock retired - (27,500) - - 27,500 -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - December 31, 1997 1,194,701 1,555,450 214,506 241,920 - 2,011,876
Issuance of common stock, net of
offering costs of $38,000 (Note 12) 9,500 - - - - -
Net income - - - 971 - 971
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - December 31, 1998 1,204,201 1,555,450 214,506 242,891 - 2,012,847
Net income (unaudited) - - - 214,697 - 214,697
Options exercised 14,500 43,500 - - - 43,500
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - October 1, 1999 (unaudited) 1,218,701 $ 1,598,950 $ 214,506 $ 457,588 $ - $ 2,271,044
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-39-
<PAGE> 43
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
----------------------------------
Nine Months Thirty-nine
Years Ended Ended Weeks Ended
------------------------------ -------------- ---------------
December 31, December 31, September 30, October 1,
1997 1998 1998 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 166,869 $ 971 $ (80,609) $ 214,697
------------- ------------- ------------- --------------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 187,809 268,129 196,029 232,862
Provision for doubtful accounts (6,750) (1,000) 3,205 9,000
Inventory reserves 43,000 90,921 300,000 (5,593)
Provision for deferred taxes (22,000) (41,000) (123,000) -
Gain on sale of property and equipment - - - (85,922)
(Increase) decrease in assets:
Accounts receivable (428,576) (459,867) (210,340) (599,772)
Inventory (677,074) 150,513 (106,334) (1,157,857)
Prepaid expenses 55,118 (41,262) 23,148 (149,656)
Increase (decrease) in liabilities:
Accounts payable 527,360 73,056 (380,825) 521,561
Accrued expenses and taxes 150,412 (105,544) (64,834) 177,224
Unearned revenues (26,879) 14,399 (20,214) 26,763
-------------- -------------- -------------- ---------------
Total adjustments (197,580) (51,655) (383,165) (1,031,390)
-------------- -------------- -------------- ---------------
Net cash used in operating activities (30,711) (50,684) (463,774) (816,693)
-------------- -------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (153,779) (168,664) (150,157) (338,640)
Proceeds from sale of property and equipment - - - 133,552
-------------- -------------- -------------- ---------------
Net cash used in investing activities (153,779) (168,664) (150,157) (205,088)
-------------- -------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit - 321,915 66,180 1,020,000
Principal payments on long-term debt (118,440) (66,457) (46,831) (52,953)
Principal payments on capital lease obligation (16,052) (17,158) (12,817) (13,021)
Net proceeds from sale of stock 77,475 - - 43,500
-------------- -------------- -------------- ---------------
Net cash provided by (used in) financing activities (57,017) 238,300 606,532 997,525
-------------- -------------- -------------- ---------------
INCREASE (DECREASE) IN CASH (241,507) 18,952 (7,398) (24,255)
CASH - Beginning of year 257,656 16,149 16,149 35,101
-------------- -------------- -------------- ---------------
CASH - End of year $ 16,149 $ 35,101 $ 8,751 $ 10,846
============== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-40-
<PAGE> 44
PINNACLE DATA SYSTEMS, INC.
(DBA PDSi)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
-------------------------------
Nine Months Thirty-nine
Years Ended Ended Weeks Ended
---------------------------------- -------------- ------------
December 31, December 31, September 30, October 1,
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 72,144 $ 85,358 $ 69,354 $62,932
=============== =============== =============== =======
Income taxes paid, net of refunds $ 43,975 $ 118,261 $ 125,004 $36,268
=============== =============== =============== =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING TRANSACTIONS
During 1997, the Company purchased a vehicle by directly
financing the purchase price of $21,846.
During 1997, the Company capitalized $239,208 of
inventory as computer equipment.
During 1997, the Company applied $23,249 of accounts
receivable from a customer against accounts payable for the
purchase of shop equipment from the same customer.
During 1997, the Company retired $27,500 shares of treasury
stock purchased at cost.
During 1998, the Company capitalized $75,413 of inventory
as computer equipment. Also, computer equipment with a
net book value of $14,454 was transferred to saleable inventory.
During 1998, the Company refinanced mortgage and long-term
debt totaling $540,585 with a $300,000 term note and line of
credit draws of $240,585. Later in 1998, $412,500 of
outstanding line of credit was refinanced via term debt.
In May 1999, the Company sold its land, building and
improvements. Of the proceeds, $401,197 was used to pay off
the remaining mortgage balance.
The accompanying notes are an integral part of these financial statements.
-41-
<PAGE> 45
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Nature of Business - Pinnacle Data Systems, Inc. (dba PDSi)
(the Company) is an independent provider of component-level
depot repair services for electronic equipment such as
computers, peripherals and printed circuit board assemblies.
The Company's repair services are focused on UNIX/RISC
workstations for original equipment manufacturers (OEM's). The
Company also designs and manufactures custom printed circuit
boards and provides custom integration of standard computing
equipment for OEM's.
B. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
C. Interim Financial Data (Unaudited) - The unaudited financial
information as of October 1, 1999 and for the nine months
ended September 30, 1998 and the thirty-nine weeks ended
October 1, 1999 has been prepared on the same basis as the
audited financial statements and, in the opinion of the
Company's management, reflects all adjustments necessary for a
fair presentation of the financial position and the results of
operations for such interim periods in accordance with
generally accepted accounting principles.
D. Concentration of Credit Risk - Sales are made on a credit
basis to customers located primarily throughout the United
States.
E. Major Customers - The Company had revenues from three
customers representing approximately 49% and 59% of its total
revenue for the years ended December 31, 1997 and 1998,
respectively.
F. Inventories - Inventories are valued at average cost, not in
excess of market.
Inventory was comprised of the following:
December 31, October 1,
------------ ----------
1997 1998 1999
---- ---- ----
Component parts -
(raw materials) $ 606,755 $ 594,062 $ 909,248
Work-in-process 156,012 220,297 1,141,959
Finished goods 967,418 613,433 540,034
---------- ---------- ----------
$1,730,185 $1,427,792 $2,591,241
========== ========== ==========
-42-
<PAGE> 46
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The carrying values of component parts and finished goods
represent management's estimate of their net realizable value.
Such value is based on forecasts of repair/trade-in activity
in the ensuing years. Such forecasts are based on historical
information, known contracts, and management's expertise in
computer hardware life cycles. The computer hardware industry
is characterized by rapid technological advancement and
change. Should demand for repair/trade-in hardware prove to be
significantly less than anticipated, the ultimate realizable
value of such products could be substantially less than the
amount shown in the balance sheet.
G. Property and Equipment - Property and equipment are recorded
at cost. Depreciation is provided on the straight-line method
for financial reporting purposes over the estimated useful
lives of the respective assets. Expenditures for maintenance
and repairs are charged to operations as incurred, while
expenditures for additions and improvements are capitalized.
The vehicle is depreciated over 3 years. Furniture, fixtures,
and equipment are depreciated over useful lives of 5 and 7
years. The building is depreciated over a useful life of 40
years, while building improvements are depreciated over 10
years. Leasehold improvements are being amortized over 10
years. Depreciation expense amounted to $187,108 and $267,429
for the years ended December 31, 1997 and 1998, respectively.
H. Advertising - All of the Company's advertising costs are of
the nondirect-response type. The Company expenses all
advertising costs as incurred or at the time the advertising
takes place. Total advertising costs incurred during the years
ended December 31, 1997 and 1998 were $14,282 and $7,930,
respectively.
I. Life Insurance - The Company has purchased, and is the
beneficiary, of three term life insurance policies on key
employees of the Company. The total amount of coverage at
December 31, 1998 and 1997 was $3,250,000. Subsequent to
December 31, 1998, in conjunction with refinancing of
long-term debt, $1,000,000 of the coverage was assigned to the
new lender.
J. New Authoritative Pronouncements - The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" in the year ended
December 31, 1996. This standard encourages the adoption of
the fair value-based method of accounting for employee stock
options or similar equity instruments, but continues to allow
the Company to measure compensation cost for those equity
instruments using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Under the
fair value-based method, compensation cost is measured at the
grant date based on the value of the award. Under the
intrinsic value-based method, compensation cost is the excess,
if any, of the quoted market price of the stock at the grant
date or other measurement date over the amount the employee
must pay to acquire the stock. The Company intends to continue
the use of the intrinsic value-based method.
-43-
<PAGE> 47
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As a result, adoption of this standard will not have any
effect to the Company's financial statements other than to
require disclosure of the pro forma effect on net income of
using the fair value-based method of accounting. However, due
to the Company's stock price at December 31, 1998 being below
the strike price of all outstanding options, management deems
it unlikely that the options will be exercised. However, as a
result of improved performance of the Company's stock price
during the thirty-nine week period ended October 1, 1999,
management now deems it likely all outstanding options will be
exercised. Accordingly, the Company has made the disclosures
required by SFAS 123 as of October 1, 1999 (see Note 7).
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" in the year ended
December 31, 1997. This standard requires presentation of
basic earnings per share and diluted earnings per share, if
different. Certain disclosures are also required (see Note
11).
K. Reclassifications - Certain 1997 amounts have been
reclassified to conform to the 1998 presentation.
NOTE 2. PREPAID SOFTWARE COSTS
The Company has entered into an agreement with Sunsoft, Inc.,
which allows it to distribute certain Sunsoft software and
documentation. Until 1998, the Company was required to make
noncancellable prepayments for master media. Royalties were
charged against the prepayments as sales were made. During
1998, the Company sold the remaining prepaid software and the
related royalties were expensed.
NOTE 3. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
December 31, October 1,
------------ ----------
1997 1998 1999
---- ---- ----
Product design costs $ 13,500 $ 13,500 $ 13,500
Less accumulated
amortization 12,099 12,800 13,350
---------- ---------- ----------
$ 1,401 $ 700 $ 150
========== ========== ==========
Product design costs, incurred in the design of custom circuit boards to be sold
in current and future years, are being amortized using the straight-line method
over five years. Amortization expense charged to operations during the years
ended December 31, 1997 and 1998 amounted to $700 and $701, respectively.
-44-
<PAGE> 48
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 4. UNEARNED SOFTWARE REVENUE
The Company entered into an agreement with a customer wherein
the customer prepaid for certain software products which were
installed on circuit boards designed and built by the Company.
Under this agreement, the Company's customer received the
software at the Company's purchase price. The Company prepaid
the manufacturer of the software products (see Note 2). During
1998, the Company installed the remaining prepaid software and
the related revenue was recognized.
NOTE 5. SHORT-TERM DEBT
In January 1998, the Company entered into an agreement to
establish a $1,500,000 revolving line of credit that matured
on June 30, 1999 and carries an interest rate of prime (7.75%
and 8.5% at December 31, 1998 and October 1, 1999,
respectively). The amount available under the line of credit
is subject to a borrowing base as outlined in the agreement.
The line is collateralized by substantially all assets of the
Company and is subject to various covenants described further
in Note 6. In September 1999, the line of credit was extended
through September 2000, with an increase in the maximum
borrowing amount to $2,000,000.
NOTE 6. LONG-TERM DEBT
Following is a summary of long-term debt:
December 31, October 1,
------------ ----------
1997 1998 1999
---- ---- ----
3.9% vehicle loan, payable in
monthly installments of $401,
including interest through
January 2002. $ 18,152 $ 14,150 $ 11,147
Prime plus .5% (9% at
December 31, 1997)
note payable in
monthly installments of $8,167
plus interest through October
1999;collateralized by assets
of the Company;guaranteed
by two stockholders. During
1998, the Company refinanced
this note. 179,406 - -
-45-
<PAGE> 49
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 6. LONG-TERM DEBT (CONTINUED)
December 31, October 1,
------------ ----------
1997 1998 1999
---- ---- ----
3 Year Treasury Constant
Maturities Rate plus 2.5%
(8.875% at December 31, 1997
and 1998) mortgage note payable
in monthly installments of $1,254
including interest through
June 2009;collateralized by the
Company's land, building,
rents, leases and profits thereof
and the fixtures associated
therewith;guaranteed by two
stockholders. During 1998,
the Company refinanced this
note. 108,830 - -
Prime rate (7.75% and 8.5%
at December 31, 1998 and
October 1, 1999, respectively)
note payable in monthly
installments of $5,000 plus
interest through January 2003;
collateralized by substantially
all assets of the Company. - 245,000 200,000
8.35% mortgage note payable
in monthly installments of
$4,054 including interest through
July 2003; collateralized by
Company's land, building and
other personal property. The
real estate was sold and the
mortgage paid off during the
period ended July 2, 1999. - 406,498 -
-46-
<PAGE> 50
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
December 31, October 1,
------------------- ----------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
9.37% mortgage note (guaranteed
by the Small Business Admin-
istration); payable in monthly
installments of $3,012 including
interest through June 2009;
collateralized by the Company's
land, building, rents, leases
and profits thereof and the
fixtures associated therewith;
guaranteed by two stockholders.
During 1998, the Company
refinanced this note. 253,802 - -
----------- ---------- -----------
Total long-term debt 560,190 665,648 211,147
Less current portion 120,727 79,148 64,182
----------- ---------- -----------
$ 439,463 $ 586,500 $ 146,965
=========== ========== ===========
</TABLE>
The line of credit (Note 5) and long-term notes above are subject to a loan and
security agreement which contains numerous covenants which require the Company
to maintain specific financial performance ratios, restrict payment of
dividends, and report various financial information to the lender on a monthly
basis. At December 31, 1997 and 1998, the Company was in compliance with these
covenants.
Aggregate maturities on long-term debt for the five years ending after December
31, 1998 is as follows:
1999 $ 79,148
2000 81,384
2001 82,622
2002 80,056
2003 342,438
----------
$ 665,648
==========
-47-
<PAGE> 51
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCKHOLDERS' EQUITY
A. Common Stock - In April 1996, the Company completed an
offering of 250,000 shares of its no par value common stock at
$5.00 per share. All 250,000 shares were sold in 1997. Also,
as part of the same offering, 100,000 shares of common stock
were issued in exchange for the exercise of previously issued
warrants to purchase shares at $2.50 per share.
B. Additional Paid-In Capital - On May 2, 1996, the Board of
Directors passed a resolution authorizing the transfer of
undistributed earnings accumulated while an S corporation of
$214,506 to additional paid-in capital. This transaction was
recorded in the Company's financial statements as of December
31, 1995.
C. Treasury Stock - In August 1996, an agreement was executed
whereby 4,400 shares of common stock were returned to the
Company at the then fair market value of $6.25 per share in
exchange for permitting a stockholder to exercise 10,000
options at $2.75 per share in advance of the stated exercise
date of December 20, 1997. During 1997, the Company retired
all 4,400 shares of treasury stock.
D. Stock Options - The Company adopted the Pinnacle Data Systems,
Inc. 1995 Stock Option Plan (the Plan) on December 19, 1995.
Any employee who has been granted a discretionary option may
purchase Company common stock over a ten year period, at the
fair market value at time of grant. (If the grantee owns more
than 10% of the Company's stock at the time of the grant, the
purchase price shall be at least 110% of the fair market value
and the options expire five years from the date of grant.) The
aggregate number of common shares of the Company which may be
granted under the plan is 300,000 shares. All incentive
options available under the plan shall be granted by December
19, 2005.
On July 30, 1998, the Board of Directors (Board) authorized
cancellation of all then outstanding options and replacement
with new options at the then fair market value of $3.00 per
share ($3.30 per share for grantees owning more than 10% of
the Company's common stock at grant date).
On July 30, 1998, the Board granted options for 69,500 and
5,000 shares to employees of the Company. At December 31,
1998, options for 58,500 and 5,000 of the shares remained
outstanding, respectively, at an option price of $3.00 and
$3.30 per share. The options are exercisable on July 30, 1999.
On July 30, 1998, the Board granted options for 10,000 shares
to certain directors of the Company at an option price of
$3.00 per share, exercisable on July 30, 1999.
On July 22, 1998, the Board granted options for 37,000 shares
to an advisor of the Company at an option price of $3.50 per
share. The options are exercisable for a period commencing on
the grant date and continuing for two years.
-48-
<PAGE> 52
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
On September 12, 1997, the Board granted options for 74,500 shares to
directors of the Company, exercisable September 12, 1998.
On May 16, 1997, the Board granted options for 77,800 shares to
employees of the Company. At December 31, 1998 and 1997, options for
67,250 and 77,800, respectively, of the shares remained outstanding.
The options became exercisable May 16, 1998.
On October 1, 1996, the Board granted options for 5,000 shares to a
director of the Company, exercisable October 1, 1997.
On December 19, 1995, the Board granted options for 70,000 shares to
employees of the Company. At December 31, 1998 and 1997, options for
10,200, respectively, of the shares remained outstanding. The options
became exercisable on December 19, 1996.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the
date of grant using a Black-Shole's option pricing model with the
following weighted average assumptions for October 1, 1999.
Dividend yield 0%
Volatility factor 92.74%
Weighted average expected life in years 5
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma income and earnings per share are as follows:
Net income - as reported $ 214,697
Net income - pro forma $ 183,350
Basic earnings per common share-as reported $ 0.18
Basic earnings per common share-pro forma $ 0.15
Diluted earnings per common share - as reported $ 0.14
Diluted earnings per common share - pro forma $ 0.12
Weighted average fair value of options granted
during the year $ 4.16
-49-
<PAGE> 53
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
E. Stock Warrants - As part of the April 1996 offering circular,
the underwriter was granted warrants to purchase 25,000 shares
of common stock at $5.50 per share. The warrants became
exercisable in May 1997 and expire in April 2001.
NOTE 8. LEASES
OPERATING
The Company leases office equipment under operating leases
expiring in 1999 and 2002.
Minimum future lease payments under operating leases as of
December 31, 1998 are as follows:
1999 $ 11,132
2000 5,462
2001 5,462
2002 1,933
--------------
$ 23,989
==============
Total lease payments charged to operations for the years ended
December 31, 1997 and 1998 amounted to $5,747 and $14,800,
respectively.
Additionally, commencing March 9, 1999, the Company entered
into a lease for its new operating facility that has a term
through 2009.
The minimum annual rental commitments as of October 1, 1999
are as follows:
2000 $ 202,066
2001 202,066
2002 202,066
2003 202,066
2004 202,066
Thereafter 1,163,150
------------
$ 2,173,480
============
-50-
<PAGE> 54
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 8. LEASES (CONTINUED)
CAPITAL
The Company also leases certain diagnostic and schematic
equipment under a capital lease through September 1999. The
future minimum lease payments by year with the present value
of such payments, as of December 31, 1998 is as follows:
1999 $ 22,173
-----------
Total minimum lease payments 22,173
Less amount representing interest 1,538
-----------
Present value of minimum lease payments 20,635
Less current portion 20,635
-----------
Long-term capital lease obligation $ -
===========
The equipment under capital lease is included in the
accompanying balance sheet under the following captions:
December 31,
------------
1997 1998
---- ----
Shop equipment $ 57,000 $ 57,000
Less accumulated depreciation 17,100 28,500
--------- ---------
Net book value $ 39,900 $ 28,500
========= =========
These assets are depreciated over five years using the
straight-line method.
NOTE 9. PROFIT SHARING AND 401(K) SAVINGS PLAN
The Company maintains a qualified cash or deferred
compensation plan under section 401(k) of the Internal Revenue
Code. The plan covers all employees age 21 or over with one
year of service. Under the plan, employees may elect to defer
from 1% to 12% of their salary, subject to Internal Revenue
Code limits.
The Company, at its discretion, may match 100% of employee
contributions up to 6% of wages deferred with a maximum
contribution of $3,000 per employee. Matching contribution
expense of $29,165 and $21,865 has been accrued for 1997 and
1998, respectively.
-51-
<PAGE> 55
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
reporting purposes in different periods. Deferred taxes are classified
as current or long-term, depending on the classification of the assets
and liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability are
classified as current or long-term depending on the periods in which
the temporary differences are expected to reverse.
The components of the deferred tax asset (liability) consist
of the following:
December 31,
------------
1997 1998
---- ----
Current:
Federal $ 51,000 $ 86,000
State 12,000 -
City 3,000 5,000
---------- --------
$ 66,000 $ 91,000
========== ========
Noncurrent:
Federal $ (28,000) $(20,000)
State (7,000) -
City (2,000) (1,000)
---------- --------
$ (37,000) $(21,000)
========== ========
Net deferred tax assets in the accompanying balance sheets include the
following components:
December 31,
------------
1997 1998
---- ----
Deferred tax liabilities arising from
depreciation and state tax benefit
temporary differences $ (37,000) $ (21,000)
Deferred tax assets arising from allowance
for doubtful accounts, inventory reserves
and vacation and bonus accrual temporary
differences 66,000 91,000
--------- ---------
$ 29,000 $ 70,000
========= =========
-52-
<PAGE> 56
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES (CONTINUED)
The components of the tax expense (benefit) were as follows:
December 31,
------------
1997 1998
---- ----
Current:
Federal $ 117,000 $ 43,000
State 12,000 -
City 7,000 3,000
----------- ----------
136,000 46,000
----------- ----------
Deferred:
Federal (19,000) (38,000)
State (2,000) -
City (1,000) (3,000)
----------- ----------
(22,000) (41,000)
----------- ----------
Total $ 114,000 $ 5,000
=========== ==========
A reconciliation of the total provision for income taxes with amounts
determined by applying the statutory U.S. federal income tax rate to
income tax provision is as follows:
December 31,
------------
1997 1998
---- ----
Income tax provision at statutory rate $ 95,000 $ 2,000
Add:
Tax effect of permanent differences 5,000 4,000
State income taxes, net of federal
income tax provision 11,000 -
Other, net 3,000 (1,000)
------------ ---------
Total income tax provision $ 114,000 $ 5,000
============ =========
-53-
<PAGE> 57
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 11. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share were computed
by dividing net income by the weighted average number of
shares of common stock outstanding during the year. At
December 31, 1997 and 1998, September 30, 1998 and October 1,
1999, the number of common shares was increased by the number
of shares issuable on the exercise of outstanding stock
options and warrants when the market price of the common stock
exceeds the exercise price of the options and warrants. This
increase in the number of common shares was reduced by the
number of common shares that are assumed to have been
purchased with the proceeds from the exercise of the options;
those purchases were assumed to have been made at the average
price of the common stock during that part of the year when
the market price of the common stock exceeded the exercise
price of the options.
The following data show the amounts used in computing earnings
per share (EPS) and the effect on income and the weighted
average number of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
December 31, September 30, October 1,
------------ ------------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income available to common
stockholders used in basic
EPS and diluted EPS $ 166,869 $ 971 $ (80,609) $ 214,697
=========== ========== ========== ===========
Weighted average number
of common shares used in
basic EPS 1,191,734 1,199,451 1,199,979 1,215,840
Effect of dilutive securities:
Stock options and warrants
13,419 - - 308,400
----------- ---------- ---------- -----------
Weighted number of common
shares and dilutive potential
common stock used in diluted
EPS 1,205,153 1,199,451 1,199,971 1,524,240
=========== ========== ========== ==========
</TABLE>
Options and warrants on 182,300, 292,450, and 187,450 shares,
respectively, of common stock were not included in computing
diluted EPS for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1998 because
their effects were antidilutive.
-54-
<PAGE> 58
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 12. COMMITMENT RELATED TO 1996 PUBLIC OFFERING
On October 13, 1995, the Company entered into an agreement with an
advisor to assist the Company in its efforts to fund the growth of its
business. A provision in the agreement required the Company to retain
the advisor for two additional years since the Company received at
least one million dollars in equity capital in 1996. In exchange, the
advisor will receive 19,000 shares of common stock of the Company in
two annual installments of 9,500 shares. The first installment was made
in 1997 and the second installment was made in 1998. The common shares
issued in 1997 and 1998 were accounted for at the fair market value at
the date of issue of $55,813 and $38,000, respectively, related to 1996
common stock offering, net of costs in a like amount.
NOTE 13. SERVICE CONTRACTS
The Company provides service under contracts to certain customers
generally for six to twelve months. Revenue from these contracts is
deferred and recognized in income on a straight-line basis over the
contract period.
NOTE 14. JOINT VENTURE AGREEMENT
On December 5, 1996, the Company entered into an agreement to form a
joint venture with Software Logistics Corporation (Logistix). The new
company, named Logistix PDSi Services and located in Fremont,
California, was formed to provide depot repair services for computer
original equipment manufacturers. The Company had a 40% ownership
position and reported results under the equity method of accounting.
As of December 31, 1997, the joint venture agreement was terminated and
the Company's share of the 1997 operating loss was $77,948. At December
31, 1997, the Company had a net payable to the joint venture of $18,892
resulting from services rendered during 1997.
-55-
<PAGE> 59
PINNACLE DATA SYSTEMS, INC.
(DBA PDSI)
NOTES TO FINANCIAL STATEMENTS
NOTE 15. OPERATING SEGMENTS
The Company's reportable segments include Service Sales and Product
Sales which are explained in Item 1 of this Form 10SB, including a
discussion of principle markets and distribution.
The Company evaluates performance based on operating earnings of the
reportable segments.
Segment information for the years 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
Service Product
Sales Sales Other Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales $ 2,122,096 $ 4,286,577 $ 142,817 $ 6,551,490
Gross profit 825,152 905,968 14,656 1,745,776
Operating earnings 392,481 540,656 (505,467) 427,670
Depreciation and
amortization 94,518 33,174 60,119 187,811
Total assets 2,049,816 1,607,466 336,238 3,993,520
Capital expenditures 112,805 31,243 9,731 153,779
1998
----------------------------------------------------------------------------
Service Product
Sales Sales Other Total
----- ----- ----- -----
Sales $ 2,721,388 $ 6,141,222 $ 169,222 $ 9,032,332
Gross profit 784,506 1,124,070 (68,478) 1,840,098
Operating earnings 254,483 461,987 (626,947) 89,523
Depreciation and
amortization 135,780 47,110 85,238 268,128
Total assets 1,773,363 2,194,267 231,072 4,198,702
Capital expenditures 124,405 12,728 31,531 168,664
</TABLE>
NOTE 16. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred
and are included in operating expenses. The amounts charged for the
years ended December 31, 1998 and 1997 were $191,557 and $144,703,
respectively.
-56-
<PAGE> 60
PART III
ITEM 1. INDEX TO EXHIBITS.
3 (a) Amended and restated articles of incorporation
3 (b) Amended and restated code of regulations
4 Instruments defining the rights of security holders, including
indentures
10 (a) Technology license agreement between Pinnacle Data Systems, Inc. and
Sun Microsystems, Inc. dated May 12, 1994
10 (b) Development and manufacturing license agreement between Pinnacle Data
Systems, Inc. and Sun Microsystems, Inc. dated October 27, 1997
10 (c) Technology license and distribution agreement between Pinnacle Data
Systems, Inc. and Sun Microsystems, Inc. dated January 15, 1999
10 (d) Repair services agreement between Pinnacle Data Systems, Inc. and Sun
Microsystems, Inc. dated March 29, 1999
10 (e)* Employment agreement between Pinnacle Data Systems, Inc. and John D.
Bair dated October 29, 1997
10 (f)* Employment agreement between Pinnacle Data Systems, Inc. and C. Robert
Hahn dated October 29, 1997
10 (g)* Employment agreement between Pinnacle Data Systems, Inc. and Thomas J.
Carr dated October 29, 1997
10 (h)* Employment agreement between Pinnacle Data Systems, Inc. and Michael L.
Antill dated September 20, 1999
10 (i)* Standard form Director stock option agreement between Pinnacle Data
Systems, Inc. and individual members of the Board of Directors
10 (j)* Employment agreement and stock option agreement between Pinnacle Data
Systems, Inc. and David J. Richards dated July 22, 1998
10 (k)* Pinnacle Data Systems, Inc. 1995 stock option plan
10 (l) Real estate contract on sale of building, dated March 17, 1999
10 (m) Lease agreement between Pinnacle Data Systems, Inc. and Duke Realty
Limited Partnership dated March 9, 1999
10 (n) Loan and security agreement between Pinnacle Data Systems, Inc. and
Firstar Bank, N.A. dated September 30, 1999
- --------------------------------------------------------------------------------
* Employee benefit plan arrangement
ITEM 2. DESCRIPTION OF EXHIBITS.
See Item 1 above.
-57-
<PAGE> 61
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PINNACLE DATA SYSTEMS, INC.
Date : December 13, 1999 By: /s/ John D. Bair
-----------------------
John D. Bair, President
-58-
<PAGE> 62
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
3 (a) Amended and restated articles of incorporation
3 (b) Amended and restated code of regulations
4 Instruments defining the rights of security holders, including
indentures
10 (a) Technology license agreement between Pinnacle Data Systems, Inc. and
Sun Microsystems, Inc. dated May 12, 1994
10 (b) Development and manufacturing license agreement between Pinnacle Data
Systems, Inc. and Sun Microsystems, Inc. dated October 27, 1997
10 (c) Technology license and distribution agreement between Pinnacle Data
Systems, Inc. and Sun Microsystems, Inc. dated January 15, 1999
10 (d) Repair services agreement between Pinnacle Data Systems, Inc. and Sun
Microsystems, Inc. dated March 29, 1999
10 (e)* Employment agreement between Pinnacle Data Systems, Inc. and John D.
Bair dated October 29, 1997
10 (f)* Employment agreement between Pinnacle Data Systems, Inc. and C. Robert
Hahn dated October 29, 1997
10 (g)* Employment agreement between Pinnacle Data Systems, Inc. and Thomas J.
Carr dated October 29, 1997
10 (h)* Employment agreement between Pinnacle Data Systems, Inc. and Michael L.
Antill dated September 20, 1999
10 (i)* Standard form Director stock option agreement between Pinnacle Data
Systems, Inc. and individual members of the Board of Directors
10 (j)* Employment agreement and stock option agreement between Pinnacle Data
Systems, Inc. and David J. Richards dated July 22, 1998
10 (k)* Pinnacle Data Systems, Inc. 1995 stock option plan
10 (l) Real estate contract on sale of building, dated March 17, 1999
10 (m) Lease agreement between Pinnacle Data Systems, Inc. and Duke Realty
Limited Partnership dated March 9, 1999
10 (n) Loan and security agreement between Pinnacle Data Systems, Inc. and
Firstar Bank, N.A. dated September 30, 1999
- --------------------------------------------------------------------------------
* Employee benefit plan arrangement
<PAGE> 1
EXHIBIT NO. 3(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PINNACLE DATA SYSTEMS, INC.
FIRST: The name of the Corporation is "Pinnacle Data Systems, Inc."
SECOND: The place in the State of Ohio where the principal office of
the Corporation is to be located is the City of Columbus, Franklin County.
THIRD: The purpose or purposes for which the Corporation is formed are
to engage in any lawful act or activity for which corporations may be formed
under Section Section to 1701.98, inclusive, of the Ohio Revised Code and any
amendments heretofore or hereafter made thereto.
FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is Five Million (5,000,000), all of which shall
be common shares without par value.
Upon the effectiveness of these Amended and Restated Articles of
Incorporation, each of the 400 currently outstanding common shares, $1.00 par
value, of the Corporation shall be automatically converted into 1,750 common
shares, without par value, of the Corporation, and the stated capital of the
common shares outstanding immediately after such conversion shall be equal to
the stated capital of the common shares outstanding immediately prior to such
conversion.
FIFTH: To the extent permitted by law, the Corporation may purchase or
otherwise acquire shares of any class issued by it at such times, for such
consideration, and upon such terms and conditions as its board of directors may
determine.
SIXTH: A director or officer of the Corporation shall not be
disqualified by his or her office from dealing or contracting with the
Corporation as a vendor, purchaser, employee, agent, or otherwise. No
transaction or contract or act of the Corporation shall be void or voidable or
in any way affected or invalidated by reason of the fact that any director or
officer, or any firm of which any director of officer is a shareholder,
director, or trustee, or any trust of which any director or officer is a trustee
or beneficiary, is in any way interested in such transaction or contract or act.
No director or officer shall be accountable or responsible to the Corporation
for or in respect to any transaction or contract or act of the Corporation or
for any gains or profits directly or indirectly realized by him or her by reason
of the fact that he or she or any firm of which he or she is a member or any
corporation of which he or she is a shareholder, director, or trustee, or any
trust of which he or she is a trustee or beneficiary, is interested in such
transaction or contract or act; provided the fact that such director or officer
or such firm or corporation or such trust is so interested shall have been
disclosed or shall have been known to
<PAGE> 2
the board of directors or such members thereof as shall be present at any
meeting of the board of directors at which action upon such contract or
transaction or act shall have been taken. Any director may be counted in
determining the existence of a quorum at any meeting of the board of directors
which shall authorize or take action in respect to any such contract or
transaction or act, and may vote thereat to authorize, ratify, or approve any
such contract or transaction or act, and any officer of the Corporation may take
any action within the scope of his or her authority respecting such contract or
transaction or act with like force and effect as if he or she or any firm of
which he or she is a member, or any corporation of which he or she is a
shareholder, director, or trustee, or any trust of which he or she is a trustee
or beneficiary, were not interested in such contract or transaction or act.
Without limiting or qualifying the foregoing, if in any judicial or other
inquiry, suit, cause, or proceeding, the question of whether a director or
officer of the Corporation has acted in good faith is material, then
notwithstanding any statute or rule of law or of equity to the contrary (if any
there be), his or her good faith shall be presumed, in the absence of proof to
the contrary by clear and convincing evidence.
SEVENTH: No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares of
any class, now or hereafter authorized, or to subscribe for or to purchase
securities convertible into or exchangeable for shares of the Corporation, or to
which shall be attached or appertain any warrants or rights entitling the holder
thereof to subscribe for or purchase shares, except such rights of subscription
or purchase if any, for such considerations and upon such terms and conditions
as its board of directors from time to time may determine.
EIGHTH: No amendment to these Articles of Incorporation or the Code of
Regulations of the Corporation shall amend, alter, change or repeal the
application of ss.1701.831, Ohio Revised Code, or any other similar or like
control share acquisition statute now or hereafter in effect in the State of
Ohio unless approved by the affirmative vote of holders of shares entitling them
to exercise at least two-thirds of the voting power of the Corporation on such
proposal; provided, however, that such two-thirds voting requirement shall not
be applicable if the Corporation's Board of Directors shall have approved such
amendment by a resolution adopted by at least two-thirds of the members of the
Board of Directors, in which case such amendment may be approved by the
affirmative vote of holders of shares entitling them to exercise a majority of
the voting power of the Corporation on such proposal.
NINTH: No holder of shares of the Corporation of any class shall have
the right to cumulate his voting power in the election of directors of the
Corporation and the right to cumulative voting described in ss.1701.55, Ohio
Revised Code, is hereby specifically denied to the holders of the shares of any
class of the Corporation.
TENTH: Notwithstanding any provision of the Ohio Revised Code
ss.ss.1701.01 to 1701.98, inclusive, now or hereafter in force, requiring for
the authorization or taking of any action the vote or consent of the holders of
shares entitling them to exercise two-thirds or any other proportion of the
voting power of the Corporation or of any class or classes of shares thereof,
such action, unless otherwise expressly required by law or these Articles of
Incorporation, may be authorized or taken by the vote or consent of the holders
of shares entitling them to exercise a majority of the voting power of the
Corporation or of such class or classes of shares thereof.
<PAGE> 1
EXHIBIT NO. 3(b)
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
PINNACLE DATA SYSTEMS, INC.
Adopted: November 9, 1995
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 Meetings of Shareholders 1
Section 1.1 Annual Meeting 1
Section 1.2 Special Meetings 1
Section 1.3 Place of Meetings 1
Section 1.4 Notice of Meetings 1
Section 1.5 Waiver of Notice 2
Section 1.6 Quorum 2
Section 1.7 Organization 2
Section 1.8 Order of Business 2
Section 1.9 Voting 3
Section 1.10 Proxies 3
Section 1.11 Inspectors of Elections 3
Section 1.12 Record Date 3
Section 1-13 List of Shareholders at Meeting 3
Section 1.14 Action in Writing in Lieu of Meeting 4
ARTICLE 2 Board of Directors 4
Section 2.1 General Powers of Board 4
Section 2.2 Number of Directors 4
Section 2.3 Compensation and Expenses 4
Section 2.4 Election of Directors 4
Section 2.5 Term of Office 4
Section 2.6 Resignations 5
Section 2.7 Removal of Directors 5
Section 2.8 Vacancies 5
Section 2.9 Organization of Meetings 5
Section 2.10 Place of Meetings 5
Section 2.11 Regular Meetings 5
Section 2.12 Special Meetings 6
Section 2.13 Notices of Meetings 6
Section 2.14 Notice of Adjournment of Meeting 6
Section 2.15 Quorum and Manner of Acting 6
Section 2.16 Order of Business 7
Section 2.17 Action in Writing in Lieu of Meeting 7
Section 2.18 Executive and Other Committees 7
-i-
<PAGE> 3
Page
----
ARTICLE 3 Officers 8
Section 3.1 Number and Titles 8
Section 3.2 Election, Terms of Office, Qualifications,
and Compensation 8
Section 3.3 Additional Officers, Agents, Etc. 8
Section 3.4 Removal 8
Section 3.5 Resignations 9
Section 3.6 Vacancies 9
Section 3.7 Powers, Authority, and Duties of Officers 9
ARTICLE 4 Shares and Their Transfer 9
Section 4.1 Certificates for Shares 9
Section 4.2 Transfer of Shares 10
Section 4.3 Regulations 10
Section 4.4 Lost, Destroyed or Stolen Certificates 10
ARTICLE 5 Examination of Books by Shareholders 11
ARTICLE 6 Indemnification and Insurance 11
Section 6.1 Costs Incurred 11
Section 6.2 Indemnification Procedure 12
Section 6.3 Advance Payment of Costs 12
Section 6.4 non-exclusive 12
Section 6.5 Insurance 12
Section 6.6 Survival 13
Section 6.7 Successors 13
ARTICLE 7 Seal 13
ARTICLE 8 Fiscal Year 13
ARTICLE 9 Control Share Acquisitions 13
ARTICLE 10 Amendment of Regulations 13
ARTICLE 11 Close Corporation Agreement 14
-ii-
<PAGE> 4
CODE OF REGULATIONS
ARTICLE 1
Meetings of Shareholders
------------------------
Section 1.1 ANNUAL MEETING. The annual meeting of the shareholders, for
the purpose of electing directors and transacting such other business as may
come before the meeting, shall be held on such date and at such time during the
first six months of each fiscal year of the Company as may be fixed by the board
of directors and stated in the notice of the meeting.
Section 1.2 SPECIAL MEETINGS. A special meeting of the shareholders may
be called by the chairman of the board, or the president, or a majority of the
directors acting with or without a meeting, or the holders of shares entitling
them to exercise 25% of the voting power of the Company entitled to be voted at
the meeting. Upon delivery to the chairman, president, or secretary of a request
in writing for a special meeting of the shareholders by any persons entitled to
call such meeting, the officer to whom the request is delivered shall give
notice to the shareholders of such meeting. Any such request shall specify the
purposes and the date and hour for such meeting. The date shall be at least 14
and not more than 65 days after delivery of the request. If such officer does
not call the meeting within five days after any such request, the persons making
the request may call the meeting by giving notice as provided in Section 1.4 or
by causing it to be given by their designated representative.
Section 1.3 PLACE OF MEETINGS. All meetings of shareholders shall be
held at such place or places, within or without the State of Ohio, as may be
fixed by the board of directors or, if not so fixed, as shall be specified in
the notice of the meeting.
Section 1.4 NOTICE OF MEETINGS. Every shareholder shall furnish the
secretary of the Company with an address at which notices of meetings and all
other corporate notices may be served on or mailed to him. Except as otherwise
expressly required by law, notice of each shareholders' meeting, whether annual
or special, shall, not more than 60 days and at least 7 days before the date
specified for the meeting, be given by the chairman, president, or secretary or,
in case of their refusal or failure to do so, by the person or persons entitled
to call such meeting, to each shareholder entitled to notice of the meeting, by
delivering a written or printed notice to him personally or by mailing the
notice in a postage-prepaid envelope addressed to him at his address furnished
by him as above provided, or, if he shall not have furnished such address, at
his post office address last known to the sender. Except when expressly required
by law, no publication of any notice of a shareholders' meeting shall be
required. If shares are transferred after notice has been given, notice need not
be given to the transferee. A record date may be fixed for determining the
shareholders entitled to notice of any meeting of shareholders, in accordance
with the provisions of Section 1.12. Every notice of a shareholders' meeting,
besides stating the time and place of the meeting, shall state briefly the
purposes of the meeting as may be specified by the person or persons requesting
or calling the meeting. Only the business provided for in such notice shall be
considered at the meeting. Notice of the adjournment of a meeting need not be
given if the time and place to which it is adjourned are fixed and announced at
the meeting.
<PAGE> 5
Section 1.5 WAIVER OF NOTICE. Any shareholder, either before or after
any meeting, may waive any notice required by law, the articles, or these
regulations. Waivers must be in writing and filed with or entered upon the
records of the meeting. Notice of a meeting will be deemed to have been waived
by any shareholder who attends the meeting either in person or by proxy, and who
does not, before or at the commencement of the meeting, protest the lack of
proper notice.
Section 1.6 QUORUM. The holders of shares entitling them to exercise a
majority of the voting power of the Company entitled to vote at a meeting,
present in person or by proxy, shall constitute a quorum for the transaction of
business, except when a greater number is required by law, the articles of
incorporation, or these regulations. In the absence of a quorum at any meeting
or any adjournment of the meeting, the holders of shares entitling them to
exercise a majority of the voting power of the shareholders present in person or
by proxy and entitled to vote may adjourn the meeting from time to time. 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.
Section 1.7 ORGANIZATION. At each shareholders' meeting the chairman of
the board, or, in his absence, the president, or, in the absence of both of
them, a chairman chosen by the holders of shares entitling them to exercise a
majority of the voting power of the shareholders present in person or by proxy
and entitled to vote, shall act as chairman, and the secretary of the Company,
or, in his absence, any assistant secretary, or, in the absence of all of them,
any person whom the chairman of the meeting appoints, shall act as secretary of
the meeting.
Section 1.8 ORDER OF BUSINESS. The order of business at each meeting of
the shareholders shall be fixed by the chairman of the meeting at the beginning
of the meeting but may be changed by the vote of the holders of shares entitling
them to exercise a majority of the voting power of the shareholders present in
person or by proxy and entitled to vote.
Section 1.9 VOTING. Each holder of a share or shares of the class or
classes entitled to vote by law or the articles of incorporation shall be
entitled to one vote in person or by proxy for each such share registered in his
name on the books of the Company. As provided in Section 1.12, a record date for
determining which shareholders are entitled to vote at any meeting may be fixed.
Shares of its own stock belonging to the Company shall not be voted directly or
indirectly. Persons holding voting shares in a fiduciary capacity shall be
entitled to vote the shares so held. A shareholder whose shares are pledged
shall be entitled to vote the shares standing in his name on the books of the
Company. Upon a demand by any shareholder present in person or by proxy at any
meeting and entitled to vote, any vote shall be by ballot. Each ballot shall be
signed by the shareholder or his proxy and shall state the number of shares
voted by him. Otherwise, votes shall be made orally.
Section 1.10 PROXIES. Any shareholder who is entitled to attend or vote
at a shareholders' meeting shall be entitled to exercise such right and any
other of his rights by proxy or proxies appointed by a writing signed by such
shareholder, which need not be witnessed or acknowledged. Except as otherwise
specifically provided in these regulations, actions taken by proxy shall be
governed by the provisions of Section 1701.48, Ohio Revised Code, or any similar
statute which may hereafter be enacted, including the provisions relating to the
sufficiency of the writing, duration of the validity of the proxy, power of
substitution, revocation, and all other provisions.
<PAGE> 6
Section 1.11 INSPECTORS OF ELECTIONS. Inspectors of elections may be
appointed and act as provided in Section 1701.50, Ohio Revised Code, or any
future statute of like tenor or effect.
Section 1.12 RECORD DATE. The board of directors may fix a record date
for any lawful purpose, including without limitation the determination of
shareholders entitled to: (a) receive notice of or to vote at any meeting, (b)
receive payment of any dividend or other distribution, (c) receive or exercise
rights of purchase of, subscription for, or exchange or conversion of, shares or
other securities, subject to any contract right with respect thereto, or (d)
participate in the execution of written consents, waivers, or releases. Any such
record date shall not be more than 60 days preceding the date of such meeting,
the date fixed for the payment of any dividend or other distribution, or the
date fixed for the receipt or the exercise of rights, as the case may be.
Section 1.13 LIST OF SHAREHOLDERS AT MEETING. Upon request of any
shareholder at any meeting of shareholders, there shall be produced at the
meeting an alphabetically arranged list, or classified lists, of the
shareholders of record as of the applicable record date who are entitled to
vote, showing their respective addresses and the number and classes of shares
held by them.
Section 1.14 ACTION IN WRITING IN LIEU OF MEETING. Any action which may
be authorized or be taken at a meeting of the shareholders, may be authorized or
taken without a meeting with the affirmative vote or approval of, and in a
writing or writings signed by, all the shareholders who would be entitled to
notice of a meeting of the shareholders held for that purpose.
ARTICLE 2
Board of Directors
------------------
Section 2.1 GENERAL POWERS OF BOARD. The powers of the Company shall be
exercised, its business and affairs shall be conducted, and its property shall
be controlled by the board of directors, except as otherwise provided by laws of
the State of Ohio, the Company's articles of incorporation, or these
regulations.
Section 2.2 NUMBER OF DIRECTORS. Until changed in accordance with this
section, the number of directors of the Company, none of whom need be
shareholders, shall be not less than three nor more than seven, provided that
when all shares of the Company are owned of record by one or two shareholders,
the number of directors may be less than three but not less than the number of
shareholders. The number of directors may be fixed or changed at any annual
meeting of the shareholders, or at any special meeting of the shareholders
called for that purpose, by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the Company on such
proposal.
Section 2.3 COMPENSATION AND EXPENSES. The directors shall be entitled
to such compensation, on a monthly or annual basis, or on the basis of meetings
attended, or on both bases, as the board of directors may from time to time
determine and establish. No director shall be precluded from serving the Company
as an officer or in any other capacity, or from receiving compensation for so
serving. Directors may be reimbursed for their reasonable expenses incurred in
the
<PAGE> 7
performance of their duties, including the expense of traveling to and from
meetings of the board, if such reimbursement is authorized by the board of
directors.
Section 2.4 ELECTION OF DIRECTORS. At each meeting of the shareholders
for the election of directors at which a quorum is present, the persons
receiving the greatest number of votes shall be deemed elected directors.
Section 2.5 TERM OF OFFICE. Each director shall hold office until the
annual meeting of shareholders in the year of the expiration of his term of
office, or, if the election of directors shall not be held at that annual
meeting, until a special meeting of the shareholders for the purpose of electing
directors is held as provided in Section 1.2, or the taking of action by all the
shareholders in writing in lieu of either such meetings, and in any case until
his successor is elected and qualified or until his earlier resignation, removal
from office, or death.
Section 2.6 RESIGNATIONS. Any director may resign by giving written
notice to the chairman, the president, or the secretary of the Company. Such
resignation shall take effect at the time specified therein. Unless otherwise
specified therein, the acceptance of a resignation shall not be necessary to
make it effective.
Section 2.7 REMOVAL OF DIRECTORS. All directors or any individual
director may be removed from office, without assigning any cause, by the
affirmative vote of the holders of record of not less than 75% of the shares
having voting power of the Company with respect to the election of directors,
provided that unless all directors are removed, no individual director shall be
removed in case the votes of a sufficient number of shares are cast against his
removal which, if cumulatively voted at an election of all directors, would be
sufficient to elect at least one director. In case of any such removal, a new
director may be elected at the same meeting for the un-expired term of each
director removed. Any director may also be removed by the board of directors for
any of the causes specified in Section 1701.58(B), Ohio Revised Code, or any
similar statute which may hereafter be enacted.
Section 2.8 VACANCIES. A vacancy in the board of directors may be
filled by majority vote of the remaining directors, even though they are less
than a quorum, until the shareholders hold an election to fill the vacancy.
Shareholders entitled to elect directors may elect a director to fill any
vacancy in the board (whether or not the vacancy has previously been temporarily
filled by the remaining directors) at any shareholders' meeting called for that
purpose.
Section 2.9 ORGANIZATION OF MEETINGS. At each meeting of the board of
directors, the chairman of the board, or, in his absence, the president, or, in
his absence, a chairman chosen by a majority of the directors present, shall act
as chairman. The secretary of the Company, or, if the secretary shall not be
present, any person whom the chairman of the meeting shall appoint, shall act as
secretary of the meeting.
Section 2.10 PLACE OF MEETINGS. Meetings of the board shall be held at
such place or places, within or without the State of Ohio, as may from time to
time be fixed by the board of directors or as shall be specified or fixed in the
notice of the meeting.
Section 2.11 REGULAR MEETINGS. Regular meetings of the board will not
be held unless this code of regulations shall be amended to provide therefor.
<PAGE> 8
Section 2.12 SPECIAL MEETINGS. Special meetings of the board of
directors shall be held whenever called by the chairman of the board, if any, or
by the president, or by any two directors.
Section 2.13 NOTICES OF MEETINGS. Every director shall furnish the
secretary of the Company with an address at which notices of meetings and all
other corporate notices may be served on or mailed to him. Unless waived before,
at, or after the meeting as hereinafter provided, notice of each board meeting
shall be given by the chairman, the president, the secretary, an assistant
secretary, or the persons calling such meeting, to each director in any of the
following ways:
(a) By orally informing him of the meeting in person or by
telephone not later than two days before the date of the meeting.
(b) By delivering written notice to him not later than two
days before the date of the meeting.
(c) By mailing written notice to him, or by sending notice to him
by telegram, cablegram, or radiogram, postage or other costs
prepaid, addressed to him at the address furnished by him to the
secretary of the Company, or to such other address as the person
sending the notice shall know to be correct. Such notice shall be
posted or dispatched a sufficient length of time before the
meeting so that in the ordinary course of the mail or the
transmission of telegrams, cablegrams, or radiograms, delivery
would normally be made to him not later than two days before the
date of the meeting.
Unless otherwise required by the articles of incorporation,
this code of regulations, or the laws of the State of Ohio (for example, see the
provisions of the code of regulations with respect to the election or removal of
directors), the notice of any meeting need not specify the purposes of the
meeting. Notice of any meeting of the board may be waived by any director,
either before, at, or after the meeting, in writing, or by telegram, cablegram,
or radiogram.
Section 2.14 NOTICE OF ADJOURNMENT OF MEETING. Notice of adjournment of
a meeting need not be given if the time and place to which it is adjourned are
fixed and announced at the meeting.
Section 2. 15 QUORUM AND MANNER OF ACTING. A majority of the number of
directors fixed or established pursuant to Section 2.2 as of the time of any
meeting of the board of directors must be present in person at such meeting in
order to constitute a quorum for the transaction of business, provided that
meetings of the directors may include participation by directors through any
communications equipment if all directors participating can hear each other, and
such participation in a meeting shall constitute presence at such meeting. 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,
a majority of those present may adjourn a meeting from time to time until a
quorum is present. Notice of an adjourned meeting need not be given. The
directors shall act only as a board. Individual directors shall have no power as
such.
<PAGE> 9
Section 2.16 ORDER OF BUSINESS. The order of business at meetings of
the board shall be such as the chairman of the meeting may prescribe or follow,
subject, however, to his being overruled with respect thereto by a majority of
the members of the board present.
Section 2.17 ACTION IN WRITING IN LIEU OF MEETING. Any action which may
be authorized or taken at a meeting of the directors may be authorized or taken
without a meeting with the affirmative vote or approval of, and in a writing or
writings signed by, all the directors.
Section 2.18 EXECUTIVE AND OTHER COMMITTEES. The directors may create
and from time to time abolish or reconstitute an executive committee and any
other committee or committees of directors each to consist of not less than
three directors, and may delegate to any such committee or committees any or all
of the authority of the directors, however conferred, other than that of filling
vacancies in the board of directors or in any committee of directors. Each such
committee shall serve at the pleasure of the directors, and shall act only in
the intervals between meetings of the board of directors, and shall be subject
to the control and direction of the board of directors. The directors may adopt
or authorize the committees to adopt provisions with respect to the government
of any such committee or committees which are not inconsistent with applicable
law, the articles of incorporation of the Company, or these regulations. An act
or authorization of any act by any such committee within the authority properly
delegated to it by the directors shall be as effective for all purposes as the
act or authorization of the directors. Any right, power, or authority conferred
in these regulations to the "directors" or to the "board of directors" shall
also be deemed conferred upon each committee or committees of directors to which
any such right, power, or authority is delegated (expressly, or by general
delegation, or by necessary implication) by the board of directors.
ARTICLE 3
Officers
--------
Section 3.1 NUMBER AND TITLES. The officers of the Company shall be a
chairman of the board, if needed, a president, one or more vice presidents, if
needed, a secretary, one or more assistant secretaries if needed, a treasurer,
and one or more assistant treasurers, if needed secretaries. The board shall
have the discretion to determine from time to time whether or not a chairman of
the board is needed, the number of vice presidents, if any, the Company shall
have, whether or not assistant secretaries and assistant treasurers are needed,
and, if so, the number of assistant secretaries and assistant treasurers the
Company shall have. If there is more than one vice president, the board may, in
its discretion, establish designations for the vice presidencies so as to
distinguish among them as to their functions or their order, or both. Any two or
more offices may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law, the Company's articles of incorporation, or these
regulations to be executed, acknowledged, or verified by two or more officers.
Section 3.2 ELECTION, TERMS OF OFFICE, QUALIFICATIONS, AND
COMPENSATION. The officers shall be elected by the board of directors. Each
shall be elected for an indeterminate term and shall hold office during the
pleasure of the board of directors. The board of directors may hold annual
<PAGE> 10
elections of officers; in that event each such officer shall hold office until
his successor is elected and qualified unless he earlier is removed by the board
of directors. The chairman of the board, if one is elected, shall be a director,
but no other officer need be a director. The other qualifications of all
officers shall be such as the board of directors may establish from time to
time. The board of directors shall fix the compensation, if any, of each
officer.
Section 3.3 ADDITIONAL OFFICERS, AGENTS, ETC. In addition to the
officers mentioned in Section 3.1, the Company may have such other officers,
agents, and committees as the board of directors may deem necessary and may
appoint, each of whom or each member of which shall hold office for such period,
have such authority, and perform such duties as may be provided in these
regulations or as may be determined by the board from time to time. The board of
directors may delegate to any officer or committee the power to appoint any
subordinate officer, agents, or committees. In the absence of any officer, or
for any other reason the board of directors may deem sufficient, the board of
directors may delegate, for the time being, the powers and duties, or any of
them, of such officer to any other officer, or to any director.
Section 3.4 REMOVAL. Any officer may be removed, either with or without
cause, at any time, by the board of directors at any meeting, the notices (or
waivers of notices) of which shall have specified that such removal action was
to be considered. Any officer appointed by an officer or committee to which the
board shall have delegated the power of appointment may be removed, either with
or without cause, by the committee or superior officer (including successors)
who made the appointment, or by any committee or officer upon whom such power of
removal may be conferred by the board of directors.
Section 3.5 RESIGNATIONS. Any officer may resign at any time by giving
written notice to the board of directors, the chairman, the president, or the
secretary. Any such resignation shall take effect at the time specified therein.
Unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3.6 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed for regular appointments or elections to such office.
Section 3.7 POWERS, AUTHORITY, AND DUTIES OF OFFICERS. Officers of the
Company shall have the powers and authority conferred and the duties prescribed
by law, in addition to those specified or provided for in these regulations and
such other powers, authority, and duties as may be determined by the board of
directors from time to time.
ARTICLE 4
Shares and Their Transfer
-------------------------
Section 4.1 CERTIFICATES FOR SHARES. Every owner of one or more shares
in the Company shall be entitled to a certificate or certificates, which shall
be in such form as may be approved by the board of directors, certifying the
number and class of shares in the Company owned by him. The certificates for the
respective classes of such shares shall be numbered in the order in which they
are issued and shall be signed by the chairman, the president, or a vice
president and by the
<PAGE> 11
secretary, an assistant secretary, the treasurer, or assistant treasurer;
provided that, if such certificates are countersigned by a transfer agent or
registrar, the signatures of such officers upon such certificates may be
facsimiles, stamped, or printed. If an officer who has signed or whose facsimile
signature has been used, stamped, or printed on any certificates ceases to be
such officer because of death, resignation or other reason before such
certificates are delivered by the Company, such certificates shall nevertheless
be conclusively deemed to be valid if countersigned by any such transfer agent
or registrar. A record shall be kept of the name of the owner or owners of the
shares represented by each such certificate and the number of shares represented
thereby, the date thereof, and in case of cancellation, the date of
cancellation. Every certificate surrendered to the Company for exchange or
transfer shall be cancelled and no new certificate or certificates shall be
issued in exchange for any existing certificates until such existing
certificates shall have been so cancelled, except in cases provided for in
Section 4.4.
Section 4.2 TRANSFER OF SHARES. Any certificate for shares of the
Company shall be transferable in person or by attorney upon the surrender of the
certificate to the Company or any transfer agent for the Company (for the class
of shares represented by the certificate surrendered) properly endorsed for
transfer and accompanied by such assurances as the Company or its transfer agent
may require as to the genuineness and effectiveness of each necessary
endorsement. The person in whose name any shares stand on the books of the
Company shall, to the fullest extent permitted by law, be conclusively deemed to
be the unqualified owner and holder of the shares and entitled to exercise all
rights of ownership, for all purposes relating to the Company. Neither the
Company nor any transfer agent of the Company shall be required to recognize any
equitable interest in, or any claim to, any such shares on the part of any other
person, whether disclosed on the certificate or any other way, nor shall they be
required to see to the performance of any trust or other obligation.
Section 4.3 REGULATIONS. The board of directors may make such rules and
regulations as it may deem expedient or advisable, not inconsistent with these
regulations, concerning the issue, transfer, and registration of certificates
for shares. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
Section 4.4 LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Company which is alleged to have been lost, destroyed,
or wrongfully taken upon: (a) the execution and delivery to the Company by the
person claiming the certificate to have been lost, destroyed, or wrongfully
taken of an affidavit of that fact in form satisfactory to the Company,
specifying whether or not the certificate was endorsed at the time of such
alleged loss, destruction or taking, and (b) the receipt by the Company of a
surety bond, indemnity agreement, or any other assurances satisfactory to the
Company and to all transfer agents and registrars of the class of shares
represented by the certificate against any and all losses, damages, costs,
expenses, liabilities or claims to which they or any of them may be subjected by
reason of the issue and delivery of such new certificate or certificates or with
respect to the original certificate.
ARTICLE 5
Examination of Books by Shareholders
------------------------------------
<PAGE> 12
The board of directors may make reasonable rules and regulations
prescribing under what conditions the books, records, accounts, and documents of
the Company, or any of them, shall be open to the inspection of the
shareholders. No shareholder shall be denied any right which is conferred by
Section 1701.37, Ohio Revised Code, or any other applicable law to inspect any
book, record, account, or document of the Company. An original or duplicate
stock ledger showing the names and addresses of the shareholders and the number
and class of shares issued or transferred of record to or by them from time to
time shall at all times during the usual hours for business be open to the
examination of every shareholder at the principal office or place of business of
the Company in the State of Ohio.
ARTICLE 6
Indemnification and Insurance
-----------------------------
Section 6.1 COSTS INCURRED. The Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he is or was a
director, officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding provided that: (a) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; (b) with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful; and (c) in any action or
suit by or in the right of the Company, no indemnification shall be made with
respect to any amounts paid in settlement or with respect to any claim, issue,
or matter as to which such person shall have been adjudged to be liable
negligence or misconduct in the performance of his duty to Company unless and
only to the extent that the Court of Common Pleas or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court of common pleas or such other court shall deem proper. The termination of
any action, suit, or proceeding by judgment, order, settlement, or conviction,
or upon a plea of NOLO CONTENDERE or its equivalent, shall not of itself, create
a presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 6.2 INDEMNIFICATION PROCEDURE. Any indemnification under
Section 6.1 shall be made by the Company only if and as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Section 6.1. Such
determination shall be made by one of the following methods: (a) by a majority
vote of a quorum consisting of directors of the Company who were not and are not
parties to or threatened with any such action, suit, or proceeding; or (b) if
such a quorum is not obtainable or if a majority vote of a quorum of
<PAGE> 13
disinterested directors so directs, in a written opinion by independent legal
counsel retained by the Company, other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has performed
services for the Company or any person to be indemnified within the past five
years; or (c) by the shareholders; or (d) by the Court of Common Pleas of
Franklin County, Ohio, or the court in which such action, suit, or proceeding
was brought.
Section 6.3 ADVANCE PAYMENT OF COSTS. Expenses, including attorneys'
fees, incurred in defending any action, suit, or proceeding referred to in
Section 6.1 may be paid by the company in advance of the final disposition of
such action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company as authorized in
this Article.
Section 6.4 NON-EXCLUSIVE. The indemnification authorized in this
Article shall not be deemed exclusive of any other rights to which persons
seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 6.5 INSURANCE. The Company may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Company, or is or was serving at the request of the Company as a director,
trustee, officer, employee, or agent of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under this Article
or under Chapter 1701, Ohio Revised Code.
Section 6.6 SURVIVAL. The indemnification authorized in this Article
shall continue as to a person who has ceased to be a director, trustee, officer,
employee, or agent.
Section 6.7 SUCCESSORS. The indemnification authorized in this Article
shall inure to the benefit of the heirs, executors, and administrators of any
person entitled to indemnification under this Article.
ARTICLE 7
Seal
----
The board of directors may adopt and alter a corporate seal and use the
same or a facsimile thereof, but failure to affix the corporate seal, if any,
shall not affect the validity of any instrument.
ARTICLE 8
Fiscal Year
-----------
<PAGE> 14
The fiscal year of the Company shall be fixed and may be changed from
time to time by the board of directors.
ARTICLE 9
Control Share Acquisitions
--------------------------
Section 1701.831, Ohio Revised Code, shall not apply to control share
acquisitions of shares of the Company.
ARTICLE 10
Amendment of Regulations
------------------------
These regulations may be amended or new regulations may be adopted: (a)
at any meeting of the shareholders held for such purpose, by the affirmative
vote of the holders of record of shares entitling them to exercise a majority of
the voting power on such proposal; or (b) without a meeting of the shareholders,
by the written consent of the holders of record of shares entitling them to
exercise a majority of the voting power on such proposal. If any amendment or
new regulations are adopted without a meeting of the shareholders, the secretary
shall mail a copy of the amendment or new regulations to each shareholder who
would have been entitled to vote on the proposal but who did not participate in
the adoption of the amendment or new regulations.
ARTICLE 11
Close Corporation Agreement
---------------------------
These regulations may be superseded in whole or part, at any time and
from time to time, by any close corporation agreement between the shareholders
of the Company pursuant to Section 1701.591, Ohio Revised Code, or any similar
statute which may hereafter be enacted.
<PAGE> 1
EXHIBIT NO. 4
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
EXCERPTS FROM PINNACLE DATA SYSTEMS, INC. ARTICLES OF INCORPORATION
FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is Five Million (5,000,000), all of which shall
be common shares without par value.
Upon the effectiveness of these Amended and Restated Articles of
Incorporation, each of the 400 currently outstanding common shares, $1.00 par
value, of the Corporation shall be automatically converted into 1,750 common
shares, without par value, of the Corporation, and the stated capital of the
common shares outstanding immediately after such conversion shall be equal to
the stated capital of the common shares outstanding immediately prior to such
conversion.
SEVENTH: No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares of
any class, now or hereafter authorized, or to subscribe for or to purchase
securities convertible into or exchangeable for shares of the Corporation, or to
which shall be attached or appertain any warrants or rights entitling the holder
thereof to subscribe for or purchase shares, except such rights of subscription
or purchase if any, for such considerations and upon such terms and conditions
as its board of directors from time to time may determine.
EIGHTH: No amendment to these Articles of Incorporation or the Code of
Regulations of the Corporation shall amend, alter, change or repeal the
application of Section 1701.831, Ohio Revised Code, or any other similar or like
control share acquisition statute now or hereafter in effect in the State of
Ohio unless approved by the affirmative vote of holders of shares entitling them
to exercise at least two-thirds of the voting power of the Corporation on such
proposal; provided, however, that such two-thirds voting requirement shall not
be applicable if the Corporation's Board of Directors shall have approved such
amendment by a resolution adopted by at least two-thirds of the members of the
Board of Directors, in which case such amendment may be approved by the
affirmative vote of holders of shares entitling them to exercise a majority of
the voting power of the Corporation on such proposal.
NINTH: No holder of shares of the Corporation of any class shall have
the right to cumulate his voting power in the election of directors of the
Corporation and the right to cumulative voting described in Section 1701.55,
Ohio Revised Code, is hereby specifically denied to the holders of the shares of
any class of the Corporation.
TENTH: Notwithstanding any provision of the Ohio Revised Code
Section Section 1701.01 to 1701.98, inclusive, now or hereafter in force,
requiring for the authorization or taking of any action the vote or consent of
the holders of shares entitling them to exercise two-thirds or any other
proportion of the voting power of the Corporation or of any class or classes of
shares thereof, such action, unless otherwise expressly required by law or these
Articles of Incorporation, may be authorized or taken by the vote or consent of
the holders of shares entitling them to exercise a majority of the voting power
of the Corporation or of such class or classes of shares thereof.
<PAGE> 2
EXCERPTS FROM PINNACLE DATA SYSTEMS, INC. ARTICLES OF INCORPORATION
ARTICLE 1
Meetings of Shareholders
------------------------
Section 1.1 ANNUAL MEETING. The annual meeting of the shareholders, for
the purpose of electing directors and transacting such other business as may
come before the meeting, shall be held on such date and at such time during the
first six months of each fiscal year of the Company as may be fixed by the board
of directors and stated in the notice of the meeting.
Section 1.2 SPECIAL MEETINGS. A special meeting of the shareholders may
be called by the chairman of the board, or the president, or a majority of the
directors acting with or without a meeting, or the holders of shares entitling
them to exercise 25% of the voting power of the Company entitled to be voted at
the meeting. Upon delivery to the chairman, president, or secretary of a request
in writing for a special meeting of the shareholders by any persons entitled to
call such meeting, the officer to whom the request is delivered shall give
notice to the shareholders of such meeting. Any such request shall specify the
purposes and the date and hour for such meeting. The date shall be at least 14
and not more than 65 days after delivery of the request. If such officer does
not call the meeting within five days after any such request, the persons making
the request may call the meeting by giving notice as provided in Section 1.4 or
by causing it to be given by their designated representative.
Section 1.3 PLACE OF MEETINGS. All meetings of shareholders shall be
held at such place or places, within or without the State of Ohio, as may be
fixed by the board of directors or, if not so fixed, as shall be specified in
the notice of the meeting.
Section 1.4 NOTICE OF MEETINGS. Every shareholder shall furnish the
secretary of the Company with an address at which notices of meetings and all
other corporate notices may be served on or mailed to him. Except as otherwise
expressly required by law, notice of each shareholders' meeting, whether annual
or special, shall, not more than 60 days and at least 7 days before the date
specified for the meeting, be given by the chairman, president, or secretary or,
in case of their refusal or failure to do so, by the person or persons entitled
to call such meeting, to each shareholder entitled to notice of the meeting, by
delivering a written or printed notice to him personally or by mailing the
notice in a postage-prepaid envelope addressed to him at his address furnished
by him as above provided, or, if he shall not have furnished such address, at
his post office address last known to the sender. Except when expressly required
by law, no publication of any notice of a shareholders' meeting shall be
required. If shares are transferred after notice has been given, notice need not
be given to the transferee. A record date may be fixed for determining the
shareholders entitled to notice of any meeting of shareholders, in accordance
with the provisions of Section 1.12. Every notice of a shareholders' meeting,
besides stating the time and place of the meeting, shall state briefly the
purposes of the meeting as may be specified by the person or persons requesting
or calling the meeting. Only the business provided for in such notice shall be
considered at the meeting. Notice of the adjournment of a meeting need not be
given if the time and place to which it is adjourned are fixed and announced at
the meeting.
<PAGE> 3
Section 1.5 WAIVER OF NOTICE. Any shareholder, either before or after
any meeting, may waive any notice required by law, the articles, or these
regulations. Waivers must be in writing and filed with or entered upon the
records of the meeting. Notice of a meeting will be deemed to have been waived
by any shareholder who attends the meeting either in person or by proxy, and who
does not, before or at the commencement of the meeting, protest the lack of
proper notice.
Section 1.6 QUORUM. The holders of shares entitling them to exercise a
majority of the voting power of the Company entitled to vote at a meeting,
present in person or by proxy, shall constitute a quorum for the transaction of
business, except when a greater number is required by law, the articles of
incorporation, or these regulations. In the absence of a quorum at any meeting
or any adjournment of the meeting, the holders of shares entitling them to
exercise a majority of the voting power of the shareholders present in person or
by proxy and entitled to vote may adjourn the meeting from time to time. 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.
Section 1.7 ORGANIZATION. At each shareholders' meeting the chairman of
the board, or, in his absence, the president, or, in the absence of both of
them, a chairman chosen by the holders of shares entitling them to exercise a
majority of the voting power of the shareholders present in person or by proxy
and entitled to vote, shall act as chairman, and the secretary of the Company,
or, in his absence, any assistant secretary, or, in the absence of all of them,
any person whom the chairman of the meeting appoints, shall act as secretary of
the meeting.
Section 1.8 ORDER OF BUSINESS. The order of business at each meeting of
the shareholders shall be fixed by the chairman of the meeting at the beginning
of the meeting but may be changed by the vote of the holders of shares entitling
them to exercise a majority of the voting power of the shareholders present in
person or by proxy and entitled to vote.
Section 1.9 VOTING. Each holder of a share or shares of the class or
classes entitled to vote by law or the articles of incorporation shall be
entitled to one vote in person or by proxy for each such share registered in his
name on the books of the Company. As provided in Section 1.12, a record date for
determining which shareholders are entitled to vote at any meeting may be fixed.
Shares of its own stock belonging to the Company shall not be voted directly or
indirectly. Persons holding voting shares in a fiduciary capacity shall be
entitled to vote the shares so held. A shareholder whose shares are pledged
shall be entitled to vote the shares standing in his name on the books of the
Company. Upon a demand by any shareholder present in person or by proxy at any
meeting and entitled to vote, any vote shall be by ballot. Each ballot shall be
signed by the shareholder or his proxy and shall state the number of shares
voted by him. Otherwise, votes shall be made orally.
Section 1.10 PROXIES. Any shareholder who is entitled to attend or vote
at a shareholders' meeting shall be entitled to exercise such right and any
other of his rights by proxy or proxies appointed by a writing signed by such
shareholder, which need not be witnessed or acknowledged. Except as otherwise
specifically provided in these regulations, actions taken by proxy shall be
governed by the provisions of Section 1701.48, Ohio Revised Code, or any similar
statute which may hereafter be enacted, including the provisions relating to the
sufficiency of the writing, duration of the validity of the proxy, power of
substitution, revocation, and all other provisions.
<PAGE> 4
Section 1.11 INSPECTORS OF ELECTIONS. Inspectors of elections may be
appointed and act as provided in Section 1701.50, Ohio Revised Code, or any
future statute of like tenor or effect.
Section 1.12 RECORD DATE. The board of directors may fix a record date
for any lawful purpose, including without limitation the determination of
shareholders entitled to: (a) receive notice of or to vote at any meeting, (b)
receive payment of any dividend or other distribution, (c) receive or exercise
rights of purchase of, subscription for, or exchange or conversion of, shares or
other securities, subject to any contract right with respect thereto, or (d)
participate in the execution of written consents, waivers, or releases. Any such
record date shall not be more than 60 days preceding the date of such meeting,
the date fixed for the payment of any dividend or other distribution, or the
date fixed for the receipt or the exercise of rights, as the case may be.
Section 1.13 LIST OF SHAREHOLDERS AT MEETING. Upon request of any
shareholder at any meeting of shareholders, there shall be produced at the
meeting an alphabetically arranged list, or classified lists, of the
shareholders of record as of the applicable record date who are entitled to
vote, showing their respective addresses and the number and classes of shares
held by them.
Section 1.14 ACTION IN WRITING IN LIEU OF MEETING. Any action which may
be authorized or be taken at a meeting of the shareholders, may be authorized or
taken without a meeting with the affirmative vote or approval of, and in a
writing or writings signed by, all the shareholders who would be entitled to
notice of a meeting of the shareholders held for that purpose.
ARTICLE 2
Board of Directors
------------------
Section 2.4 ELECTION OF DIRECTORS. At each meeting of the shareholders
for the election of directors at which a quorum is present, the persons
receiving the greatest number of votes shall be deemed elected directors.
Section 2.7 REMOVAL OF DIRECTORS. All directors or any individual
director may0 be removed from office, without assigning any cause, by the
affirmative vote of the holders of record of not less than 75% of the shares
having voting power of the Company with respect to the election of directors,
provided that unless all directors are removed, no individual director shall be
removed in case the votes of a sufficient number of shares are cast against his
removal which, if cumulatively voted at an election of all directors, would be
sufficient to elect at least one director. In case of any such removal, a new
director may be elected at the same meeting for the un-expired term of each
director removed. Any director may also be removed by the board of directors for
any of the causes specified in Section 1701.58(B), Ohio Revised Code, or any
similar statute which may hereafter be enacted.
Section 2.8 VACANCIES. A vacancy in the board of directors may be
filled by majority vote of the remaining directors, even though they are less
than a quorum, until the shareholders hold an election to fill the vacancy.
Shareholders entitled to elect directors may elect a director to fill any
vacancy in the board (whether or not the vacancy has previously been temporarily
filled by the remaining directors) at any shareholders' meeting called for that
purpose.
<PAGE> 5
ARTICLE 4
Shares and Their Transfer
-------------------------
Section 4.1 CERTIFICATES FOR SHARES. Every owner of one or more shares
in the Company shall be entitled to a certificate or certificates, which shall
be in such form as may be approved by the board of directors, certifying the
number and class of shares in the Company owned by him. The certificates for the
respective classes of such shares shall be numbered in the order in which they
are issued and shall be signed by the chairman, the president, or a vice
president and by the secretary, an assistant secretary, the treasurer, or
assistant treasurer; provided that, if such certificates are countersigned by a
transfer agent or registrar, the signatures of such officers upon such
certificates may be facsimiles, stamped, or printed. If an officer who has
signed or whose facsimile signature has been used, stamped, or printed on any
certificates ceases to be such officer because of death, resignation or other
reason before such certificates are delivered by the Company, such certificates
shall nevertheless be conclusively deemed to be valid if countersigned by any
such transfer agent or registrar. A record shall be kept of the name of the
owner or owners of the shares represented by each such certificate and the
number of shares represented thereby, the date thereof, and in case of
cancellation, the date of cancellation. Every certificate surrendered to the
Company for exchange or transfer shall be cancelled and no new certificate or
certificates shall be issued in exchange for any existing certificates until
such existing certificates shall have been so cancelled, except in cases
provided for in Section 4.4.
Section 4.2 TRANSFER OF SHARES. Any certificate for shares of the
Company shall be transferable in person or by attorney upon the surrender of the
certificate to the Company or any transfer agent for the Company (for the class
of shares represented by the certificate surrendered) properly endorsed for
transfer and accompanied by such assurances as the Company or its transfer agent
may require as to the genuineness and effectiveness of each necessary
endorsement. The person in whose name any shares stand on the books of the
Company shall, to the fullest extent permitted by law, be conclusively deemed to
be the unqualified owner and holder of the shares and entitled to exercise all
rights of ownership, for all purposes relating to the Company. Neither the
Company nor any transfer agent of the Company shall be required to recognize any
equitable interest in, or any claim to, any such shares on the part of any other
person, whether disclosed on the certificate or any other way, nor shall they be
required to see to the performance of any trust or other obligation.
Section 4.3 REGULATIONS. The board of directors may make such rules and
regulations as it may deem expedient or advisable, not inconsistent with these
regulations, concerning the issue, transfer, and registration of certificates
for shares. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
Section 4.4 LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Company which is alleged to have been lost, destroyed,
or wrongfully taken upon: (a) the execution and delivery to the Company by the
person claiming the certificate to have been lost, destroyed, or wrongfully
taken of an affidavit of that fact in form satisfactory to the Company,
specifying whether or not the certificate was endorsed at the time of such
alleged loss, destruction or taking, and (b) the receipt by the Company of a
surety bond, indemnity agreement, or any other assurances satisfactory to
<PAGE> 6
the Company and to all transfer agents and registrars of the class of shares
represented by the certificate against any and all losses, damages, costs,
expenses, liabilities or claims to which they or any of them may be subjected by
reason of the issue and delivery of such new certificate or certificates or with
respect to the original certificate.
ARTICLE 5
Examination of Books by Shareholders
------------------------------------
The board of directors may make reasonable rules and regulations
prescribing under what conditions the books, records, accounts, and documents of
the Company, or any of them, shall be open to the inspection of the
shareholders. No shareholder shall be denied any right which is conferred by
Section 1701.37, Ohio Revised Code, or any other applicable law to inspect any
book, record, account, or document of the Company. An original or duplicate
stock ledger showing the names and addresses of the shareholders and the number
and class of shares issued or transferred of record to or by them from time to
time shall at all times during the usual hours for business be open to the
examination of every shareholder at the principal office or place of business of
the Company in the State of Ohio.
ARTICLE 10
Amendment of Regulations
------------------------
These regulations may be amended or new regulations may be adopted: (a)
at any meeting of the shareholders held for such purpose, by the affirmative
vote of the holders of record of shares entitling them to exercise a majority of
the voting power on such proposal; or (b) without a meeting of the shareholders,
by the written consent of the holders of record of shares entitling them to
exercise a majority of the voting power on such proposal. If any amendment or
new regulations are adopted without a meeting of the shareholders, the secretary
shall mail a copy of the amendment or new regulations to each shareholder who
would have been entitled to vote on the proposal but who did not participate in
the adoption of the amendment or new regulations.
ARTICLE 11
Close Corporation Agreement
---------------------------
These regulations may be superseded in whole or part, at any time and
from time to time, by any close corporation agreement between the shareholders
of the Company pursuant to Section 1701.591, Ohio Revised Code, or any similar
statute which may hereafter be enacted.
<PAGE> 1
EXHIBIT NO. 10(a)
SPARC TECHNOLOGY LICENSE AGREEMENT
(MICROPROCESSOR PLATFORM DESIGN LICENSE)
THIS SPARC TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made effective this
12th day of May, 1994 (the "Effective Date") by and between Sun Microsystems
Computer Corporation, a California corporation with principal offices located at
2550 Garcia Avenue, Mountain View, California 94043 acting by and through is
SPARC Technology Business division ("Sun"), and Pinnacle Data Systems, a Ohio
corporation with principal offices located at 1350 West Fifth Ave., Columbus,
Ohio 43212, ("Licensee").
Whereas Sun possesses certain Sun Technology relating to the design,
development and manufacture of the Sun Board; and
Whereas Licensee desires to develop, manufacture and sell Licensee
Products based upon and using Sun Technology; and
Whereas Sun desires to grant limited license rights to Licensee for
such purposes, all on the terms and subject to the conditions set forth in this
Agreement.
Now, Therefore, in consideration of the mutual covenants and conditions
set forth below, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Affiliate" shall mean an entity which controls, is controlled by,
or is under common control with a party hereto.
1.2 "Intellectual Property Rights" shall mean all (i) patents, patent
applications and patent rights throughout the world; (ii) rights associated with
works of authorship throughout the world including copyrights, copyright
applications, copyright registrations, mask work rights, mask work applications
and mask work registrations; (iii) rights relating to the protection of trade
secrets and confidential information throughout the world; (iv) any rights
analogous to those set forth herein and any other proprietary rights relating to
intangible property; and (v) divisions, continuations, renewals, reissues and
extensions of the foregoing (as applicable) now existing or hereafter filed,
issued or acquired.
1.3 "Licensee Materials" shall have the meaning set forth in Section
3.2 below.
1.4 "Licensee Product" shall mean products developed by or for Licensee
which incorporate the Sun Technology.
1.5 "Licensee Facility" shall mean Licensee's facility identified in
EXHIBIT D.
<PAGE> 2
1.6 "Product Documentation" shall mean that documentation identified in
EXHIBIT B, which documentation constitutes a subset of the Sun Technology and
which Licensee desires to distribute with Licensee Products.
1.7 "Product Software" shall mean that computer software identified in
Exhibit B in binary form only, which computer software constitutes a subset of
the Sun Technology and which Licensee desires to distribute with Licensee
Products.
1.8 "Confidential Information" shall mean that technical or business
information which a party discloses to the other pursuant to this Agreement
which is designated as such in this Agreement or otherwise designated as
"confidential" or "proprietary" (or with words of similar meaning) in writing by
the disclosing party, or if disclosed orally, designated as "confidential" or
"proprietary" (or with words of similar meaning) at the time of disclosure. Each
party agrees that the terms and conditions of this Agreement shall be considered
Confidential Information.
1.9 "SPARC" shall mean the reduced instruction set and scalable
processor architecture developed by Sun, the features and attributes of which
are set forth in the SPARC Architecture Manual, Version 8 (and/or successor
versions) as promulgated by SPARC International, Inc.
1.10 "Sun Board" shall mean the printed circuit motherboard
incorporated in the Sun computer system identified in EXHIBIT A.
1.11 "Sun Technology" shall mean the technology, information materials
and deliverables identified in EXHIBIT C. "Sun Technology" specifically excludes
any and all commercial CAD software or libraries.
OWNERSHIP OF SUN TECHNOLOGY
2.1 SUN TECHNOLOGY. Licensee acknowledges and agrees that, as between
the parties, Sun is and shall remain the sole and exclusive owner of all right,
title and interest in and to the Sun Technology and all associated Intellectual
Property Rights and that Licensee acquires no rights therein other than the
limited rights specifically granted in this Agreement.
2.2 NO LIMITATION. Nothing contained in this Agreement shall be
construed to limit or restrict, in any way or manner, any right of Sun to
encumber, transfer, license, access, reference, use or practice the Sun
Technology in any way for any purpose or use (subject only to the rights
specifically granted Licensee hereunder), including without limitation the use,
licensing and/or registration of the Sun Technology anywhere in the world for
any purpose or use in connection with the development, manufacture,
distribution, marketing, promotion and sale of any products including products
competitive with the Licensee Products.
3. GRANT OF LICENSES.
3.1 SUN TECHNOLOGY. Sun hereby grants to Licensee, for the term of this
Agreement, a nonexclusive, nontransferable and worldwide (unless otherwise
indicated) license under Sun's Intellectual Property Rights in the Sun
Technology, to (i) use and practice the Sun Technology to design and develop
Licensee Products only at the Licensee Facility, (ii) copy and incorporate Sun
Technology (excluding computer software and firmware) into Licensee Products,
(iii) manufacture, have manufactured, market and sell Licensee Products designed
with and/or incorporating (as herein permitted) Sun Technology, and (iv) use the
Sun Technology to maintain and support Licensee Products.
<PAGE> 3
3.2 DISTRIBUTION RIGHTS - LICENSEE PRODUCT DOCUMENTATION. Sun hereby
grants to Licensee for the term of this Agreement, a nonexclusive,
nontransferable and worldwide license under Sun's Intellectual Property Right In
the Sun Technology, to (i) modify and incorporate the Product Documentation into
materials that Licensee will distribute with the Licensee Products ("Licensee
Materials"); and (ii) copy and distribute the Licensee Materials with Licensee
Products only in a manner consistent with Licensee's obligations to protect
Sun's Intellectual Property Rights hereunder including, without limitation,
distribution of Licensee Materials only pursuant to nondisclosure agreements
between Licensee and its customers consistent with Licensee's obligations under
Section 8. Sun shall have the right to review and approve (such approval not to
be unreasonably withheld) any and all and any nondisclosure agreements to be
used in connection therewith. Licensee shall promptly notify Sun upon creation
of Licensee Materials and, in any event, prior to distribution of any Licensee
Materials. Under no circumstance will Licensee Materials contain any reference
to Sun, including but not limited to any company names, product names, marks,
logos, designs, trade dress and other designations or brands used by Sun, except
as provided in Section 5.3.
3.3 SUBLICENSE RIGHTS - PRODUCT SOFTWARE. Sun hereby rants to Licensee
for the term of this Agreement, a nonexclusive, nontransferable and worldwide
license (unless specifically limited) under Sun's Intellectual Property Rights
in the Sun Technology, to (i) use the Product Software at the Licensee Facility
and (ii) copy, sublicense and distribute Product Software only as incorporated
in Licensee Products and in a manner consistent with Licensee's obligations to
protect Sun's Intellectual Property Rights hereunder including, without
limitation, sublicensing only pursuant to software license agreements which are
consistent with this Agreement. Sun shall have the right to review and approve
any such license agreements which Licensee intends to use in connection with the
distribution of the Licensee Product Software (such approval not to be
unreasonably withheld). Licensee shall promptly notify Sun upon creation of any
such agreement and, in any event, prior to distribution of the Product Software.
Licensee shall maintain complete and accurate records designating the name and
address of each sublicensee and shall provide such records to Sun at Sun's
request.
3.4 LIMITATIONS ON LICENSE GRANTS/NO OTHER LICENSES.
3.4.1 The licenses granted in Sections 3.1, 3.2 and 3.3 above are
granted on the terms and subject to the conditions of this Agreement including,
without limitation, Sections 5 and 6 below. No other license rights with respect
to the Sun Technology or associated Intellectual Property Rights are granted by
Sun for any purposes other than as expressly set forth in Sections 3.1, 3.2 and
3.3. Should Licensee, for any reason market and/or sell the Sun Technology or
any portion thereof separate and apart from the Licensee Products, the licensed
rights granted herein to Licensee shall not apply with respect to such
activities and, unless Licensee is authorized under other agreements with Sun
to, engage in such activities, shall constitute a material breach of this
Agreement entitling Sun to terminate this Agreement in accordance with Section 7
below.
3.4.2 Licensee shall not make or distribute any copies of the Sun
Technology, in whole or in part, without the prior written authorization of Sun,
provided however, that Licensee may make and maintain one (1) backup or archival
copy of the computer software components of the Sun Technology during the term
of this Agreement.
<PAGE> 4
3.4.3 Licensee shall treat the Sun Technology as Confidential
Information in accordance with the provisions of Section 8 including, without
limitation, Section 8.3.
4. DELIVERY OF TECHNOLOGY
4.1 SUN TECHNOLOGY. Sun shall use reasonable efforts to deliver to
Licensee one (1) copy of each item of Sun Technology set forth in Exhibit C
according to the target dates set forth therein. Licensee acknowledges that the
Sun Technology may be in various stages of completion for delivery and that the
target dates set forth in Exhibit C, while good faith estimates, are not
binding. In the event that Sun is unable to deliver any item by its target date,
Sun shall deliver such item to Licensee as soon as reasonably possible upon
completion.
4.2 RISK OF LOSS. Sun shall deliver the Sun Technology to a common
carrier Ex Works, Sun's facilities.
5. LIMITATIONS AND OBLIGATIONS
5.1 USE OF SUN TECHNOLOGY. Licensee must use and copy the Sun
Technology and manufacture, market, and sell Licensee Products only in a manner
consistent with the terms, conditions and restrictions of this Agreement, and
only in a manner reasonably designed not to jeopardize or prejudice Sun's rights
therein and thereto and, in all respects and at all times, consistent with
reasonably diligent mask work right, copyright, patent and trade secret
practices.
5.2 PROPRIETARY NOTICES. To the extent that Licensee incorporates or
copies any or all of the Sun Technology provided to Licensee by Sun hereunder,
as and if allowed hereunder, Licensee shall reproduce and apply any proprietary
rights notices placed by Sun thereon. In addition, Licensee shall comply with
all reasonable requests by Sun to include Sun's copyright and/or other
proprietary rights notices on any part of the Sun Technology, Licensee Product,
Licensee Materials, Product Software or related materials.
5.3 TRADEMARK. No license, right, title, or interest in any Sun
trademark, trade name, trade dress, design patent or service mark is granted
hereunder. Licensee acknowledges that "SPARC" and the SCD Compliant Logo are
registered trademarks of SPARC International, Inc. and that no rights to use the
mark "SPARC" or any mark containing the word "SPARC" or the SCD Compliant Logo
are granted or implied in any way in this Agreement. Licensee further
acknowledges that if Licensee wishes to use any "SPARC"-based trademark or the
SCD Compliant Logo on or in connection with Licensee Products, Licensee must
independently obtain a license from SPARC International, Inc. for use of such
mark.
Licensee may use only the following, in its entirety, in connection
with the marketing of Licensee Products (where "X" is the name of the Licensee
Product): "X is derived from designs licensed from Sun Microsystems Computer
Corporation." Sun has the right to accurately refer to Licensee Products in
marketing materials, advertisements, and product documentation by reference to
the related trademarks.
5.4 NOTICE OF INFRINGEMENT. Licensee must notify Sun promptly upon
discovery of any potential or actual infringement by a third party of the Sun
Technology or associated Intellectual Property Rights and provide Sun with
available evidence of such infringement. Sun has the sole
<PAGE> 5
right to bring, any action involving the infringement of the Sun Technology and
to keep and retain for itself any compensation in connection therewith. In the
even that Sun chooses not to bring any such action, or fails to notify Licensee
of its intent to bring any such actin within sixty (60) days after notice
thereof by Licensee, and Licensee notifies Sun of its desire to do so, Sun may,
but is not obligated to, give Licensee written permission to undertake any such
actions. In the event Sun grants such permission, Sun and Licensee will agree on
the portion of monetary compensation awarded that Licensee will be entitled to
retain for itself and Sun will reasonably cooperate with Licensee, at Licensee's
sole cost and expense, with respect to such actions.
5.5 USE OF THIRD PARTIES. Licensee may retain third parties to furnish
services to it in connection with its use of Sun Technology and manufacture of
Licensee Products (insofar as Sun Technology is implicated) only if reasonably
required in connection with such activities; provided however that all such
third parties who perform work shall execute appropriate documents undertaking
sufficient obligations of confidentiality respecting the Sun Technology. Sun
may, upon its request, review any such documents and agreements proposed for use
by Licensee prior to any such use.
5.6 MANUFACTURING LIMITATIONS. If Licensee utilizes an Affiliate or
third party manufacturing facilities for Licensee Products or components
thereof, Licensee may grant a sublicense to such party on terms and conditions
consistent with Licensee's obligation hereunder to use only that Sun Technology
as is necessary to enable such manufacturing facility to manufacture the
Licensee Products; provided however, that such Affiliate or third party facility
agrees to return such materials to Licensee upon termination of this Agreement
or termination of production of Licensee Products.
6. FEES
6.1 FEES. In consideration of the rights granted Licensee in this
Agreement, Licensee shall pay to Sun the fee set forth in EXHIBIT D.
6.2 UPGRADES/TAXES. The fees set forth in EXHIBIT D are for current
versions of the Sun Technology and do not include any upgrades, enhancements,
modifications or improvements. Fees, as specified, are exclusive of all taxes,
levies or duties, and Licensee shall be responsible for payment of the same. All
payments required by this Agreement shall be made in United States dollars.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall commence as of the Effective Date and
expire seven (7) years thereafter; provided, that this Agreement will
automatically renew for successive one (1) year periods unless either party
notifies the other of its desire that this Agreement expire whereupon this
Agreement will so expire thirty (30) days following such notification. Upon
expiration of this Agreement, Licensee will immediately discontinue use of the
Sun Technology and will promptly return all copies of the Sun Technology in
Licensee's possession or control to Sun. In addition, Licensee must permanently
destroy or disable all electronically reproducible copies of the Sun Technology
and all other electronic documents containing all or any portion of the Sun
Technology.
<PAGE> 6
7.2 TERMINATION. This Agreement may be terminated as follows:
7.2.1 If either party fails to comply with any of the material
terms and conditions of this Agreement, the other party may
terminate this Agreement upon sixty (60) days' notice to the
defaulting party specifying the breach, unless within the
period of notice, all breaches specified therein shall have
been remedied.
7.2.2 Immediately, at Sun's option, if Licensee violates the
provisions of Sections 3.4 or 8, or 9.3.
7.3 EFFECT OF TERMINATION - SUN'S BREACH. The grant of right and
licenses from Sun to Licensee to the Sun Technology made in this Agreement will
survive the termination of this Agreement as a result of a breach by Sun as, and
only to the extent, necessary for Licensee to continue manufacture and support
of the Licensee Products as then constituted for the term of this Agreement.
Such continuing rights shall be subject to Licensee's continued compliance with
the terms of this Agreement including, without limitation, Sections 6 and 8 and
termination at any time in accordance with Section 7.2.
7.4 EFFECT OF TERMINATION - LICENSEE'S BRANCH. In the event of
termination of this Agreement due to a breach by Licensee, the rights and
licenses herein granted shall immediately terminate and Licensee shall have no
further right to use the Sun Technology or to manufacture, market or sell
Licensee Products. Within thirty (30) days after termination Licensee must
return all copies of the Sun Technology in Licensee's possession. In addition,
Licensee must permanently destroy or disable all electronically reproducible
copies of the Sun Technology and all other electronic documents containing all
or any portion of the Sun Technology. Notwithstanding the foregoing, Licensee
must immediately return to Sun or destroy all copies of the Sun Technology if
termination is the result of Licensee materially breaching or, Section 5.5 (Use
of Third Parties), Section 8 (Confidential Information) or, if Licensee
otherwise takes any action which materially jeopardizes Sun's proprietary rights
in and to the Sun Technology. Promptly after destruction of all hard-copy and
electronically reproducible copies of the Sun Technology, a duly authorized
officer of Licensee shall certify to Sun that Licensee has destroyed and/or
returned all copies of the Sun Technology.
7.5 AVAILABLE RELIEF. Nothing herein is to be construed as limiting
either party from seeking injunctive or other equitable relief at any time.
Licensee acknowledges and agrees that (i) the restrictions on its use and
disclosure of Sun's proprietary information and the restrictions and limitations
exacted in exchange for the license rights granted to Licensee herein are
reasonable and necessary to protect legitimate interests, (ii) in the event of a
violation by Licensee of any of the provisions of Sections 3, 5 or 8, remedies
at law will be inadequate and such violation will cause irreparable damages to
Sun within a short period of time, and (iii) shall be entitled to injunctive
relief against each and every violation of these Sections.
7.6 LIMITATION OF LIABILITY. Neither party shall have the right to
recover damages or indemnification of any nature, whether by way of lost
profits, expenditures for promotion, payment for goodwill or otherwise made in
connection with the business contemplated by this Agreement, due to the
expiration or permitted or lawful termination of this Agreement. EACH PARTY
WAIVES AND RELEASES THE OTHER FROM ANY CLAIM TO
<PAGE> 7
COMPENSATION OR INDEMNITY FOR TERMINATION OF THE BUSINESS RELATIONSHIP UNLESS
SUCH TERMINATION IS IN BREACH OF THIS AGREEMENT.
8. CONFIDENTIAL INFORMATION
8.1 OBLIGATION. Except as provided in this Agreement, neither party may
use, make, have made, distribute or disclose any copies of the Confidential
Information it receives from the disclosing party pursuant to this Agreement, in
whole or in part, without the prior written authorization of disclosing party.
Each party must hold in confidence any Confidential Information received from
the other pursuant to this Agreement and protect the confidentiality thereof
with the same degree of care that it exercises with respect to its own
information of like importance, but in no event less than reasonable care, for
the term of this Agreement (but in no event less than seven (7) years from the
date of receipt of the Proprietary information).
8.2 EXCEPTIONS. Section 8.1 does not apply to any portion of the
Confidential Information which a receiving party can demonstrate:
a. is now or hereafter, through no act or failure to act on
the part of receiving party, becomes generally known in the
electronics industry;
b. is known to receiving party at the time of receiving such
Confidential Information without an obligation of
confidentiality;
c. is hereafter rightfully furnished to receiving party by a
third party without restriction on disclosure; or
d. is independently developed by receiving party without any
use of the Confidential Information.
8.3 EMPLOYEE ACCESS. Each party must restrict access to the
Confidential Information to its employees with a need for such access to perform
their employment obligations and must inform such employees of the restrictions
required to comply with this Section 8 and must obtain or have obtained their
written agreement to comply with those imitations, duties and obligations. Each
party agrees to provide notice to the other immediately after learning of or
having reason to suspect a breach of any of the restrictions of this Section 8.
9. WARRANTIES AND LIMITATION OF LIABILITY
9.1 SUN TECHNOLOGY. Licensee acknowledges that the Sun Technology may
be in the process of engineering changes and/or development, Sun Technology and
Sun Confidential Information is provided "AS IS".
9.2 DISCLAIMER. SUN DOES NOT MAKE AND HEREBY DISCLAIMS ANY EXPRESS OR
IMPLIED WARRANTIES OR CONDITIONS WITH RESPECT TO THE SUN TECHNOLOGY AND RELATED
MATERIALS INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF DESIGN,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTIES ARISING FROM A
COURSE OF DEALING,
<PAGE> 8
PERFORMANCE OR USAGE OF TRADE. No agent of Sun is authorized to incur warranty
obligations on behalf of Sun or modify the limitations as set forth herein.
9.3 HIGH RISK ACTIVITIES. Licensee acknowledges that the Sun Technology
is not fault-tolerant and are not designed, manufactured or intended by Sun for
use or resale in on-line control equipment in hazardous environments requiring
fail-safe performance, such as in the operation of nuclear facilities, aircraft
navigation or communication systems, air traffic control, direct life support
machines, or weapons systems, in which the failure of products could lead
directly to death, personal injury, or severe physical or environmental damage
("High Risk Activities"). Sun specifically disclaims any express or implied
warranty of fitness for High Risk Activities. Licensee represents and warrants
that it will not use Sun Technology and will not use, distribute or resell
Licensee Products for High Risk Activities and that it will ensure that its
customers and end-users are provided with a notice substantively similar to that
contained in this Section 9.3.
9.4 PRODUCT LIABILITY. Licensee may not, in connection with the
marketing of the Licensee Product, represent, either directly or indirectly,
that Sun has certified or approved of the form, fit, function, performance or
compatibility of the Licensee Product. Except as set forth below, Licensee
agrees to and hereby does indemnify, release, defend and hold Sun harmless from
and against all claims, damages, losses, costs and expenses, including
reasonable attorneys' fees, arising in defense of any claim of product liability
in any way relating to the Licensee Product, provided that Sun (i) gives
Licensee notice of the claim, (ii) cooperates with Licensee, at Licensee's
expense, in the defense of the claim, and (iii) gives Licensee the right to
control the defense and settlement of any the claim, except that Licensee shall
not enter into any settlement that affects Sun's rights or interest without
Sun's prior written approval. Sun has no authority to settle any claim on behalf
of Licensee.
10. INTELLECTUAL PROPERTY INFRINGEMENT DISCLAIMER
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY OR
REPRESENTATION BY SUN THAT THE SUN TECHNOLOGY OR ANY LICENSEE PRODUCTS DEVELOPED
WITH OR INCORPORATING THE SUN TECHNOLOGY WILL BE FREE FROM INFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. SUN HEREBY EXPRESSLY DISCLAIMS
AND SHALL NOT BE RESPONSIBLE FOR ANY LIABILITY ARISING AS A RESULT OF OR IN
CONNNECTON WITH ANY CLAIM OR SUIT ALLEGING THAT THE USE OF SUN TECHNOLOGY AND/OR
USE, MANUFACTURE AND/OR SALE OF LICENSEE PRODUCTS INFRINGES THE INTELLECTUAL
PROPERTY RIGHTS OF ANY THIRD PARTY.
11. LIMITATION OF LIABILITY
Notwithstanding any other provision of this Agreement, Sun's maximum
liability for damages shall be limited to an amount equal to the total of the
payments made by Licensee to Sun hereunder for the Sun Technology. EXCEPT FOR
DAMAGES ARISING UNDER SECTION 8, 9.3 AND/OR 9.4 AND IN CONNECTION WITH ANY
INDEMNIFCATION OBLIGATIONS, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY
COSTS OF COVER, LOST REVENUES OR PROFITS OR OTHER SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES, NO MATTER WHAT THEORY OF
<PAGE> 9
LIABILITY AND EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OR
PROBABILITY OF SUCH DAMAGES. THE FOREGOING WILL APPLY NOTWITHSTANDING THE
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
The parties acknowledge that the foregoing limitation of liability
represents a reasonable and negotiated allocation of risk as between the
parties, that absent such limitation constitutes an integral part of this
Agreement, and that absent such limitation the parties would not have executed
this Agreement.
12. FORCE MAJEURE
A party is not liable for non-performance of this Agreement, if the
non-performance is caused by events or conditions beyond that party's control
and the party gives prompt notice and makes all reasonable efforts to perform.
In no event will this provision affect Licensee's obligation to make payments
under this Agreement.
13. MISCELLANEOUS
13.1 NOTICES. All notices must be in writing and delivered either in
person or by a means evidenced by a delivery receipt, to the address specified
below or as otherwise notified in writing. Such notice will be effective upon
receipt. The address of the parties may be changed by notice given in accordance
with this Section 13.1.
Notice given:
To Sun: To Licensee:
Sun Microsystems Computer Corp. Pinnacle Data Systems
2550 Garcia Avenue, MS PAL1-315 1350 West Fifth Ave.
Mountain View, CA 94043 Columbus, OH 43212
Attn: Contracts Manager, Attn: Mr. Bob Henkel, President
SPARC Technology Sales Unit
13.2 SEVERABILITY. If any term or provision of this Agreement is found
to be invalid under any applicable statue or rule of law then, the provision
notwithstanding, this Agreement shall remain in full force and effect and such
provision shall be deleted unless such a deletion would frustrate the intent of
the parties with respect to any material aspect of the relationship established
hereby, in which case, this Agreement and the licenses and rights granted
hereunder shall terminate.
13.3 MERGER. This Agreement, together with the Exhibits hereto which
are Incorporated by reference herein, is the entire agreement between the
parties. It supersedes as of the Effective Date all prior or contemporaneous
communications, representations or agreements, whether written or oral, with
respect to the subject matter hereof.
13.4 AMENDMENT. No modification to this Agreement will be binding,
unless in writing and signed by a duly authorized representative of each party.
<PAGE> 10
13.5 GOVERNING LAW. This Agreement and the rights, obligations and
relations of the parties will be governed by California law, excluding choice of
law rules.
13.6 EXPORT CONTROL. Licensee acknowledges that the Sun Technology, and
Licensee Products may be subject to U.S. export control laws, including the U.S.
Export Administration Act and its associated regulations, and may be subject to
export or import regulations in other countries. Licensee agrees to comply
strictly with all such regulations and acknowledges that it has the
responsibility to obtain such licenses to export, re-export, or import Sun
Technology and/or Licensee Products, as may be required. Licensee must notify
and inform its employees having access to the above-mentioned information or
products of Licensee's obligation to comply with the requirements as stated in
this Section 13.6. Sun agrees to use its reasonable efforts to cooperate with
Licensee (at Licensee's sole cost and expense) to comply with U.S. export
control laws.
13.7 RELATIONSHIP. The relationship created hereby is that of licensor
and licensee, and nothing herein shall be deemed to constitute either party as
an agent, employee or franchisee of the other party. The parties hereby waive
the benefit of any state or federal statutes dealing with the establishment and
regulation of franchises.
13.8 SURVIVAL. The provisions of Sections 6, 7.3, 7.4, 7.5, 7.6, 8, 11,
13.1, 13.5, 13.8 and 13.12 shall survive the expiration or termination of this
Agreement and any license granted herein or hereunder.
13.9 SUCCESSORS. Subject to, and unless otherwise provided in this
Agreement, each and all of the covenants, terms, provisions, and agreements
contained in this Agreement shall be binding on, and inure to the benefit of,
the permitted successors, executors, heirs, representatives, administrators, and
assigns of the parties hereto; provided, however, that this Agreement and the
rights granted Licensee shall not be assignable by Licensee without the prior
written consent of Sun. Sun shall have the right to assign this Agreement to its
Affiliates without notice to Licensee.
13.10 WAIVER. Any waiver of any provision of this Agreement, or a delay
by either party in the enforcement of any right hereunder, shall neither be
construed as a continuing waiver, nor create an expectation of non-enforcement
of that or any other provision or right.
13.11 ESCALATION OF DISPUTES. Upon election of either party to
implement dispute resolution procedures in connection with any alleged material
breach of this Agreement, each party shall select a management employee having
the title of "Vice President" or higher to meet and confer with one another and
such other personnel as each may designate in an effort to resolve the
identified dispute. In the event the Vice Presidents are unable to resolve the
dispute within two (2) weeks following commencement of this dispute resolution,
either party may seek any remedy available under this Agreement, at law or in
equity.
13.12 ATTORNEYS' FEES. In the event of any legal action arising out of
or in connection with this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and expenses incurred in such
action.
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
"SUN" "LICENSEE"
SUN MICROSYSTEMS
COMPUTER CORPORATION PINNACLE DATA SYSTEMS
BY:/s/ Chet Silvestri BY:/s/ Robert K. Henkel
---------------------------- -----------------------------
NAME:Chet Silvestri NAME: Robert K. Henkel
-------------------------- --------------------------
(Print or Type) (Print or Type)
TITLE: President, STB TITLE:President
------------------------ --------------------------
DATE:5/16/94 DATE:5/12/94
-------------------------- ---------------------------
The Exhibits to this Agreement are:
- -----------------------------------
Exhibit A - Sun Board
Exhibit B - Product Documentation and Product Software
Exhibit C - Sun Technology and Deliverables
Exhibit D - Licensee Facility, Fees and Royalties
<PAGE> 12
EXHIBIT A
SUNBOARD
The design information included in this license is that of the printed circuit
motherboard incorporated in the Sun computer system.
SPARCstation 5 (for the microSPARC II Platform Design Kit)
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT B
PRODUCT DOCUMENTATION AND PRODUCT SOFTWARE
BOARD DOCUMENTATION
Item Description Hardcopy Electronic
- ---- ----------- -------- ----------
<S> <C> <C> <C>
microSPARC II Platform Provides a deliverable checklist, along X X
Design Kit User's Guide with a description of the hardware distribution
tape and installation instructions for this
microSPARC II Platform Design Kit.
microSPARC II Platform
Design Kit Technical Manual Contains the description of the microSPARC II X
Platform Design Kit CPU board architecture.
This document also provides a quick summary
of the system including and outline of main
features, system block diagram, and short
description of the major subsystems of the
design.
COMPONENT DOCUMENTATION
Item Description Hardcopy Electronic
- ---- ----------- -------- ----------
STP1012PGA-70 micro- Contains the architectural specification for X
SPARC-II Specification the microSPARC II Microprocessor
STP2000QFP SBus I/O Chipset Contains the hardware specification for the X
Data Manual (MACIO) Master I/O Controller ASIC called MACIO. It
provides a master DMA function for Ethernet,
SCSI and a parallel port. This controllers
for these functions are integrated on the
chip.
STP2001 QFP SBus I/O Chipset Contains the documentation for the Slave X
Data Manual (SLAVIO) I/O Controller ASIC called SLAVIO. It provides
slave I/O control for 8-bit devices such as
NVRAM, floppy disk, keyboard/mouse, serial
port and audio.
STP2024QFP Miscellaneous Audio, DMA, Power Management Logic, X
Logic Controller & miscellaneous system logic.
SOFTWARE
Item Description Hardcopy Electronic
- ---- ----------- -------- ----------
OpenBoot(TM) PROM Binary The system boot program which X
includes ROM Monitor & Power-on Self Test.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT C
SUN TECHNOLOGY
(microSPARC II Platform Design Kit)
BOARD DOCUMENTATION
Item Hardcopy Electronic
- ---- -------- ----------
<S> <C> <C>
microSPARC II Platform Design Kit User's Guide X X
microSPARC II Platform Design Kit Hardware Manual X
COMPONENT DOCUMENTATION
Item Hardcopy Electronic
- ---- -------- ----------
STP1012PGA-70 microSPARC II Specification X
STP2000QFP SBus I/O Chipset Data Manual (MACIO) X
STP2001QFP SBus I/O Chipset Data Manual (SLAVIO) X
STP2024QFP Miscellaneous Logic Controller X
BOARD DESIGN INFORMATION
Item Hardcopy Electronic
- ---- -------- ----------
Schematic Drawings X X
Schematic symbol library X
Bill of Materials X X
Netlist X X
SOFTWARE
Item Hardcopy Electronic
- ---- -------- ----------
SPARCstation 5 OpenBoot(TM) PROM Binary X
Target Delivery Date: Within thirty (30) days of Licensee's signature of
Agreement and Sun's receipt of full payment of the License Fees set forth in
EXHIBIT D.
</TABLE>
<PAGE> 15
EXHIBIT D
LICENSEE FACILITY, FEES AND ROYALTIES
License Fees: Thirty-Five Thousand Dollars ($35,000.00 U.S.) up-front license
fee due and payable upon the Effective Date.
Royalties: NONE
Address for payment of Fees and Royalties:
Sun Microsystems Computer Corporation
-------------------------------------------
STB Controller
-------------------------------------------
2550 Garcia Avenue. M/S PAL1-315
-------------------------------------------
Mountain View, CA 94043-1100
-------------------------------------------
Licensee Facility:
Pinnacle Data Systems
1350 West Fifth Avenue
Columbus, Ohio 43212
<PAGE> 1
EXHIBIT NO. 10(b)
DEVELOPMENT AND MANUFACTURING LICENSE AGREEMENT
This Development and Manufacturing License Agreement (the "Agreement")
is made effective October 27, 1997 (the "Effective Date") by and between Sun
Microsystems, Inc., a Delaware corporation with its principal offices at 901 San
Antonio Road, Palo Alto, California 94303, by and through its Sun
Microelectronics division ("SME"), and Pinnacle Data Systems, Inc. a Ohio
corporation with its principal offices at 2155 Dublin Road, Columbus, Ohio 43228
("Pinnacle").
A. SME has developed and holds rights to a schematic design for a PCI card with
audio and ethernet functionality (the "PCI Card"), and certain "Open Boot PROM"
software for use with the PCI Card (the "OBP Software"): and
B. Pinnacle desire to develop, manufacture and sell a PCI Card which is based on
the SME schematic design and incorporates the OBP Software under license from
SME to customers approved in advance by SME; and
C. SME desires to grant limited license rights to Pinnacle for such purposes on
the terms and subject to the conditions set forth in this Agreement.
Now, therefore, in consideration of the mutual covenants and conditions
set forth below, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means a business entity or entities controlled by,
under common control with, or controlling a party to this
Agreement.
1.2 "Approved Customer" means the parties to which Pinnacle is
authorized to sell the PCI Card, as listed in EXHIBIT D. SME
may change the list of Approved Customers during the term of
this Agreement in its business discretion upon written notice
to Pinnacle.
1.3 "Binary Code" means machine-readable, executable code of a
computer program.
1.4 "Confidential Information" means (i) all technical information
which SME discloses to Pinnacle under this Agreement, (ii)
that technical information of Pinnacle or business information
of either party which a party discloses to the other pursuant
to this Agreement which is designated as "confidential" or
"proprietary", or with words of similar meaning, in writing by
the disclosing party, or if disclosed verbally, designated as
"confidential" or "proprietary", or with words of similar
meaning, at the time of disclosure, (iii) any Source Code
provided under this Agreement, and (iv) the terms and
conditions of this Agreement.
1.5 "Derivative Technology" means the information, hardware
designs, software, and products derived from the Licensed
Technology by Pinnacle, including the PCI Card and all
necessary schematics, design database files, and other
information necessary to manufacture the PCI Card, and the all
derivative versions of the OBP Software in both Source Code
and Binary Code forms.
1.6 "Designated Equipment" means the computer equipment owned or
controlled by Pinnacle and specified in the Development Plan.
1.7 "Designated Site" means the business location controlled by
Pinnacle and identified in the Development Plan where Pinnacle
will use the Licensed Technology.
1.8 "Development Plan" means the milestones, deliverables,
schedule and other requirements for the development of PCI
Card by Pinnacle under this Agreement, as set forth in EXHIBIT
B.
<PAGE> 2
1.9 "Error Corrections" means changes or additions to the
Derivative Technology made for the purpose of: (i) complying
with the acceptance criteria for the PCI Card specified by
SME; or (ii) eliminate or avoid the occurrence or effect of
defect or error in the PCI Card.
1.10 "Intellectual Property Rights" means all intellectual property
rights worldwide (but specifically excluding trademarks,
service marks, trade dress, trade names, and design patent
rights) under statutory or common law or by contract and
whether or not perfected, including all (i) patent rights;
(ii) rights associated with works of authorship including
copyrights and mask work rights; (iii) rights relating to the
protection of trade secrets and confidential information; (iv)
any right analogous to those set forth herein and any other
proprietary rights relating to intangible property, now
existing, or hereafter filed, issued or acquired.
1.11 "Licensed Technology" means the schematic design for the PCI
Card, the OBP Software in Source Code form, and all other SME
Deliverables and Confidential Information of SME provided to
Pinnacle for the purposes of this Agreement.
1.12 "Pinnacle Deliverables" means the items to be delivered to SME
by Pinnacle for the purposes of this Agreement, as specified
in the Development Plan.
1.13 "Product Documentation" means any written materials developed
by Pinnacle for distribution with the PCI Card to Approved
Customers.
1.14 "Source Code" means code of a computer program that is not
executable by a computer system directly but must be converted
into machine language by compilers, assemblers, or
interpreters.
1.15 "SME Deliverables" means the items to be delivered to Pinnacle
by SME for the purposes of this Agreement, as specified in
Exhibit A.
2. DEVELOPMENT AND PRODUCT ORDERS.
2.1 DELIVERY OF SME DELIVERABLES. SME will deliver to Pinnacle one
(1) copy of each of the SME Deliverables within seven (7) days
of the Effective Date, unless a different date is specified in
Exhibit A for any individual items. SME shall deliver the
Licensed Technology to a common carrier, F.O.B. SME's
facilities. Pinnacle assumes all risk of loss upon SME's
transfer of the SME deliverables to a common carrier.
2.2 PINNACLE DEVELOPMENT. In consideration for the rights and
licenses granted to Pinnacle by SME under this Agreement,
Pinnacle agrees to design and develop the PCI Card according
to the Development Plan, and to deliver any Pinnacle
Deliverables to SME or its Approved Customers as provided by
the Development Plan.
2.3 CHANGES ORDERS. If SME desires to change the design of the PCI
Card or the Development Plan, SME will submit a written change
order to Pinnacle which includes a description of the
requested changes. Pinnacle will review the change order to
determine the feasibility of the proposed changes, and will
inform SME as to whether it accepts the change order within
five (5) business days of receipt. The change order will be
considered accepted when an authorized representative of
Pinnacle has executed the change order and delivered it to SME
in manner consistent with Section 13.1.
2.4 ORDERS FROM APPROVED CUSTOMERS, PRICE LIMITS. After completion
of the design and development of the PCI Card, Pinnacle agrees
to accept orders for the manufactured PCI Card from Approved
Customers, and to deliver the PCI Card according to
commercially reasonable terms. Pinnacle agrees that the prices
it quotes and charges for the PCI Card will be subject to the
limitations set forth in EXHIBIT D.
2.5 OEM ORDERS. SME will have the right to place orders for the
PCI Card with Pinnacle acting as an original equipment
manufacturer ("OEM") with the PCI Card product to bear an SME
product name.
3. OWNERSHIP.
<PAGE> 3
3.1 LICENSED TECHNOLOGY. Pinnacle acknowledges and agrees that SME
is and will remain the sole and exclusive owner of all right,
title and interest in the Licensed Technology and all
associated Intellectual Property Rights, and that Pinnacle
acquires only those rights in the Licensed Technology
specifically granted under this Agreement.
3.2 DERIVATIVE TECHNOLOGY. Pinnacle acknowledges and agrees that
SME will acquire ownership of all right, title and interest in
the Derivative Technology developed during the term of this
Agreement, whether developed independently by one of the
parties or jointly by SME and Pinnacle, and that Pinnacle
acquires only the rights to develop, use, and otherwise
exploit the Derivative Technology specifically granted under
this Agreement.
3.3 FURTHER ASSURANCES. Pinnacle will cooperate with SME and take
reasonable actions and execute necessary agreements,
instruments, and documents to perfect SME's ownership interest
in accordance with this Section, including, without
limitation, the execution of necessary and appropriate
instruments of assignment.
4. GRANT OF LICENSES.
4.1 LICENSED TECHNOLOGY. For Licensed Technology other than the
OBP Software, SME hereby grants Pinnacle a non-exclusive,
non-transferable right and license under SME's Intellectual
Property Rights in the Licensed Technology for the term of
this Agreement to (i) use, copy and modify the Licensed
Technology at the Designated Site for the purposes of
designing, developing, and manufacturing the PCI Card and
Derivative Technology; (ii) sell the PCI Card to Approved
Customers; and (iii) use the Licensed Technology to provide
support to Approved Customers.
4.2 OBP SOFTWARE. SME hereby grants Pinnacle a non-exclusive,
non-transferable right and license under SME's Intellectual
Property Rights in the Licensed Technology to (i) use, copy
and modify the OBP Software in Source Code form on the
Designated Equipment only for use with the PCI Card; (ii)
compile the OBP Software in Source Code form on the Designated
Equipment, and make and incorporate copies of the OBP Software
in Binary Code form only into static memory of the PCI Card;
(iii) distribute the OBP Software in Binary Code form only,
and only as incorporated into static memory of the PCI Card
for sale to Approved Customers; and (iv) use the OBP Software
for purposes of providing support to Approved Customers. In
the event that, and only for so long as, the Designated
Equipment is not operative, Pinnacle may transfer to and use
the Licensed Software on back-up equipment at the Designated
Site, provided Pinnacle promptly informs SME of such transfer
in writing which identifies such other equipment.
4.3 PRODUCT DOCUMENTATION. SME grants to Pinnacle a nonexclusive,
nontransferable right and license under SME's Intellectual
Property Rights in the Licensed Technology to develop, copy,
and distribute Product Documentation with the PCI Card to
Approved Customers.
4.4 CONTROL OF DERIVATIVE TECHNOLOGY. Notwithstanding SME's
ownership of the Derivative Technology, during the term of
this Agreement as between the parties Pinnacle will have the
right to maintain exclusive control and possession of the
Derivative Technology.
5. LIMITATIONS AND OBLIGATIONS.
5.1 NO OTHER LICENSES. SME grants no rights or licenses to
Pinnacle in the Licensed Technology other than those
specifically stated in Section 3, and any use of the Licensed
Technology beyond the scope of such license grant shall
constitute a material breach of this Agreement.
5.2 PROPRIETARY NOTICES, PRODUCT NAMES. Pinnacle shall not remove
any proprietary notices of SME on any part of the Licensed
Technology without the prior, written permission of SME. When
the PCI Card is sold to Approved Customers, other than
pursuant to an OEM order placed by SME, the PCI Card will
carry a Pinnacle product name and any proprietary notices
Pinnacle deems
<PAGE> 4
necessary to protect its Intellectual Property Rights. When
the PCI Card is sold to SME on a OEM basis, the PCI Card will
also include such proprietary notices of SME as SME deems
necessary to protect its Intellectual Property Rights.
5.3 USE OF THIRD PARTIES. Pinnacle may retain third parties to
furnish services to it in connection with its use of Licensed
Technology, development of Derivative Technology, and design
and manufacture of the PCI Card only if reasonably required
for the purposes of this Agreement. Third parties who perform
work for Pinnacle must execute appropriate documents with
Pinnacle effecting assignments of all rights with respect to
such work to Pinnacle, and undertaking confidentiality
obligations with respect to the Licensed Technology which are
no less protective of SME's rights than this Agreement. SME
may, upon its request, review the form of such agreements
proposed for use by Pinnacle prior to use.
5.4 MANUFACTURING LIMITATIONS. If Pinnacle uses an Affiliate or
third party manufacturer for the PCI Card, Pinnacle may grant
a sublicense to such party to use only that Licensed
Technology and Derivative Technology as is necessary to enable
the manufacture of the PCI Card, on terms and conditions no
less protective of SME's rights than this Agreement. The
Affiliate or third party manufacturer must agree to return the
Licensed Technology and Derivative Technology to Pinnacle upon
termination of this Agreement or termination of production of
the PCI Card. Pinnacle may not provide the OBP software in
Source Code form to any such Affiliate or third party
manufacturer for any purpose.
6. SUPPORT.
6.1 SME SUPPORT. SME will be under no express obligation to
support, enhance, or correct deficiencies in the Licensed
Technology. SME may provide Pinnacle with technical support in
its sole business discretion to facilitate transfer of the SME
Deliverables to Pinnacle, and to clarify Pinnacle's
understanding of the Licensed Technology for purposes of
designing and manufacturing the PCI Card, and modifying the
OBP Software in Source Code form. SME reserves the right to
charge consulting and engineering services fees according to
its standard rates if SME is required to commit significant
resources to supporting Pinnacle. SME will provide Pinnacle
with advance notice of its intention to charge fees for
services before providing any such services, and the parties
will execute a separate, written consulting and engineering
services agreement stating their respective rights and
obligations with respect to the services.
6.2 SUPPORT FOR APPROVED CUSTOMERS. Pinnacle agrees to provide
technical support, including Error Corrections, directly to
Approved Customers subject to commercially reasonable terms.
7. PAYMENTS AND TAXES.
Subject to SME's rights under Section 6, each party will bear any and
all costs and expenses it incurs for the purposes of this Agreement,
and neither party will have a right to receive license fees or other
compensation for the deliverables delivered and rights granted under
this Agreement.
8. TRADEMARKS, MARKETING ATTRIBUTION.
8.1 SUN TRADEMARKS. "Sun Trademarks" means all names, marks,
logos. designs, trade dress, and other brand designations used
by Sun Microsystems, Inc. ("Sun") and SME in connection with
the SME Technology and Sun's products. Pinnacle may refer to
SME Technology and Sun's products by the associated Sun
Trademarks, provided that such reference is not misleading and
complies with the then current Sun Trademark and Logo
Policies. Pinnacle shall not remove, alter, or add to any Sun
Trademarks, nor shall it co-logo Sun's products. Specifically,
Pinnacle shall not use the names "Sun," Solaris," "Java," or
any other Sun Trademark in the name of any Developed Product,
e.g., Developed Products may not be named 'SunXYZ" or
"JavaXYZ" or "XYZ for Solaris."
<PAGE> 5
Pinnacle is granted no right, title, or license to, or
interest in, any Sun Trademarks. Pinnacle acknowledges Sun's
rights in Sun Trademarks and agrees that any use of Sun
Trademarks by Pinnacle shall inure to the sole benefit of Sun.
Pinnacle agrees not to (a) challenge Sun's ownership or use
of, (b) register, or (c) infringe any Sun Trademarks, nor
shall Pinnacle incorporate any Sun Trademarks into Pinnacle's
trademarks, service marks, company names, Internet addresses,
domain names, or any other similar designations. If Pinnacle
acquires any rights in any Sun Trademarks by operation of law
or otherwise, it will immediately at no expense to Sun assign
such rights to Sun along with any associated goodwill,
applications, and/or registrations.
8.2 ATTRIBUTION FOR PINNACLE MARKETING. Pinnacle may use only the
following, in its entirety, in connection with the marketing
of the PCI Card, where "XYZ" is the name of the PCI Card: "XYZ
is derived from designs and incorporates software technology
licensed from Sun Microsystems, Inc."
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall commence as of the Effective Date
and expire three (3) years thereafter; provided, that this
Agreement shall automatically renew for successive one (1)
year periods unless either party notifies the other of its
desire that this Agreement expire more than sixty (60) days
before the anniversary of the Effective Date, whereupon this
Agreement shall expire upon such date. Upon expiration of this
Agreement, Pinnacle shall immediately discontinue use of the
Licensed Technology and shall promptly return all Licensed
Technology and Derivative Technology in Pinnacle's possession
to SME. Notwithstanding the foregoing, Pinnacle may retain
only such copies of Licensed Technology and Derivative
Technology as are necessary to support the Approved Customers,
provided that (i) Pinnacle agrees to treat such Licensed
Technology and Derivative Technology in accordance with the
terms of this Agreement including, without limitation, the
confidentiality terms, and (ii) Pinnacle agrees to promptly
return such Licensed Technology and Derivative Technology to
SME when it is no longer necessary to support the Approved
Customers. In addition, Pinnacle shall permanently destroy or
disable all electronically reproducible copies of the Licensed
Technology and Derivative Technology, including any electronic
files or documents containing any portion of the Licensed
Technology or Derivative Technology.
9.2 TERMINATION. This Agreement may be terminated as follows:
9.2.1 By either party upon sixty (60) days' written notice
specifying breach if the other party fails to comply with any
of the material terms or conditions of this Agreement unless
within the period of notice, all specified breaches have been
remedied.
9.2.2 By SME upon ten (10) days' written notice, it Pinnacle
violates the license or confidentiality terms of this
Agreement.
9.3 EFFECT OF TERMINATION- PINNACLE'S BREACH. In the event of
termination of this Agreement due to a breach by Pinnacle, the
rights and licenses granted by SME to Pinnacle will
immediately terminate and Pinnacle will have no further right
to the Licensed Technology or the Derivative Technology.
Within ten (10) days after termination, Pinnacle must return
all copies of the Licensed Technology and Derivative
Technology in Pinnacle's possession or control. In addition,
Pinnacle must permanently destroy or disable all
electronically reproducible copies of the Licensed Technology
and Derivative Technology and any electronic files or
documents containing any portion of the Licensed Technology or
Derivative Technology. Upon request by SME, a duly authorized
officer of Pinnacle must certify to SME that Pinnacle has
destroyed or returned all copies of the Licensed Technology
and Derivative Technology as required under this Subsection.
9.4 CHANGE OF CONTROL. In the event of the direct or indirect
taking over or assumption of control of Pinnacle or of
substantially all of its assets by any government,
governmental agency or other third party. SME may terminate
this Agreement upon written notice to Pinnacle.
<PAGE> 6
9.5 LIMITATION OF LIABILITY. Neither party shall have the right to
recover damages or indemnification of any nature, whether by
way of lost profits, expenditures for promotion, payment for
goodwill or otherwise made in connection with the business
contemplated by this Agreement, due to the expiration or
permitted or lawful termination of this Agreement. EACH PARTY
WAIVES AND RELEASES THE OTHER FROM ANY CLAIM TO COMPENSATION
OR IDEMNITY FOR TERMINATION OF THE BUSINESS RELATIONSHIP
UNLESS SUCH TERMINATION IS IN BREACH OF THIS AGREEMENT.
9.6 SURVIVAL. Rights and obligations under this Agreement which by
their nature should survive, will remain in effect after
termination or expiration hereof.
10. CONFIDENTIAL INFORMATION.
10.1 OBLIGATION. Except as provided in this Agreement, a receiving
party may not use, make, have made, distribute or disclose any
copies of Confidential Information it receives from the
disclosing party pursuant to this Agreement, in whole or in
part, without the prior written authorization of such
disclosing party. Each party shall hold in confidence any
Confidential Information received from the other pursuant to
this Agreement and shall protect the confidentiality thereof
with no less than reasonable care, for the term of this
Agreement, but in no event less than five (5) years from the
date of receipt of the Confidential Information, except for
Source Code which shall be protected in perpetuity.
10.2 EXCEPTIONS. Notwithstanding any provisions contained herein
concerning nondisclosure and non-use of the Confidential
Information, the obligations of Section 10.1 shall not apply
to any portion of the Confidential Information which a
receiving party can demonstrate:
(i) is now, or hereafter through no act or failure to act on
the part of receiving party becomes, generally known in the
electronics industry;
(ii) is known to receiving party at the time of receiving such
Confidential Information without an obligation of
confidentiality;
(iii) is hereafter rightfully furnished to receiving party by
a third party without restriction on disclosure; or
(iv) is independently developed by receiving party without any
use of the Confidential Information.
10.3 EMPLOYEE ACCESS. Confidential Information may only be
disclosed to employees having a need to know such Confidential
Information for purposes of this Agreement. Each party shall
inform its employees having access to the Confidential
Information of the limitations, duties and obligations
regarding nondisclosure and copying of any or all of the
Confidential Information.
10.4 NOTICE OF VIOLATION. Each party agrees to provide notice to
the other immediately after learning of or having reason to
suspect a breach of any of the provisions of this Section.
11. WARRANTIES; HIGH RISK APPLICATIONS.
11.1 LICENSED TECHNOLOGY. Pinnacle acknowledges that the Licensed
Technology may be in the process of change or development.
Licensed Technology and SME Confidential Information is
provided "AS IS".
11.2 DERIVATIVE TECHNOLOGY. Pinnacle acknowledges and warrants that
the PCI Card will meet or exceed the acceptance criteria
specified by SME and delivered to Pinnacle as stated in
Exhibit A, and that the manufactured PCI Card will be free
from errors which materially impairs its functionality.
<PAGE> 7
11.3 DISCLAIMER. SME DOES NOT MAKE AND DISCLAIMS ANY EXPRESS OR
IMPLIED WARRANTIES OR CONDITIONS WITH RESPECT TO THE LICENSED
TECHNOLOGY AND RELATED MATERIALS INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY
RIGHTS, DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WARRANTIES ARISING FROM A COURSE OF DEALING OR
PERFORMANCE OR USAGE OF TRADE. No agent of SME is authorized
to incur warranty obligations on behalf of SME or modify the
limitations as set forth herein.
11.4 HIGH RISK APPLICATIONS. Licensed Technology is not designed or
intended for use in on-line control of aircraft, air traffic,
aircraft navigation or aircraft communications; or in the
design, construction, operation or maintenance of any nuclear
facility. SME disclaims any express or implied warranty of
fitness for such uses. Pinnacle represents that it will not
use Licensed Technology or Derivative Technology and will not
use, distribute or resell the PCI Card for such purposes and
that it will use its best efforts to ensure that Approved
Customers are provided with a copy of this Subsection.
11.5 PRODUCT LIABILITY. Pinnacle shall not, in connection with
the marketing of the PCI Card represent, either directly or
indirectly, that SME has certified or approved of the form,
fit, function, performance or compatibility thereof. Pinnacle
shall indemnity, release, defend and hold SME harmless from
all claims, damages, losses, costs and expenses, including
reasonable attorneys' fees and expenses, arising in defense of
any claim of product liability in any way relating to the PCI
Card or Derivative Technology, provided that SME (i) gives
Pinnacle written notice of such claim, (ii) cooperates with
Pinnacle, at Pinnacle's expense, in the defense of the claim,
and (iii) gives Pinnacle the right to control the defense and
settlement of the claim, except that Pinnacle may not enter
into any settlement that affects SME's rights or interest
without SME's prior written approval. SME has no authority to
settle any claim on behalf of Pinnacle.
12. LIMITATION OF LIABILITY.
12.1 INFRINGEMENT. SME IS NOT RESPONSIBLE FOR ANY LIABILITY RELATED
TO ANY CLAIM ALLEGING THAT THE USE OF LICENSED TECHNOLOGY,
USE, MANUFACTURE OR, SALE OF THE PCI CARD INFRINGES THE
INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
12.2 GENERAL LIMITATION. Except for breach of Sections 10, 11.3 or
11.4, and to the extent not prohibited by applicable law.
A. SME's aggregate liability to Pinnacle for claims
relating to this Agreement, whether in contract or tort, shall
be limited to the total of any payments made to SME by Pinnacle
for services provided under Section 6.
B. Pinnacle's aggregate liability to SME for claims
relating to this Agreement, whether in contract or tort, shall
be limited to the total of the gross revenue received by
Pinnacle from the sale of the PCI Card to Approved Customers
during the term of this Agreement.
B. Neither party will be liable for any indirect,
punitive, special, incidental or consequential damage in
connection with or arising out of this Agreement, including
loss of business, revenue, profits, use, data or other economic
advantage. however it arises, whether in contract or in tort,
even it that party has been previously advised of the
possibility of such damages.
C. Liability for damages shall be limited and excluded,
even if any exclusive remedy provided for in this Agreement
fails of its essential purpose.
13. MISCELLANEOUS.
13.1 NOTICES. All written notices required by this Agreement must
be delivered in person or by means evidenced by a delivery
receipt and will be effective upon receipt.
<PAGE> 8
13.2 RELATIONSHIP. This Agreement is not intended to create a
relationship such as a partnership, franchise, joint venture,
agency, or employment relationship. Neither party may act in a
manner which expresses or implies a relationship other than
that of independent contractor, nor bind the other party.
13.3 GOVERNING LAW. Any action related to this Agreement will be
governed by California law and controlling U.S. federal law.
No choice of law rules of any jurisdiction will apply.
13.4 ATTORNEY'S FEES. In addition to any other relief, the
prevailing party in any action arising out of this Agreement
shall be entitled to attorneys' fees and costs.
13.5 FORCE MAJEURE. A party is not liable under this Agreement for
non-performance caused by events or conditions beyond that
party's control if the party makes reasonable efforts to
perform. This provision does rot relieve Pinnacle of its
obligation to make payments then owing.
13.6 AVAILABLE RELIEF. Nothing herein is to be construed as
limiting either party from seeking injunctive or other
equitable relief at any time. Pinnacle acknowledges and agrees
that (i) the restrictions on its use and disclosure of SME's
Confidential Information and the restrictions and limitations
on the licenses granted to Pinnacle are reasonable and
necessary to protect legitimate interests, (ii) in the event
of a violation by Pinnacle of any of the provisions of
Sections 3, 4, or 10, remedies at law will be inadequate and
such violation will cause irreparable damages to SME within a
short period of time, and (iii) SME will be entitled to
injunctive relief against every violation of these Sections.
13.7 ASSIGNMENT. Neither party may assign or otherwise transfer any
of its rights or obligations under this Agreement, without the
prior written consent of the other party, except that SME may
assign its right to payment and may assign this Agreement to
any of its Affiliates.
13.8 WAIVER. Any express waiver or failure to exercise promptly any
right under this Agreement will not create a continuing waiver
or any expectation of non in-enforcement.
13.9 SEVERABILITY. If any provision of this Agreement is held
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any
way be affected or impaired thereby, and shall be interpreted,
to the extent possible, to achieve the purposes as originally
expressed in the invalid, illegal or unenforceable provision.
13.10 EXPORT CONTROL. The Licensed Technology, Derivative Technology
and SME Confidential Information are subject to U.S. export
control laws and may be subject to export or import
regulations in other countries. Pinnacle agrees to comply
strictly with all such laws and regulations and acknowledges
that it has the responsibility to obtain such licenses to
export, re-export or import as may be required after delivery
to Pinnacle.
13.11 ENTIRE AGREEMENT. This Agreement, including the attached
Exhibits, is the parties' entire agreement relating to its
subject matter. It supercedes all prior or contemporaneous
oral or written communications, proposals, conditions,
representations and warranties and prevails over any
conflicting or additional terms of any quote, order,
acknowledgement, or other communication between the parties
relating to its subject matter during the term of this
Agreement. No modification to this Agreement will be binding,
unless in writing and signed by an authorized representative
of each party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the Effective Date.
SUN MICROELECTRONICS PINNACLE DATA SYSTEMS, INC.
<PAGE> 9
<TABLE>
<S> <C>
A DIVISION OF SUN MICROSYSTEMS, INC.
BY: /s/ Sam Spadafora BY: /s/ John D. Bair
------------------------------------ ---------------------------------------
NAME: Sam Padafora NAME: John D. Bair
---------------------------------- ------------------------------------
TITLE: V.P. TITLE: C.E.O.
--------------------------------- ------------------------------------
</TABLE>
<PAGE> 10
The Exhibits to this Agreement are:
- -----------------------------------
Exhibit A - SME DELIVERABLES
Exhibit B - DEVELOPMENT PLAN
Exhibit C - PRICING
Exhibit D - APPROVED CUSTOMERS
<PAGE> 11
EXHIBIT A
SME DELIVERABLES
For delivery upon the Effective Date:
1. Schematics for PCI Card, 12 pages, electronic file, PostScript format
2. Netlist report for PCI Card components, electronic file, text format
3. Bill of materials, electronic file, text format
4. Component Placement drawing, electronic file, PostScript format
5. PCIO User's Manual
6. Source Code for Open Boot Software, electronic file, text format
For delivery on or before 10/31/97
1. Acceptance criteria for prototype boards
<PAGE> 12
EXHIBIT B
DEVELOPMENT PLAN
<TABLE>
<CAPTION>
(1) SCHEDULE AND PINNACLE DELIVERABLES.
ITEM START DEADLINE
<S> <C> <C>
0. SMCC give PDSi all documentation 10/27/97
on PCI card to be designed
1. Parts database creation 10/31/97 11/03/97
(footprints, vendors)
2. Vendors approval 11/04/97
3. Design Verification Plan 11/15/97
4. Purchasing 11/08/97 11/28/97
5. Layout concepts 11/08/97 (parts location, etc.)
6. Mechanical drawings 11/03/97 11/09/97
6. Mechanical parts manufacturing 11/10/97 11/28/97
7. Layout and Routing 11/08/97 11/ 23/97
(1st revision)
8. Layout and Routing Review 11/12/97
9. Layout and Routing 11/12/97 11/17/97
(2nd revision)
10. Rev.1 boards manufacturing 11/17/97 11/26/97
11. Two boards population with 11/29/97 11/30/97
components
12. First bring up and testing 11/30/97
13. Code Modification and 11/08/97 11/31/97
PROM Programming
14. ECOs 11/30/97 11/31/97
15. Two P1 boards shipment to GTE 12/12/97
16. ECOs 11/31/97 12/11/97
17. Documentation 12/12/97
</TABLE>
(1) SCHEDULE AND PINNACLE DELIVERABLES (CONTINUED).
<PAGE> 13
<TABLE>
<CAPTION>
ITEM START DEADLINE
<S> <C> <C>
18. Ten P1 boards population with 12/12/97 12/19/97
components, ECOs
19. Ten P1 boards bring up and 12/22/97 12/25/97
testing
20. Ten PI boards shipment to GTE 12/26/97
21. Environmental and Compliance 12/26/97 01/14/97
Testing
22. Rev-2 Layout and Routing 01/15/97 01/19/97
23. Rev.2 boards manufacturing 01/20/98 01/30/98
24. Ten boards population with 02/01/98 02/04/98
components
25. Second bring up and 02/07/98
testing
26. ECOs 2/07/98 02/08/98
27. Ten P2 boards shipment to GTE 02/09/98
28. System testing with customer 02/10/98 02/20/98
hardware and software
29. ECOs 02/23/98 02/24/98
30. Mass production preparation: 02/25/98 03/13/98
-stencil design
-production documentation
-vendor approval
31. FCS 03/16/98
</TABLE>
The dates in this Development Plan assume a Effective Date of 10/27/97 for the
Agreement. If the actual Effective Date is later than 10/27/97, the parties
agree that the dates in this Development Plan will be extended by a
corresponding number of days.
(2) DESIGNATED SITE: Pinnacle Data Systems, Inc.
2155 Dublin Road
Columbus, Ohio 43228
(3) DESIGNATED EQUIPMENT: Sun Ultra Sparc 143, CPU
Part# 501-2836, CPU SN#013859 Host ID 80a568,
IP Address 8:0:20:80:A5:68
<PAGE> 14
EXHIBIT C
PRICING
1. SALES TO APPROVED CUSTOMERS. In making sales of the manufactured PCI
Card to Approved Customers, Pinnacle will charge no more than five
hundred and 00/100 US dollars ($500.00) per unit for the first two (2)
years from the Effective Date of the Agreement.
2. SALES TO SME. Notwithstanding the above paragraph, for the term of the
Agreement SME will be entitled to purchase the manufactured PCI Card
from Pinnacle for Pinnacle's manufacturing cost, plus 20% for overhead
and profit.
<PAGE> 15
EXHIBIT D
APPROVED CUSTOMERS
The following are Approved Customers under this Agreement:
GTE Corporation, Government Systems Corp., Communications Systems
Division, (No other GTE Divisions, or GTE Affiliates without separate
approval)
Sun Microsystems, Inc., or any of its Affiliates
<PAGE> 1
EXHIBIT NO. 10(c)
SUN TECHNOLOGY LICENSE AND DISTRIBUTION AGREEMENT
AGREEMENT NO. 14646
This Agreement is made and entered into by and between Sun Microsystems, Inc., a
Delaware corporation, located at 901 San Antonio Road, Palo Alto, California
94303 ("Sun") and Customer set forth below ("Customer"):
(printed or typed)
Customer: Pinnacle Data Systems, Inc.
Address: 2155 Dublin Road
Columbus, Ohio 43228
Tel: 614-487-1150
Fax: 614-487-8568
This Agreement includes the terms and conditions set forth below and the
following Attachments:
Attachment 1 End User Binary Code License
Attachment 2 Binary Product/Activity Level Matrix
Sun designs, develops and markets operating system software, related software,
and documentation.
Customer desires to license from Sun the Products and distribute the same on the
terms and conditions herein.
IN CONSIDERATION of the foregoing premises, the parties agree that the terms and
conditions attached hereto and incorporated herein shall govern the licensing of
the Products described in Attachments initialed by the parties attached hereto
and incorporated herein.
Notices as described in Section 12.8 shall be delivered to Sun at the above
address, M/S UCUP03-802, Attention: Vice President, Sales, with a copy to Sun
Legal Dept. (same address). Notices to Customer shall be delivered to: above
address, Attention: John Bair, CEO/President.
IN WITNESS WHEREOF, the parties have caused this Agreement and any Attachments
initialed hereto to be executed by their duly authorized representatives.
SUN MICROSYSTEMS, INC. PINNACLE DATA SYSTEMS, INC.
By: /s/ Jay Puri By: /s/ John Bair
---------------------------- -------------------------------
Name: Jay Puri Name: John Bair
---------------------------- -------------------------------
(printed or typed) (printed or typed)
Tide: VP Sales Title: Pres/CEO
---------------------------- -------------------------------
Date: 1/15/99 Date: 1/15/99
---------------------------- -------------------------------
GENERAL TERMS AND CONDITIONS
1.0 DEFINITIONS
1.1 "Agreement" means this Agreement, fully executed by the parties, to
include without limitation, all Attachments hereto.
1.2 "Attachments" means addenda, including any exhibits or schedules to this
Agreement describing the Products, Documentation, fees and royalties, and any
special terms and conditions pertaining to the license thereof.
<PAGE> 2
1.3 "Binary Code License (BCL)" means an End User license to use the Binary
Product(s) pursuant to Attachment 1 hereto, or as otherwise specified by Sun for
specific Products.
1.4 "Binary Products" means the machine-readable, executable code for the
Product and End User Documentation listed in Attachment 2 hereto, any Updates,
Version Release or Product Release to the Binary Product provided to Customer,
if any, and any Error Corrections.
1.5 "Confidential Information" means that information which Customer and/or Sun
desire to protect against unauthorized disclosure or use and which the
disclosing party designates as confidential (i) in writing, if communicated in
writing, or (ii) orally, prior to any oral disclosure of the Confidential
Information. Confidential Information may include information of third parties.
The terms and conditions of this Agreement shall be considered Confidential
Information of Sun.
1.6 "Distributor" means an entity that distributes Customer's Products and which
is under a contractual obligation to Customer as set forth in this Agreement.
1.7 "Dollar" or "$" means the currency of the United States of America.
1.8 "End User" means the entity to whom the BCL applies and to whom Customer
and/or Distributors furnish the Binary Products for use on or with Customer's
Products for internal use and not for resale, marketing, or leasing.
1.9 "End User Documentation" means users' manuals, programmers' guides and
system guides which Sun may provide for use with the Products, and which are
specified in the Attachments and/or the Price List.
1.10 "Error" means any reproducible failure of the Products to perform its
intended functions or any significant inaccuracies in the End User
Documentation.
1.11 "Error Correction" means a modification, addition, procedure or routine
intended to correct the practical adverse effect of an Error.
1.12 "Customer's Product(s)" means (i) the hardware system(s) manufactured by or
for Customer with which the full operating system environment Product(s) is
(are) intended to operate; and/or (ii) the hardware and/or software system
manufactured by or for Customer and which is shipped with the unbundled and
other technology Products.
1.13 "Master Media" means the Binary Product delivered to Customer for the
purpose of mass duplication in accordance with Section 2.0 herein.
1.14 "Packaged Product" means the Binary Product, including End User
Documentation, delivered to Customer in prepackaged (shrink-wrap) form.
1.15 "Price List" means the then current, geographical specific release of the
Sun Software OEM and Reseller License Fee and Royalty Schedule at the time of
execution of this Agreement including any subsequent price changes made by Sun
pursuant to Section 4.4.
1.16 "Product Release" means a release of a Product which is designated by Sun
in its sole discretion as a change in the digit(s) to the left of the decimal
point in the Product version number [(x).x.x].
1.17 "Royalty Bearing Event" means the license, grant of right to use, or other
authorized transfer of the Binary Product (or any portion thereof) by Customer,
Distributors or their distributors. There will be only one (1) Royalty Bearing
Event for each Binary Product shipped.
1.18 "Product(s)" means the Binary Product initialed on Attachment 2 hereto.
1.19. "Tax" means sales, use, rental, receipt, personal property, value-added,
consumption, goods and services, or other tax which may be levied or assessed in
connection with this Agreement, excluding tax based on Sun's income.
1.20 "Update" means a release of a Product which is designated by Sun in its
sole discretion as a change in the digit(s) to the right of the tenths digit in
the Product version number [x.x.(x)].
1.21 "Version Release" means a release of a Product which is designated by Sun
in its sole discretion as a change in the tenths digit in the Product version
number [x.(x).xl.
2.0 BINARY LICENSE RIGHTS; TERMS AND CONDITIONS
2.1 Binary License Grant.
(a) Packaged Product. Subject to and in consideration of the conditions and
restrictions set forth in this Agreement, Sun grants to Customer a personal,
non-transferable, world-wide and non-exclusive, fee-bearing, limited right and
license to distribute Packaged Product for use with Customer's Products.
Packaged Product distributed by Customer and/or its Distributors may not be
opened prior to delivery to End Users except, in the event the End User requests
pre-installation of the Packaged Product, Customer and/or its Distributors may
do so only after obtaining agreement to the BCL terms by the End User prior to
delivery of the pre-installed Packaged Product.
(b) Master Media. Subject to and in consideration of the payments, conditions
and restrictions set forth in this Agreement, Sun grants to Customer a personal,
non-transferable, world-wide and non-exclusive, royalty-bearing, limited right
and license to make copies of the Binary Product from Master Media and
distribute such copies, including End User Documentation, for use with
Customer's Product's in accordance with the terms of this Agreement.
<PAGE> 3
2.2 Binary License Terms and Conditions. Each distribution of a
Binary Product by Customer or its Distributors to an End-User must be made
pursuant to a license that is consistent with the rights and obligations set
forth herein and that incorporates in substance, and is no less restrictive
than, the terms and conditions of the BCL. In the event the BCL contains
supplemental terms and conditions relating to a specific product, Customer shall
be obligated to pass through such supplemental terms and conditions to its End
User customers. It is expressly acknowledged and agreed that in the United
States and in other jurisdictions where an enforceable copyright protection
covering the Binary Products exists, such license may be a written agreement on
or accompanying the package containing the Binary Product media that is fully
visible to the End-User before the package is opened, that the End-User accepts
by opening the package and that complies with applicable law relating to
agreements of such type. In all other jurisdictions, such license must be a
written agreement signed by the End-User. Sun does not undertake to inform
Customer of the jurisdictions where such copyright protection exists. Customer
or its Distributors shall be the "Licensor" under its Binary Code Licenses. In
the event the End User, upon reading the BCL, elects to return the product as
provided in the product packaging, Customer will accept return of the unopened
Packaged Product and shall refund the license fee to the End User.
2.3 Distribution Agreements.
(a) Prior to Customer furnishing any Binary Product to one of its Distributors,
Customer shall obtain a signed agreement from its Distributors substantially
similar to the terms and conditions of this Agreement and sufficient to allow
protection of the intellectual property rights of Sun and its licensors.
(b) Customer shall use commercially reasonable efforts comparable to those it
uses for its own products to enforce any agreements with Distributors and End
Users of the Products entered into with Customer or its Distributors. If a
Distributor or End User fails to fulfill any of its material obligations with
respect to the Products under such agreement, Sun may, upon its election and in
addition to any other remedies that it may have notify Customer in writing of
such breach and require Customer to terminate all the rights granted in such
agreement with respect to the Products by thirty (30) days written notice to
such Distributor or End User specifying the breach, unless the breach is
remedied within such thirty (30) day period. Customer shall use commercially
reasonable efforts comparable to those it uses for its own products in
monitoring its Distributor's adherence to the provisions of its agreements
required by this Agreement and shall promptly inform and consult with Sun if
Customer becomes aware of any substantial non-compliance. In the event that
Customer fails to satisfy the foregoing obligations with regards to the
Products, subject to Section 8.0 below, Customer shall be responsible for all
reasonable costs incurred by Sun, including without limitation, attorneys fees,
in connection with such enforcement actions undertaken by Sun. In those
jurisdictions where Sun does not have standing to bring an action in its own
name or under the intellectual property laws of such jurisdiction, Customer
shall assign those rights to Sun reasonably necessary to allow Sun to bring an
action under any legal theory available to Customer.
2.4 End User Documentation Distribution; Modification.
(a) End User Documentation Distribution. One (1) copy of End User Documentation
is provided with each copy of the Product(s) if specified on the Price List.
Each additional copy of End User Documentation requires payment of applicable
royalties as set forth in the Price List
(b) Modification of End User Documentation. Customer may modify the End User
Documentation ("Modified Documentation") and distribute such Modified
Documentation, subject to the following: (i) Customer may modify only those
portions of the End User Documentation and only to the extent necessary to
reflect any modifications or value added to the product developed by or for
Customer or as required for Customer's Product(s); (ii) Customer distributes the
Modified Documentation only in connection with its distribution of Customer's
Product; and (iii) Customer pays Sun the applicable royalty as listed in the
Price List (if any), subject to applicable discounts, for each copy of such
Modified Documentation distributed by or for Customer.
2.5 Trademarks, Logos and Product Designs.
(a) "Sun Trademarks" means all names, marks, logos, designs, trade dress and
other brand designations used by Sun in connection with Products. Customer may
refer to Products by the associated Sun Trademarks, provided that such reference
is not misleading and complies with the then current Sun Trademark and Logo
Policies. Customer shall not remove, alter, or add to any Sun Trademarks, nor
shall it co-logo Products. Customer is granted no right, title or license to, or
interest in, any Sun Trademarks. Customer acknowledges Sun's rights in Sun
Trademarks and agrees that any use of Sun Trademarks by Customer shall inure to
the sole benefit of Sun. Customer agrees not to (i) challenge Sun's ownership or
use of, (ii) register, or (iii) infringe any Sun Trademarks, nor shall Customer
incorporate any Sun Trademarks into Customer's trademarks, service marks,
company names, internet addresses, domain names, or any other similar
designations. If Customer acquires any rights in any Sun Trademarks by operation
of law or otherwise, it will immediately at no expense to Sun assign such rights
to Sun along with any associated goodwill, applications, and/or registrations.
(b) Customer may use the special program logo, if any, applicable to Customer's
channel (e.g. Authorized Reseller Logo) only: (i) as shown in the artwork
provided by Sun; (H) in pre-sale marketing materials and
<PAGE> 4
advertising, but not on goods, packaging, product labels, documentation or other
materials distributed with Products; (iii) in a manner no more prominent than
Customer's corporate name and logo; and (iv) otherwise in accordance with the
then current Sun Trademark and Logo Policies.
2.6 Intended Purpose. The intended purpose of the Binary Products is for use
with Customer's Products. Customer shall market and distribute directly or
indirectly through its Distributors each Binary Product for use only to End
Users of Customer's Product(s). Customer's product packaging for the Binary
Products shall clearly indicate this intended purpose.
2.7 Governmental Approvals. Customer shall, at its own expense, obtain and
arrange for the maintenance in full force and effect of all governmental
approvals, consents, licenses, authorizations, declarations, filings and
registrations as may be necessary for the performance of the terms and
conditions of the Agreement, including without limitation, fair trade approvals,
under all laws, regulations and other legal requirements within the
jurisdictions that Customer distributes the Products that apply to this
Agreement, including tax and foreign exchange legislation.
2.7 No Other Rights. Except as expressly stated herein and in the Attachment(s)
hereto, no other license, right or interest is granted to Customer for any other
purpose.
3.0 TERM AND TERMINATION
3.1 Term. This Agreement shall commence on: (i) the date of its execution by Sun
or (ii) where this Agreement will be void or Sun will be liable for a penalty
without an approval, registration, filing as referred to in Section 2.7,or Sun
obtaining the necessary US eport license, the date of such approval,
registration, filing, or US export license, whichever occurs later (the
"Effective Date") and shall have an initial term of three (3) years. Thereafter,
this Agreement shall be automatically renewed for successive one (1) year terms
(with a maximum of two (2) subsequent terms), unless one party notifies the
other party in writing at least sixty (60) days before the end of the then
current term stating that it wishes to terminate this Agreement; whereupon, this
Agreement shall terminate at the end of the then current term.
3.2 Termination. If either party fails to comply with any of the terms and
conditions of this Agreement, the other party may terminate this Agreement upon
thirty (30) days written notice to the breaching party specifying any such
breach, unless the breach specified therein has been remedied within such thirty
(30) day period. In the event of Customer's breach, Sun may terminate this
Agreement in its entirety or as to any individual Product(s).
3.3 Termination for Insolvency. Either party may terminate this Agreement
immediately in the event that the other party ceases to conduct its operations
in the normal course of business, or files for or becomes the subject of a
Bankruptcy petition, or is placed in receivership, or attempts to assign this
Agreement to creditors or otherwise without prior written consent of the other
party.
3.4 Effect of Termination.
(a) For Breach by Customer: Upon termination of this Agreement for breach by
Customer, Customer shall discontinue issuing BCL's for the Products, shall
return all Products and all copies thereof in its possession to Sun or destroy
all Products and all copies thereof in Customer's possession and certify in
writing by an officer of Customer that such Products and all copies thereof were
so destroyed.
(b) For Other Than Breach by Customer: Upon termination of this Agreement for
all other reasons, Customer shall discontinue issuing BCL's for the Products.
Customer and its Distributors may continue to use the Products in source code
form only in accordance with the terms and conditions hereunder solely for
maintenance services for then-existing customers and only for so long as
Customer and its Distributors are, at the time of termination, contractually
obligated to provide such maintenance services to such customers. In no event
shall Customer retain source code for more than three (3) years after the
effective date of termination.
(c) BCL's for the Products issued prior to the effective date of
termination shall continue in accordance with their terms and conditions.
Customer's obligation to pay royalties accrued prior to the termination of
this Agreement shall not terminate.
3.5 No Liability For Termination. To the full extent allowed by any applicable
law except as expressly provided in this Agreement, Customer agrees that it
shall have no rights to damages or indemnification of any nature due to any
expiration or rightful termination of this Agreement by Sun pursuant to its
terms. The foregoing restriction shall include without limitation, commercial
severance pay whether by way of loss of future profits, expenditure for
promotion of the Products, payment for goodwill generated or other commitments
made in connection with the business contemplated by this Agreement or other
similar matters. Customer will not be entitled under local law or otherwise to
receive any payment from Sun, whether for actual, consequential, indirect,
special or incidental damages, costs or expenses, whether foreseeable or
unforeseeable, any right to which Customer hereby waives and disclaims. Customer
EXPRESSLY WAIVES AND RENOUNCES ANY CLAIM TO COMPENSATION OR INDEMNITIES FOR ANY
TERMINATION OF BUSINESS RELATIONSHIP BY A FOREIGN BUSINESS ENTITY, WHICH MAY
EXIST UNDER THE LAWS OF ANY APPLICABLE JURISDICTION.
<PAGE> 5
3.6 Survival. Rights and obligations under this agreement which by their nature
should survive, will remain in effect after termination or expiration hereof.
4.0 PAYMENTS; TAXES; ACTIVITY LEVEL
4.1 Payment Terms. Except as otherwise specified in the Attachments, and in
consideration of the rights granted to Customer hereunder, Customer shall pay to
Sun the royalties for each Royalty Bearing Event for the applicable Product(s)
and Derivative Works thereof (as defined in Exhibit A, as applicable) licensed
or sublicensed by Customer on a quarterly basis within thirty (30) days
following the end of the preceding calendar quarter, accompanied by a report
pursuant to Section 5.1 below. License fees due Sun hereunder shall be paid to
Sun as set forth herein. In the case of Packaged Product or block serial
numbers, Customer shall pay amounts due to Sun within thirty (30) days from
Sun's invoice date. Sun's acceptance of this Agreement and any associated
order(s) does not imply Sun's approval of an open line of credit. Credit terms
are established by Sun based in part upon Customer's financial and payment
records. Sun reserves the right to place Customer on credit hold in the event
Customer's financial condition ceases to warrant the credit terms specified
above.
4.2 Taxes.
(a) Subject to Section 4.2(b), all amounts payable by Customer under this
Agreement are exclusive of any Tax, levy or similar governmental charge that may
be assessed by any jurisdiction, whether based on gross revenue, the delivery,
possession or use of the Products, the execution or performance of this
Agreement or otherwise, except for net income, net worth or franchise taxes
assessed on Sun. If, under the local law, Customer is required to withhold any
Tax on such payments, then the amount of the payment actually remitted to Sun
will be net of all Taxes. Customer will promptly furnish Sun with the official
receipt of payment of these Taxes to the appropriate taxing authority. Customer
will pay all other Taxes, levies or similar governmental charges or provide Sun
with a certificate of exemption acceptable to the taxing authority.
(b) Notwithstanding Section 4.2(a), Customer may deduct from payments any income
tax or tax of a similar nature imposed by any non-United States government
("government income tax") on the income of Sun from such payment and actually
paid by Customer for the account of Sun. In the event that Customer deducts any
such income tax from any such payment, Customer shall furnish Sun with evidence
acceptable to Sun and to the United States Government to sufficiently establish
that such government income tax has been paid for the account of Sun.
4.3 Updates, Version Releases and Product Releases. The fees specified in this
Agreement are for the then current release at time of execution of this
Agreement of the Products only. Updates, Version Releases and Product Releases
may require additional payment and/ or additional terms and conditions
hereunder. Sun shall have the right, at its sole discretion and without
incurring any liability to Customer, to modify a Product or discontinue its
manufacture, sale or support and will provide Customer with thirty (30) days
prior notice. Such change shall not require Customer's approval.
4.4 Price Changes. Sun reserves the right to change the Price List, discount
schedule and/or royalties for any Product at any time. Price decreases will take
effect immediately upon announcement. In the event of a price increase, Sun
shall provide Customer with thirty (30) days prior notice. Such change shall not
require Customer's approval. If, during the term of this Agreement, Sun
decreases the royalty rate for any Binary Product(s), Customer will be allowed a
credit toward new orders for any Binary Product(s) placed within thirty (30)
days of receiving such notice from Sun. This credit will be equal to the
difference between the new royalty rate and the previous royalty rate for all
such unopened Binary Product(s) in Customer's inventory as of the date of such
notice which were shipped to Customer not more than ninety (90) days before such
notice and whose serial numbers are submitted to Sun with Customer's written
request for credit. All orders for such Binary Product(s) scheduled for shipment
or in transit to Customer at the time of such notice shall be adjusted to the
decreased royalty rate.
4.5 Minimum Payments. Customer agrees to place a prepaid, firm, non-cancelable
stocking order for Packaged Product and/or a minimum, non-refundable prepayment
for Master Media in the amount specified for the Annual Activity Level. Such
stocking order and/or minimum prepayment must be provided to Sun upon execution
of the Agreement by Customer. The stocking order shall request shipment of all
Product(s) ordered thereunder within thirty (30) days of the execution date of
the Agreement by Customer, and such shipment shall not be rescheduled by
Customer.
4.6 Customer's Products. Customer shall list in its revenue reports to Sun
pursuant to Section 5.0 of the Agreement, Customer's Products shipped in
conjunction or associated with each Binary Product hereunder.
5.0 RECORDS; AUDIT REQUIREMENTS; FORECAST
5.1 Record Keeping. Customer shall maintain for a three (3) year period revenue
records sufficient to determine that Customer is in compliance with the
Agreement as it relates to the correctness of the royalties, fees and other
payments hereunder. Customer shall provide to Sun along with the payments
specified hereunder quarterly revenue reports, in the English language which
shall include, at a minimum, the following information: Product names,
Customer's Product names, number of units shipped, and royalty amounts due Sun.
<PAGE> 6
5.2 Audit Requirements. The following audit provision shall continue throughout
the term of this Agreement and shall survive the termination of this Agreement
insofar as applicable to payment obligations accrued prior to such termination.
(a) Right to Audit. Sun shall have the right to audit the records and accounts
of Customer required to be kept in accordance with this Agreement. The auditor
shall be adequately bound to keep confidential all Confidential Information of
Customer learned during the course of or pursuant to the audit. Any such audit
shall be performed only during Customer's normal business hours, no more
frequently than once per calendar year, and shall be performed in such a manner
as to avoid unreasonable interference with Customer's business operations; and
the auditor shall be limited to reporting the adequacy of Customer's records and
accounts, including, but not limited to, whether Customer is in compliance with
the terms of this Agreement and the amount, if any, of underpayment or
overpayment of the amounts due Sun pursuant to this Agreement. Except as
expressly provided in Section 5.2(b), Sun shall bear all costs and expenses
associated with the exercise of its right to audit.
(b) Errors in Payment. In the event that any errors in payment shall be
determined, such errors shall be corrected by appropriate adjustment in payment
(plus interest at one and one-half percent (1 - 1/2%) per month or the highest
rate permitted by law) for the quarterly period during which the error is
discovered. In the event of underpayment of more than five percent (5%) of the
amount due for that period (i) Customer shall reimburse Sun the reasonable
charges of the audit that identified the underpayments, and (ii) Sun shall have
the right to audit, at its sole discretion, in ninety (90) day intervals until
Customer becomes fully compliant with the terms and conditions of this
Agreement.
5.3 Forecast. On the first business day of each calendar quarter, Customer shall
provide Sun a rolling six (6) month non-binding forecast of Customer's projected
shipments for each Binary Product licensed hereunder.
6.0 CONFIDENTIAL INFORMATION If Sun desires that information provided to
Customer under this Agreement be held in confidence, Sun will identify the
information as confidential or proprietary. Customer may not disclose Sun's
confidential or proprietary information and may use it only for purposes
specifically contemplated in this Agreement. Sun will treat tangible business
and financial information of Customer that has been previously identified as
confidential, with the same degree of care as it does its own similar
information. The foregoing obligations do not apply to information which:
(i) is or becomes known by recipient without an obligation to maintain its
confidentiality; (ii) is or becomes generally known to the public through no act
or omission of recipient, or (iii) is independently developed by recipient
without use of confidential or proprietary information. This Section 6.0 will
not affect any other confidential disclosure agreement between the parties.
7.0 WARRANTIES
7.1 Customer's Limited Warranty. Sun warrants that for a period of ninety (90)
days from the date of delivery to Customer: (i) the media on which the Product
is furnished will be free of defects in materials and workmanship under normal
use; and (ii) the Product contains the features described in the Price List.
Except for the foregoing, to the full extent allowed by applicable law, the
Product is provided "AS IS". Customer's exclusive remedy and Sun's entire
liability under this limited warranty will be at Sun's option to repair or
replace the Product.
7.2 Aircraft Product and Nuclear Applications. Products are not designed or
intended for use in on-line control of aircraft, air traffic, aircraft
navigation or aircraft communications; or in the design, construction, operation
or maintenance of any nuclear facility. Sun disclaims any express or implied
warranty of fitness for such uses. Customer represents and wan-ants that it will
not use or resell Products for such purposes and that it will use its best
efforts to ensure that its Distributors and End Users of Products are provided
with a copy of the foregoing notice.
7.3 No Other Warranties. Unless specified in this Agreement, all express or
implied conditions, representations and warranties, including any implied
warranty or merchantability, fitness for a particular purpose, or
non-infringement, are disclaimed, except to the extent that such disclaimers are
held to be legally invalid.
8.0 LIMITATION OF LIABILITY
TO THE FULL EXTENT ALLOWED BY ANY APPLICABLE LAW, EXCEPT FOR EXPRESS
UNDERTAKINGS UNDER SECTION 7.2 AND OBLIGATIONS TO DEFEND UNDER SECIION 9.0 OF
THIS AGREEMENT, EACH PARTY'S LIABILITY TO THE OTHER FOR CLAIMS RELATING TO THIS
AGREEMENT, WHETHER FOR BREACH OR IN TORT, SHALL BE LIMITED TO ONE HUNDRED
PERCENT (100%) OF THE AMOUNT HAVING THEN ACTUALLY BEEN PAID BY CUSTOMER TO SUN
FOR ALL COPIES LICENSED HEREUNDER FOR THE PARTICULAR PRODUCT GIVING RISE TO SUCH
CLAIM, IF ANY. THE FOREGOING LIMITATION DOES NOT REDUCE CUSTOMER'S OBLIGATION TO
PAY SUN THE LICENSE FEES DUE AND OWING FOR THE PRODUCT(S). IN NO EVENT WILL
EITHER PARTY BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT
(INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS, USE, DATA, OR OTHER ECONOMIC
ADVANTAGE), HOWEVER IT ARISES, WHETHER FOR BREACH OF THIS AGREEMENT, INCLUDING,
BUT NOT LIMITED TO,
<PAGE> 7
BREACH OF WARRANTY, OR IN TORT, EVEN IF THAT PARTY HAS BEEN PREVIOUSLY ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE. THE FOREGOING LIMITATION OF LIABILITY OF
CUSTOMER TO SUN SHALL NOT APPLY IF CUSTOMER'S ACTIONS OR INACTION RESULT IN THE
UNAUTHORIZED DISCLOSURE, DISTRIBUTION OR USE OF THE PRODUCT(S) OR CONFIDENTIAL
INFORMATION.
9.0 INTELLECTUAL PROPERTY CLAIMS
9.1 Sun shall defend at its own expense without limitation and, in addition,
shall indemnify Customer from damages, liabilities, costs and expenses actually
awarded against Customer up to the amount stated in Section 8.0, as a result of
any judgment or proceeding against Customer in which it is determined that (i)
Sun does not have the right to grant the license(s) given to Customer hereunder,
excluding trademark rights; or (ii) that the marketing or use of any Sun written
code within the Product(s) infringe Berne Convention copyrights or patent rights
of third parties in any country where Sun Microsystems, Inc. has a subsidiary.
In the event Sun elects to avoid litigation relating to the foregoing and settle
any such claims, Sun will pay the settlement amount and obtain a release as to
all such claims against Customer.
9.2 Customer shall defend at its expense without limitation and, in addition,
shall indemnify Sun from damages, liabilities, costs and expenses actually
awarded against Sun up to the amount stated in Section 8.0, as a result of
actions or omissions set forth in Section 9.5 (i) through (iv). In the event
Customer elects to avoid litigation relating to the foregoing and settle any
such claims, Customer will pay the settlement amount and obtain a release as to
all such claims against Sun.
9.3 The indemnification obligations set forth in Sections 9.1 and 9.2 above
shall be conditioned upon the indemnified party (i) notifying the indemnifying
party within thirty (30) days of notice of a claim of infringement; (ii)
providing full cooperation and assistance to the indemnifying party at the
indemnifying party's expense; and (iii) providing the indemnifying party full
authority to manage the defense or settlement of the claim.
9.4 Should Products become or, in Sun's opinion, be likely to become the subject
of a claim of infringement pursuant to Section 9.1 above Sun, at its option may
(i) procure for Customer, at no additional cost to Customer, the right to
continue to use the Products, (ii) replace or modify the Products, at no
additional cost to Customer, to make such Product(s) non-infringing, provided
that substantially similar functionality and performance is obtained with the
replacement or modified Products, or (iii) if the right to continue to use
cannot be procured under commercially reasonable terms, or such Products cannot
be replaced or modified at commercially reasonable time and expense, terminate
the license to use such Products and refund to Customer over five (5) years in
equal monthly payments the amounts that Customer refunds to its customers for
such Product(s) due to the claim of infringement, up to the maximum amounts paid
by Customer to Sun under this Agreement for such Product(s). Sun's performance
of (i), (ii) or (iii) above shall be Customer's sole and exclusive remedies.
9.5 Notwithstanding the foregoing, Sun shall have no obligation to indemnify and
defend Customer or to pay costs, damages or attorneys' fees for any claim based
upon (i) the combination, operation, or use by Customer of Products with other
equipment, code, programs or data not supplied by Sun if such infringement would
have been avoided but for the combination, operation or use of the Products with
other equipment, code, programs or data; or (ii) use by Customer of other than
the then latest version of a Product, if such infringement could have been
avoided by the use of the latest version of the Product and such latest version
had been made available to Customer; or (iii) modifications by Customer of the
Products in the event such infringement is caused by such modifications; or (iv)
use by Customer outside the scope of the granted license(s).
10.0 MAINTENANCE AND SUPPORT
10.1 This Agreement does not include maintenance and support of Products by Sun.
Sun's standard support offerings are available under a separate support
agreement.
10.2 At a minimum, Customer shall provide technical support to its Distributors
and End-Users including the following: (i) assisting with installation,
operation, and use of the Products; (ii) preparing all Error reports and
conducting necessary call backs; and (iii) furnishing Error Corrections provided
to Customer by Sun. These tasks may be undertaken on Customer's behalf by
Distributors for End-Users.
11.0 GOVERNMENT CONTRACTS
11.1 U.S. Governments
(a) If procured by, or provided to, the U.S. Government, use, duplication, or
disclosure of technical data is subject to restrictions as set forth in FAR
42.227-14(g)(2), Rights in Data - General (June 1987); and, for computer
software and computer software documentation, FAR 52.227-19, Commercial Computer
Software - Restricted Rights (June 1987). However, if procured by, or provided
to, the U. S. Department of Defense ("DOD"), use, duplication, or disclosure of
technical data is subject to DFARS 252.227-7015(b), Technical Data - Commercial
Items (June 1995); and, for computer software and computer software
documentation, as specified in the License under which the computer software was
procured pursuant to DFARS 227.7202-3(a). For U.S. Government agencies other
than the DOD with solicitations issued prior to October 1, 1995, all software
and technical data are provided
<PAGE> 8
with "Restricted Rights" as defined in FAR 52.227-19, and "Limited Rights" as
defined in FAR 52.227-14, Rights in Data - General, respectively, and for DOD,
as defined in DFAR 252,227-7013, Rights in Technical Data and Computer Software
(Oct 1988). Customer shall not provide Software Product nor technical data to
any third party, including the U.S. Government, unless such third party accepts
the same restrictions. Customer is responsible for ensuring that proper notice
is given to all such third parties and that the Software Product and technical
data are properly marked. Customer shall indemnify Sun for any claims or damages
arising from any claim by the U.S. Government to more than Restricted Rights in
and to the Software Product(s) resulting from Customer's failure to provide a
Restricted Rights legend as required herein. Any failure by Sun to affix a
Restricted Rights legend on the Software Product(s) shall not be deemed to
constitute a waiver of any limitation on Customer's rights imposed by this
Agreement.
(b) Under no circumstances shall Sun be obligated to comply with any
requirements imposed by the U.S. Government regarding submission of or the
request for exemption from submission of cost or pricing data or cost accounting
requirements for any distribution or license of Products that would require
compliance by Sun with U.S. Governmental requirements relating to cost or
pricing data or cost accounting requirements.
11.2 Other Sovereign Governments
At its own cost and expense, Customer and its Distributors will take all
necessary steps in making proposals and agreements with sovereign governments
other than the U.S. Government which involve Products and End User Documentation
to ensure that Sun's proprietary rights in Products and End User Documentation
receive the reasonably necessary protection available from such foreign
governments for commercial computer software and related documentation developed
at private expense."
12.0 MISCELLANEOUS
12.1 Force Majeure. A party is not liable under this Agreement for
non-performance caused by events or conditions beyond that party's control if
the party makes reasonable efforts to perform. This provision does not relieve
Customer of its obligation to make payments then owing.
12.2 Severability. In the event that any part of this Agreement is held to be
unenforceable, in whole or in part, such holding will not affect the validity of
the other parts of this Agreement, unless Sun deems the unenforceable part to be
essential to this Agreement, in which case Sun may terminate this Agreement,
effective immediately upon notice to Customer.
12.3 Relationship of the Parties. This Agreement is not intended to create a
relationship such as a partnership, franchise, joint venture, agency, or
employment relationship. Neither party may act in a manner which expresses or
implies a relationship other than that of independent contractor, nor bind the
other party.
12.4 Governing Law. Any action related to this Agreement will be governed by
California law and controlling U.S. federal law. No choice of law rules of any
jurisdiction will apply.
12.5 Import and Export Laws. All Products and technical data delivered under
this Agreement are subject to U.S. export control laws and may be subject to
export or import regulations in other countries. Customer agrees to comply
strictly with all such laws and regulations and acknowledges that it has the
responsibility to obtain such licenses to export, re-export or import as may be
required after delivery to Customer.
12.6 Assignment. Neither party may assign or otherwise transfer any of its
rights or obligations under this Agreement, without the prior written consent of
the other party, except that Sun may assign its right to payment and may assign
this Agreement to an affiliated company.
12.7 Change of Control. In the event of the direct or indirect taking over or
assumption of control of Customer or of substantially all of its assets by any
government, governmental agency or other third party, Sun may terminate this
Agreement upon written notice to Customer.
12.8 Notices. All written notices required by this Agreement must be delivered
in person or by means evidenced by a delivery receipt and will be effective upon
receipt.
12.9 Waiver or Delay. Any express waiver or failure to exercise promptly any
right under this Agreement will not create a continuing waiver or any
expectation of non-enforcement.
12.10 No Rights in Third Parties. This Agreement is made for the benefit of the
parties hereto, and not for the benefit of any third parties unless otherwise
stated herein or agreed to by the parties.
12.11 Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute but
one and the same instrument.
12.12 Headings. The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
12.13 Construction. This Agreement has been negotiated by the parties hereto and
by their respective counsel. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against either party. The original of this Agreement has been written in
English, and such version shall be the governing version of the Agreement. To
the extent allowed under applicable law, Customer waives any right it may have,
if any, under any law or regulation to have this Agreement written in a language
other than English.
<PAGE> 9
12.14 Orders. This Agreement does not constitute an order for Products, but
rather a commitment to order Products as set forth in the Attachments. Purchase
orders for Products shall be submitted to Sun by Customer pursuant to the terms
of this Agreement and shall be subject to a minimum of Five Thousand Dollars
($5,000) for Packaged Product. Any terms or conditions set forth on any purchase
order, check, or other document of Customer shall have no force or effect
whatsoever. Customer further acknowledges that it does not take title to the
Product, with the exception of the media and printed materials, but rather
licenses the Products pursuant to the terms and conditions of this Agreement.
12.15 Deliveries. Products and Documentation shall be delivered F.O.B. Sun's
designated shipping facility unless otherwise agreed to by the parties in
writing. Sun may make partial deliveries and such deliveries will not relieve
Customer of its obligation to accept the remainder of that order in whole or in
part. Sun may allocate Products to fairly accommodate orders received by Sun
from all customers at anytime demand exceeds the available supply.
12.16 Equitable Relief. Because the licenses granted under this Agreement are
personal and unique, and because Customer will have access to and become
acquainted with confidential and proprietary information of Sun, the
unauthorized use or disclosure of which would cause irreparable harm and
significant injury which would be difficult to ascertain and which would not be
compensable by damages alone, both parties agree that, in addition to any and
all legal remedies available to Sun for Customer's breach of this Agreement, Sun
shall be entitled to avail itself of actions against Customer and/or third
parties for seizure and injunctive relief. If an unauthorized use or disclosure
occurs, Customer will promptly notify Sun and take, at Customer's expense, all
steps which are necessary to recover the Product and to prevent its subsequent
unauthorized use or dissemination.
12.17 Entire Agreement. This Agreement is the parties' entire agreement relating
to its subject matter. It supersedes all prior or contemporaneous oral or
written communications, proposals, conditions, representations nd warranties and
prevails over any conflicting or additional terms of any quote, order,
acknowledgment, or other communication between the parties relating to its
subject matter during the term of this Agreement. No modification to this
Agreement will be binding, unless in writing and signed by an authorized
representative of each party.
<PAGE> 10
ATTACHMENT I
END USER BINARY CODE LICENSE
SUN IS WILLING TO LICENSE THE ACCOMPANYING SOFTWARE TO YOU ONLY UPON THE
CONDITION THAT YOU ACCEPT ALL OF THE TERMS CONTAINED IN THIS LICENSE AGREEMENT.
READ THE TERMS AND CONDITIONS OF THIS LICENSE CAREFULLY BEFORE OPENING THE
SOFTWARE MEDIA PACKAGE. BY OPENING THE SOFTWARE MEDIA PACKAGE, YOU AGREE TO THE
TERMS AND CONDITIONS OF THIS AGREEMENT. IF YOU ARE NOT WILLING TO BE BOUND BY
THIS AGREEMENT, RETURN THE SOFTWARE UNUSED WITHIN FIFTEEN (15) DAYS OF PURCHASE
FOR A REFUND OF THE LICENSE FEE PAID.
1. LICENSE TO USE. Customer is granted a non-exclusive and non-transferable
license ("License") for the use of the accompanying binary software in
machine-readable form, together with accompanying documentation ("Software"), by
the number of users and the class of computer hardware for which the
corresponding fee has been paid.
2. LICENSE TO DEVELOP. This License authorizes Customer to develop software
programs utilizing the Software. However, in the event that Customer desires to
develop software programs which incorporate portions of Software ("Developed
Programs"), the following provisions apply, to the extent applicable: Developed
Programs are to have an application programming interface that is the same as
Software; fonts within Software are to remain associated with their toolkit or
server; Developed Programs may be used and distributed, but only on computer
equipment licensed to utilize Software, unless an additional Developer's License
Agreement has been executed by Sun and Customer; Customer is not licensed to
develop printing applications or print unless Customer has secured a valid
printing license; incorporation of portions of Motif(R) in Developed Programs
may require reporting of copies of Developed Programs to Sun; and Customer
agrees to indemnify, hold harmless and defend Sun and its Licensors from and
against any claims or suits, including attorneys' fees, which arise or result
from distribution or use of Developed Programs to the extent such claims or
suits arise from the development performed by Customer.
3. RESTRICTIONS. Software is copyrighted and title to all copies is retained by
Sun and/or its licensors. Customer shall not make copies of Software, other than
a single copy of Software for archival purposes and, if applicable, Customer
may, for its internal use only, print the number of copies of on-line
documentation for which the applicable fee has been paid, in which event all
proprietary rights notices on Software shall be reproduced and applied. Except
as specifically authorized in Paragraph 2 above or unless enforcement of this
provision is prohibited by applicable law, Customer shall not modify, decompile,
disassemble, decrypt, extract, or otherwise reverse engineer Software. SOFTWARE
IS NOT DESIGNED OR LICENSED FOR USE IN ON-LINE CONTROL EQUIPMENT IN HAZARDOUS
ENVIRONMENTS SUCH AS OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR
CONTROL, OR DIRECT LIFE SUPPORT MACHINES.
4. CONFIDENTIALITY. Software is confidential and proprietary information of Sun
and/or its licensors. Customer agrees to take adequate steps to protect Software
from unauthorized disclosure or use.
5. LIMITED WARRANTY. Sun warrants that for a period of ninety (90) days from the
date of purchase, as evidenced by a copy of the receipt; (i) the media on which
Software is furnished will be free of defects in materials and workmanship under
normal use; and (ii) the Software contains the features described in the Sun
price list. Except for the foregoing, the Software is provided "AS IS". This
limited warranty extends only to Customer as the original licensee. Customer's
exclusive remedy and Sun's entire liability under this limited warranty will be
at Sun's option to repair or replace the Software.
6. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFIED IN THIS LICENSE, ALL EXPRESS OR
IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT, ARE HEREBY EXCLUDED TO THE EXTENT ALLOWED BY APPLICABLE LAW.
7. LIMITATION OF LIABILITY. IN NO EVENT WILL SUN BE LIABLE FOR ANY LOST REVENUE,
PROFIT OR DATA, OR FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE
DAMAGES HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY ARISING OUT OF
THE USE OF OR INABILITY TO USE SOFTWARE, EVEN IF SUN HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. In no event shall Sun's liability to Customer,
whether in contract, tort (including negligence), or otherwise, exceed the
license fee paid by Customer for Software. The foregoing limitations shall apply
even if the above stated warranty fails of its essential purpose.
8. TERMINATION. This license is effective until terminated. Customer may
terminate this License at any time by destroying all copies of Software
including any documentation. This License will terminate immediately without
notice from Sun if Customer fails to comply with any provision of this License.
Upon termination, Customer must destroy all copies of Software.
<PAGE> 11
9. EXPORT REGULATIONS. Software, including technical data, is subject to U.S.
export control laws, including the U.S. Export Administration Act and its
associated regulations, and may be subject to export or import regulations in
other countries. Customer agrees to comply strictly with all such regulations
and acknowledges that it has the responsibility to obtain licenses to export,
re-export, or import Software.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. If procured by, or provided to, the U.S.
Government, use, duplication, or disclosure of technical data is subject to
restrictions as set forth in FAR 42.227-14(g)(2), Rights in Data - General (June
1987); and, for computer software and computer software documentation, FAR
52.227-19, Commercial Computer Software - Restricted Rights (June 1987).
However, if procured by, or provided to, the U. S. Department of Defense
("DOD"), use, duplication, or disclosure of technical data is subject to DFARS
252.227-7015(b), Technical Data Commercial Items (June 1995); and, for computer
software and computer software documentation, as specified in the License under
which the computer software was procured pursuant to DFARS 227.7202-3(a). For
U.S. Government agencies other than the DOD with solicitations issued prior to
October 1, 1995, all software and technical data are provided with "Restricted
Rights" as defined in FAR 52.227-19, and "Limited Rights" as defined in FAR
52.227-14, Rights in Data - General, respectively, and for DOD, as defined in
DFAR 252,227-7013, Rights in Technical Data and Computer Software (Oct
1988).Use, duplication, reproduction or disclosure by the Government is subject
to such restrictions or successor provisions. Contractor/ Manufacturer is: Sun
Microsystems, Inc., 901 San Antonio Road, Palo Alto, California 94303.
11. GOVERNING LAW. This Agreement is made under, shall be governed by and
construed in accordance with the laws of the State of California, U.S.A.,
excluding its choice of law provisions.
12. SEVERABILITY. If any of the above provisions are held to be in violation of
applicable law, void, or unenforceable in any jurisdiction, then such provisions
are herewith waived to the extent necessary for the License to be otherwise
enforceable in such jurisdiction. However, if in Sun's opinion deletion of any
provisions of the License by operation of this paragraph unreasonably
compromises the rights or liabilities of Sun or its licensors, Sun reserves the
right to terminate the License and refund the fee paid by Customer as Customer's
sole and exclusive remedy.
13. INTEGRATION. This Agreement is the entire agreement between Customer and Sun
relating to Software and: (i) supersedes all prior or contemporaneous oral or
written communications, proposals and representations with respect to its
subject matter; and (ii) prevails over any conflicting or additional terms of
any quote, order, acknowledgment, or similar communication between the parties
during the term of this Agreement. No modification to the Agreement will be
binding, unless in writing and signed by a duly authorized representative of
each party.
<PAGE> 12
ATTACHMENT 2
BINARY PRODUCT/ACTIVITY LEVEL MATRIX
Binary Product versions licensed hereunder shall be the then current release at
time of execution of this Agreement. Binary Product discount categories shall be
as described in the Price List.
<TABLE>
<S> <C> <C>
1. BINARY PRODUCTS
A. SUN ANNUAL ACTIVITY LEVEL/DISCOUNT MATRIX
Discount(s) for the Binary Products described in Section I.B. below are determined through assessing
Customer's Annual Activity Level for all Binary Products provided under this Agreement.
1. Annual Net Activity Level: less than $299,000.00
Quarterly Sales Targets: Q1:$40,000.00
Q2:$40,000.00
Q3:$40,000.00
Q4:$40,000.00
2. Initial Prepayment/Initial Stocking Order: n/a - renewal
3. Discounts
Customer Base Discount*: PP: Cat A 40 % Cat B n/a % Cat C n/a %
(Includes a 10% required bundling discount)
Value Added Discount [maximum of twelve (12) percent]:
Added
Discount
Reseller Recruitment and Management: 6% 6%
Master Media manufacturing of OEM'd product: 4% 4%
SI/Consulting or Vertical Application
Development and/or Project Management: 4% 4%
Dedicated/trained Technical Support person(s): 2% 2%
Total Value Added Discount (maximum 12%): 12%
TOTAL CUSTOMER DISCOUNT RATE: PP: Cat A 52 % Cat B n/a % Cat C n/a %
== === ===
B. PRODUCT MATRIX
Product(s) provided to Customer under this Attachment 2 shall be the
initialed Binary Products as described in the Price List
Solaris 2.x SPARC Operating Environment ___________
Solaris 2.5.1, 2.6 and Solaris 7 SPARC Customer
(binaries only) (Initials)
</TABLE>
<PAGE> 1
EXHIBIT NO. 10(d)
REPAIR SERVICES AGREEMENT
This Repair Services Agreement, and all exhibits and attachments hereto (the
"Agreement"), is entered into by and between Sun Microsystems, Inc., with a
principal office at 901 San Antonio, Palo Alto, California 94303 ("Sun"), and
Pinnacle Data Systems, Inc., with a principal office at 6600 Port Road, Grove
Port, Ohio 43125 ("Repair Vendor").
1. SCOPE. This Agreement establishes the terms and conditions under which
Repair Vendor will provide, in the United States (the "Territory") and
on a non-exclusive basis, certain hardware repair services to Sun, and
is composed of (1) this Agreement; (2) Exhibit A, Statement of Work and
all exhibits attached thereto; and (3) Exhibit B, Project Specific
Terms.
2. DEFINITIONS.
2.1 "CONSIGNED INVENTORY" means Hardware used for the maintenance
and service of the Hardware delivered to Repair Vendor for
performance of Services and which Sun elects to consign to
Repair Vendor where deemed necessary by Sun in its sole
discretion. Consigned Inventory may be stocked at Repair
Vendor's facilities, the Sun Regional Stocking location and/or
any other Sun-designated site, as Sun directs.
2.2 "HARDWARE" means all hardware products listed in the SOW, as
amended by Sun, or in any Purchase Order issued by Sun, or any
other products delivered to Repair Vendor for purposes of the
provision of Services, as well as any materials, parts,
components or sub-assemblies thereof.
2.3 "NOTICE" means the formal notification required to be given as
specified in this Agreement in accordance with Section 16.7.
2.4 "REPAIRED OR REPLACEMENT HARDWARE" means (a) Hardware that is
repaired to full functionality by Repair Vendor ("Repaired
Hardware"); or (b) Hardware provided by Repair Vendor in
replacement of defective Hardware that is of new or of a like
new condition and of the same model and part number, but not
necessarily the same serial number, as the defective Hardware
originally shipped to Repair Vendor ("Replacement Hardware").
2.5 "SERVICES" means all Hardware maintenance, repair and/or other
services, set forth in the SOW and to be performed by Repair
Vendor under this Agreement.
2.6 "SERVICE MATERIALS" means those service related materials
(including tools, documentation, special test equipment,
manuals, and diagnostics) necessary for the maintenance,
repair and service of the Hardware that will be provided to
Repair Vendor by Sun in accordance with the terms set forth in
this Agreement.
<PAGE> 2
2.7 "SERVICE ORDER" or "PURCHASE ORDER" means a specific request
for Services, however denominated, in written or electronic
form, issued by Sun to Repair Vendor for specified Hardware.
2.8 "STATEMENT OF WORK" or "SOW" means the statement of work (as
it may be amended from time to time by Sun) attached to this
Agreement as Exhibit A.
2.9 "TRAINING MATERIALS" means all course materials, teacher
guides/lesson plans, student guides and information, and
training equipment that may be provided to Repair Vendor in
accordance with the terms set forth in this Agreement.
3. REPAIR VENDOR OBLIGATIONS.
3.1 HARDWARE REPAIR. Repair Vendor will perform the Services in
the Territory in accordance with the terms and conditions of
this Agreement. Services will conform to the scope of work
described in the SOW and corresponding Purchase Orders issued
by Sun. Repair Vendor will perform Services as an independent
contractor and in a professional and workmanlike manner,
consistent with Sun and industry standards and conforming to
applicable product specifications as defined in the SOW.
3.2 TIMELY DELIVERY OF SERVICES. Repair Vendor acknowledges and
agrees that time is that the full and timely provision of all
Services is a material condition of this Agreement. In
addition to any other remedies, Sun shall be under no
obligation to make payment under an existing Purchase Order
for Repair Vendor's failure to timely provide Services or to
achieve a milestone meeting the requirements of the SOW.
3.3 CHANGES IN SCOPE OF SERVICES. Repair Vendor agrees that it
will, upon the request of Sun, negotiate in good faith to
amend this Agreement to incorporate additional provisions
herein or to change the provisions hereof.
3.4 PERSONNEL. Repair Vendor will secure all personnel required to
perform Services pursuant to this Agreement. Repair Vendor
will use trained and qualified service personnel, as defined
by Sun from time to time, and employ adequate safety
precautions in performing its obligations hereunder. If Sun
determines that the presence or utilization of any personnel
is detrimental to the performance of Services, Repair Vendor
will replace such personnel with properly qualified personnel
as soon as is reasonably practical. In the event customers of
Sun so require, Repair Vendor will consent to, and have its
personnel submit to, a "Sunscreen" or similar background
check. If Sun customers require compliance with other
conditions prior to the provision of Services, Repair Vendor
will in good faith attempt to accommodate such customers'
requests. The parties agree that Repair Vendor is an
independent contractor and in no event will any personnel
hired by Repair Vendor be considered an employee or agent of
Sun. Nothing herein will be construed to grant to Repair
Vendor any right or authority to create any obligation,
express or implied, on behalf of Sun, or to bind Sun in any
manner whatsoever.
<PAGE> 3
3.5 SUN INFORMATION AND MATERIALS. Repair Vendor acknowledges and
agrees that Service Materials and Training Materials
(collectively "Sun Information and Materials") are proprietary
and Sun owns all right, title and interest, including
copyrights or other intellectual property rights, in and to
Sun Information and Materials and any and all ideas, concepts,
expertise, programs, systems, methodologies, data or other
materials embodied in, underlying or reduced to practice
therein. Repair Vendor agrees that Sun Information and
Materials shall be used solely for the purposes of performing
Services.
3.6 INDEMNITY AND INSURANCE. Repair Vendor agrees to defend,
indemnify and hold harmless Sun, its affiliates, directors,
officers, employees and agents from and against any and all
claims, demands, judgments and awards and expenses related
thereto (including court costs and reasonable fees of
attorneys and other professionals) brought or threatened by
any third parties, including Sun customers, arising out of
Repair Vendor's failure to comply with this Agreement or SOW,
including the warranties stated in Section 12, or arising out
of or resulting from the performance of Services, delivery of
Repaired or Replacement Hardware, or other conduct of Repair
Vendor's subcontractors, agents or employees. Sun will have no
authority to settle any claim without the prior written
consent of Repair Vendor if Repair Vendor will have any
obligation thereunder. Sun expressly reserves the right to
retain separate counsel to participate in the defense or
settlement of such claims.
3.7 INSURANCE.
3.7.1 MINIMUM INSURANCE REQUIRED. During the term of this
Agreement, Repair Vendor will obtain and maintain at
its own expense liability insurance with financially
reputable insurers (rated no lower than A-, X (i.e.,
A minus, 10) by A.M. Best) licensed to do business in
all jurisdictions where Services are performed. Such
insurance must be sufficient to protect Sun from any
claims described in Section 3.6, above, and in any
event no less than the policies and limits set forth
below. Repair Vendor will pay the premiums therefor,
and deliver to Sun, upon request, proof of such
insurance. Said insurance coverage may be modified or
terminated only upon thirty (30) days Notice to Sun.
3.7.1.1 Workers' compensation as required under any
workers' compensation or similar law in the
jurisdiction where Services are performed, with
an employer's liability limit of not less than
one million dollars ($1,000,000.00) per
occurrence/annual aggregate;
3.7.1.2 Commercial general liability, including
coverage for contractual liability and
products/completed operations liability, with a
limit of not less than five million dollars
($3,000,000.00) combined single limit per
occurrence for bodily injury, personal injury
and property damage liability;
<PAGE> 4
3.7.1.3 Business auto insurance covering the ownership,
maintenance or use of any owned, non-owned
hired automobile with a limit of not less than
one million dollars ($1,000,000.00) per
occurrence/annual aggregate for bodily injury,
including death and property damage liability;
3.7.1.4 "All Risks" property insurance, providing
coverage on a replacement cost basis, covering
(a) equipment owned, leased or used by Repair
Vendor to perform work or provide Services and
any Hardware, or (b) other property in the
care, custody or control of Repair Vendor which
is owned by Sun, including materials or
Hardware in transit to and from Sun's
facilities; and
3.7.1.5 Professional liability/errors and omissions
insurance, with a limit of not less than one
million dollars ($1,000,000.00) per occurrence.
3.7.2 CERTIFICATES OF INSURANCE. Repair Vendor will provide
Sun with certificates of insurance showing that the
foregoing insurance policies are in full force and
effect upon Sun's request. Any approval by Sun of any
insurance policies will not relieve Repair Vendor of
any responsibility hereunder, including claims in
excess of limits and coverages described above. Each
liability insurance policy obtained by Repair Vendor
will name Sun as an "additional insured" except for
the policy described in Section 3.7.1.1. Repair
Vendor will maintain professional liability/errors
and omissions insurance for a period of three (3)
years after expiration or termination of this
Agreement if coverage is provided on a claims made
basis. All other liability insurance policies denoted
above must be written on an occurrence form. Each
policy will expressly provide that it will not be
subject to cancellation or material change without at
least thirty (30) days prior Notice to Sun.
3.7.3 LIMITATIONS. Nothing contained in this Section 3.7
limits Repair Vendor's liability to Sun to the limits
of insurance certified or carried.
3.8 PERFORMANCE. Levels of service, quality and satisfaction will
be measured by Sun with the use of surveys and/or audits
performed either by Sun personnel or an independent company
engaged by Sun for such purpose. Repair Vendor agrees to
provide, in a format acceptable to Sun, any and all reports
and other information requested by Sun and to cooperate with
any surveys and/or audits which Sun may request.
3.9 CERTIFICATION. Repair Vendor will undertake any reasonable
action Sun may request in furtherance of Sun's retaining or
obtaining ISO 9001 or other certification, including
participating in the audit process and conducting equipment
calibration testing consistent with Sun quality standards.
3.10 LOCAL ACCOUNTABILITY/QUALITY ASSURANCE. In the event that
Services are not delivered in a manner consistent with the
provisions of this Agreement, the SOW
<PAGE> 5
or Sun's quality standards or other requirements, Sun will
issue to Repair Vendor a supplier corrective action or other
similar request ("SCAR"). Repair Vendor will consult with Sun
to develop within five (5) calendar days of receipt of a SCAR
an action plan to remedy the situation, including dates of
final redemption. Pending redemption of the deficiencies noted
in the SCAR, Sun reserves the right to withhold or abate
payment of any outstanding Purchase Orders and to provide
Services itself or through a third party if Sun reasonably
determines that such interim action is required; whereupon,
Repair Vendor will promptly deliver to Sun any Hardware and
any related parts or components in connection with any work in
progress and otherwise cooperate fully with such interim
action. If the situation is not corrected within a total of
thirty (30) calendar days after receipt of the SCAR, or within
a length of time agreed to by Sun, Sun may, in addition to any
other available remedies, implement any corrective action Sun
deems necessary in its sole discretion without liability for
Services performed during the remediation period or in
furtherance of outstanding Purchase Orders, including
directing Repair Vendor to take additional corrective action,
removal or reassignment of Repair Vendor personnel,
terminating Repair Vendor's provision of further Services
within specific accounts and/or the geographic location
affected, and/or termination of this Agreement for material
breach. If replacement personnel are required, Repair Vendor
will bear all costs associated with replacing and training
such personnel.
4. SUN OBLIGATIONS AND RESPONSIBILITIES.
4.1 TRAINING. Sun will provide the training set forth in the SOW,
if any. Sun, at its sole discretion, may supply necessary
Training Materials to Repair Vendor from time to time.
4.2 SERVICE MATERIALS AND EQUIPMENT. Sun may in its sole
discretion loan to Repair Vendor, for the duration of this
Agreement, the equipment or other Service Materials set forth
in the SOW, subject to the terms of Sun's standard equipment
and/or Service Materials loan agreement. Repair Vendor will at
no charge make provisions for and effect moving of this
equipment and/or Service Materials to Repair Vendor's
facilities, and will be responsible for the maintenance
thereof. All equipment or other Service Materials must be used
solely for the purposes of performing Services.
4.3 TRAINING MATERIALS AND OTHER MATERIALS. Sun will provide to
Repair Vendor, for the duration of this Agreement and at no
charge, all Training Materials and other Sun information
deemed necessary by Sun for Repair Vendor to perform Services
set forth in the applicable SOW. If Services require the use
of any Sun software and/or accompanying documentation, Sun
will provide Repair Vendor a license to such software pursuant
to Sun's standard object code license, which Repair Vendor
agrees to be bound thereby. All Training Materials,
information and software must be used solely for the purpose
of performing Services.
5. CONSIGNMENT TERMS.
<PAGE> 6
5.1 CONSIGNED INVENTORY. Sun may provide Consigned Inventory to
Repair Vendor on a consignment basis as Sun deems necessary
for Repair Vendor to perform Services and as set forth in the
SOW. The terms of this Section 5 shall apply in the event Sun
elects to consign Consigned Inventory to Repair Vendor.
Consigned Inventory may only be used for the purpose of
performing Services and may not, except as otherwise provided
herein, be transferred, sold, pledged or encumbered without
Sun's prior written consent. Consigned Inventory will be
segregated from other Hardware or other equipment, materials,
or supplies of Repair Vendor and will be accompanied with a
notice stating: "All products of Sun Microsystems, Inc. stored
here belong to Sun and are in the possession of (Repair
Vendor's name) on consignment only."
5.2 TITLE. Sun will retain title to all material consigned to
Repair Vendor, and Repair Vendor will immediately return such
materials to Sun upon request at Repair Vendor's expense and
risk of loss. Repair Vendor will sign any documents which Sun
requests to evidence the ownership of Consigned Inventory by
Sun, including financing and continuation statements, and will
file or authorize the filing of the same with the appropriate
governmental authorities. Repair Vendor will not remove
proprietary rights notices or other Sun logos or identifiers
attached to Consigned Inventory. Repair Vendor will take no
action to vest or assert title or ownership to Consigned
Inventory in Repair Vendor.
5.3 INSURANCE. Repair Vendor will be responsible for, and insure
against, any loss of or damage to Consigned Inventory, from
time of pick-up from Sun until it is returned to Sun, and will
reimburse Sun for any such loss or damage. Repair Vendor shall
insure the Consigned Inventory at a coverage level acceptable
to Sun, but no less than original cost-to-Sun value, for any
and all perils, with Sun named as an additional insured.
Repair Vendor will pay the premiums therefor, and deliver to
Sun, upon request, proof of such insurance prior to delivery
of Consigned Inventory to Repair Vendor. Said insurance
coverage may be modified or terminated only upon thirty (30)
days Notice to Sun.
5.4 USE OF CONSIGNED INVENTORY. In the event any Consigned
Inventory is used in delivering Repaired or Replacement
Hardware to Sun, Repair Vendor shall so notify Sun in writing
no later than five (5) business days after such use, or such
other period of time as specified in the SOW, by providing
Notice of the type and extent of Consigned Inventory used, its
part number and serial number, the purposes for which it was
used, and any other information Sun reasonably requests. Sun
will deduct from payment of Repair Vendor invoices the prices
charged by Sun in its sole discretion for the Consigned
Inventory so used by Repair Vendor.
5.5 REPORTING; AUDIT RIGHTS. Repair Vendor shall keep accurate
books and records of account containing complete information
concerning all Consigned Inventory received, stored, and used
in the performance of Services, and Sun shall have access to
such records during normal business hours upon request. Repair
Vendor shall submit to Sun periodic statements detailing the
foregoing in accordance with the SOW. Sun may carry out during
normal business hours an audit of Repair
<PAGE> 7
Vendor's facilities to ensure compliance with this Agreement.
Repair Vendor shall promptly pay Sun for any discrepancies
revealed by the audit. If the audit reveals a discrepancy of
greater than ten percent (10%), Repair Vendor shall in
addition pay all costs and expenses associated with the audit.
5.6 DISCLAIMER OF WARRANTIES. ALL HARDWARE IS PROVIDED TO REPAIR
VENDOR "AS IS" AND SUN DISCLAIMS ALL EXPRESS OR IMPLIED
WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANT-ABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
6. OTHER RIGHTS AND OBLIGATIONS.
6.1 COORDINATION AND MEETINGS. Each party shall designate one (1)
individual as a "Repair Vendor Contact." The Repair Vendor
Contacts shall be responsible for generally overseeing the
performance of the parties' respective obligations under the
Agreement and for resolving any issues which arise between the
parties, as set forth in the SOW.
6.2 EMPLOYEE BENEFITS. Repair Vendor is solely responsible for
payment of wages, salaries, fringe benefits and other
compensation of, or claimed by, its own employees including
contributions to any employee benefit, medical or savings
plan, and is responsible for all payroll taxes including the
withholding and payment of all federal, state, and local
income taxes, FICA, and unemployment taxes. Repair Vendor is
also solely responsible for compliance with applicable
workers' compensation coverages for its own employees. Repair
Vendor agrees to indemnify and defend Sun from all claims by
any person, government, or agency directly relating to this
Section 6.2, including any penalties and interest which may be
assessed for breach of this provision
6.3 COMPLIANCE WITH LAWS AND REGULATIONS. The parties must comply
with all applicable local, municipal, state, federal and
governmental laws, orders, codes and regulations in the
performance of this Agreement. Each party must obtain and keep
current at its own expense all governmental permits,
certificates and licenses ordinarily required to be obtained
and kept by each party and necessary for each party to perform
under this Agreement.
7. COMMERCIAL TERMS.
7.1 PURCHASE ORDERS. Sun will be liable under this Agreement only
for those purchases of Services set forth in a written
Purchase Order submitted to Repair Vendor by Sun. This
Agreement does not constitute a Purchase Order or any other
form of commitment to purchase Services, nor does it imply a
commitment to, or an expectation that Sun will, issue any
minimum number of Purchase Orders. Repair Vendor will use its
best efforts promptly to accept and perform any Purchase Order
issued by Sun under this Agreement. If Repair Vendor rejects
any Purchase Order, Repair Vendor will do so promptly and
state its reasons therefor
<PAGE> 8
in writing to Sun. All correspondence from Repair Vendor,
including all invoices, must reference this Agreement and the
applicable Purchase Order number.
7.2 PAYMENT FOR SERVICE. In consideration for Services provided
(other than for Services for Hardware within the Repair
Warranty Period), Sun will pay Repair Vendor in accordance
with the applicable Purchase Orders and/or Exhibit B rates.
Prices for Services may not be increased for a period of at
least one (1) year after the Effective Date; thereafter,
Repair Vendor may increase prices for Services only upon
ninety (90) days advance written notice and upon written
justification therefor. Sun is under no obligation to accept
such increased prices. Payments will be made within thirty
(30) days after receipt of Repair Vendor's invoices and are
considered made by Sun on the date of mailing as evidenced by
postmark. Any out-of-pocket expenses (e.g. travel) incurred by
Repair Vendor in connection with providing Services will be
the sole responsibility of Repair Vendor, unless otherwise
approved in writing by Sun prior to Repair Vendor incurring
such expenses. Sun will only pay for actual expenses incurred
by Repair Vendor's employees at fair and reasonable rates.
7.3 BILLING. Repair Vendor will submit an invoice on a weekly or
other mutually agreeable basis detailing the amount of
billable time expended, a description of work performed
together with receipts or other documentation supporting
reimbursable expenses previously approved by Sun, and provide
such other information and/or support documentation as Sun may
reasonably request. For time and materials Purchase Orders,
Repair Vendor will make available for Sun's review upon Sun's
reasonable request time cards for each employee of Repair
Vendor performing Services hereunder, showing the amounts of
billable time expended.
7.4 PAYMENT OF EMPLOYEES. Repair Vendor will promptly pay its
employees for all work performed. If Repair Vendor does not
pay its employees on a current basis for work performed under
this Agreement, such nonpayment will entitle Sun, in addition
to all other remedies, to withhold all further payments to
Repair Vendor under the applicable Purchase Order and, at
Sun's option, to contract directly with such employee(s) to
complete Services.
7.5 TAXES. Repair Vendor will be responsible for the payment of
any and all taxes due as a result of the performance of
Services or the payment thereof. Repair Vendor acknowledges
and agrees that it is solely the responsibility of Repair
Vendor to report as income all compensation received hereunder
and Repair Vendor will indemnify and hold Sun harmless from
and against all claims, damages, losses, and reasonable
expenses of attorneys and other professionals relating to any
obligation to pay any sales, service, value-added, or
withholding taxes, social security, unemployment or disability
insurance or similar charges or impounds, including any
interest or penalties thereof, in connection with any payments
made to Repair Vendor hereunder.
8. RELATIONSHIP.
<PAGE> 9
8.1 INDEPENDENT CONTRACTOR. Repair Vendor must conduct all of its
business in its own name and in such a manner as it may see
fit. Repair Vendor is not granted any exclusive rights of any
nature whatsoever by this Agreement. This Agreement is not
intended to create a relationship such as a partnership,
franchise, joint venture, agency, master/servant or employment
relationship. Neither party may act in a manner which
expresses or implies a relationship other than that of an
independent contractor, nor bind the other party. Repair
Vendor will not be entitled to receive any employee benefits
provided to Sun employees.
8.2 NON-CIRCUMVENTION. Absent Sun's prior written consent, Repair
Vendor will not, during the term of this Agreement and for a
period of twelve (12) months thereafter, accept, promote or
solicit orders for the provision of hardware maintenance or
repair for or on behalf of any third party Sun hardware
service provider and/or any provider of any support programs
which competes with support programs offered by Sun for Sun
products. Repair Vendor acknowledges and agrees that the
obligations of this Section 8.2 are fair and reasonable under
the commercial circumstances of this Agreement and that this
Agreement fairly and adequately compensates Repair Vendor in
consideration of such obligations.
9. TRADEMARKS AND WORKS.
9.1 TRADEMARKS AND PUBLICITY. "Sun Trademarks" means all names,
marks, logos, designs, trade dress and other brand
designations used by Sun and its related companies, in
connection with products and services. Repair Vendor may refer
to Services by the associated Sun Trademarks only upon Sun's
prior written consent and provided that such reference is not
misleading and complies with the then current Sun Trademark
and Logo Policies. Repair Vendor will not remove, alter, or
add to any Sun Trademarks, nor will it co-logo products and
services. Repair Vendor is granted no right, title or license
to, or interest in, any Sun Trademarks. Repair Vendor
acknowledges Sun's rights in Sun Trademarks and agrees that
any use of Sun Trademarks by Repair Vendor will inure to the
sole benefit of Sun. Repair Vendor agrees not to (a) challenge
Sun's ownership or use of, (b) register, or (c) infringe any
Sun Trademarks, nor will Repair Vendor incorporate any Sun
Trademarks into Repair Vendor's trademarks, service marks,
company names, internet addresses, domain names, or any other
similar designations. If Repair Vendor acquires any rights in
any Sun Trademarks by operation of law or otherwise, it will
immediately at no expense to Sun, assign such rights to Sun
along with any associated goodwill, applications, and/or
registrations. Repair Vendor will not use any program logo
applicable to "Repair Vendors" without the prior written
consent of Sun. Repair Vendor may not refer to Sun or its
products or services in any form of publicity or release
without Sun's prior written approval.
9.2 WORKS. All right, title and interest in and to all
modifications, enhancements, derivative works of or
improvements to any Service Materials, Training Materials,
Hardware, Consigned Inventory, Confidential information,
loaned equipment, software or other Sun product conceived or
reduced to practice by Repair Vendor during and in the course
of performing Services (collectively,
<PAGE> 10
"Works") shall be assigned to Sun at no cost and/or shall be
considered "works made for hire" under the United States
Copyright Act or other equivalent or similar law, to the
fullest extent permitted under applicable law. If any Work
created hereunder shall not be deemed to constitute a work
made for hire, and/or in the event that Repair Vendor should,
by operation of law or otherwise, be deemed to retain any
rights in a Work, Repair Vendor will assign all right, title
and interest in any such Work to Sun. Repair Vendor agrees to
cooperate with Sun and to execute all documents reasonably
necessary for Sun to secure intellectual property protection
for such Works, in Sun's name, in all countries and
jurisdictions. Repair Vendor represents and warrants that it
has agreements in place with its employees or will put the
same in place before the effective date of this Agreement
sufficient to enable it to comply in all respects with its
obligations under this Section 9.2. Repair Vendor further
represents that it will use regular employees whenever
possible to create Works hereunder so that they qualify as
"works made for hire" under the United States Copyright Act or
equivalent or similar law.
10. CONFIDENTIAL INFORMATION. If Sun desires that information provided to
Repair Vendor under this Agreement be held in confidence, Sun will
identify the information as "Confidential" or "Proprietary". Repair
Vendor may not disclose confidential or proprietary information and may
use it only for the purposes specifically contemplated in this
Agreement. Sun will treat tangible business and financial information
of Repair Vendor that has been previously identified as confidential,
with the same degree of care as it does its own similar information.
The foregoing obligations do not apply to information which Repair
Vendor can demonstrate with documentary evidence: (a) is or becomes
known by recipient without an obligation to maintain its
confidentiality; (b) is or becomes generally known to the public
through no act or omission of recipient, (c) is independently developed
by recipient without use of confidential or proprietary information, or
(d) that is ordered to be made public or disclosed by a court of
competent jurisdiction. This Section 10 will not affect any other
confidential disclosure agreement between the parties. All customer
identities and customer information, the terms of this Agreement,
Consigned Inventory, Service Materials, Training Materials and any
other support materials, documentation and software are deemed Sun
Confidential Information and Repair Vendor will use such Confidential
Information only for purposes specifically contemplated by this
Agreement. It is understood and agreed that in the event of a breach of
this Section 10, damages will not be an adequate remedy and Sun will be
entitled to injunctive relief to restrain any such breach, threatened
or actual, without the necessity of posting a bond or other security.
11. AIRCRAFT SERVICE AND NUCLEAR APPLICATIONS. Repair Vendor acknowledges
that Consigned Inventory, Hardware, Service Materials, Training
Materials or other Sun products (collectively, "Sun Materials") are not
designed, to be used in support of, or intended for use in on-line
control of aircraft, air traffic, aircraft navigation or aircraft
communications; or in the design, construction, operation or
maintenance of any nuclear facility. SUN DISCLAIMS ANY EXPRESS OR
IMPLIED WARRANTY OF FITNESS FOR SUCH USES. Repair Vendor will inform
Sun immediately if it discovers facts leading Repair Vendor to
reasonably believe that Sun Materials are being used in contravention
of this Section 11, and will
<PAGE> 11
immediately cease performing Services in connection with Sun Materials
being used for such purposes until further Notice from Sun.
12. WARRANTIES; DISCLAIMERS. Repair Vendor represents and warrants that (a)
all Services will be performed in a professional and workmanlike
manner, consistent with general industry standards; (b) all Repaired or
Replacement Hardware will perform in accordance with applicable product
specifications as defined in the SOW and shall be free from defects in
material and workmanship (the "Repair Warranty") for the period of time
set forth in the Statement of Work, if any, but in any event no less
than a period equal to thirteen (13) months from receipt by Sun of such
Repaired or Replacement Hardware (the "Repair Warranty Period"); and
(c) any hardware, software, equipment, parts, components or
subassemblies used by Repair Vendor in the performance of Services that
are not directly provided by Sun will not infringe or violate any
patent, copyright, trade secret, contract, or other proprietary or
intellectual property rights of any third party, and that Repair Vendor
has full and complete authority to use, and incorporate into Repaired
or Replacement Hardware, such hardware, software, equipment, parts,
components or sub-assemblies in performing the Services. Repair Vendor
shall pass through to Sun all applicable manufacturer's warranties and
accept warranty returns from Sun and administer such returns on Sun's
behalf. ALL OTHER EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND
WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT, ARE DISCLAIMED BY BOTH
PARTIES, EXCEPT TO THE EXTENT THAT SUCH DISCLAIMERS ARE HELD TO BE
LEGALLY INVALID.
13. LIMITATION OF LIABILITY. EXCEPT FOR OBLIGATIONS UNDER SECTIONS 3.6-3.7
(INDEMNITY AND INSURANCE), SECTIN 9.2 (WORKS), AND SECTION 10
(CONFIDENTIAL INFORMATION), AND/OR BREACH OF SECTION 11 (AIRCRAFT
SERVICE AND NUCLEAR APPLICATIONS) AND ANY APPLICABLE SOFTWARE LICENSE,
AND TO THE EXTENT NOT PHOHIBITED BY APPLICABLE LAW:
13.1 NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT (INCLUDING LOSS OF BUSINESS,
REVENUE, PROFITS, USE, DATA OR OTHER ECONOMIC ADVANTAGE),
HOWEVER IT ARISES, WHETHER FOR BREACH OR IN TORT, EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE; AND
13.2 LIABILITY FOR DAMAGES WILL BE SO LIMITED AND EXCLUDED, EVEN IF
ANY EXCLUSIVE REMEDY PROVIDED FOR IN THIS AGREEMENT FAILS OF
ITS ESSENTIAL PURPOSE.
14. TERM AND TERMINATION.
<PAGE> 12
14.1 TERM. This Agreement commences as of the date indicated in the
signature block below and will continue in full force and
effect for one (1) year, unless sooner terminated as provided
herein. This Agreement will be automatically renewed on a
yearly basis thereafter, unless Sun gives notice of
termination at least sixty (60) days prior to any year's
expiration date or unless sooner terminated in accordance with
the provisions of this Agreement.
14.2 TERMINATION. Either party may terminate this Agreement: (a)
with or without cause, and for any or no reason, upon one
hundred eighty (180) days Notice to the other party; (b)
immediately, by Notice upon material breach by the other
party, if such breach cannot be remedied; (c) by Notice, if
the other party fails to cure any remedial material breach of
this Agreement within thirty (30) days of receipt of Notice of
such breach; and (iv) immediately, by Notice, if the other
party becomes insolvent, makes a general assignment for the
benefit of creditors, files a voluntary petition of
bankruptcy, suffers or permits the appointment of a receiver
for its business or assets, becomes subject to any proceeding
under any bankruptcy law, whether domestic or foreign, or has
wound up or liquidated its business voluntarily or otherwise.
Further, in the event of the direct or indirect taking over or
assumption of control of Repair Vendor or of substantially all
of its assets by any government, governmental agency or third
party, Sun may terminate this Agreement immediately upon
Notice to Repair Vendor. Within thirty (30) days after the
effective date of termination, Repair Vendor will return to
Sun, at Repair Vendor's expense, all Consigned Inventory,
Service Materials, Training Materials, any Sun Confidential or
Proprietary Information and all other items of Sun.
14.3 EFFECT OF TERMINATION. The following Sections survive
termination of this Agreement: 3.5, 3.6, 3.7, 5.2, 5.5, 5.6,
6.2, 7.5, 8, 9, 10, 12, 13, 14.3, 15 and 16. Repair Vendor
will continue to perform Services for any Purchase Orders
outstanding as of the effective date of termination unless Sun
directs otherwise in its sole discretion. Repair Vendor agrees
that it will have no right to damages or indemnification of
any nature due to any expiration or termination of this
Agreement, including commercial severance pay, loss of future
profits, payment for goodwill generated or in connection with
other commitments made with respect to the business
contemplated by this Agreement or other similar matters.
15. IMPORT AND EXPORT LAWS. All products, Hardware, spare parts, software,
services, technical data and other materials delivered by Sun under
this Agreement are subject to U.S. export control laws and may be
subject to export or import regulations in other countries, are for use
in the Territory only, and may not be exported without Sun's prior
written consent. If consent is given, Repair Vendor will comply
strictly with all such laws and regulations and acknowledges that it
has the responsibility to obtain such licenses to export, re-export,
transfer, whether directly or indirectly, or import as may be required
after delivery to Repair Vendor.
16. GENERAL PROVISIONS.
<PAGE> 13
16.1 ENTIRE AGREEMENT. This Agreement contains the terms and
conditions which apply to all purchases of Services made
pursuant to this Agreement, notwithstanding any terms or
conditions contained in any acknowledgement or other business
forms transmitted by Repair Vendor. It supersedes all prior or
contemporaneous oral or written communications, proposals,
conditions, representations and warranties and prevails over
any conflicting or additional terms of any quote, order,
acknowledgement, or other communication between the parties
relating to its subject matter during the term of this
Agreement. All Repair Vendor acknowledgements and transmittals
must reference this Agreement and Sun's applicable Purchase
Orders. No modification to this Agreement will be binding,
unless in writing and signed by an authorized representative
of each party.
16.2 EXHIBITS. The current version of each Exhibit is hereby
incorporated by reference as part of this Agreement. Exhibits
may be modified only upon written consent of both parties.
16.3 ATTORNEYS' FEES. In the event that any dispute arises between
the parties hereto with regard to any of the provisions of
this Agreement or the performance of any of the terms and
conditions hereof, the prevailing party in any such dispute
will be entitled to recover costs and expenses associated with
resolving such dispute, including reasonable attorneys' fees.
16.4 WAIVER OR DELAY. Any express waiver or failure to exercise
promptly any right under this Agreement will not create a
continuing waiver or any expectation of non-enforcement.
16.5 GOVERNMENT CONTRACTS. With respect to any Services performed
in connection with a government contract or subcontract,
Repair Vendor agrees to be bound by all those provisions of
such contract or subcontract which Sun is required to pass on
to its subcontractors, and such provisions are hereby
incorporated by reference.
16.6 ASSIGNMENT. Repair Vendor shall not assign, subcontract or
otherwise transfer any of its rights or obligations under this
Agreement, either in whole or in part, without the prior
written consent of Sun. Any assignment, subcontract or
delegation by Repair Vendor without such consent will be null
and void, and will give Sun the right immediately to terminate
this Agreement without liability for Services performed after
such termination. If Sun consents to Repair Vendor
subcontracting any obligations of this Agreement, Repair
Vendor will remain primarily responsible for said obligations.
The rights and liabilities of the parties hereto will be
binding upon and inure to the parties' permitted successors
and assigns.
16.7 NOTICES. All Notices required under this Agreement must be in
writing and delivered either in person or by a means evidenced
by delivery receipt to the address specified below. Such
Notice will be effective upon receipt.
Sun: Repair Vendor:
<PAGE> 14
<TABLE>
<S> <C>
Commodity Team Manager VP & Chief Operating Officer
Sun Microsystems, Inc. Pinnacle Data Systems, Inc.
MS BRM03-192 6600 Port Road
500 Eldorado Blvd. Groveport, Ohio 43125
Broomfield, Colorado 80021
cc: General Counsel, Enterprise Services
Each party shall inform the other in writing of any change in
the foregoing address information.
</TABLE>
16.8 SEVERABILITY. If any provision, or part thereof, in an
Agreement, is held to be invalid, void, or illegal, it shall
be severed from the Agreement, and shall not affect, impair,
or invalidate any other provision, or part thereof, and it
shall be replaced by a provision which comes closest to such
severed provision, or part thereof, in language and intent,
without being invalid, void, or illegal.
16.9 MEANING OF CERTAIN WORDS. The terms "includes" and "including"
will not be construed to imply any limitation. Unless
otherwise stated, any reference contained in this Agreement to
a Section refers to the provision of this Agreement and
includes any subsections or sub-subsections. Wherever the
context may require, any pronouns used in this Agreement will
include the corresponding masculine, feminine, or neuter
forms, and the singular form of nouns or pronouns, including
all defined terms, will include the plural and visa versa.
16.10 HEADINGS; ORDER OF PRECEDENCE. Section titles and captions
contained in this Agreement are for reference only and in no
way define, limit, extend or describe the scope of this
Agreement or the intent of any of its provisions. If any
inconsistencies or conflicts arise between the provisions of
this Agreement, the SOW or any of its attached exhibits,
Exhibit B, and/or a Purchase Order, the following order of
precedence shall apply in order of priority: (1) Exhibit B,
Project Specific Terms; (2) the Agreement, (3) the SOW and
attached exhibits, and (4) any Purchase Order.
16.11 GOVERNING LAW; ENFORCEMENT. Any action related to this
Agreement will be governed by California law and controlling
U.S. federal law. No choice of law rules of any jurisdiction,
nor the United Nations Convention on the International Sale of
Goods, will apply. The parties hereby acknowledge and agree
that the exclusive forums for any actions brought arising from
or related to this Agreement shall be the United States
District Court for the Northern District of California and the
state courts of the State of California for the County of
Santa Clara, and exclusively submit to, and waive any
objection against, the personal jurisdiction of same.
16.12 COUNTERPARTS. This Agreement may be executed in counterparts
and via facsimile, with original signatures to follow.
- --------------------------------------------------------------------------------
THIS AGREEMENT IS EFFECTIVE AS OF ____/____/____.
(MM/DD/YY)
<PAGE> 15
THE PARTIES HAVE READ THIS AGREEMENT AND AGREE TO BE BOUND THEREBY.
AGREED:
<TABLE>
<CAPTION>
SUN MICROSYSTEMS, INC.: PINNACLE DATA SYSTEMS, INC.
<S> <C>
By: /s/ Warren F. White 3/22/99 By: /s/ C.R. Hahn 7/9/99
--------------------------------------------- -----------------------------------------
DATE (MM/DD/YY) DATE (MM/DD/YY)
Print: Warren F. White Print: C.R. Hahn
------------------------------------------ -------------------------------------
Enterprise Services - NAFO BD+O
Title: Director-Supply Chain Management Title: COO / Vice President
------------------------------------------ -------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
EXHIBIT A TO REPAIR SERVICES AGREEMENT: STATEMENT OF WORK
SUN
microsystems
NAFO ENTERPRISE SERVICES
SUPPLY CHAIN MANAGEMENT GROUP DATE_______________REVISION___________
<PAGE> 17
TABLE OF CONTENTS
1.0 SERVICES TO BE PROVIDED BY AND OBLIGATIONS OF SUPPLIER
1.1 RESERVED
1.2 SUPPLIER'S REPAIR FACILITIES
2.0 ENTERPRISE SERVICES OFFICES AND DISTRIBUTION CENTERS
3.0 REPAIR SERVICES, INVENTORY AND WAREHOUSE REQUIREMENTS
3.1 RESERVED
3.2 GENERAL REQUIREMENTS
3.2.3 RESERVED
3.2.7 RESERVED
3.2.9 DOCK TO STOCK
3.2.11 RESERVED
3.2.20 RESERVED
3.3 RECEIVING
3.4 SHIPPING
3.5 RECEIVING INSPECTION
4.0 ISO CERTIFICATION
4.0.1 RETENTION OF CERTIFICATION
4.0.2 TESTING
4.1 SECURITY
4.2 TRAINING
5.0 REPORTING
6.0 INVENTORY MANAGEMENT
7.0 NOTICES
8.0 NON-DISCLOSURE
8.1 DENIED RESTRICTED PARTIES LIST (DRPL)
9.0 MATERIALS (SPARES), LOGISTICS AND TRANSPORTATION PROCEDURE
9.1 RESERVED
9.2 PACKING SLIP
9.2.1 SPARES RETURNS
9.2.2 SPARES TAMPERING
9.2.3 FINAL RECONCILIATION AND RETURN OF SPARES AND EQUIPMENT
9.2.4 RESERVED
9.2.5 STOCKING LEVELS
9.2.5.1 CHANGES IN DISTRIBUTION
9.2.6 SPARES PURGES
9.2.7 PROCEDURES AND ESCALATIONS
9.2.8 RESERVED
9.2.8A PROGRAM MANAGEMENT
9.2.8.5 COORDINATION OF PROGRAM INFORMATION
9.2.8.6 FOCAL POINTS
9.2.8.7 QUARTERLY MANAGEMENT REVIEW
9.2.8.8 QUALITY OR QUALITY ASSURANCE REVIEWS
9.2.8.9 QUALITY REPAIR AND INSPECTION DATE
9.3 CONSIGNED INVENTORY
10.0 PERFORMANCE STANDARDS
10.1 PERFORMANCE CRITERIA
10.2 RESERVED
10.2.1 RESERVED
10.2.2 RESERVED
10.2.3 RESERVED
101.3.1 NONCOMPLIANCE WITH SUPPLIER CONVETIVE ACTION REPORTS
10.2.4 NO TROUBLE FOUND (NTF)
<PAGE> 18
10.2.4.1 PHYSICAL INVENTORY
10.2.5 PERFORMANCE REVIEW
11.0 HARDWARE TECHNICAL DATA PACKAGE (TDP) REQUIREMENTS (IF REQUIRED)
12.0 RESERVED
13.0 APPLICABLE DOCUMENTS
13.1 REQUIREMENTS
13.1.1 GENERAL REQUIREMENTS
13.1.2 SPECIFIC REQUIREMENTS
13.1.2.1 MATERIAL
13.1.2.2 ELECTROSTATIC DISCHARGE PROTECTION
13.1.2.3 RESERVED
14.0 ENGINEERING CHANGE CLASSES
14.1 CLASS I AND CLASS II CHANGES:
14.1.1 CLASS I ENGINEERING CHANGES
14.1.2 CLASS II ENGINEERING CHANGES
15.0 RESERVED
16.0 PREPARATION FOR DELIVERY
16.1 PRESERVATION AND PACKAGING
16.2 RESERVED
17.0 RESERVED
18.0 RESERVED
19.0 RESERVED
20.0 TOLERANCE FOR UNIT ENVIRONMENT
20.1 ENVIRONMENTAL PROTECTION CONSIDERATIONS & POLLUTION PREVENTION
INITIATIVES
21.0 RECYCLING OF USED HARDWARE
22.0 REPORTS
23.0 BINDER OF EVIDENCE
24.0 MAJOR INITIATIVES AND GOALS
SIGNATURE PAGE
EXHIBITS, ATTACHMENTS AND DOCUMENT LISTING
<PAGE> 19
THIS STATEMENT OF WORK ("SOW") IS ISSUED UNDER, AND SUBJECT TO THE TERMS AND
CONDITIONS OF THE LOCAL STRATEGIC PROVIDER AGREEMENT (THE "AGREEMENT") BY AND
BETWEEN XXX (SUPPLIER) AND SUN MICROSYSTEMS ENTERPRISE SERVICES HAVING AN
EFFECTIVE DATE OF _________________, 199X. THIS SOW DEFINES THE RELATIONSHIP
BETWEEN THE PARTIES WITH RESPECT TO SUPPLIER PROVISION OF SERVICES INCLUDING
REPAIR OF HARDWARE AND OTHER SUPPORT SERVICES AS FROM TIME TO TIME REQUESTED BY
ENTERPRISE SERVICES. ENTERPRISE SERVICES'S GOAL IS TO RECEIVE PRODUCT 100% ON
TIME AND THAT SUCH PRODUCT MEETS THE QUALITY REQUIREMENTS DEFINED IN THIS
EXHIBIT A.
DEFINITIONS. Capitalized terms that are not defined herein shall have
the same meaning as the identical capitalized terms in the Agreement.
"BOM" OR "BILL OF MATERIAL" means a list of parts, components and/or
sub-assemblies used to manufacture Hardware.
"DC" OR "DISTRIBUTION CENTER" means any third party facility designated
by Sun, as set forth in Exhibit Al and/or from time to time,
responsible for storing and processing Hardware on Sun's behalf.
"INCOMING HARDWARE" means Hardware Sun has delivered to Repair Vendor
for the purpose of performing Services thereto.
"NTF" OR "NO TROUBLE FOUND" means Incoming Hardware that passes Repair
Vendor's standard test process as previously approved by Sun and is
mutually determined to be without defect or fault.
"PRIORITY RESPONSE TIMES" means the return time requirements Sun
specifies for Sun's receipt of Repaired or Replacement Hardware.
"Priority 1" means 2-4 hour repair or replacement, as directed by Sun,
with shipment via Next Flight Out ("NFO"); "Priority 2" means 1-5 day
repair or replacement and NFO, as directed by Sun; and "Rapid
Replenishment" means manual replenishment.
"PRODUCT SPECIFICATIONS" means the written performance representations,
mechanical dimensions and descriptions, electrical and timing
requirements, component information, configuration information, and all
other documentation relating to Hardware that Sun will provide to
Repair Vendor as Sun deems necessary for the provision of Services.
"RMA" OR "RETURN MATERIAL AUTHORIZATION" means the formal authorization
from Repair Vendor under which Sun ships Incoming Hardware to Repair
Vendor.
"RSL" OR "REGIONAL STOCKING LOCATION" means Sun or third party
facilities designated by Sun in Exhibit Al and/or from time to time,
responsible for storing and processing Hardware on Sun's behalf.
"SUN OFFICE" means any of the Sun facilities set forth in Exhibit A 1.
<PAGE> 20
1.0 SERVICES TO BE PROVIDED BY AND OBLIGATIONS OF SUPPLIER
1.0.1 Supplier agrees to provide inventory receiving activities for new buy and
defective parts, routing of material to proper warehouse locations, providing
test and repair services and to cycle count inventory.
1.0.2 Supplier will store material in secure and environmentally stable
conditions and ship parts to designated field stocking locations, Field
Engineers and customers as directed by Enterprise Services.
Reserved
1.2 Supplier's Repair Facilities:
- ------------------------------
- ------------------------------
- ------------------------------
Contact: _______________________
Phone: (____)___________________
Fax: (____)______________________
2.0 ENTERPRISE SERVICES OFFICES AND DISTRIBUTION CENTERS
<TABLE>
<S> <C>
TYPE A
BILLING ADDRESS: SHIPPING/RECEIVING ADDRESS:
Enterprise Services Microsystems, Inc. DHL (Enterprise Services Microsystems, Inc. Logistic Center)
Account Payable Dept. c/o Miami Free Zone
P. O. Box 7550 2335 North West 107th Avenue
Mountain View, CA 94039 Miami, FL 33172
Eric Garcia
Ph. (305) 592-7471
Fax: (305) 592-9901
TYPE A
BILLING ADDRESS: SHIPPING/RECEIVING ADDRESS:
Enterprise Services Microsystems, Inc. Enterprise Services NAAFO Logistics
Accounts Payable Dept. c/o USCO Distribution Services
P. O. Box 7550 30805 Santana Street
Mountain View, CA 94039 Hayward, CA 94544
Ph: (510) 442-0005
Fax: (510) 442-1436
TYPE A
BILLING ADDRESS: SHIPPING/RECEIVING ADDRESS:
Enterprise Services Microsystems, Inc. Enterprise Services NAAFO Logistics
Accounts Payable Dept. c/o USCO Distribution Services
P. O. Box 7550 20 Industrial Avenue
Mountain View, CA 94039 Chelmsford, MA 01824
Ph: (508) 250-0028
Fax: (508) 250-1297
</TABLE>
3.0 REPAIR SERVICES, INVENTORY AND WAREHOUSE REQUIREMENTS
3.1 Reserved
3.1.1 Supplier shall ship, pursuant to Enterprise Services' prior written
instructions, approved Enterprise Services material to Enterprise Services
designated supply location.
3.1.2 In those cases where directed by Enterprise Services Buyer Planner,
Supplier shall provide on-site scrap of approved material. Material in this
category shall be disposed of in a secured environment and a Certificate of
Destruction will be maintained. If material is to be sold for reclamation
purposes all Enterprise Services labels and Enterprise Services identification
will be removed from the material. (Reference QMS Doc 910-3987-xx On-Site Scrap
Process - Vendor Site).
3.1.3 In all cases, whenever material is scrapped, a Proof of Disposal
Certificate will be required and maintained on-site by Supplier.
3.2 General Requirements
<PAGE> 21
3.2.1 At a minimum, Supplier shall maintain fully equipped and staffed
facilities specified in this SOW a level sufficient to meet the agreed
performance targets as stated throughout Exhibit A.
3.2.2 At a minimum, Supplier shall provide Enterprise Services with a monthly
reports on the state of your business, which will include, but; not limited to
the reports listed in section 22.0 of Exhibit A.
3.2.3 Reserved
3.2.4 Supplier agrees to ship repaired or replacement product to Enterprise
Services within the same day as notified provided the shipment can meet the last
shipment of the day. Product may be supplied from an exchange pool of product
meeting the product specification provided by Enterprise Services. All such
product shall be supplied in good operating condition free from defect.
Shipments will be made directly to Enterprise Services supported Distribution
Centers, remote stocking locations (RSL's), Field Engineers or customers.
3.2.5 Enterprise Services requires 100% on time delivery performance. A SCAR
Supplier Corrective Action Report may be issued by Enterprise Services, an
authorized TPRS or DC, if Supplier's performance for a location drops below 95%.
Supplier will respond to any SCAR initiated by Enterprise Services, a DC or a
TPRS through Supplier's corrective action process, which shall include an action
plan within five (5) working days or as otherwise specified in the SCAR.
3.2.6 For a period of not less than five (5) years after Enterprise Services
receives notification of EOSL, (the "Service Period") Supplier agrees, at
Enterprise Services's option, to provide Repair Services as outlined in Section
1 to Enterprise Services, Enterprise Services authorized TPRS's and DC's during
the Service Period.
3.2.7 Reserved
3.2.8 Product will be shipped to Enterprise Services in a configuration defined
by the Product Specifications, Workmanship Standards, Quality Standards and Bill
of Materials (BOM's) and AVL.
3.2.9 Repaired or replacement product will be upgraded by Supplier to the then
current Product revision level or to a revision level as documented and agreed
upon by Enterprise Services and Supplier.
3.2.10 Supplier is responsible for attaining Dock to Stock status of product
within 120 days of first shipment by meeting 99.8% defect free product. Supplier
shall be responsible for all costs associated with Source Inspection 120 days
after first shipment.
3.2.11 Reserved
3.2.12 Supplier will utilize the order processing screen in transaction system
of record daily, to ensure all orders print and meet transportation cut-off
times.
3.2.13 Supplier shall resolve discrepant shipping/receiving line items with RSL
network, Distribution Centers and other repair suppliers.
3.2.14 Supplier will process Time and Material orders (T&M) to meet customer
requirements (1, 5, 15, & 75 day) at 98% on time performance. Supplier will
provide T&M actuals to Enterprise Services including request date ship date and
on time performance.
3.2.15 Supplier agrees to store material in an environment between 60 degrees F
- - 80 degrees F and kept free from excessive dust, moisture and dirt. Any
Enterprise Services spare parts that cannot be stored on shelves or racks must
be stored on pallets or skids. At no time will parts be stored directly on the
floor, unless shipped by Enterprise Services on casters or wheels.
3.2.16 All facilities shall provide adequate fire protection systems to meet or
exceed local code.
3.2.17 Supplier shall provide, 7 days a week, 24 hours a day coverage for P1
(Priority One) support. Standard office hours of coverage are 7am EST to 8pm EST
and pager coverage from 8pm EST to 7am EST.
3.2.18 Supplier will provide a warranty for all repairs of Enterprise Services
parts for 12 months. All parts returned to Supplier for repair that were
previously repaired by Supplier within this data range will be repaired at no
charge to Enterprise Services.
3.2.19 Supplier shall support material routing and adequate warehouse storage
for purges and excess material.
3.2.20 Reserved.
<PAGE> 22
3.2.21 Supplier will capture all repair data as products move through their
test/repair processes and make this data available for the Enterprise Service
Quality AUTOLOAD database.
3.2.22 Supplier will be solely responsible for procurement of all components,
sub-assemblies and consumable items to support the test and repair of Enterprise
Services parts. Supplier will also be solely responsible for those items and/or
subassemblies requiring paint or touch-up. In the event Enterprise Services is
involved in part support Supplier agrees to follow the terms described in SOW
Section 9.3 Consigned Inventory.
3.2.23 Supplier shall be responsible for all diagnostic equipment provided by
Enterprise Services, in support of product repair, in a bailment arrangement.
3.3 Receiving
3.3.1 Supplier shall perform defective receipt transactions within 24 hours of
dock date from distribution centers, RSL's, Field Engineers and customers and
provide proper routing of material to appropriate stocking locations per
Enterprise Services guidelines as follows.
Results expected: 95% received within 24 hours of dock date.
Maintain 99.75% defective receiving transaction accuracy.
3.3.2 Material that cannot be systemically received, is identified as a
non-Enterprise Services part or is physically damaged will be moved to a
discrepant area. A request for support to Enterprise Services will be made
within 24 hrs of identifying the part as a discrepant utilizing the "RIR" e-mail
alias.
3.3.3 Supplier shall perform new buy receiving (PO Receiving) transactions and
route material to Finished Goods same day as dock date. Results expected: 98%
received and put away within 24 hours.
3.4 Shipping
3.4.1 Supplier will maintain and report Shipping Accuracy. Results expected:
99.98% shipment accuracy.
3.4.2 Supplier will reserve or, manually allocate, parts for specific orders, as
directed by the Order Entry Customer Desk for committed priority orders - P1,
P2, NFO, Rapid Replenishments. Definitions: P1 = Priority One; P2 = Priority
Two, NFO = Next Flight Out; Rapid Replenishments = Manual replenishments).
3.4.3 Supplier will provide shipment detail to Customer Desk for all emergency
orders, e.g., Next Flight Out, Courier shipments, within one hour of shipment.
3.4.4 Supplier will process and fulfill Customer Orders and replenishment
orders. Domestic and International Customer Orders and replenishment orders will
be performed the same day as dispatched via Enterprise Services order process
system.
Results expected: 99.98% fill rate and 99.98% transaction accuracy.
Manual backup methods for both International and U.S. will be in place.
Transportation Routing Guides outlined in SOW Section 9.2.8 will be
followed.
3.4.5 In cases where product will be repaired external to the Supplier facility,
Supplier shall be responsible for acquiring RMA information prior to shipment of
material and will maintain shipping paperwork to ensure proper on-hand inventory
balances.
3.5 Receiving Inspection
3.5.1 Supplier will capture vendor quality data (repair information and incoming
receiving data DMT info) by next business and publish report as requested by
Enterprise Services.
3.5.2 Supplier will receive, route and test per agreed upon test processes
specific products requiring Receiving Inspection. The Receiving Inspection
process will capture predetermined data and will be reported to Enterprise
Services via e-mail or other electronic means for input to the NAFO quality
system.
4.0 ISO CERTIFICATION
4.0.1 Retention of Certification. In order for Enterprise Services to retain ISO
9001 certification, Supplier agrees to use its best efforts to deliver all
designated services in accordance with the specifications detailed in Exhibit A.
In addition, Supplier will participate, when required, in the ISO audit process,
unless, Supplier has obtained ISO certification.
<PAGE> 23
4.0.2 Testing. Every six (6) months Supplier will conduct, and supply reports
verifying, equipment calibration testing consistent with the test equipment
manufacturer's specifications. Such testing will cover all equipment used for
measurement or adjustment purposes, including, but not limited to, voltage
meters, digital voltage meters, time domain reflectometers, ESD pads/straps,
oscilloscopes, LAN analyzers and power analyzers.
4.1 Security
4.1.1 Supplier will observe Enterprise Services Security Management policies
attached and made part of this Exhibit.
4.2 Training
4.2.1 Supplier will maintain training records for all employees in all work
areas.
4.2.2 Supplier will retain and archive records including but not limited to
Binder of Evidence requirements in section 23.0 of Exhibit A and per Enterprise
Services Record Retention Matrix.
4.2.3 Supplier shall provide Performance Metric weekly to Enterprise Services
adhering to the metric template.
5.0 REPORTING
5.1 Supplier shall be able to generate and provide status to Enterprise Services
any or all of the following upon request:
- Repair capacity by Product families, reported monthly
- Repair volume by part number for both in and out of warranty,
reported monthly
- Product shipment volumes by part number, reported monthly
- Turn around time data which includes, but is not limited to,
defective units received, part numbers, serial numbers, date shipped
by location reported monthly;
- Number of units shipped by part number reported weekly
- Turn around time exception data that includes list of late shipments
and their causes
- On hand inventories status by inventory category and part number
5.2 Additional reports, the format of which will be mutually agreed upon, may be
required if Suppliers' performance falls below 95% performance on delivery or
quality.
5.3 Supplier shall maintain shipping and receiving reports which are related to
repairs external to Supplier operation. These reports will be used to establish
Vendor On Time (VOT), Fill Rates and Quality reports maintained and reported by
Supplier.
6.0 INVENTORY MANAGEMENT
6.1 Supplier shall follow adequate procedures for the proper control of
Enterprise Services inventory. Record keeping shall include, but not be limited
to, the maintenance of accurate, updated records of the Enterprise Services
inventory and the use of an inventory tracking system that measures physical
inventories, cycle counting by dash number, and other adjustments to maintain
accuracy.
6.2 Cycle count results shall be reported by Supplier to Enterprise Services
within two (2) working days after Enterprise Services's initial request.
6.3 Supplier shall be responsible for all Product inventory variances. If
Supplier is unable to reconcile any inventory variance for Products in
Supplier's possession, Supplier shall be liable for the unaccounted inventory
and will: (i) provide Enterprise Services a like unit or, (ii) upon Enterprise
Services's agreement, give Enterprise Services full credit for Enterprise
Services's replacement cost of the missing item within thirty (30) days after
discovery of the variance.
6.4 Supplier shall be responsible for all diagnostic equipment provided by
Enterprise Services, in support of product repair, in a bailment arrangement. If
Supplier is unable to reconcile any variance in such equipment and/or material,
Supplier shall be liable for the unaccounted equipment and will provide
Enterprise Services a full credit for Enterprise Services's replacement cost of
the missing item within thirty (30) days after discovery of the variance.
6.4.1 Supplier shall use its best efforts to provide Enterprise Services with a
list of all its requirements for equipment unique to Enterprise Services's
Products ninety (90) days prior to initiating Product repair support.
7.0 NOTICES
Any required notices or changes as outlined in this SOW shall be sent in writing
to Enterprise Services in accordance with section 16.10 of the Enterprise
Services Support Provider Agreement and also:
<PAGE> 24
Enterprise Services
c/o SunMicrosystems
500 Eldorado Blvd. M/S UBRM03-192
Broomfield, CO 80021
Attention: Commodity Team Manager
8.0 NON-DISCLOSURE
8.1 DENIED RESTRICTED PARTIES LIST (DRPL) SUPPLIER WILL USE ENTERPRISE SERVICE'S
PUBLISHED DRPL LIST ONLY FOR SUN MICROSYSTEM SHIPMENTS AND NOT SUPPLIER'S
SHIPMENTS.
9.0 MATERIALS (SPARES), LOGISTICS AND TRANSPORTATION PROCEDURES.
9.1 Reserved
9.2 Packing Slip. Supplier will supply one (1) copy of a packing slip, or other
comparable document, for each delivery of product. The packing slip will
evidence Supplier shipment of such spares when signed by an authorized receiving
representative.
9.2.1 Spares Returns. Supplier will implement and maintain procedures for the
return of spares.
9.2.2 Spares Tampering. Supplier agrees not to tamper with the spares provided.
Tampering is defined as any action that would affect the form, fit or function
of the spares component. If tampering occurs, Supplier will be charged for all
spares affected.
9.2.3 Final Reconciliation and Return of Spares and Equipment. Upon the
termination of the Exhibit A Support Provider Agreement and or the SOW, or the
termination of any support where Sun Microsystems owned inventories are located,
Supplier will provide to Enterprise Services a final reconciliation inventory
report. Supplier will return to Enterprise Services all inventories and
equipment according to the directions from Enterprise Services.
9.2.4 Reserved
9.2.5 Stocking Level. Enterprise Services will seek to maintain spares at its
RSL consistent with Enterprise Services inventory availability and first call
completion goals. Enterprise Services will, at its sole discretion, set all
target stocking levels. Supplier agrees to use their experience to help set
total and local levels of stocks of spares.
9.2.5.1 Changes in Distribution. Supplier acknowledges that Enterprise Services
is, or may in the future be, party to an agreement whereby a third party is
responsible for distribution of spares, or whereby Supplier and/or Enterprise
Services assumes a greater role in the distribution of spares. In that event,
Enterprise Services reserves the right, at no additional cost, to amend the
terms of this SOW, as necessary.
9.2.6 Spares Purges. Enterprise Services may require Supplier to return spares
due to revision level changes, or other changes deemed necessary by Enterprise
Services. Supplier will be responsible for the return of these materials, as
directed by Enterprise Services. The Enterprise Services Commodity Team Manager
will coordinate such returns with Supplier.
9.2.7 Procedures and Escalations. Supplier and Enterprise Services will ensure
that the appropriate individuals, departments, and service delivery contractors
within the United States and Canada are aware of and adhere to the appropriate
Enterprise Services policies and procedures regarding spares and other
inventory.
9.2.8 Reserved
9.2.8.1 Per Enterprise Services Routing Guide, Supplier will select the best
method of outbound transportation mode to meet service delivery requirements.
Prepare shipping waybills, via PC software or manual documents, as available per
carrier programs. Ensure proper Enterprise Services G/L codes appear on
waybills. See attached Attachment C to this SOW (Enterprise Services
Transportation Routing Guide).
9.2.8.1.1 Supplier will provide space and resources needed to support carrier
equipment to maintain efficient electronic shipping alternatives. Shipping
software systems (i.e. Clippership) may be used, if available at Supplier.
Supplier will maintain and supply Return Packets as required for shipments.
Supplier will escalate any carrier problems to Enterprise Services Traffic
Department. Supplier will accurately enter all shipment information into
designated system. Data should include pieces, weight, carrier and waybill
number. All hard copy waybills will be maintained in files.
<PAGE> 25
9.2.8.2 Supplier will maintain Export records for all International shipments
for US Commerce Dept. audit purposes. Frequency and location will be determined
by Enterprise Services Export Management. Supplier shall create and process all
international paperwork as required by Enterprise Services Traffic and
established export Policies and procedures.
9.2.8.3 Supplier will notify Enterprise Services Traffic Department of all
damaged inbound receipts within one (1) day. Receiving department should make
note on signed waybill of any visible physical damage, if any.
9.2.8.3.1 Supplier will be responsible for any additional costs incurred due to
mis-ships confirmed as the result of Supplier error. Rebates for same will occur
on agreed upon frequency.
9.2.8.4 Program Management. Supplier and Enterprise Services will provide, for
the duration of this SOW, central contact(s) to perform various tasks in
connection with this SOW.
9.2.8.5 Coordination of Program Information. The central contacts for both
organizations will coordinate the timely exchange of all program information,
including but not limited to:
Business plans (e.g. work load projections)
Exchange of product data
Metrics and survey results
Personnel changes
9.2.8.6 Focal Points. The central contacts will function as focal points for
on-going negotiations covering:
Problem resolution
Non-Enterprise Services products
9.2.8.7 Quarterly Management Review. The central contacts will conduct quarterly
management reviews. Supplier shall provide meeting minutes. Minutes to be
provided 2 days after meeting is complete.
9.2.8.8 Quality or Quality Assurance Reviews. Supply Operations and Quality will
conduct local quality reviews or quality assurance reviews as necessary or if
required. Supplier shall provide meeting minutes. Minutes to be provided 2 days
after meeting is complete.
9.2.8.9 Quality Repair and Inspection Data. Supplier will provide Quality Repair
and Inspection Data per the Enterprise Services documented Data Collection
Processes. This information will also include Defective Field
Return data. Documents referenced:
NAFO Repair Data Collection
Repair Data (QAI) Autoload
Supplier Self Surveillance
DTS Process
DTS Sampling
Inspection Data (QA2) Autoload
Quality Data Specs
9.3 Consigned Inventory. Enterprise Services may from time to time provide
consigned material to Supplier as Enterprise Services deems necessary and at
Enterprise Services discretion pursuant to the Consignment Agreement. Supplier
is required to sign a Consignment Agreement herein attached as Attachment A -
Consignment Agreement prior to any material exchanging locations.
10.0 PERFORMANCE STANDARDS
10.1 Performance Criteria. The following performance criteria will be used
to track Supplier performance:
10.2 Reserved
10.2.1 Reserved
10.2.2 Reserved
10.2.3 Reserved
10.2.3.1 Noncompliance with Supplier Corrective Action Reports. ("SCAR").
Enterprise Services reserves the right, at its sole discretion, to engage third
party service providers to meet Enterprise Services's contractual obligations
should Supplier fail to provide satisfactory remedial action, to Enterprise
Services's and/or the Support Customer's satisfaction, within five (5) days from
the issuance of a SCAR.
<PAGE> 26
10.2.4 No Trouble Found (NTF). Supplier shall perform NTF testing on all
products following established test procedures and processes along with the
Enterprise Services NTF Matrix Attachment C to this SOW. Supplier will notify
Enterprise Services on specific part numbers that have an NTF rate of less than
twenty-five percent (25%) of the total spares returned for that specific part
number.
10.2.4.1 Physical Inventory
10.2.4.2 All Date Entry functions will be completed the same day as the physical
movement of material. Perform daily audits on all data entry transactions and
maintain a daily Transaction Audit Log.
10.2.4.3 Supplier shall perform inventory Cycle Counts per Enterprise Services
procedure and schedule.
RESULTS EXPECTED: Maintain First Pass cycle count line item accuracy at a
monthly "mean average performance" of 98%. Process Performance to remain within
3 sigma control variation of the MAP for the year. Maintain 99.9% net dollar
accuracy and 99.0% ABS (Absolute) dollar accuracy based on commutative cycle
count and other physical count adjustments for the entire year. Note: 3 sigma
control formula = MAP for each week, weighted by # of line items counted square
root of above times 3.
10.2.4.4 Supplier shall perform Physical Inventory per Enterprise Services API
( ) and CC (Cycle Count) defined programs.
10.2.5 Performance Review. The report criteria listed in Section 23.0 will be
measured and reported by Supplier as stated therein. Enterprise Services will
monitor Supplier progress on the action items identified. In the event that
performance has not been remedied within forty-five (45) days from issuance of
the SCAR, Enterprise Services, reserves the right, after reasonable
consultation with Supplier, to implement all corrective action it deems
necessary including, without limitation, the reassignment of the account and/or
termination of the Agreement for material breach. Enterprise Services will
monitor Supplier progress on the action items identified. In the event that
performance has not been remedied within forty-five (45) days from issuance of
the SCAR, Enterprise Services, reserves the right, after reasonable consultation
with Supplier, to implement all corrective action it deems necessary including,
without limitation, the reassignment of the account and/or termination of the
Agreement for material breach.
11.0 HARDWARE TECHNICAL DATA PACKAGE (TDP) REQUIREMENTS (IF REQUIRED)
Supplier shall provide the following technical information and drawings to be
included in Enterprise Services Technical Data Package:
Technical Data Package Requirements
Engineering Drawings and Associated Lists
12.0 RESERVED
13.0 APPLICABLE DOCUMENTS
Enterprise Services will make available to the contractor all relevant
Enterprise Services documentation upon request. The contractor is responsible
for acquiring the applicable military, federal and industry standards if needed.
13.1 Requirements
13.1.1 General Requirements
13.1.2 Specific Requirements
13.1.2.1 Material
13.1.2.2 Electrostatic Discharge Protection. Supplier will ensure all equipment
that contains components susceptible to damage by static electricity shall be
identified and marked with appropriate warning/caution notes. Supplier will
ensure that all ESD testing equipment (wrist strap testers, surface testers,
constant monitoring stations) are functioning properly and are certified on a
regular basis. Supplier shall take all precautions against ESD in all areas
throughout the repair process where product is not in its final packaging.
13.1.2.3 Reserved
14.0 ENGINEERING CHANGE CLASSES
All engineering changes shall be categorized by the contractor as Class I or
Class II as defined in the following paragraphs.
<PAGE> 27
14.1 Class I and Class II Changes
14.1.1 Class I Engineering Changes. An engineering change shall be classified
Class I when one or more of the following is affected:
a. Form, Fit, Function or Interchangeability
b. Safety
c. Cost or Schedule to Enterprise Services
14.1.2 Class I Engineering Changes. An engineering change shall be classified
Class I when it does not fail within the definition of a Class I engineering
change.
15.0 RESERVED
16.0 PREPARATION FOR DELIVERY
16.1 Preservation and Packaging. Unless otherwise specified in the contract or
order, the items shipped shall be shipped in accordance with good commercial
practices.
16.2 Reserved
17.0 RESERVED
18.0 RESERVED
19.0 RESERVED
20.0 TOLERANCE FOR UNIT ENVIRONMENT
20.1 Environmental Protection Considerations and Pollution Prevention
Initiatives. Enterprise Services is committed to the reduction of waste and
pollutants at the source of generation and encourages the use of nonpolluting
technologies. Supplier shall have an active pollution prevention program that
conforms to a manufacturing standard such as NAS 411: Hazardous Management
Program, National Aeronautical Industries Association, or equivalent. Preference
shall be given to companies who demonstrate a commitment to an effective
pollution prevention program including the elimination of the 17 Hazardous
Chemicals as identified by the Environmental Protection Agency (EPA) and O-Zone
depicting substances in the manufacture, operation, repair, and maintenance:
along with other programs such as Energy Star Program and Paper Minimization.
21.0 RECYCLING OF USED HARDWARE
All proposed Enterprise Services hardware shall consist of materials that can
be, at the end of their useful life, disposed of in an environmentally prudent
and safe manner. The plastics and metals shall be easily separable and
recyclable as raw materials
or as parts in the manufacture of new equipment.
22.0 REPORTS
<TABLE>
<CAPTION>
=========================================================================================================================
REPORT DESCRIPTION: DUE DATE: SEND TO:
=========================================================================================================================
<S> <C> <C>
Attachment D Status and Metric Report Monthly 1st Fiscal Friday CTM and Supplier PM
Attachment A-1 - Product Listing Quarterly Last Friday CTM and Supplier PM
Quarterly Report Including Financials Quarterly Last Friday CTM and Supplier PM
</TABLE>
(NOTE: ALL REPORTS WITH THE EXCEPTION OF FINANCIALS MUST BE BASED ON SUN
MICROSYSTEM'S FISCAL MONTHS)
23.0 BINDER OF EVEDENCE.
Supplier will be required to maintain a Binder of Evidence. This binder of
evidence will include, but not limited to the following:
Receiving Transactions Summary Log
Shipping Transactions Summary Log
Export Documentation Log
Fill Order Requests Summary Log
Scrap Log and Certificates of
Destruction Minutes Conference Calls and Meetings
Minutes Management Review/Scorecard
<PAGE> 28
ISO Certification Audits
Training and Records
RFQ Submittals - Accepted and Rejected
Pricing History by Part Number
24.0 MAJOR INITIATIVES AND GOALS
On Time Deliveries 100%
Quality 99.9%
T & M orders on time 98%
Turnkey on all products 100%
Dock to Stock within 120 days after first shipment 100%
Autoload Certified and Implemented -------
2+2=2 Implemented -------
Product received new within 24 hours 98%
Product received defective within 24 hours 95%
Defect Free Transaction 99.75%
Fill Rate 99.98%
Fill Rate Accuracy 99.98%
Cycle Count Accuracy MAP (Mean Avg Performance) 98%
Cycle Count Accuracy Net Dollar 99.9%
Cycle Count Accuracy Absolute Dollar 99%
TAT (Turn Around Time) 5 Days
Inventory MOH (Months On Hand) based on output 0.25 Months
Finished Goods Not To Exceed based on demand 2 Weeks
All reports on time -------
EXHIBITS, ATTACHMENTS AND DOCUMENT LISTINGS:
Exhibit A-1 Hardware Products-Listing of Part Numbers and Listing Cost
(RV Quarterly Update)
Attachment B SCAR Process
Attachment C Enterprise Services Routing Transportation Guide
Attachment D Monthly Status and Metric Template
Attachment E Enterprise Services Record Retention Matrix
Document 1 Reserved
================================================================================
END OF STATEMENT OF WORK DOCUMENT
================================================================================
<PAGE> 29
SIGNATURE PAGE
THE PARTIES HAVE READ AND AGREE TO THE BOUND HEREBY
EFFECTIVE AS OF: ______/_______/________
ENTERPRISE SERVICES, INC. SUPPLIER
<TABLE>
<S> <C>
BY: /s/ Warren F. White BY: /s/ C.R. Hahn
---------------------------------------- -------------------------------------
PRINT: Warren White PRINT: C.R. Hahn
------------------------------------ ---------------------------------
Enterprise Services - NAFO BD+O
TITLE: Director-Supply Chain Management TITLE: COO Vice President
------------------------------------ ---------------------------------
DATE: 3/22/99 DATE: 7/9/99
-------------------------------------- ----------------------------------
</TABLE>
================================================================================
END OF DOCUMENT
================================================================================
<PAGE> 1
EXHIBIT NO. 10(e)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made between John D. Bair, an individual
residing at ___________________________ (the "Employee"), and Pinnacle Data
Systems, Inc., an Ohio corporation whose principal place of business is located
at 2155 Dublin Road, Columbus, Ohio 43228 (the "Employer").
Background
A. Employer is engaged in the business of providing depot repair
services for electronic equipment and providing customized engineering
applications and CPU board designs and manufacturing for integration into
existing systems.
B. Employee is willing to be employed by Employer, and Employer is
willing to employ Employee, on the terms, covenants and conditions hereinafter
set forth.
THEREFORE, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs, engages, and hires Employee as
Chief Executive Officer and Director of Engineering, performing substantially
the same duties as those which Employee has performed for Employer in the past.
Employee shall also render such other executive services and duties as may be
assigned to him from time to time by Employer, acting by and through its Board
of Directors. Such duties shall be primarily rendered in Columbus, Ohio, and at
such other places as Employer shall in good faith require or as the interest,
needs, business, or opportunity of Employer shall require. Employee hereby
accepts and agrees to such hiring, engagement, and employment, subject to the
general supervision and pursuant to the orders, advice, and direction of
Employer, acting by and through its Board of Directors.
2. STANDARD OF PERFORMANCE OF EMPLOYEE. Employee shall at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof.
3. TERM OF EMPLOYMENT. This Agreement shall be effective as of the date
hereof, and shall have an initial term expiring on September 1, 2000. The term
of this Agreement shall be automatically extended for one (1) year on each
September 1 thereafter unless either party shall have given written notice to
the other party no later than the preceding August 15 of his or its intention
that the term hereof not be extended beyond its current term.
4. COMPENSATION OF EMPLOYEE. Employer shall pay Employee, and Employee
shall accept from Employer, in full payment for Employee's services hereunder,
(a) a base salary of One-Hundred Thousand Dollars ($100,000) per year, plus (b)
a bonus equal to three percent (3%) of the net pre-tax income of Employer as
determined in accordance with generally accepted accounting principles applied
on a consistent basis, beginning with the 1997 fiscal year of the Company and
retroactive to July 1, 1997. Such bonus shall be paid in such installments as
the Board of Directors of Employer shall determine, but no less than annually.
Employee shall also receive those health, retirement, vacation and other fringe
benefits customarily accorded to
<PAGE> 2
executive employees of Employer in effect from time to time. All payments and
benefits shall be subject to withholding for any applicable Federal, State or
local taxes, including Social Security. Employee may receive compensation and
benefit increases in accordance with any personnel policies of Employer in
effect at such time or as may be directed by the Board of Directors. Employer
shall reimburse Employee for all necessary business expenses incurred by
Employee while acting pursuant to this Agreement, provided such expenses are
documented to Employer's reasonable satisfaction.
In addition, Employee's base salary shall be reviewed by Employer not
less often than annually, and may be increased to such level as Employer may
determine. Review of Employee's salary may include a review of Employer's
performance and financial condition, salaries paid to other executives and such
other factors as Employer deems relevant. For fiscal year 1998 Employee's base
salary shall be $135,000.
5. TERMINATION PROVISIONS. Notwithstanding the provisions of Paragraph 3
above, this Agreement may be terminated by either party as follows:
(a) Employer may terminate Employee's employment at any time without
prior notice and with pay and benefits only to the date of such
termination for cause. Termination for causes shall include, but shall
not be limited to, willful failure or refusal by Employee to perform his
normal duties, dishonesty, incompetence or other serious acts of
misconduct within Employee's control.
(b) Employer may remove Employee from his duties at any time for any
other reason and terminate this Agreement only upon giving prior written
notice to Employee and upon the payment, in lump sum, of an amount equal
to (1) two year's base salary if such termination occurs during the
first year of this Employment Agreement, or (2) one year's base salary
if such termination occurs after the first year of this Employment
Agreement.
6. MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement or any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by both parties hereto.
7. DISABILITY. If at any time during the employment period, Employee
shall be unable to perform his duties hereunder for a period not to exceed six
(6) month(s), Employee shall nonetheless be entitled to receive any compensation
pursuant to Paragraph 4 hereof during the period of such disability, provided,
however, that his "disability" be documented by a competent medical doctor
selected to examine said Employee at the request of the disinterested Directors,
which examination expense shall be borne by the Company. In the event said
"disability" shall continue for a period greater than six (6) month(s), Employee
shall no longer be entitled to receive any compensation pursuant to Paragraph 4
hereof during the remaining period of such disability, and upon the vote of the
majority of the disinterested Directors, said Employee shall be terminated in
consonance with the provisions of Paragraph 5.A. hereof as if said disabled
Employee had voluntarily terminated his services hereunder.
8. CONFIDENTIAL INFORMATION. Employee shall not during the employment
period or thereafter, disclose to any person any confidential information
obtained by him from or regarding the Company, including without limitation, the
whole or any portion or phase of any technical
<PAGE> 3
information, design, procedure or improvement, or any business plans, financial
information, listing of names, addresses or telephone numbers, or any other
non-public information prepared by or for the benefit of the Company. In the
event Employee shall leave the employment of the Company for any reason,
Employee agrees that he will not take with him any writing, records, recordings,
drawings, samples, specimens, prototypes, models, photographs, customer lists,
product information, or other data of any description or any copy or
reproduction of any of the foregoing.
9. NON-COMPETITION. Except as herein provided, if the employment of the
Employee by the Company shall be terminated for any reason, he shall for a
period of two (2) years from the date of termination refrain from competing
directly or indirectly with the Company and each of its subsidiaries and
affiliates, if any, within a 250 (two hundred fifty) mile radius of the City of
Columbus, Ohio. The foregoing notwithstanding, if the Company shall wrongfully
prevent or refuse to permit Employee to perform the duties assigned to him under
this Agreement or shall otherwise be in default in the performance of any of its
obligations hereunder, then Employee may terminate his employment and enter into
a competing business; provided however, that Employee shall not compete with the
Company if he is receiving any form of compensation or other payments pursuant
to the terms of this Agreement.
10. NOTICES AND PAYMENTS. All payments required or permitted to be made
under the provisions for this Agreement, and all notices and other
communications required or permitted to be given or delivered under this
Agreement, which notices or communications must be in writing, shall be deemed
to have been given when delivered by hand, or mailed by first-class or certified
mail, return receipt requested, addressed to the parties at the addresses set
forth above. Either party may, by notice given to the other, designate a
different address for making payments or giving notices or other communications.
11. WAIVER. Failure to insist upon a strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of any such
term, covenant or condition nor shall any such failure at any one time or more
times be deemed a waiver or relinquishment at any other time or times of any
right under the terms, covenants or conditions hereof.
12. BENEFIT. This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, including but not limited to, any
company which may acquire all or substantially all of the Company's assets and
business or into which the Company may be consolidated or merged or by which the
Company's business may be held or prosecuted. Any sale of all or substantially
all of the assets of the Company shall be conditioned upon the assumption of the
Employment Agreement by the Purchaser or a buy-out of the same by the Company at
fair market value. The rights of the Employee may not be assigned or otherwise
transferred nor may the obligations of Employee be delegated.
13. MISCELLANEOUS. This Agreement contains the complete agreement of the
parties hereto concerning the employment arrangement between such parties, and
shall, as of the effective date hereof, supersede all other such agreements
between the parties. This Agreement shall be constructed in accordance with and
governed by the laws of the State of Ohio. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
legal representative, successors, and assigns.
<PAGE> 4
14. BOOKS AND RECORDS. Employee, his heirs, personal representative, or
assigns, or their duly appointed agents or attorneys, shall be entitled to
examine and make copies of the books and records of Employer during reasonable
business hours upon reasonable notice, for the purpose of accurately determining
the appropriate amounts to be paid Employee pursuant to Paragraph 4 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
29TH Day of OCTOBER, 1997.
EMPLOYEE:
/s/ John D. Bair
-----------------------------------------------
John D. Bair
EMPLOYER:
PINNACLE DATA SYSTEMS, INC.
By: /s/ C. Robert Hahn
-------------------------------------------
C. Robert Hahn, for the Board of Directors
of Pinnacle Data Systems, Inc.
<PAGE> 1
EXHIBIT NO. 10(f)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, made between C. Robert Hahn, an individual
residing at __________________________________________ (the "Employee"), and
Pinnacle Data Systems, Inc., an Ohio corporation whose principal place of
business is located at 2155 Dublin Road, Columbus, Ohio 43228 (the "Employer").
Background
A. Employer is engaged in the business of providing depot repair
services for electronic equipment and providing customized engineering
applications and CPU board designs and manufacturing for integration into
existing systems.
B. Employee is willing to be employed by Employer, and Employer is
willing to employ Employee, on the terms, covenants and conditions hereinafter
set forth.
THEREFORE, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs, engages, and hires Employee as
President, performing substantially the same duties as those which Employee has
performed for Employer in the past. Employee shall also render such other
executive services and duties as may be assigned to him from time to time by
Employer, acting by and through its C.E.O. or Board of Directors. Such duties
shall be primarily rendered in Columbus, Ohio, and at such other places as
Employer shall in good faith require or as the interest, needs, business, or
opportunity of Employer shall require. Employee hereby accepts and agrees to
such hiring, engagement, and employment, subject to the general supervision and
pursuant to the orders, advice, and direction of Employer, acting by and through
its Board of Directors.
2. STANDARD OF PERFORMANCE OF EMPLOYEE. Employee shall at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof.
3. TERM OF EMPLOYMENT. This Agreement shall be effective as of the date
hereof, and shall have an initial term expiring on September 1, 2000. The term
of this Agreement shall be automatically extended for one (1) year on each
September 1 thereafter unless either party shall have given written notice to
the other party no later than the preceding August 15 of his or its intention
that the term hereof not be extended beyond its current term.
4. COMPENSATION OF EMPLOYEE. Employer shall pay Employee, and Employee
shall accept from Employer, in full payment for Employee's services hereunder,
(a) a base salary of $120,000 (one hundred twenty thousand) per year plus (b) a
bonus equal to three percent (3%) of the net pre-tax income of Employer as
determined in accordance with generally accepted accounting principles applied
on a consistent basis, beginning with the 1997 fiscal year of the Company and
retroactive to July 1, 1997. Such bonus shall be paid in such installments as
the Board of Directors of Employer shall determine, but no less than annually.
Employee shall also receive those health, retirement, vacation and other fringe
benefits customarily accorded to
<PAGE> 2
executive employees of Employer in effect from time to time. All payments and
benefits shall be subject to withholding for any applicable Federal, State or
local taxes, including Social Security. Employee may receive compensation and
benefit increases in accordance with any personnel policies of Employer in
effect at such time or as may be directed by the Board of Directors. Employer
shall reimburse Employee for all necessary business expenses incurred by
Employee while acting pursuant to this Agreement, provided such expenses are
documented to Employer's reasonable satisfaction.
In addition, Employee's base salary shall be reviewed by Employer not
less often than annually, and may be increased to such level as Employer may
determine. Review of Employee's salary may include a review of Employer's
performance and financial condition, salaries paid to other executives and such
other factors as Employer deems relevant. For fiscal year 1998 Employee's base
salary shall be $125,000.
5. TERMINATION PROVISIONS. Notwithstanding the provisions of Paragraph 3
above, this Agreement may be terminated by either party as follows:
(a) Employer may terminate Employee's employment at any time without
prior notice and with pay and benefits only to the date of such
termination for cause. Termination for causes shall include, but shall
not be limited to, willful failure or refusal by Employee to perform his
normal duties, dishonesty, incompetence or other serious acts of
misconduct within Employee's control.
(b) Employer may remove Employee from his duties at any time for any
other reason and terminate this Agreement only upon giving prior written
notice to Employee and upon the payment, in lump sum, of an amount equal
to (1) two year's base salary if such termination occurs during the
first year of this Employment Agreement, or (2) one year's base salary
if such termination occurs after the first year of this Employment
Agreement.
6. MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement or any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by both parties hereto.
7. DISABILITY. If at any time during the employment period, Employee
shall be unable to perform his duties hereunder for a period not to exceed six
(6) month(s), Employee shall nonetheless be entitled to receive any compensation
pursuant to Paragraph 4 hereof during the period of such disability, provided,
however, that his "disability" be documented by a competent medical doctor
selected to examine said Employee at the request of the disinterested Directors,
which examination expense shall be borne by the Company. In the event said
"disability" shall continue for a period greater than six (6) month(s), Employee
shall no longer be entitled to receive any compensation pursuant to Paragraph 4
hereof during the remaining period of such disability, and upon the vote of the
majority of the disinterested Directors, said Employee shall be terminated in
consonance with the provisions of Paragraph 5 hereof as if said disabled
Employee had voluntarily terminated his services hereunder.
8. CONFIDENTIAL INFORMATION. Employee shall not during the employment
period or thereafter, disclose to any person any confidential information
obtained by him from or regarding the Company, including without limitation, the
whole or any portion or phase of any technical information, design, procedure or
improvement, or any business plans, financial information, listing of names,
addresses or telephone numbers, or any other non-public information prepared
<PAGE> 3
by or for the benefit of the Company. In the event Employee shall leave the
employment of the Company for any reason, Employee agrees that he will not take
with him any writing, records, recordings, drawings, samples, specimens,
prototypes, models, photographs, customer lists, product information, or other
data of any description or any copy or reproduction of any of the foregoing.
9. NON-COMPETITION. Except as herein provided, if the employment of the
Employee by the Company shall be terminated for any reason, he shall for a
period of two (2) years from the date of termination refrain from competing
directly or indirectly with the Company and each of its subsidiaries and
affiliates, if any, within a 250 (two hundred fifty) mile radius of the City of
Columbus, Ohio. The foregoing notwithstanding, if the Company shall wrongfully
prevent or refuse to permit Employee to perform the duties assigned to him under
this Agreement or shall otherwise be in default in the performance of any of its
obligations hereunder, then Employee may terminate his employment and enter into
a competing business; provided however, that Employee shall not compete with the
Company if he is receiving any form of compensation or other payments pursuant
to the terms of this Agreement.
10. NOTICES AND PAYMENTS. All payments required or permitted to be made
under the provisions for this Agreement, and all notices and other
communications required or permitted to be given or delivered under this
Agreement, which notices or communications must be in writing, shall be deemed
to have been given when delivered by hand, or mailed by first-class or certified
mail, return receipt requested, addressed to the parties at the addresses set
forth above. Either party may, by notice given to the other, designate a
different address for making payments or giving notices or other communications.
11. WAIVER. Failure to insist upon a strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of any such
term, covenant or condition nor shall any such failure at any one time or more
times be deemed a waiver or relinquishment at any other time or times of any
right under the terms, covenants or conditions hereof.
12. BENEFIT. This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, including but not limited to, any
company which may acquire all or substantially all of the Company's assets and
business or into which the Company may be consolidated or merged or by which the
Company's business may be held or prosecuted. Any sale of all or substantially
all of the assets of the Company shall be conditioned upon the assumption of the
Employment Agreement by the Purchaser or a buy-out of the same by the Company at
fair market value. The rights of the Employee may not be assigned or otherwise
transferred nor may the obligations of Employee be delegated.
13. MISCELLANEOUS. This Agreement contains the complete agreement of the
parties hereto concerning the employment arrangement between such parties, and
shall, as of the effective date hereof, supersede all other such agreements
between the parties. This Agreement shall be constructed in accordance with and
governed by the laws of the State of Ohio. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
legal representative, successors, and assigns.
14. BOOKS AND RECORDS. Employee, his heirs, personal representative, or
assigns, or their duly appointed agents or attorneys, shall be entitled to
examine and make copies of the books
<PAGE> 4
and records of Employer during reasonable business hours upon reasonable notice,
for the purpose of accurately determining the appropriate amounts to be paid
Employee pursuant to Paragraph 4 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
29TH Day of OCTOBER, 1997.
EMPLOYEE:
/s/ C. Robert Hahn
---------------------------------
C. Robert Hahn
EMPLOYER:
PINNACLE DATA SYSTEMS, INC
By: /s/ John D. Bair CEO
------------------------------
(Name) (Title)
<PAGE> 5
AGREEMENT OF MODIFICATION OF THE
EMPLOYMENT AGREEMENT
OF C. ROBERT HAHN
RECITALS:
WHEREAS, C. Robert Hahn (Employee) and Pinnacle Data Systems, Inc.
(Employer) are parties to an Employment Agreement (the "Agreement") between them
executed on October 29, 1997 by the parties, and
WHEREAS, the Agreement provides, in Section 6 thereof that the
Agreement can only be modified by written instrument, executed by both parties
thereto, and
WHEREAS, The Board of Directors of the Company has determined to elect
John Bair as President of the Company, replacing C. Robert Hahn in such office,
and
WHEREAS, the Agreement provides in Section 1 that C. Robert Hahn is
employed, engaged and hired as President of the Company, and
WHEREAS, the Board of Directors of the Company has determined to elect
C. Robert Hahn to the offices of Vice President and Chief Operating Officer, and
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interest of the Company that C. Robert Hahn devote his full time
and attention to the supervision of employees of the Company engaged in
performing shipping, receiving, inventory management, repair and custom build
duties so as to increase the efficiency of Company operations, and
WHEREAS, such duties are now included in the portfolio of
responsibilities assigned to Employee, and
WHEREAS, the Board of Directors has determined to elect James Olding to
the position of Vice President of Sales and Marketing for the purpose of
assigning unto James Olding direct responsibility for the supervision of all
Sales and Marketing activities of the Company, thereby shifting such
responsibilities for Employee to James Olding, and
WHEREAS, transfer of such responsibilities from Employee to James
Olding is intended to enable Employee to devote greater time and attention to
the remaining responsibilities within Employee's portfolio of responsibilities,
and
WHEREAS, it is agreed by both Employee and Employer that the Employment
Agreement between them executed on October 29, 1997 remain unchanged and in
continuing force and effect in all respects except Section 1.
<PAGE> 6
IT IS THEREFORE AGREED by Employer and Employee that Section 1 of the
Employment Agreement be modified to read as follows:
1. EMPLOYMENT. Employer hereby employs, engages and hires Employee as Vice
President and Chief Operating Officer of the Company with direct
responsibility for supervising the receiving, shipping, inventory
management, repair and custom build operations of the Company. Employee
shall also render such other executive services and duties as may be
assigned to him from time to time by Employer, acting by and through
its C.E.O. or Board of Directors. Such duties shall be primarily
performed in Columbus, Ohio, and at such other places as Employer shall
in good faith require as driven by the needs, business and
opportunities of Employer. The Employer hereby accepts and agrees to
such engagement and employment, subject to the general supervision and
pursuant to the orders, advice and direction of the Employer, acting by
and through its C.E.O. and Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
23RD day of JULY, 1998.
Employee: /s/ C. R. HAHN
-------------------------------------
C. Robert Hahn
Employer: /S/ John D. Bair CEO 7/23/98
-------------------------------------
John Bair
Pinnacle Data Systems, Inc.
<PAGE> 1
EXHIBIT NO. 10(g)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, is entered into between Thomas J. Carr, an
individual residing at _________________________________________ ("Employee"),
and PINNACLE DATA SYSTEMS, INC., an Ohio corporation located at 2155 Dublin
Road, Columbus, Ohio 43228 ("Employer").
BACKGROUND
Employer is in the business of providing depot repair services for
electronic equipment and providing customized engineering applications and CPU
board designs and manufacturing for integration into existing systems. Employee
is willing to be employed by Employer, and Employer is willing to employ
Employee, on the terms, covenants and conditions hereinafter set forth.
THEREFORE, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee as Chief Financial
Officer and Treasurer to perform executive services and duties as may be
assigned to him from time to time by Employer acting by and through its C.E.O.
or Board of Directors, commensurate with his position with Employer. The duties
shall be primarily rendered in Columbus, Ohio. Employee accepts the employment.
2. TERM. This Agreement shall be effective upon signature by the
parties and has an initial term expiring on September 1, 2000 ("initial term").
The Agreement shall be automatically extended for successive one (1) year terms
on each September 1 unless either party shall have given written notice to the
other party no later than the preceding August 15 of his or its intention that
the term hereof not be extended beyond its current term.
3. COMPENSATION OF EMPLOYEE. Employee shall be paid (a) a base salary
of $72,000 (seventy-two thousand) per year, payable as agreed, but no less than
monthly, plus (b) a bonus equal to two percent (2%) of the net pre-tax income of
Employer as determined in accordance with generally accepted accounting
principles applied on a consistent basis, beginning with the 1997 fiscal year of
the Company and retroactive to July 1, 1997. Such bonus shall be paid in such
installment as the Board of Directors of Employer shall determine, but no less
than annually. All payments and benefits shall be subject to withholding for all
applicable Federal, State and local taxes, including Social Security.
Employee shall also receive those health, retirement, vacation and
other fringe benefits customarily accorded to executive employees of Employer.
Employee shall be entitled to at least three (3) weeks of paid vacation
annually, or more, if otherwise in effect for executive employees of the
Employer. Employer shall reimburse Employee for all necessary business expenses
incurred by Employee, including up to $1,500 for professional fees and dues,
professional publications and continuing professional education, provided
expenses are documented to Employer's reasonable satisfaction.
<PAGE> 2
In addition, Employee's base salary shall be reviewed by Employer not
less often than annually, and may be increased to such level as Employer may
determine. Review of Employee's salary may include a review of Employer's
performance and financial condition, salaries paid to other executives and such
other factors as Employer deems relevant. For fiscal year 1998 Employee's base
salary shall be $75,000.
4. TERMINATION PROVISIONS. Notwithstanding the provisions of Paragraph 2
above, this Agreement may be terminated by either party as follows:
(a) Employer may terminate Employee's employment at any time without
prior notice and with pay and benefits only to the date of such
termination for cause. Termination for causes shall include, but shall
not be limited to, willful failure or refusal by Employee to perform his
normal duties, dishonesty, incompetence or other serious acts of
misconduct within Employee's control.
(b) Employer may remove Employee from his duties at any time for any
other reason and terminate this Agreement only upon giving prior written
notice to Employee and upon the payment, in lump sum, of an amount equal
to (1) two year's base salary if such termination occurs during the
first year of this Employment Agreement, or (2) one year's base salary
if such termination occurs after the first year of this Employment
Agreement.
5. DISABILITY. If at any time during the employment period, Employee
shall be unable to perform his duties hereunder for a period not to exceed six
(6) month(s), Employee shall nonetheless be entitled to receive any compensation
pursuant to Paragraph 3 hereof during the period of such disability, provided,
however, that his "disability" be documented by a competent medical doctor
selected to examine said Employee at the request of the disinterested Directors,
which examination expense shall be borne by the Company. In the event said
"disability" shall continue for a period greater than six (6) month(s), Employee
shall no longer be entitled to receive any compensation pursuant to Paragraph 3
hereof during the remaining period of such disability, and upon the vote of the
majority of the disinterested Directors, said Employee shall be terminated in
consonance with the provisions of Paragraph 4. hereof as if said disabled
Employee had voluntarily terminated his services hereunder.
6. MODIFICATION OF AGREEMENT. This Agreement may only be modified in
writing and signed by both parties.
7. CONFIDENTIAL INFORMATION. Employee shall not during the term of his
employment or thereafter, disclose to any person any confidential information
obtained by him from or regarding the Company, including without limitation,
data, sales figures, projections, estimates, customer lists, tax records,
personnel history, machine readable code, accounting procedures, promotions and
any other material, accounting or business information, shall be considered and
kept as the private and privileged records of the Employer and will not be
divulged to any firm, individual or institution except on the authorization of
Employer.
8. NON-COMPETITION. Employee agrees that for a period of two (2) years
after termination of his employment, he will not directly or indirectly engage
in, or in any manner be connected with or employed by any person, firm or
corporation in direct competition with Employer within a two hundred fifty (250)
mile radius of Columbus, Ohio. The foregoing notwithstanding, if the Company
shall wrongfully prevent or refuse to permit Employee to perform the duties
assigned to him under this Agreement or shall otherwise be in default in the
performance of any of its
<PAGE> 3
obligations hereunder, then Employee may terminate his employment and enter into
a competing business; provided however, that Employee shall not compete with the
Company if he is receiving any form of compensation or other payments pursuant
to the terms of this Agreement.
9. WAIVER. Failure to insist upon a strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of any such
term, covenant or condition nor shall any such failure at any one time or more
times be deemed a waiver or relinquishment at any other time or times of any
right under the terms, covenants or conditions hereof.
10. BENEFIT. This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, including but not limited to, any
company which may acquire all or substantially all of the Company's assets and
business or into which the Company may be consolidated or merged or by which the
Company's business may be held or prosecuted. Any sale of all or substantially
all of the assets of the Company shall be conditioned upon the assumption of the
Employment Agreement by the Purchaser or a buy-out of the same by the Company at
fair market value. The rights of the Employee may not be assigned or otherwise
transferred nor may the obligations of Employee be delegated.
11. MISCELLANEOUS. This Agreement contains the complete agreement of the
parties concerning the employment arrangement, and shall, as of the effective
date, supersede all other such agreements between the parties. This Agreement
shall be constructed in accordance with and governed by the laws of the State of
Ohio. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal representative, successors and
assigns.
12. STANDARD OF PERFORMANCE OF EMPLOYEE. Employee shall at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof.
13. NOTICES AND PAYMENTS. All payments required or permitted to be made
under the provisions for this Agreement, and all notices and other
communications required or permitted to be given or delivered under this
Agreement, which notices or communications must be in writing, shall be deemed
to have been given when delivered by hand, or mailed by first-class or certified
mail, return receipt requested, addressed to the parties at the addresses set
forth above. Either party may, by notice given to the other, designate a
different address for making payments or giving notices or other communications.
14. BOOKS AND RECORDS. Employee, his heirs, personal representative, or
assigns, or their duly appointed agents or attorneys, shall be entitled to
examine or make copies of the books and records of Employee during reasonable
business hours upon reasonable notice, for the purpose of accurately determining
the appropriate amounts to be paid Employee pursuant to Paragraph 3 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
29TH day of OCTOBER, 1997.
<PAGE> 4
EMPLOYEE:
/S/ Thomas J. Carr
-------------------------------------
Thomas J. Carr
EMPLOYER:
PINNACLE DATA SYSTEMS, INC.
By: /s/ John D. Bair
-----------------------------------
John D. Bair, CEO
<PAGE> 1
EXHIBIT NO. 10(h)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, MADE BETWEEN MICHAEL L. ANTILL, an
individual residing at ___________________________________________ (the
"Employee"), and PINNACLE DATA SYSTEMS, INC., an Ohio corporation whose
principal place of business is located at 6600 Port Rd., Groveport, Ohio 43125
(the "Employer").
BACKGROUND
A. Employer is engaged in the business of providing depot repair
services for electronic equipment and providing customized engineering
application and CPU board designs and manufacturing for integration into
existing systems.
B. Employee is willing to be employed by Employer, and Employer is
willing to employ Employee, on the terms, covenants and conditions hereinafter
set forth.
THEREFORE, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs, engages, and hires Employee as
Vice President of Engineering, to direct and coordinate the activities of
personnel within the Engineering Department of Employer.
Generally, Employee shall be responsible for the design, manufacture
and testing of electronic components, products and systems produced or assembled
by Employer; including without limitation, technical project management of all
phases of product development. In addition, Employee is expected to manage the
Department's staffing needs; hire, train and supervise staff; distribute and
review work assigned to personnel within the Department; appraise personnel
performance; initiate disciplinary procedures when appropriate; assist in the
proper classification and reclassification of Department personnel; recommend
salary increases for department personnel when appropriate; and process
employee-related paperwork.
Employee shall also research new concepts and trends within Employer's
industry, so as to be able to design and build prototype products; and to enable
Employer to design and develop specifications to optimize the functions of a
product and improve the value and appearance of existing products of the
Employer. As part of his duties, Employee shall schedule all aspects of
engineering projects, including ordering parts and supplies, and shall further
assume responsibility for timely completion of each project, and the achievement
of desired qualitative standards by Engineering Department personnel, including
without limitation, adherence to ISO standards and procedures.
Employee shall confer with Management, Production and Sales departments
of Employer to assist in the evaluation of customer demand for new and existing
products; and provide expertise related to engineering feasibility and
cost-effectiveness; support the Sales Department by providing current data on
engineering projects such as product specifications, data sheets and performance
characteristics; participate in Company-wide committees and task forces to
improve Company processes, procedures and services to customers; confer with
customers to provide
<PAGE> 2
equipment design and systems solutions; assist in ensuring Company level
compliance with all Federal, State and local laws, regulations and ordinances;
address, in public and private meetings, the administration and operations of
the Engineering Department and participate in professional groups, on an
approved basis, to enhance the reputation of Employer and the professional
capabilities of Employee.
Employee shall also render such other engineering or other services and
duties as may be assigned to him from time to time by Employer, acting by and
through its President or Board of Directors. Such duties shall be primarily
rendered in Groveport, Ohio, and at such other places as Employer shall in good
faith require or as the interest, needs, business, or opportunity of Employer
shall required. Employee hereby accepts and agrees to such hiring, engagement,
and employment, subject to the general supervision and pursuant to the orders,
advice, and direction of Employer, acting by and through its President and its
Board of Directors.
2. STANDARD OF PERFORMANCE OF EMPLOYEE. Employee shall at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof.
3. TERM OF EMPLOYMENT. This Agreement shall be effective as of the date
hereof, and shall have an initial term expiring on September 1, 2000. The term
of this Agreement shall be automatically extended for one (1) year on each
September 1 thereafter unless either party shall have given written notice to
the other party no later than the preceding August 15 of his or its intention
that the term hereof not be extended beyond its current term.
4. COMPENSATION OF EMPLOYEE. Employer shall pay Employee, and Employee
shall accept from Employer, in full payment for Employee's services hereunder,
(a) a base salary of ninety-three thousand dollars ($93,000) per year, plus (b)
a bonus of up to two thousand dollars ($2,000) per fiscal quarter of the
Employer, commencing with the Fourth Quarter of 1999, provided that Employee
achieves certain performance objectives during each fiscal quarter. Such
performance objectives shall be established by the Employer prior to the
commencement of each fiscal quarter, reduced to writing, and provided to
Employee by Employer. This quarterly performance bonus is intended to provide a
mechanism for payment to Employee for outstanding achievement. As a consequence,
Employee acknowledges that achievement of all performance objectives established
by Employer will be difficult to achieve. Employee shall also receive those
health, retirement, vacation and other fringe benefits customarily accorded to
employees of Employer in effect from time to time. However, commencing January
1, 1999, Employee shall begin to earn paid time-off at the rate of 13.33 hours
per month, which equates to 160 hours per year. During calendar year 1999,
Employee shall receive two (2) weeks of paid vacation. All payments and benefits
shall be subject to withholding for any applicable Federal, State or local
taxes, including Social Security. Employee may receive compensation and benefit
increases in accordance with any personnel policies of Employer in effect at
such time or as may be directed by the Board of Directors. Employer shall
reimburse Employee for all necessary business expenses incurred by Employee
while acting pursuant to this Agreement, provided such expenses are documented
to Employer's reasonable satisfaction.
In addition, Employee's base salary shall be reviewed by Employer not
less often than annually, and may be increased to such level as Employer may
determine. Review of Employee's salary may include a review of Employer's
performance and financial condition, salaries paid to other employees, and such
other factors as Employer deems relevant.
<PAGE> 3
5. TERMINATION PROVISIONS. Notwithstanding the provisions of Paragraph 3
above, this Agreement may be terminated by either party as follows:
(a) Employer may terminate Employee's employment at any time
without prior notice and with pay and benefits only to the date of such
termination for cause. Termination for causes shall include, but shall
not be limited to, willful failure or refusal by Employee to perform his
normal duties, dishonesty, incompetence or other serious acts of
misconduct within Employee's control.
(b) Employer may remove Employee from his duties at any time
for any other reason and terminate this Agreement only upon giving prior
written notice to Employee and upon the payment, in lump sum, of an
amount equal to (1) one month of base salary if such termination occurs
during the first year of this Employment Agreement, or (2) two months
base salary if such termination occurs after the first year of this
Employment Agreement.
6. MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement or any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by both parties hereto.
7. RELOCATION ASSISTANCE. Employee acknowledges that Employer has
provided Employee with relocation assistance as an inducement to accept
employment with Employer. Specifically, Employer has agreed to reimburse
Employee, up to a maximum of $5,000 for expenses incurred by Employee of a
moving vehicle, packing materials and storage, in connection with moving
Employee's belongings from the Oberlin, Ohio area to the Greater Columbus, Ohio
area. Such expenses are hereinafter referred to as "moving expenses."
In addition, Employer has offered to reimburse Employee up to a maximum
of $6,000, for costs incurred by Employee for temporary housing in the Greater
Columbus, Ohio area, for up to six (6) months. Such expenses are hereinafter
referred to as "temporary housing expenses."
Additionally, Employer has offered to reimburse Employee for realtor
fees and closing costs in connection with the sale of his existing residence in
the Oberlin, Ohio area, up to a maximum of $12,000. Such expenses are
hereinafter referred to as "residence sale expenses."
If Employee receives reimbursement from Employer for moving expenses,
temporary housing expenses, or sale of residence expenses (collectively
"relocation expenses"), Employee agrees to repay Employer fifty percent (50%) of
the relocation expenses paid by Employer if Employee terminates his employment
with Employer, for any reason prior to March 1, 2000, and further agrees to
repay Employer twenty-five percent (25%) of the relocation expenses paid by
Employer to Employee if the Employee terminates his employment with Employer
during the period between March 1, 2000 and August 31, 2000.
Employee agrees that Employer shall, under no circumstances, be liable
for damages sustained by Employee to any of the Employee's personal property or
real property, in connection with Employee's relocation to Central Ohio, and any
such damages are not a reimbursable relocation expense.
<PAGE> 4
8. CONFIDENTIAL INFORMATION. Employee shall not during the employment
period or thereafter, disclose to any person any confidential information
obtained by him from or regarding the Employer, including without limitation,
the whole or any portion or phase of any technical information, design,
procedure or improvement, or any business plans, financial information, listing
of names, addresses or telephone numbers, or any other non-public information
prepared by or for the benefit of the Employer. In the event Employee shall
leave the employment of the Employer for any reason, Employee agrees that he
will not take with him any writings, records, recordings, drawings, samples,
specimens, prototypes, models, photographs, customer lists, product information,
or other data of any description or any copy or reproduction of any of the
foregoing.
9. NON-COMPETITION. Except as herein provided, if the employment of the
Employee by the Employer shall be terminated for any reason, he shall for a
period of two (2) years from the date of termination refrain from competing
directly or indirectly with the Employer and each of its subsidiaries and
affiliates, if any, within a 250 (two hundred and fifty) mile radius of the City
of Columbus, Ohio. The foregoing notwithstanding, if the Employer shall
wrongfully prevent or refuse to permit Employee to perform the duties assigned
to him under this Agreement or shall otherwise be in default in the performance
of any of its obligations hereunder, then Employee may terminate his employment
and enter into a competing business; provided, however, that Employee shall not
compete with the Employer if he is receiving any form of compensation or other
payments pursuant to the terms of this Agreement
10. NOTICES AND PAYMENTS. All payments required or permitted to be made
under the provisions for this agreement, and all notices and other
communications required or permitted to be given or delivered under this
Agreement, which notices or communications must be in writing, shall be deemed
to have been given when delivered by hand, or mailed by first-class or certified
mail, return receipt requested, addressed to the parties at the address set
forth above for the Employer and the residence address last provided to Employer
by Employee from time to time as shown in the employment records of the
Employer. Either party may, by notice given to the other, designate a different
address for making payments or giving notices or other communications.
11. WAIVER. Failure to insist upon a strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of any such
term, covenant or condition, nor shall any such failure at any one time or more
times be deemed a waiver or relinquishment at any other time or times of any
right under the terms, covenants or conditions hereof.
12. BENEFIT. This Agreement shall inure to the benefit of and be binding
upon the Employer, its successors and assigns, including but not limited to, any
company which may acquire all or substantially all of the Employer's assets and
business or into which the Employer may be consolidated or merged or by which
the Employer's business may be held or prosecuted. Any sale of all or
substantially all of the assets of the Employer shall be conditioned upon the
assumption of this Employment Agreement by the Purchaser or a buyout of the same
by the Employer at fair market value. The rights of the Employee may not be
assigned or otherwise transferred, nor may the obligations of Employee be
delegated.
13. MISCELLANEOUS. This Agreement contains the complete agreement of the
parties hereto concerning the employment arrangement between such parties, and
shall, as of the
<PAGE> 5
effective date hereof, supersede all other such agreements between the parties.
This Agreement shall be constructed in accordance with and governed by the laws
of the State of Ohio. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, legal
representatives, successors, and assigns.
14. RIGHTS TO INTELLECTUAL PROPERTY. In consideration of employment
pursuant to this Agreement, and compensation to be paid hereunder, Employee
agrees to disclose to the C.E.O. of Employer any and all improvements and
inventions made by Employee, alone or in conjunction with others, during his
employment with Employer, which relate in any way directly or indirectly to
Employer's business, the goods it manufactures or assembles, or the process by
which such goods are manufactured or assembled. Employee agrees to assign to
Employer all of his right, title and interest in any improvements and inventions
developed by Employee during his employment for $1, and to execute all documents
necessary to file and prosecute any patent application in the name of and for
the benefit of Employer, its successors or assigns. Employee further agrees to
testify in any legal proceedings, and otherwise to do everything possible to aid
Employer, or its successors, assigns and nominees to obtain and enforce patent
protection for the improvements and inventions in any country.
15. STOCK OPTIONS. Upon execution of this Agreement, Employee shall
receive an Option to Purchase 1,000 shares of common shares of the Employer at
an exercise price of $4.625 per share, which shall become exercisable on August
12, 2000 and remain exercisable thereafter until expiration on August 12, 2009.
These options are issued pursuant to the Pinnacle Data Systems, Inc. 1995
Employee Stock Option Plan, and are governed in all respects by the terms and
provisions of such Plan.
Employee's options hereunder are also subject to ratification or
approval by the Shareholders of Employer at the annual meeting of shareholders
in the year 2000. In the event these options are not approved for issuance by
shareholder vote, they shall be rendered null and void, and have of no further
force and effect.
Employee shall receive an option certificate evidencing such options
within thirty (30) days after execution of this Agreement, and shall sign an
acknowledgement evidencing his awareness and acceptance of certain key terms and
conditions of such options.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS Agreement as of
the __22___day of ___September___________,___1999___.
EMPLOYEE: EMPLOYER:
--------- ---------
PINNACLE DATA SYSTEMS, INC
/s/ Michael L. Antill BY: /s/ John D. Bair
-------------------------------- -------------------------------
MICHAEL L. ANTILL JOHN D. BAIR, CEO
<PAGE> 1
EXHIBIT NO. 10(i)
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, is effective this ____ day of ________________,
_______ between Pinnacle Data Systems, Inc., an Ohio Corporation ("Company"),
and __________________ ("Optionee").
The parties agree as follows:
1. GRANT OF OPTION
Subject to the following terms and conditions, the Company grants the
Optionee, for five (5) years commencing on the date of this Agreement, the
option ("Option") to purchase from the Company, at a price of $___________ per
share, __________ shares of the Company's Common Stock (the "Stock") pursuant to
the 1995 Stock Option Plan of the Company as Incentive Stock Options under
Section 422 of the Internal Revenue Code of 1986, as amended.
2. EXERCISE OF OPTION
Optionee, while employed by the Company, may exercise the Option by
delivering to the Company written notification specifying the number of shares
which the Optionee desires to purchase, together with cash, or check payable to
the Company for the purchase price. However, said Option may not be exercised
prior to _______________, _______________.
If the Optionee shall cease to be employed by the Company for any
reason other than death, the Optionee may exercise this Option within ninety
(90) days from the date of termination of employment.
If termination of employment is due to the death of Optionee or
Optionee dies within ninety (90) days following termination of employment, the
Option may be exercised by the Optionee's personal representative within one (1)
year after the date of death.
3. INDEPENDENT AGREEMENT
This Agreement is an independent agreement from Optionee's employment
agreement and nothing in this Agreement shall affect or restrict the right of
the Company to terminate Optionee's employment at any time, with or without
cause.
4. OPTIONEE RIGHTS
The Optionee shall have no rights as a stockholder with respect to any
share covered by the Option until he shall have become the holder of record such
share, and no adjustment shall be made for dividends or distribution or other
rights in respect of such share for which the record date is prior to the date
upon which Optionee shall become the holder of record.
The existence of the Option shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalization, or
<PAGE> 2
reorganizations, mergers, consolidations or other changes in the Company's
capital structure or its business.
5. REGISTRATION RIGHTS
The Optionee agrees that Optionee may not exercise the Option, and that
the Company is not obligated to issue any shares to Optionee, if the exercise of
the Option or the issuance of Option shares shall constitute a violation of any
provisions of any law or regulation. Any determination in this connection by the
Board shall be final, binding and conclusive. The Company is not obligated to
register any securities pursuant to the Securities Act of 1933 (as now is effect
or as amended) or to take any other affirmative action in order to cause the
exercise of the Option or the issuance of shares to comply with any law or
regulation. The Optionee acknowledges that (s)he is aware that there are no
registration rights as to the shares issuable pursuant to the Option. Optionee
is aware that (s)he may not be able to freely dispose of the shares issued upon
the exercise of the Option.
6. MISCELLANEOUS
Every notice shall be in writing and mailed to or delivered to the last
known address furnished to the other party.
Waivers or modifications of this Agreement must be in writing and
signed by both parties.
This Agreement contains the entire agreement of the parties.
This Agreement shall be constructed in accordance with and governed by
the laws of the State of Ohio.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal representative, successors, and
assigns.
The parties have executed this Agreement on the effective date.
OPTIONEE:
-----------------------------------
PINNACLE DATA SYSTEMS, INC.
By:
--------------------------------
<PAGE> 1
EXHIBIT NO. 10(j)
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of July 22, 1998, between Pinnacle
Data Systems, Inc., an Ohio corporation (the "Company"), and David Richards (the
"Employee"), who hereby agree as follows:
Section 1. TERM OF AGREEMENT. Upon the terms and subject to the
conditions described in this Agreement, the Company hereby retains the Employee
to provide consulting and advisory services to the Company, and the Employee
hereby accepts such employment by the Company. The term of the Employee's
retention by the Company under this Agreement shall begin on the date of this
Agreement and shall end on the first anniversary date of this Agreement.
Section 2. CONSULTING SERVICES. The Employee shall provide consulting
and advisory services to the Company with respect to the Company's
communications with its stockholders and with members of the financial
community. Without limiting the types of services to be provided by the
Employee, the Employee's advisory and consulting services shall include, without
limitation, the following:
(a) consulting with and assisting the Company in connection
with communication between the Company and its stockholders;
(b) identifying various newsletters which focus on emerging
public companies and other financial publications and assisting the
Company in developing strategies to increase its visibility with such
publications;
(c) consult with and advise the Company on specific methods to
increase the breadth and diversification of its stockholder base;
(d) identifying specific / broker dealers who may be able to
assist the Company in achieving the goals set forth in (c) above and/or
in making a market in the Company's equity securities, and advising the
Company as to how it may increase its visibility and name recognition
with such broker/dealers and other members of the investment community;
and
(e) consult with and advise the Company with respect to its
capital structure and capital needs.
The Employee shall devote such amounts of his time to the furnishing of
these services as may be required for their proper performance. The Company and
the Employee anticipate that the Employee shall devote an average of four (4) to
eight (8) hours per calendar week in the performance of the services enumerated
above, whether done during or after normal business hours.
The Employee shall initially devote his efforts to familiarizing
himself with the Company, which time period is estimated at six (6) to eight (8)
weeks, during which time the Company will make its officers and employees
available to provide to the Employee information
<PAGE> 2
regarding the Company, its operations, its financial conditions, and its
business prospects. The Employee shall at all times perform his duties hereunder
in good faith and in a fair, lawful and business-like manner. The Employee is
currently a shareholder of the Company. In connection with the performance of
his duties hereunder, the Employee may come into possession of material
non-public information with respect to the Company. In such event, the Employee
shall not buy or sell the Company's securities until such time as any material
non-public information with respect to the Company in his possession becomes
public information and the Employee shall comply, in all respects, with all
applicable securities laws in connection with (a) his purchase and/or sale of
the Company's securities, and (b) in all other respects in connection with his
performance under this Agreement.
Section 3. PART TIME EMPLOYEE. Under this Agreement, the Employee shall
be a part time employee of the Company.
Section 4. AUTHORITY. The employee shall have only such authority to
act on behalf of the Company as may be specifically conferred upon him in
writing from time to time by the Company. The Employee shall report his findings
and his progress in connection with the services enumerated in (a) through (e)
of Section 2 above, to the Company's Chief Financial Officer, Mr. Tom Carr, or
his designee, on a biweekly basis after such time as the initial company study
is complete.
Employee acknowledges (i) that the Company is taking a substantial risk
by paying Employee in advance for the services to be rendered by Employee under
this Employment Agreement, and (ii) that in taking such risk, the Company is
relying on the good faith and integrity of Employee. Employee represents and
warrants to the Company that in the performance of the duties and services
required of him by this Agreement he shall, at all times, act in good faith and
shall deal fairly and in a reasonable and businesslike manner with the Company.
The Company further agrees to act in good faith and to deal fairly and in a
reasonable and businesslike manner with Employee.
Section 5. COMPENSATION. For his services under this Agreement, the
Employee shall be granted Thirty-Seven Thousand (37,000) options (the "Options")
to purchase shares of common stock, no par value (the "Shares"), of the Company
pursuant to the provisions of Section 6 below, and the Stock Option Agreement
attached as Exhibit A hereto (the "Stock Option Agreement"). The Option shall be
valued pursuant to the Blackshoals method of valuation on the date hereof.
Section 6. TERMS OF OPTIONS. The Options granted to the Employee shall
have an exercise price equal to the average of the bid and asked price of the
Shares as of the date of this Agreement and shall be exercisable for a period
commencing on the date of grant and continuing for a period of two (2) years
thereafter. The remaining terms and conditions of such Options shall be set
forth in the Stock Option Agreement. The Stock Option Agreement, and not this
Agreement, shall evidence the grant of the Options, and the Stock Options
Agreement shall be entered into as of the date of this Agreement.
Section 7. EMPLOYEE'S CAPACITY. The Employee represents and warrants to
the Company that he has the capacity and right to enter into this Agreement and
perform all of his services hereunder without any restriction whatsoever by any
other agreement, other document, or otherwise.
<PAGE> 3
Section 8. NOTICES. Any notice or other communication required or
desired to be given to any party to this Agreement shall be deemed given when
either delivered personally to that party or deposited in the United States
mail, first class, postage prepaid, addressed to that party at, or delivered to
the address specified below:
(a) If to the Company:
Pinnacle Data Systems, Inc.
2155 Dublin Road
Columbus, Ohio 43228
Attn: Thomas J. Carr, CFO
with copy to:
Robert H. Taylor, Esq.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
(b) If to the Employee:
David Richards
6189 Memorial Drive
Dublin, Ohio 43017
Any party may change their respective address listed above by giving
the other parties notice of such change.
Section 9. EXECUTION OF DOCUMENTS. Each party to this Agreement and
such party's successors and assigns shall execute, acknowledge or verify, and
deliver any and all documents which from time to time may be reasonably
requested by any other party to this Agreement to carry out the purposes and
intent of this Agreement.
Section 10. GOVERNING LAW. All questions concerning the validity or
meaning of this Agreement or relating to the rights and obligations of the
parties with respect to performance under this Agreement shall be construed and
resolved under the laws of the State of Ohio.
Section 11. SEVERABILITY. The intention of the parties to this
Agreement is to comply fully with all laws and public policies, and this
Agreement shall be construed consistently with all laws and public policies to
the extent possible. If and to the extent that any court of competent
jurisdiction determines that it is impossible to construe any provision of this
Agreement consistently with any law or public policy and consequently holds that
provision to be invalid, such holding shall in no way affect the validity of the
other provisions of this Agreement, which shall remain in full force and effect.
Section 12. NON-WAIVER. No failure by any party to insist upon strict
compliance with any term of this Agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of any other party shall
affect, or constitute a waiver of, the first's party's right to
<PAGE> 4
insist upon such compliance, to exercise that option, to enforce that right, or
to seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default. No custom or practice of the parties at variance with any
provision of this Agreement shall affect, or constitute a waiver of, any party's
right to demand strict compliance with all provisions of this Agreement.
Section 13. CAPTIONS. The captions of the various sections of this
Agreement are not part of the context of this Agreement, but are only labels to
assist in locating those sections, and shall be ignored in construing this
Agreement.
Section 14. COMPLETE AGREEMENT. This document (including the exhibit,
which is incorporated herein by reference) contains the entire agreement among
the parties and supersedes all prior or contemporaneous discussions,
negotiations, representations, or agreements relating to the subject matter of
this Agreement. No changes to this Agreement shall be made or be binding on any
party unless made in writing and signed by each party to this Agreement.
Section 15. SUCCESSORS. This Agreement shall be personal to the
Employee, and no rights or obligations of the Employee under this Agreement may
be assigned by him, and any attempted assignment shall be null and void. Except
as described in the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by and against the respective heirs,
personal representatives, successors, and assigns of each party to this
Agreement.
EMPLOYEE PINNACLE DATA SYSTEMS, INC.
/s/ David Richards By: /s/ John Bair
- ------------------------------ ----------------------------------
David Richards John Bair, Chairman and Chief
Executive Officer
<PAGE> 5
EXHIBIT A
STOCK OPTION AGREEMENT
This Agreement is made as of July 22, 1998, between David Richards
("Mr. Richards") and Pinnacle Data Systems, Inc., an Ohio corporation (the
"Company"), who hereby agree as follows:
Section 1. GRANT AND EXERCISE OF OPTION. Upon the terms and subject to
the conditions described in this Agreement, the Company hereby grants to Mr.
Richards an option (the "Option") to purchase Thirty-Seven Thousand (37,000)
shares of common stock, no par value, of the Company (the "Shares") for a
purchase price of $3.50 per Share (the "Option Price"). The Option Price is
equal to the average of the bid and asked price of the Shares as of July 22,
1998, which was the date of an Employment Agreement (the "Employment Agreement")
between Mr. Richards and the Company. The Option is being issued in accordance
with the Employment Agreement. The Option may be exercised, in whole or in part,
at any time or from time to time during the period commencing on the date of
this Agreement and ending on the second anniversary of the date of this
Agreement, both dates inclusive (the "Exercise Period"). If any portion of the
Option has not been exercised prior to the expiration of the Exercise Period,
then that unexercised portion of the Option shall expire. The Option is intended
to qualify as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
Section 2. METHOD OF EXERCISE. The Option shall be exercisable by
written notice to the Company, which notice shall be substantially in the form
of the notice attached hereto as Schedule A ("the Notice"). The full purchase
price for those Shares being purchased upon the exercise of the Option shall be
payable by certified or bank cashier's check at the time of the delivery of the
Notice to the Company. Thereafter, the Company shall deliver a certificate or
certificates representing those Shares to the person or persons specified in the
Notice, at the time specified in the Notice, and at the location specified in
the Notice.
Section 3. TRANSFERABILITY. The Option shall not be transferable by Mr.
Richards other than by will or the laws of descent and distribution. During the
lifetime of Mr. Richards, the Option shall be exercisable (subject to any other
applicable restrictions on exercise) only by Mr. Richards for his own account.
Upon the death of Mr. Richards, the Option shall be exercisable (subject to any
other applicable restriction on exercise) only by the executor or administrator
of Mr. Richards's estate.
Section 4. CHANGE IN CAPITAL STRUCTURE. If the Company (a) pays a
dividend or makes a distribution in its shares of common stock without receiving
consideration in the form of money, services, or property, (b) subdivides or
splits its outstanding shares of common stock into a greater number of shares,
or (c) combines its outstanding shares of common stock into a smaller number of
shares, then the aggregate number of Shares then subject to the unexercised
portion of the Option and the Option Price shall be proportionally adjusted so
that Mr. Richards would be entitled to receive for the same aggregate price that
number of Shares which he would have owned after the happening of any of the
events described above had he exercised the entire portion of the Option prior
to the happening of such event. An adjustment made pursuant to this
<PAGE> 6
section shall become effective immediately after the record date in the case of
a dividend or the effective date in the case of a subdivision, split, or
combination.
If the Company reclassifies or changes its shares of common stock
(except for splitting or combining, or changing par value, or changing from par
value to no par value, or changing from no par value to par value) or
participates in a consolidation or merger (other than a merger in which the
Company is the surviving corporation and which does not result in any
reclassification or change of its shares of common stock except as stated
above), the aggregate number of Shares then subject to the unexercised portion
of the Option and the Option Price shall be adjusted so that Mr. Richards would
be entitled to receive for the same aggregate price that number and type of
shares of capital stock which he would have owned after the happening of any of
the events described above had he exercised the entire portion of the Option
prior to the happening of such event.
No adjustment pursuant to this section shall be required unless such
adjustment would require an increase or decrease of at least 1% in the number or
price of Shares; provided that any adjustments which by reason of this section
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this section shall be made to
the nearest cent or to the nearest full Share, as the case may be.
Whenever an adjustment is made pursuant to the preceding provisions of
this section, the Company shall give notice to Mr. Richards of such adjustment,
which notice shall set forth the terms of such adjustment and the date on which
such adjustment became effective.
Section 5. COMPLIANCE WITH SECURITIES LAWS; DELIVERY OF SHARES. The
Option shall not be exercisable and no Shares shall be delivered under this
Agreement except in full compliance with all applicable federal and state
securities laws and regulations. Furthermore, the Option shall not be
exercisable except for Shares which at the time of such exercise are exempt from
registration under all applicable federal and state securities laws, is the
subject matter of a transaction which is exempt under all applicable federal and
state securities laws, or are registered under all applicable federal and state
securities laws. As a condition of any exercise of the Option, the Company may
require Mr. Richards or his successor to make any representation or warranty to
comply with any applicable federal or state securities law or to confirm any
factual matters reasonably requested by counsel to the Company. The Company
shall have the right to imprint on each certificate evidencing the ownership of
any of the Shares a legend setting the restrictions on transfer imposed by
applicable federal and state securities laws and to issue stop transfer
instructions to its transfer agent prohibiting transfer of any of the Shares
except in full compliance with the provisions of all applicable federal and
state securities laws.
In the case of the exercise of the Option by a person or estate
acquiring the right to exercise such Option by bequest or inheritance, the
Company may require reasonable evidence as to the ownership of the Option and
may require such consents and releases of taxing authorities as the Company
deems advisable.
Section 6. WITHHOLDING TAXES. The Company, at its option, shall have
the right to require Mr. Richards to pay to the Company the amount of any taxes
which the Company is required to withhold with respect to the Shares to be
issued upon the exercise of the Option or any portion of
<PAGE> 7
the Option. The obligations of the Company under the Agreement shall be
conditions upon such payment.
Section 7. RIGHTS AS A STOCKHOLDER. Mr. Richards shall have no rights
of a stockholder in the Company with respect to the Shares subject to the
Options unless and until a certificate representing such Shares has been duly
issued and delivered to him under this agreement.
Section 8. NOTICES. All notices and other communications under this
Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, mailed by registered or certified mail (return receipt
requested) to that Party at the address for that Party set forth below (or at
such other address for such Party as such Party shall have specified in notice
to the other Party), or delivered to Federal Express, Purolator, or any similar
express delivery service for delivery to that Party at that address:
(a) If to the Company:
Pinnacle Data Systems, Inc.
2155 Dublin Road
Columbus, Ohio 43228
Attn: Thomas J. Carr, CFO
with copy to:
Robert H. Taylor, Esq.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
(b) If to Mr. Richards:
David Richards
6189 Memorial Drive
Dublin, Ohio 43017
Section 9. GOVERNMENT REGULATION. Notwithstanding any other provisions
of this agreement, the Company's obligations under this Agreement shall be
subject to all applicable laws, rules, and regulations and to such approvals as
may be required by any governmental or regulatory agencies.
Section 10. CAPTIONS. The captions of the various sections of this
Agreement are not part of the context of this Agreement, but are only labels to
assist in locating those sections, and shall be ignored in construing this
Agreement.
Section 11. GOVERNING LAW. All questions concerning the validity or
meaning of this Agreement or relating to the rights and obligations of the
parties with respect to performance under this Agreement shall be construed and
resolved under the laws of Ohio.
<PAGE> 8
Section 12. SUCCESSORS. Except as expressly provided in this Agreement,
no rights or obligations of Mr. Richards under this Agreement may be assigned by
Mr. Richards to any third party. Any assignment or attempted assignment by Mr.
Richards in violation of the preceding sentence shall be null and void. Subject
to the foregoing, this Agreement shall be binding upon, inure to the benefit of,
and be enforceable by and against the heirs, personal representatives,
successors and assigns of each party to this Agreement.
PINNACLE DATA SYSTEMS, INC.
By /s/ John Bair
---------------------------------
John Bair, Chairman and Chief
Executive Officer
-------------------------------
DAVID RICHARDS
<PAGE> 9
SCHEDULE A
Form of Notice to Exercise Option
[Date]
Pinnacle Data Systems, Inc.
2155 Dublin Road
Columbus, Ohio 43228
Attn: Thomas J. Carr, CFO
Ladies and Gentleman:
This letter shall constitute the written notice pursuant to Section 2
of the Stock Option Agreement dated July 22, 1998 (the "Agreement"), between
Dave Richards and Pinnacle Date Systems, Inc., an Ohio corporation (the
"Company"). The undersigned, the holder of an option (the "Option") to purchase
the number of shares of common stock, no par value ("Shares"), of the Company
set forth in the Agreement, hereby exercises the Option with respect to
_________ Shares. Certificates for the Shares to be issued in connection with
this exercise should be registered in the name set forth below and delivered to
the address set forth above before the close of business on or about
_______________, ________ [not less than 15 and more than 30 days from the date
of this notice]:
-------------------------------
Name
-------------------------------
Street Address
-------------------------------
City, State, and Zip Code
-------------------------------
Social Security Number
Accompanying this notice is a certified or bank cashier's check made payable to
the Company in the amount of $___________ in payment of the purchase price for
the Shares to which this notice relates.
Sincerely,
/s/ David Richards
----------------------------------
Signature
----------------------------------
Printed or Typed Name
<PAGE> 1
EXHIBIT NO. 10(k)
PINNACLE DATA SYSTEMS, INC
1995 STOCK OPTION PLAN
Section 1. PURPOSES OF PLAN.
The 1995 Stock Option Plan (the "Plan") of Pinnacle Data Systems, Inc.,
an Ohio corporation (the "Company"), is intended to encourage employees of the
Company and its subsidiaries to acquire or increase a proprietary interest in
the Company, to assist the Company and its subsidiaries in attracting and
retaining highly qualified employees by providing such employees options to
purchase common shares, without par value, in the Company, and to further
promote and strengthen the interest of such employees in the development and
financial success of the Company.
Section 2. ADMINISTRATION OF PLAN.
The Plan shall be administered by the Company's Board of Directors (the
"Board") or, if the Board so elects, a committee (the "Committee") which shall
consist of not less than three directors of the Company appointed by the Board.
Notwithstanding the foregoing to the contrary, if the common shares of the
Company are registered under Section 12 of the Securities and Exchange Act of
1934 (the "Act") or are required to be so registered or the Company becomes
subject to the reporting requirements of Section 13 of the Act (hereinafter
referred to as a "Reporting Company"), then the Plan shall be administered by
the Committee. The members of the Committee shall serve at the pleasure of the
Board, which may remove members from the Committee or appoint new members to the
Committee from time to time, and members of the Committee may resign by written
notice to the President or Secretary of the Company. The members of the
Committee shall not be eligible to participate in the Plan while serving on the
Committee, and if the Company is a Reporting Company, each member of the
Committee: (a) shall be an outside director within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), and (b) shall be
a "disinterested person" within the meaning of Rule 16b-3 under the Act. For
purposes of this Plan, the Board, if it is administering the Plan, or the
Committee, if it is administering the Plan, shall hereinafter be referred to as
the "Administrator".
Unless otherwise determined by the Board, the Administrator shall have
full and final authority to administer the Plan in accordance with its terms,
including without limitation authority, to the extent not inconsistent with the
specific provisions of the Plan, to: (a) interpret all provisions of the Plan
consistent with law; (b) designate the employees to receive grants of options;
(c) determine the frequency of option grants; (d) determine the number and type
of options to be granted to each employee; (e) specify the number of shares
subject to each option and the method of exercise; (f) prescribe the form and
terms of instruments evidencing any options granted under the Plan; (g)
determine the vesting requirements, if any, for option exercises; (h) determine
whether legends should be included on any shares acquired through option
exercise; (i) make special option grants when appropriate; (j) adopt, amend and
rescind general and special rules and regulations for the Plan's administration;
(k) direct employees of the Company and its subsidiaries and advisors to prepare
such materials or perform such
<PAGE> 2
analyses as the Administrator deems necessary or appropriate; and (l) make all
other determinations necessary or advisable for the administration of the Plan.
Any interpretation or administration of the Plan by the Administrator
and all actions of the Administrator shall be conclusive, final, and binding
upon the Company, its subsidiaries, and all participants in the Plan and their
respective legal representatives, successors and assigns. No member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under the Plan. The members
of the Committee and all members of the Board shall be indemnified by the
Company against all costs and expenses reasonably incurred by them in connection
with any action, suit, or proceeding to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by the Company) or paid
by them in satisfaction of a judgment in any such action, suit, or proceeding,
except a judgment based upon a finding of bad faith. Upon the institution of any
such action, suit or proceeding, the Board member or the Committee member shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof at its expense. The provisions of this paragraph with
respect to liability and indemnification of members of the Board and the
Committee are in addition to, and not in limitation of, the provisions with
respect to the liability and indemnification of members of the Board and the
Committee: (i) contained in the Articles of Incorporation or Code of Regulations
of the Company; (ii) contained in any indemnification agreements between any
members of the Board and the Company; or (iii) provided by law.
Section 3. SHARES SUBJECT TO PLAN.
The maximum aggregate number of common shares, without par value, of
the Company (the "Shares") with respect to which options may be granted under
the Plan shall be 300,000 Shares. If the Company is a Reporting Company, then
the maximum number of Shares with respect to which options may be granted to any
individual in any one calendar year shall be 25,000 Shares. All Shares subject
to options granted under the Plan may be authorized but unissued Shares or
issued Shares reacquired by the Company and held as treasury Shares. If any
option granted under the Plan expires or terminates, then the Shares subject to
such expired or terminated option shall again be available for other options to
be granted under the Plan. The aggregate number of Shares available under the
Plan shall be subject to adjustment pursuant to Section 7, below.
Section 4. ELIGIBILITY.
All employees of the Company and its subsidiaries are eligible to
receive options under the Plan ("Eligible Persons"). No director of the Company
who is not also an employee of the Company or any of its subsidiaries shall be
eligible to participate in the Plan. In addition, if the Company is a Reporting
Company, no member of the Committee, who is otherwise an Eligible Person, shall
be permitted to participate in the plan for a period of 12 months after (a) the
date the Plan is adopted, and (b) the date such person ceases to be a member of
the Committee.
Section 5. GRANT OF OPTIONS.
(a) GENERAL TERMS AND CONDITIONS OF GRANTS. The Administrator shall
have the authority to grant the following types of options: (i) options for
Shares intended to qualify as incentive stock options under Section 422 of the
Code, as provided in Section 5(b), below ("Incentive
<PAGE> 3
Options"); and (ii) options for Shares not intended to qualify as incentive
stock options under Section 422 of the Code, as provided in Section 5(c), below
("Nonqualified Options"). Incentive Options and Nonqualified Options shall
hereafter be collectively referred to as "Options". The Administrator shall
designate from time to time, in its discretion, the Eligible Persons to whom
Options shall be granted (such persons, "Grantees") under the Plan, the number
of Shares which shall be the subject of each Option granted under the Plan,
whether or not the Option is intended to be an Incentive Option or a
Nonqualified Option and the terms and conditions under which each Option is
granted under the Plan. No Eligible Person shall have a right to be granted any
Option unless, and except to the extent, so designated by the Administrator.
(b) INCENTIVE OPTIONS. The aggregate fair market value (determined
at the time of the grant of the Incentive Option) of the Shares with respect to
which Incentive Options are exercisable for the first time by any Eligible
Person during any calendar year (under all incentive stock option plans of his
employer corporation and its parent and subsidiary corporations) shall not
exceed $100,000 (unless Section 422 of the Code is revised, then in conformity
with such revision). All Incentive Options granted under the Plan shall be
granted within 10 years from the date the Plan is adopted or the date the Plan
is approved by the shareholders of the Company, whichever is earlier. The
Administrator may, as a condition of granting any Incentive Option, require that
a Grantee agree to surrender for cancellation one or more Options previously
granted to such Grantee. Each Incentive Option granted pursuant to the Plan
shall be authorized by the Administrator and shall be evidenced by a written
Incentive Option Agreement, in form approved by the Administrator, which shall
be dated as of the date on which the Incentive Option is granted, signed by an
officer of the Company authorized by the Administrator, and signed by the
Grantee. Unless the Administrator specifies a subsequent date on which the grant
will be effective, the date on which the Administrator approves the granting of
the Incentive Option shall be deemed the date on which the Incentive Option is
granted. The Incentive Option Agreement shall be consistent with the Plan and
shall include, without limitation, the following provisions:
(i) TERM. An Incentive Option shall not be exercisable after
the expiration of 10 years from the date the Incentive Option is
granted. If the Grantee, at the time the Incentive Option is granted,
owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or its subsidiaries, then the
Incentive Option shall not be exercisable after the expiration of five
years from the date the Incentive Option is granted.
(ii) PURCHASE PRICE. The purchase price of Shares subject to
an Incentive Option shall be not less than the fair market value of the
Shares at the time the Incentive Option is granted. If the Grantee, at
the time the Incentive Option is granted, owns stock representing more
than 10% of the total combined voting power of all classes of stock of
the Company or its subsidiaries, then the purchase price of the Shares
subject to the Incentive Option shall be at least 110% of the fair
market value of the Shares at the time the Incentive Option is granted.
For purposes of this Section 5(b)(ii), the fair market value of the
Shares subject to the Incentive Option shall mean: (A) the last
reported sale price of the Shares on the NASDAQ National Market System
prior to the date the Incentive Option is granted; or (B) the mean
between the high and low bid and ask prices as reported by the National
Association of Securities Dealers, Inc. on the date the Option is
granted; or (C) the last reported sale price on any stock exchange
prior to the date the
<PAGE> 4
Incentive Option is granted; or (D) if none of the preceding clauses
(A), (B), or (C) are applicable, then the fair market value of the
Shares as determined by the Administrator in good faith.
(iii) TRANSFERABILITY. No Incentive Option shall be
transferable by the Grantee other than by will or the laws of descent
and distribution. During the lifetime of the Grantee, the Incentive
Option shall be exercisable (subject to any other applicable
restrictions on exercise) only by the Grantee for his own account. Upon
the death of the Grantee, the Incentive Option shall be exercisable
(subject to any other applicable restrictions on exercise) only by the
executor or administrator of the Grantee's estate.
(iv) METHOD OF EXERCISE. An Incentive Option may be exercised,
in whole or in part, by giving written notice to the Secretary of the
Company stating the number of Shares (which must be a whole number) to
be purchased under the Incentive Option and the time during normal
business hours for delivery of those Shares. Upon receipt of payment of
the full purchase price for such Shares, subject to compliance with all
other terms and conditions of the Plan and the Incentive Option
Agreement, the Company shall deliver, at the specified time, a
certificate for such Shares to the Grantee (or such other person
entitled to receive such Shares) at the principal office of the
Company. The purchase price shall be paid: (A) by certified or bank
cashier's check; or (B) by delivery of Shares with a fair market value
equal to the total purchase price at the time of exercise of the
Incentive Option; or (C) by a combination of the preceding two methods.
(v) TERMINATION OF EMPLOYMENT. Except as otherwise provided in
Section 9, below, if the Grantee ceases to be an Eligible Person for
any reason, then the Incentive Option or any unexercised portion of the
Incentive Option which otherwise is exercisable shall terminate unless
it is exercised within three months after the date the Grantee ceases
to be such an Eligible Person (but in no event after expiration of the
original term of the Incentive Option); provided that if the Grantee
ceases to be an Eligible Person by reason of the Grantee's death or
disability (as defined in Section 22(e)(2) of the Code), then the
three-month period shall instead be a one-year period.
(vi) RESTRICTIONS. At the time the incentive option is
granted, the Administrator may determine that the Shares subject to the
Incentive Option shall, upon issuance, be restricted as to
transferability or be subject to repurchase by the Company upon the
occurrence of certain events determined by the Administrator, in its
discretion, and specified in the Incentive Option Agreement.
(vii) DESIGNATION AS INCENTIVE STOCK OPTION. The Incentive
Option shall be identified as a stock option intended to qualify as an
incentive stock option under Section 422 of the Code.
(c) NONQUALIFIED OPTIONS. The Administrator may, as a condition of
granting any Nonqualified Option, require that a Grantee agree to surrender for
cancellation one or more Options previously granted to such Grantee. Each
Nonqualified Option granted pursuant to the Plan shall be authorized by the
Administrator and shall be evidenced by a written Nonqualified Option Agreement,
in form approved by the Administrator, which shall be dated as of the date on
which the Nonqualified Option is granted, signed by an officer of the Company
authorized by the
<PAGE> 5
Administrator, and signed by the Grantee. Unless the Administrator specifies a
subsequent date on which the grant will be effective, the date on which the
Administrator approves the granting of a Nonqualified Option shall be deemed the
date on which the Nonqualified Option is granted. The Nonqualified Option
Agreement shall be consistent with the Plan and shall include, without
limitation, the following provisions:
(i) TERM. A Nonqualified Option shall not be exercisable after
the expiration of 10 years from the date the Nonqualified Option is
granted.
(ii) PURCHASE PRICE. The purchase price of Shares subject to a
Nonqualified Option shall be determined by the Administrator.
(iii) TRANSFERABILITY. No Nonqualified Option shall be
transferable by the Grantee other than by will or the laws of descent
and distribution. During the lifetime of the Grantee, the Nonqualified
Option shall be exercisable (subject to any other applicable
restrictions on exercise) only by the Grantee for his own account. Upon
the death of the Grantee, the Nonqualified Option shall be exercisable
(subject to any other applicable restrictions on exercise) only by the
executor or administrator of the Grantee's estate.
(iv) METHOD OF EXERCISE. A Nonqualified Option may be
exercised, in whole or in part, by giving written notice to the
Secretary of the Company stating the number of Shares (which must be a
whole number) to be purchased under the Nonqualified Option and the
time during normal business hours for delivery of those Shares. Upon
receipt of payment of the full purchase price for the Shares, subject
to compliance with all other terms and conditions of the Plan and the
Nonqualified Option Agreement, the Company shall deliver, at the
specified time, a certificate for such Shares to the Grantee (or such
other person entitled to receive such Shares) at the principal office
of the Company. The purchase price shall be paid: (A) by certified or
bank cashier's check; or (B) by delivery of Shares with a fair market
value equal to the total purchase price at the time of exercise of the
Nonqualified Option; or (C) by a combination of the preceding two
methods.
(v) TERMINATION OF RELATIONSHIP. Except as otherwise provided
in Section 9, below, if the Grantee ceases to be an Eligible Person for
any reason, then the Nonqualified Option or any unexercised portion of
the Nonqualified Option which otherwise is exercisable shall terminate
unless it is exercised within three months after the date the Grantee
ceases to be an Eligible Person (but in no event after expiration of
the original term of the Nonqualified Option); provided that if the
Grantee ceases to be an Eligible Person by reason of the Grantee's
death or disability (as defined in Section 22(e)(3) of the Code), then
the three-month period shall instead be a one-year period.
(vi) RESTRICTIONS. At the time the Nonqualified Option is
granted, the Administrator may determine that the Shares subject to the
Nonqualified Option shall, upon issuance, be restricted as to
transferability or be subject to repurchase by the Company upon the
occurrence of certain events determined by the Administrator, in its
discretion, and specified in the Nonqualified Option Agreement.
<PAGE> 6
(vii) DESIGNATION AS NONQUALIFIED STOCK OPTION. The
Nonqualified Option shall be identified as a stock option not intended
to qualify as an incentive stock option under Section 422 of the Code.
Section 6. SIX MONTH HOLDING PERIOD.
If the Company is a Reporting Company, then Shares purchased upon
exercise of an Option by an Eligible Person who is an officer (as defined in
Section 240.16a-1 of the Code of Federal Regulations) or a director of the
Company may not be sold before at least six months have elapsed from the date
the Option was granted.
Section 7. CHANGES IN CAPITAL STRUCTURE.
If the Company (a) pays a stock dividend or makes a distribution in
Shares without receiving consideration in the form of money, services, or
property, (b) subdivides or splits its outstanding Shares into a greater number
of Shares, or (c) combines its outstanding Shares into a smaller number of
Shares, then the aggregate number of Shares reserved for issuance pursuant to
the Plan and the number and purchase price of Shares subject to the unexercised
portions of then-outstanding Options shall be adjusted so that, assuming that
Options had been previously granted for all of the Shares so reserved, the
Grantees would be entitled to receive for the same aggregate price that number
of Shares which they would have owned after the happening of any of the events
described above had they exercised all of such Options prior to the happening
of such event. An adjustment made pursuant to this paragraph shall become
effective immediately after the record date in the case of a dividend or other
distribution or the effective date in the case of a subdivision, split, or
combination.
If the Company reclassifies or changes the Shares (except for splitting
or combining, or changing par value, or changing from par value to no par value,
or changing from no par value to par value) or participates in a consolidation
or merger (other than a merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the Shares except
as stated above), the aggregate number of Shares reserved for issuance pursuant
to the Plan and the number and purchase price of Shares subject to the
unexercised portions of then-outstanding Options shall be adjusted so that,
assuming that Options had been previously granted for all the Shares so
reserved, the Grantees would be entitled to receive for the same aggregate price
that number of Shares which they would have owned after the happening of any of
the events described above had they exercised all of such Options prior to the
happening of such event.
No adjustment pursuant to this section shall be required unless such
adjustment would require an increase or decrease of at least 1% in the number or
price of Shares; provided that any adjustments which by reason of this paragraph
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this section shall be made to
the nearest cent or to the nearest full Share, as the case may be.
Whenever an adjustment is made pursuant to the preceding provisions of
this section, the Company shall promptly prepare a notice of such adjustment
setting forth the terms of such adjustment and the date on which such adjustment
became effective and shall mail such notice of adjustment to the Grantees at
their respective addresses appearing on the records of the Company
<PAGE> 7
or at such other address as any Grantee may from time to time designate in
writing to the Company.
Section 8. COMPLIANCE WITH SECURITIES LAWS; DELIVERY OF SHARES.
No Option shall be exercisable and no Shares shall be delivered under
the Plan except in compliance with all applicable federal and state securities
laws and regulations. With respect to Grantees who are Ohio residents, no Option
shall be exercisable unless the shares are exempt from registration under the
Ohio securities laws, are the subject matter of an exempt transaction, are
registered by description or qualification, or are the subject matter of a
transaction which has been registered by description, as contemplated by Section
1707.03(G)(3), Ohio Revised Code. The Company may require each person acquiring
Shares pursuant to the exercise of an Option under this Plan (a) to represent
and warrant to and agree with the Company in writing that the person is
acquiring the Shares without a view to distribution thereof, and (b) to make
such additional representations, warranties, and agreements with respect to the
investment intent of such person or persons exercising the Option as the Company
may request.
All certificates for Shares or other securities delivered under the
Plan shall be subject to such stop-transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations, and other requirements
of the Securities and Exchange Commission, any securities law, and the Company
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
In the case of the exercise of an Option by a person or estate
acquiring the right to exercise such Option by bequest or inheritance, the
Administrator may require reasonable evidence as to the ownership of such Option
and may require such consents and releases of taxing authorities as the
Administrator deems advisable.
Section 9. TERMINATION FOR CAUSE.
Notwithstanding any provision to the contrary in the Plan or in any
Incentive Option Agreement or Nonqualified Option Agreement, upon the discharge
of any Grantee as an employee of the Company or any of its subsidiaries for
cause, all unexercised Options granted to such Grantee shall immediately lapse
and be of no further force or effect.
Section 10. WITHHOLDING TAX.
The Company, at its option, shall have the right to require any person
who is entitled to receive Shares pursuant to the exercise of an Option to pay
to the Company an amount equal to all taxes which the Company is required to
withhold with respect to such Shares or to make arrangements satisfactory to the
Company regarding the payment of such taxes, or, in lieu thereof, to retain, or
sell without notice, a number of such Shares sufficient to cover the amount
required to be withheld. The obligations of the Company under the Plan shall be
conditional on such payment or other arrangements acceptable to the Company.
Section 11. NO ENLARGEMENT OF EMPLOYMENT RIGHTS.
<PAGE> 8
The grant of Options under the Plan to an Eligible Person shall not
confer any right to such Eligible Person to continue as an employee of the
Company or any of its subsidiaries and shall not restrict or interfere in any
way with the rights of the Company or any such subsidiary to terminate such
employment, with or without cause, at any time.
Section 12. REPURCHASE OPTION.
At any time that the Shares of the Company are not then being regularly
traded in open- market brokerage transactions (either on a stock exchange, on
NASDAQ, or over-the-counter) (hereinafter referred to as being "Publicly
Traded"), the Company shall have the right and option, but not the obligation,
to repurchase, in whole or in part, the Shares acquired by any person pursuant
to the exercise of any option or options granted pursuant to the Plan at such
time or times as such person is not an employee of the Company, at a price equal
to the fair market value of the Shares being purchased by the Company upon
exercise of this repurchase option. The Company may exercise this repurchase
option by sending written notice to the person holding such Shares, which shall:
(a) state that this option is being exercised; (b) specify the number of Shares
being purchased; (c) designate a date for the closing of such purchase; and (d)
be signed by a duly authorized officer of the Company. The purchase price of the
Shares to be purchased upon exercise of this repurchase option shall be the fair
market value of such Shares determined by:
(i) Agreement between the Company and the holder of the Shares
being repurchased, if they are able to agree upon a value within 10
business days after either of them requests the other to so agree; or,
if not,
(ii) An appraiser selected by agreement between the Company
and the holder of the Shares being repurchased, if they are able to
agree upon an appraiser within 10 business days after either of them
requests the other to so agree; or, if not,
(iii) Majority vote by an appraisal board consisting of three
appraisers, one member appointed by the Company, another member
appointed by the holder of the Shares being repurchased and the third
member appointed by the first two members so appointed who shall act as
chairman of the appraisal board.
At the closing of such repurchase, the holder of the Shares being repurchased
shall transfer and convey them to the Company or its designee, free and clear of
all liens, security interests, encumbrances or other claims whatsoever, and the
Company shall pay the purchase price by wire transfer, check or other means
reasonably acceptable to the seller. This option to repurchase shall be binding
on all transferees of the Shares, and shall expire and not be exercisable at
such time as the common shares of the Company become Publicly Traded.
Section 13. COMPETITION RESTRICTION.
Notwithstanding anything in this Plan to the contrary, in the event a
Grantee leaves the employment of the Company for any reason, with or without
cause, and within a period of six months after the date of such termination of
employment, directly or indirectly, becomes employed by or engages in or
participates in or promotes or assists, financially or otherwise, any business
which directly or indirectly competes with the business carried on by the
Company, or solicits any of the Company's present customers or accounts or
persons or businesses which were customers or accounts within three years
preceding the
<PAGE> 9
Grantee's termination of employment with the Company, then any options held by
such Grantee shall immediately lapse and be of no further force or effect and,
with respect to any common shares obtained by the Grantee by exercise of any
option under this Plan within six months prior to termination of the Grantee's
employment or anytime after termination of employment the Grantee shall be
obligated to pay to the Company an amount equal to the difference between the
price paid by the Grantee for the common shares purchased upon exercise of the
option and the fair market value of such shares on the date such option was
exercised. Such amount may be offset by the Company against any other amount
owed by it to the Grantee.
Section 14. ACCELERATION OF RIGHTS.
The Administrator shall have the authority, in its discretion, to
accelerate the time at which an Option shall be exercisable whenever it may
determine that such action is appropriate by reason of changes in applicable tax
or other laws or other changes in circumstances occurring after the grant of
such Options.
Section 15. RIGHTS AS STOCKHOLDERS.
No Grantee or his executor or administrator shall have any rights of a
stockholder in the Company with respect to the Shares covered by an Option
unless and until a certificate representing such Shares has been duly issued and
delivered to him under the Plan.
Section 16. DEFINITION OF SUBSIDIARY.
The term "subsidiary" when used in the Plan means a subsidiary
corporation as defined in Section 425 of the Code.
Section 17. AMENDMENT OR TERMINATION OF PLAN.
The Board may amend or terminate the Plan at any time, but: (a) no such
amendment or termination shall affect the rights of a Grantee with respect to a
prior award under the Plan without the consent of the Grantee; and (b) no such
amendment shall be made without the approval of the shareholders of the Company
whenever such approval would be required with respect to Incentive Options to
preserve the status of the Plan as an incentive stock option plan and the
qualifications of any Options as incentive stock options under Section 422 of
the Code, including (i) an increase in the maximum number of Shares that may be
subject to Incentive Options (unless necessary to effect the adjustments
required under Section 7, above), (ii) an increase in the benefits to any
Grantee under the Plan, or (iii) a modification in the requirements for
eligibility under the Plan.
Section 18. GOVERNMENT REGULATIONS.
Notwithstanding any provisions of the Plan or any stock option
agreement made pursuant to the Plan, the Company's obligations under the Plan
and any stock option agreement shall be subject to all applicable laws, rules,
and regulations and to such approvals as may be required by any governmental or
regulatory authorities.
<PAGE> 10
With respect to Incentive Options, the intention of the Plan is to
qualify such Incentive Options as issued pursuant to an incentive stock option
plan under Section 422 of the Code, and the Plan and any Incentive Option
Agreement shall be construed consistently with that intention to the extent
possible.
Section 19. GENDERS AND NUMBERS.
When permitted by the context, each pronoun used in the Plan includes
the same pronoun in other genders and numbers, and each noun used in the Plan
includes the same noun in other numbers.
Section 20. CAPTIONS.
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
Section 21. EFFECTIVE DATE.
The Plan shall be effective December 19, 1995. The Plan shall be
submitted to the shareholders of the Company for approval as soon as practicable
but in any event not later than 12 months after the Plan has been adopted by the
Board. Notwithstanding anything in the Plan to the contrary, no Options shall be
exercisable prior to such shareholder approval. If the Plan is not approved by
the shareholders of the Company within 12 months after the Plan has been adopted
by the Board, then the Plan and all Options granted under the Plan shall become
null and void and have no further force or effect.
Section 22. TERM OF THE PLAN.
Unless previously terminated by the Board, the Plan shall terminate 10
years from the effective date of the Plan, and no Option shall be granted under
the Plan thereafter; however, such termination shall not affect any Option
granted prior to such termination.
Section 23. GOVERNING LAW.
This Plan and all Incentive Option Agreements and Nonqualified Option
Agreements shall be governed by and construed in accordance with the laws of the
State of Ohio.
<PAGE> 1
EXHIBIT NO. 10(l)
REAL ESTATE PURCHASE CONTRACT
INDUSTRIAL - INVESTMENT - COMMERCIAL
ADOPTED BY THE COLUMBUS BOARD OF REALTORS
3% Co-Op FEB 19 1999
1. PROPERTY DESCRIPTION: the undersigned Buyer offers to purchase from the
Seller through Broker(s), the following described real estate including,
without limitation, all improvements, fixtures, appurtenant rights
privileges, and easements located in the County of FRANKLIN, and the State
of Ohio known as:
2155 DUBLIN ROAD. A 19,200 SQUARE FOOT WAREHOUSE SITUATED ON PARCEL
560-154711.
2. PRICE AND TERMS: The purchase price is FIVE HUNDRED EIGHTY FIVE THOUSAND
DOLLARS & NO/OO
Dollars ($585,000) payable as follows: BY WIRE TRANSFER, CASHIERS CHECK, OR
CERTIFIED CHECK AT CLOSING.
3. CONTINGENCIES:
(a) Environmental Inspection: (This paragraph 3 (a) not applicable in
number of days not inserted.) Within __30_____days after the
acceptance hereof, Seller agrees to permit the Buyer, Buyers' lender
and the qualified, professional environmental consultant of either of
them to enter the premises to conduct, at the expense of the Buyer,
an environmental site assessment. Buyer agrees to indemnify and hold
Seller harmless from any injury or damage caused by such inspection.
If such assessment is obtained and the consultant recommends further
inspection to determine the extent of suspected contamination or
recommends remedial action, the Buyer, at Buyer's option, may notify
the Seller in writing, within the above specified period, that the
contract is null and void. SELLER AGREES TO FURNISH BUYER WITH COPY
OF PREVIOUS ENVIRONMENTAL STUDY.
(b) Property Inspection: (This paragraph 3 (b) not applicable if
number of days not inserted.) Buyer, at Buyer's expense, shall have
14 days after the acceptance hereof to have the property and all
improvements, fixtures and equipment inspected. Seller shall
cooperate in making the property reasonably available for such
inspection(s). Buyer agrees to indemnify and hold Seller harmless
from any injury or damage caused by such inspection(s). If Buyer is
not, in good faith, satisfied with the condition of the property as
disclosed by such inspection(s), Buyer may terminate this contract by
delivering written notice of such termination to Seller, along with a
written copy of such inspection report(s), within the time period
specified above, such notice and report(s) shall specify the
unsatisfactory conditions. Failure of Buyer to so deliver written
notice and copy of inspection report(s) within such time period shall
constitute a waiver of Buyer's right to terminate pursuant to this
provision.
(c) Other Contingencies: SELLER TO SIGN AN AFFIDAVIT THAT ALL RELEVANT
INFORMATION TO THE SUBJECT PROPERLY HAS BEEN DISCLOSED TO INCLUDE BUT
NOT LIMITED TO ENVIRONMENTAL HAZARDOUS USE, REPORTS AND MECHANICALS,
ROOF, ZONING, ETC.
4. POSSESSION: Possession shall be given, subject to tenants' rights as
tenants, upon closing.
5. RENTALS AND OTHER PRORATIONS AND SECURITY DEPOSITS: Rents and operating
expenses shall be prorated and security deposits shall be transferred to
Buyer, as of the date of closing.
6. FIXTURES AND EQUIPMENT: The consideration shall include all fixtures owned
by Seller including, but not limited to: built-in appliances; heating,
ventilating, air conditioning (HVAC) and humidifying equipment and their
control apparatus; stationary tubs; pumps; water softening equipment; roof
antennae; attached wall-to-wall carpeting and attached floor coverings,
curtain rods and window coverings including draperies and curtains;
attached mirrors; light, bathroom and lavatory fixtures; storm and screen
doors and windows, awnings, blinds and window air conditioners, whether now
in or on the premises or in storage; garage door openers and controls;
attached fireplace equipment; security systems and controls; smoke alarms;
satellite TV reception system and components; all exterior plants and
trees; and the following: (None if left blank) ____________________________
---------------------------------------------------------------------------
7. DAMAGE OR DESTRUCTION OF PROPERTY: Risk of physical loss to the real estate
and improvements shall be borne by Seller until closing, provided that if
any property covered by this contract shall be substantially damaged or
destroyed before this transaction is closed, Buyer may (a) proceed with the
transaction and be entitled to all insurance money, if any, payable to
Seller under all policies covering the property, or (b) rescind the
<PAGE> 2
contract and thereby release all parties from liability hereunder by giving
written notice to Seller and Broker within ten (10) days after Buyer has
written notice of such damage or destruction. Failure by Buyer to so notify
Seller and Broker shall constitute an election to proceed with the
transaction.
8. CONDITION OF IMPROVEMENTS: Seller agrees that upon delivery of deed, the
improvements constituting part of the real estate shall be in the same
condition as they are on the date of this offer, reasonable wear and tear
expected.
9. EVIDENCE OF TITLE: Seller shall furnish and pay for an owner's title
insurance commitment and policy [ALTA Form B (1992 REV. 10-17-92)] in the
amount of the purchase price. The title evidence shall be certified to
within thirty (30) days prior to closing with endorsement not before 8:00
a. m. on the business day prior to the date of closing, all in accordance
with the standards of the Columbus Bar Association, and shall show in
Seller marketable title in fee simple free and clear of all liens and
encumbrances except: (a) those created by or assumed by Buyer; (b) those
specifically set forth in this contract; (c) zoning ordinances; (d) legal
highway and (e) covenants, restrictions, conditions and easements of record
that do not unreasonably interfere with present lawful use, (or Buyer's
intended use which is LIGHT MANUFACTURING). Buyer shall pay any additional
costs incurred in connection with mortgage title insurance issued for the
protection of Buyer's lender. If Buyer desires a survey, Buyer shall pay
the cost thereof. If title to all or part of real estate is unmarketable,
as determined by Ohio law with reference to the Ohio State Bar
Association's Standards of Title Examination, or is subject to liens,
encumbrances, easements, conditions, restrictions or encroachments other
than those excepted in this contract, Seller shall, within thirty (30) days
after a written notice thereof, remedy or remove any such defect, lien,
encumbrance, easement, condition, restriction or encroachment or obtain
title insurance without exception thereof. In the event Seller is unable to
remedy to insure against the defect within the thirty (30) day period, the
Buyer may declare this contract null and void. At closing, Seller shall
sign an affidavit with respect to off-record title matters in accordance
with the community custom.
10. CONVEYANCE AND CLOSING: At closing, Seller shall pay transfer taxes and
deed preparation and shall convey, at closing, marketable title (as
described in paragraph 9) to the real estate by deed of general warranty
(or appropriate fiduciary deed if seller is a fiduciary) in fee simple,
with release of dower, if any. The date of closing shall be: 30 DAYS AFTER
THE REMOVAL OF ALL CONTINGENCIES.
11. TAXES AND ASSESSMENTS: At closing, Seller shall pay or credit on purchase
price all delinquent taxes, including penalty and interest, all assessments
that are a lien on the date of contract and all agricultural use tax
recoupments for years prior to the year of closing. At closing, Seller
shall also pay or credit on purchase price all other unpaid real estate
taxes that are a lien for years prior to closing and a portion of such
taxes and agricultural use tax recoupments for year of closing, prorated
through date of closing and based on a 365-day year and, if undetermined,
on most recent available tax rate and valuation, giving effect to
applicable exemptions, recently voted millage, change in valuation, etc.,
whether or not certified. With regard to further assessments, Seller
warrants that, as of the acceptance hereof, no improvements or services to
the site or area have been installed or furnished that would result in the
costs being assessed against the real estate, and no written notification
has been received by Seller from public authority or owner's association of
future improvements that would result in costs being assessed against the
real estate. Real estate taxes and assessments are subject to retroactive
change by governmental authority. The real estate taxes for the property
for the current tax year may change as a result of the transfer or as a
result of a change in the tax rate.
12. BUYER'S EXAMINATION: BUYER IS RELYING SOLELY UPON HIS OWN EXAMINATION OF
THE REAL ESTATE AND INSPECTIONS HEREIN REQUIRED, IF ANY, FOR ITS PHYSICAL
CONDITION, CHARACTER, AND SUITABILITY FOR BUYER'S INTENDED USE AND IS NOT
RELYING UPON ANY REPRESENTATIONS BY THE BROKER(S), EXCEPT FOR THOSE MADE BY
BROKER(S) DIRECTLY TO THE BUYER IN WRITING.
13. INDEMNITY: Seller agrees to defend, indemnify and hold harmless Broker(s),
and their agents and employees for any cost or liability that may be
incurred by or imposed on Broker(s) for any breach by Seller of any
representation of warranty or for any misrepresentation or concealment of
fact by Seller in connection with the property.
14. ENVIRONMENTAL DISCLAIMER BY BROKER: Buyer and Seller acknowledge that
Broker(s) have made no independent investigation to determine whether
hazardous materials exist in, on or about the property. Buyer and Seller
understand that any such determination requires the expertise of a
specialist in hazardous materials, the retaining of which is the
responsibility of Buyer and/or Seller and not that of the Broker.
15. DEPOSIT: Buyer has deposited with the Broker the sum receipted for below,
which shall be returned to Buyer, upon Buyer's request, if no contract
shall have been entered into. Upon acceptance of this contact by both
parties, Broker shall deposit such amount in its non-interest-bearing trust
account to be disbursed, subject to collection by Broker's depository, as
follows: (a) deposit shall be applied on purchase price or returned to
Buyer when transaction is closed; (b) if Seller fails or refuses to
perform, or any contingency is not satisfied or waived, the deposit shall
be returned; (c) if Buyer fails or refuses to perform, this deposit shall
be paid to Seller. If the parties are unable to agree upon the disposition
of the deposit, then upon the request of either Buyer or Seller for the
return or payment of the deposit, the Broker holding the deposit shall give
written notice to the other party of such request, and shall advise the
other party that such deposit shall be returned or paid in accordance with
such request unless the other party delivers written objection thereto
within 20 days after receipt of such notice.
<PAGE> 3
If the Broker does not receive any written objection within such 20-day
period, then the Broker shall return or pay such deposit in accordance with
such request. If the other party objects in writing within such 20-day
period, Broker shall retain the deposit until (i) Buyer and Seller have
settled the dispute; (ii) disposition has been ordered by a final court
order; or (iii) Broker deposits said amount with a court pursuant to
applicable court procedures. The return or payment of such deposit shall
not in any way prejudice the rights of Seller, Buyer or Broker(s) in any
action for damages or specific performance.
16. MISCELLANEOUS: This contract constitutes the entire agreement and no oral
or implied agreement exists. Any amendments to this contract shall be in
writing, signed by Buyer(s) and Seller(s) and copies provided to them. This
contract shall be binding upon the parties, their heirs, administrators,
executors, successors and assigns. If this contract involves seller
financing, it may not be assigned. Time is of the essence of all provisions
of this contract. All provisions of this contract shall survive the
closing. In compliance with fair housing laws, no party shall in any manner
discriminate against any Buyer or Buyers because of race, color, religion,
sex, familial status, handicap or national origin. Paragraph captions are
for identification only and are not part of this contract.
17. EXPIRATION AND ACCEPTANCE: This offer shall remain open for acceptance
until 6:00 p.m. Columbus, Ohio time on SAT. FEB. 20TH, 1999, and a signed
copy shall be returned to all parties upon acceptance.
BROKER'S FEE: Seller shall pay a brokerage fee of ____3%_____ of the
purchase price in connection with this transaction, payable at closing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COUNTER OFFER TO THE CONTRACT ON 2155 DUBLIN ROAD DATED FEBRUARY 19, 1999.
THE SELLERS ACCEPT WITH THE FOLLOWING CHANGE:
1) The purchase price is to be $610,000 (Six Hundred Ten Thousand Dollars).
This offer shall remain open for acceptance until 6:00 P.M. Wednesday, February
24, 1999.
ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME.
<TABLE>
<S> <C>
/s/ Dan Fronk /s/ Thomas J. Carr, CFO 2/23/99
- ----------------------------------------------- ---------------------------------------
Buyer: Dan Fronk, President-Dancor Date Seller: Pinnacle Data Systems, Inc.
/s/ C. R. Hahn, COO 2/23/99
---------------------------------------
Seller: Pinnacle Data Systems, Inc.
/s/ John D. Bair, CEO 2/23/99
---------------------------------------
Seller: Pinnacle Data Systems, Inc.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
March 15, 1999 - 4:45 pm
ADJUSTMENT TO THE PURCHASE CONTRACT ON 2155 DUBLIN ROAD.
REMOVAL OF THE INSPECTION CONTINGENCY WITH CONSIDERATION TO BUYER THROUGH CREDIT
IN THE PURCHASE PRICE.
Through the inspection process and through the advice of two roofing contractors
it is apparent that the roof along with two furnaces need replaced. The Buyer
agrees to remove the inspection contingency and proceed to closing per the terms
of the contract if the Seller agrees to reduce the purchase price ($45,000.00)
from $610,000 to $565,000. Seller has until 5:00 p.m. on Wednesday March 17,
1999 to accept.
/s/ Dan Fronk
- -----------------------------------
Buyer
- -----------------------------------
Seller
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
March 17, 1999
SELLER ADJUSTMENT TO THE PURCHASE CONTRACT ON 21155 DUBLIN ROAD
REMOVAL OF THE INSPECTION CONTINGENCY WITH CONSIDERATION TO BUYER THROUGH CREDIT
IN THE PURCHASE PRICE
Seller agrees to reduce the purchase price to $585,000.00 (Five Hundred Eighty
Five Thousand Dollars.
Buyer has until 5:00 p.m. Thursday, March 18, 1999 to accept.
ALl Other Terms and Conditions to Remain the Same.
- --------------------------------------------------
<TABLE>
<S> <C>
/s/ Dan Fronk 3/17/99 /s/ Thomas J. Carr, CFO 3-17-99
- --------------------------------------- ---------------------------------------
Buyer: Date Seller: Date
/s/ John D. Bair, CEO 3/17/99
---------------------------------------
Seller: Date
/s/ C. R. Hahn 3/17/99
---------------------------------------
Seller: Date
</TABLE>
<PAGE> 1
EXHIBIT NO. 10(m)
*********ELECTRONIC COPY OF EXECUTION DOCUMENT***********
LEASE AGREEMENT
THIS LEASE is executed this 9th day of March____, 1999, by and
between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
("Landlord"), and PINNACLE DATA SYSTEMS, INC., an Ohio corporation ("Tenant")
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
-----------------------------
SECTION 1.01. BASIC LEASE PROVISIONS AND DEFINITIONS.
A. Leased Premises (shown cross hatched on EXHIBIT A attached hereto):
6600 Port Road, Groveport, OH 43125; (the "Building"); located in
Rickenbacker Industrial Park (the "Park")
B. Rentable Area: approximately 56,601 rentable square feet
Landlord shall use commercially reasonable standards, consistently
applied, in determining the Rentable Area and the rentable area of
the Building. Landlord's determination of Rentable Area shall
conclusively be deemed correct for all purposes hereunder.
C. Tenant's Proportionate Share: 5.55%
D. Minimum Annual Rent:
Years 1 - 5 $202,065.60 per year
Years 6 - 10 $232,630.08 per year
E. Monthly Rental Installments:
Months 1 - 60 $ 16,838.80 per month
Months 61 - 120 $ 19,385.84 per month
F. Lease Term: Ten (10) years
G. Target Commencement Date: March 25, 1999
H. Security Deposit: $18,112.32
I. Guarantor(s): None
J. Broker(s): Duke Realty Limited Partnership representing Landlord and
none representing Tenant
K. Permitted Use: Warehousing, storage, servicing, light assembly,
office and related purposes
L. Address for notices:
Landlord: Duke Realty Limited Partnership
4700 Lakehurst Court, Suite 150
<PAGE> 2
Dublin, OH 43017
Attn: Property Manager
Tenant: Pinnacle Data Systems, Inc.
6600 Port Road
Groveport, OH 43125
Address for rental and other payments:
Duke Realty Limited Partnership
4700 Lakehurst Court, Suite 150
Dublin, OH 43017
SECTION 1.02. LEASED PREMISES. Landlord hereby leases to Tenant and
Tenant leases from Landlord, under the terms and conditions herein, the Leased
Premises.
ARTICLE 2 - TERM AND POSSESSION
-------------------------------
SECTION 2.01. TERM. The term of this Lease ("Lease Term") shall be
for the period of time specified in Item F of the Basic Lease Provisions and
shall commence on (i) the Target Commencement Date; or, if later, (ii) thirty
(30) days after Landlord has notified Tenant, in writing, that the current
tenant in the Leased Premises has vacated the Leased Premises and Landlord can
begin work on the Tenant Finish Improvements in the Leased Premises; such notice
as defined herein shall be delivered to Tenant no later than March 31, 1999. In
the event such notice has not been delivered to Tenant by March 31, 1999, Tenant
has the option to terminate this Lease in its entirety. Tenant shall exercise
its option to terminate by delivering written notice thereof to Landlord no
later than April 7, 1999. In the event Tenant fails to notify Landlord of its
desire to terminate this lease as defined herein, by April 7, 1999, such option
shall be thereby waived, deleted in its entirety and considered null and void
and all other provisions of this Lease shall remain in full force and effect.
Upon delivery of possession of the Leased Premises to Tenant, Tenant shall
execute a letter of understanding acknowledging (i) the Commencement Date of
this Lease, and (ii) that Tenant has accepted the Leased Premises subject to
latent defects of which Tenant shall give written notice to Landlord within six
(6) months after the Commencement Date hereof. If Tenant takes possession of and
occupies the Leased Premises, Tenant shall be deemed to have accepted the Leased
Premises subject to latent defects of which Tenant shall give written notice to
Landlord within six (6) months of the Commencement Date hereof and that the
condition of the Leased Premises and the Building was at the time satisfactory
and in conformity with the provisions of this Lease in all respects. Landlord
agrees that to the best of Landlord's actual knowledge, upon the Commencement
Date of this Lease, the Building is structurally sound and all systems servicing
the Leased Premises are in good working condition, order and repair subject to
latent defects of which Tenant shall give written notice to Landlord within six
(6) months of the commencement date hereof.
SECTION 2.02. CONSTRUCTION OF TENANT IMPROVEMENTS. Landlord agrees to
perform and complete at Landlord's sole cost and expense the work on the Tenant
Finish Improvements in the Leased Premises in accordance with Tenant's plans and
specifications which have been mutually agreed upon by both Landlord and Tenant
and attached hereto as EXHIBIT B (the "Tenant Finish Improvements") subject to
events and delays due to causes beyond its reasonable control. Upon written
notice from Landlord that the current tenant in the Leased Premises has vacated
the Leased Premises and Landlord can begin work on the Tenant Finish
Improvements in the Leased Premises, Tenant shall have the right and privilege
of going onto the Leased Premises during the same thirty (30) day period to
complete interior decoration work and to prepare the Leased Premises for its
occupancy, provided, however, that its schedule in so doing shall be
communicated to Landlord and the approval of Landlord secured so as not to
interfere with other work of Landlord being carried on at the time; and provided
further that Landlord shall have no responsibility or liability whatsoever for
any loss or damage to any of Tenant's leasehold improvements, fixtures,
equipment and any other materials installed or left in the Leased Premises.
<PAGE> 3
SECTION 2.03. SURRENDER OF THE PREMISES. Upon the expiration or
earlier termination of this Lease, Tenant shall immediately surrender the Leased
Premises to Landlord in broom-clean condition and in good condition and repair.
Tenant shall also remove its personal property, trade fixtures and any of
Tenant's alterations designated by Landlord, promptly repair any damage caused
by such removal, and restore the Leased Premises to the condition existing upon
the Commencement Date, reasonable wear and tear and damage by hazards for which
Landlord is required under this Lease to carry insurance excepted. If Tenant
fails to do so, Landlord may restore the Leased Premises to such condition at
Tenant's expense, Landlord may cause all of said property to be removed at
Tenant's expense, and Tenant hereby agrees to pay all the costs and expenses
thereby reasonably incurred. All Tenant property which is not removed within ten
(10) days following Landlord's written demand therefor shall be conclusively
deemed to have been abandoned by Tenant, and Landlord shall be entitled to
dispose of such property at Tenant's cost without thereby incurring any
liability to Tenant. The provisions of this section shall survive the expiration
or other termination of this Lease.
SECTION 2.04. HOLDING OVER. If Tenant retains possession of the
Leased Premises after the expiration or earlier termination of this Lease,
Tenant shall become a tenant from month to month at 150% of the Monthly Rental
Installment in effect at the end of the Lease Term, and otherwise upon the
terms, covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of rent in such event shall not result in a renewal of
this Lease, and Tenant shall vacate and surrender the Leased Premises to
Landlord upon Tenant being given thirty (30) days' prior written notice from
Landlord to vacate whether or not said notice is given on the rent paying date.
This Section 2.04 shall in no way constitute a consent by Landlord to any
holding over by Tenant upon the expiration or earlier termination of this Lease,
nor limit Landlord's remedies in such event.
ARTICLE 3 - RENT
----------------
SECTION 3.01. BASE RENT. Tenant shall pay to Landlord the Minimum
Annual Rent in the Monthly Rental Installments, in advance, without deduction or
offset, beginning on the Commencement Date and on or before the first day of
each and every calendar month thereafter during the Lease Term. The Monthly
Rental Installment for partial calendar months shall be prorated based upon a
three hundred and sixty (360) day calendar year.
SECTION 3.02. ADDITIONAL RENT. In addition to the Minimum Annual Rent
Tenant shall pay to Landlord for each calendar year during the Lease Term, as
"Additional Rent," Tenant's Proportionate Share of all costs and expenses
incurred by Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and common areas (collectively "Common Area Charges").
"Operating Expenses" shall mean all of Landlord's annual expenses for
operation, repair, replacement and maintenance to keep the Building and common
areas in good order, condition and repair (including all additional direct costs
and expenses of operation and maintenance of the Building which vary with
occupancy and which Landlord reasonably determines it would have paid or
incurred during such year if the Building had been fully occupied), including,
but not limited to, management or administrative fees; utilities; stormwater
discharge fees; license, permit, inspection and other fees; fees and assessments
imposed by any covenants or owners' association; security services; insurance
premiums and deductibles and maintenance, repair and replacement of the
driveways, parking areas (including snow removal), exterior lighting, landscaped
areas, walkways, curbs, drainage strips, sewer lines, exterior walls,
foundation, structural frame, roof and gutters and any and all Foreign Trade
Zone fees. The cost of any capital improvement shall be amortized over the
useful life of such improvement (as reasonably determined by Landlord in
accordance with generally accepted accounting principles), and only the current
amortized portion shall be included in Operating Expenses.
<PAGE> 4
"Real Estate Taxes" shall include any form of real estate tax or
assessment or service payments in lieu thereof, and any license fee, commercial
rental tax, improvement bond or other similar charge or tax (other than
inheritance, personal income or estate taxes) imposed upon the Building or
common areas (or against Landlord's business of leasing the Building) by any
authority having the power to so charge or tax, together with reasonable costs
and expenses of contesting the validity or amount of Real Estate Taxes, (whether
charged by Landlord's counsel or representative; provided, however, that said
fees are reasonably comparable to the fees charged for similar services by
others not affiliated with Landlord, but in no event shall said fees exceed
thirty-three percent (33%) of the good faith estimated tax savings).
Additionally, Tenant shall pay, prior to delinquency, all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all personal property
of Tenant contained in the Leased Premises. Landlord agrees to pass through the
benefit of any property tax abatement to Tenant on a pro rata basis.
SECTION 3.03. PAYMENT OF ADDITIONAL RENT. Landlord shall make a good
faith estimate of the total amount of Additional Rent to be paid by Tenant
during each calendar year of the Lease Term, pro-rated for any partial years.
Commencing on the Commencement Date, Tenant shall pay to Landlord each month, at
the same time the Monthly Rental Installment is due, an amount equal to
one-twelfth (1/12) of the estimated Additional Rent for such year. Within a
reasonable time after the end of each calendar year, Landlord shall submit to
Tenant a statement of the actual amount of such Additional Rent and within
thirty (30) days after receipt of such statement, Tenant shall pay any
deficiency between the actual amount owed and the estimates paid during such
calendar year. In the event of overpayment, Landlord shall credit the amount of
such overpayment toward the next installments of Minimum Rent.
SECTION 3.04. LATE CHARGES. Tenant acknowledges that Landlord shall
incur certain additional unanticipated administrative and legal costs and
expenses if Tenant fails to timely pay any payment required hereunder.
Therefore, in addition to the other remedies available to Landlord hereunder, if
any payment required to be paid by Tenant to Landlord hereunder shall become
overdue, such unpaid amount shall bear interest from the due date thereof to the
date of payment at the prime rate (as reported in the WALL STREET JOURNAL of
interest ("Prime Rate") plus six percent (6%) per annum. Provided however, that
such penalty shall not apply if there is then no continuing default by Tenant
under this Lease, and landlord shall provide Tenant with a written courtesy
notice of the first monetary default by Tenant in any consecutive twelve (12)
month period and Tenant shall have an additional five (5) days after the date of
such notice to cure such default before Landlord applies its late charges under
this subparagraph; provided, however, that Landlord shall not be required to
give such courtesy notice more than one (1) time with respect to any particular
default, nor more than two (2) times in any consecutive twelve (12) month period
with respect to any payment defaults in the aggregate.
ARTICLE 4 - SECURITY DEPOSIT
----------------------------
Tenant, upon execution of this Lease, shall deposit with Landlord the
Security Deposit as security for the performance by Tenant of all of Tenant's
obligations contained in this Lease. In the event of a default by Tenant
Landlord may apply all or any part of the Security Deposit to cure all or any
part of such default; and Tenant agrees to promptly, upon demand, deposit such
additional sum with Landlord as may be required to maintain the full amount of
the Security Deposit. All sums held by Landlord pursuant to this section shall
be without interest. At the end of the Lease Term, provided that there is then
no uncured default, Landlord shall return the Security Deposit to Tenant within
thirty (30) days of the expiration or earlier termination of the Lease Term.
ARTICLE 5 - USE
---------------
SECTION 5.01. USE OF LEASED PREMISES. The Leased Premises are to be
used by Tenant solely for the Permitted Use and for no other purposes without
the prior written consent of Landlord.
<PAGE> 5
SECTION 5.02. COVENANTS OF TENANT REGARDING USE. Tenant shall (i) use
and maintain the Leased Premises and conduct its business thereon in a safe,
careful, and lawful manner, (ii) comply with all laws, rules, regulations,
orders, ordinances, directions and requirements of any governmental authority or
agency, now in force or which may hereafter be in force, including those which
shall impose upon Landlord or Tenant any duty with respect to or triggered by a
change in the use or occupation of, or any improvement or alteration to, the
Leased Premises, and (iii) comply with and obey all reasonable directions of the
Landlord, including any rules and regulations that may be adopted by Landlord
from time to time. Tenant shall not permit anything to be done in or about the
Leased Premises or common areas which constitutes a nuisance or which
unreasonably interferes with the rights of other tenants or injures them.
Landlord shall use commercially reasonable efforts to uniformly enforce any and
all rules and regulations of the Building. Tenant shall not overload the floors
of the Leased Premises. All damage to the floor structure or foundation of the
Building due to improper positioning or storage of items or materials by Tenant
shall be repaired by Landlord at the sole expense of Tenant, who shall reimburse
Landlord immediately therefor upon demand. Tenant shall not use the Leased
Premises, or allow the Leased Premises to be used, for any purpose or in any
manner which would invalidate any policy of insurance now or hereafter carried
on the Building or increase the rate of premiums payable on any such insurance
policy unless Tenant reimburses Landlord as Additional Rent for any increase in
premiums charged.
SECTION 5.03. LANDLORD'S RIGHTS REGARDING USE. In addition to the
rights specified elsewhere in this Lease, Landlord shall have the following
rights regarding the use of the Leased Premises or the common areas, each of
which may be exercised without notice or liability to Tenant, (a) Landlord may
install such signs, advertisements, notices or tenant identification information
as it shall deem commercially reasonable, necessary or proper; (b) Landlord
shall have the right at any time to control, change or otherwise alter the
common areas as it shall deem necessary or proper and consistent with applicable
laws, regulations and ordinances; and (c) Landlord or Landlord's agent shall be
permitted to inspect or examine the Leased Premises at any reasonable time upon
reasonable notice (except in an emergency when no notice shall be required), and
Landlord shall have the right to make any repairs to the Leased Premises which
are necessary for its preservation; provided, however, that any repairs made by
Landlord shall be coordinated with Tenant except in the event of an emergency
and shall be at Tenant's expense, except as provided in SECTION 7.02 hereof.
Landlord shall incur no liability to Tenant for such entry, nor shall such entry
constitute an eviction of Tenant or a termination of this Lease, or entitle
Tenant to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
----------------------------------
Tenant shall obtain in its own name and pay directly to the
appropriate supplier the cost of all utilities and services serving the Leased
Premises. However, if any services or utilities are jointly metered with other
property, Landlord shall make a reasonable good faith determination of Tenant's
proportionate share of the cost of such utilities and services (at rates that
would have been payable if such utilities and services had been directly billed
by the utilities or services providers) and Tenant shall pay such share to
Landlord within fifteen (15) days after receipt of Landlord's written statement.
Except as otherwise provided herein, Landlord shall not be liable in damages or
otherwise for any failure or interruption of any utility or other Building
service and no such failure or interruption shall entitle Tenant to terminate
this Lease or withhold sums due hereunder. In the event of utility
"deregulation", Landlord shall choose the service provider.
Landlord represents it will use good faith commercially reasonable
efforts to minimize service disruptions and to restore such services as promptly
as possible. Notwithstanding anything in this Lease to the contrary, if (i) the
restoration of service is entirely within Landlord's control, (ii) Landlord
negligently fails to restore such service within a reasonable time, and (iii)
the Leased Premises are untenantable (meaning that Tenant is unable to use such
space in the normal course of its business for the use permitted under this
Lease) for more than five (5) consecutive business days, then Tenant shall
notify Landlord (and Landlord's lender, if any) in writing that Tenant intends
to abate rent. If service has not been restored within five (5) days of
Landlord's receipt of Tenant's notice, then Minimum Annual Rent and Additional
Rent shall abate on
<PAGE> 6
a per diem basis for each day after such five (5) day period during which the
Leased Premises remain untenantable. Such abatement shall be Tenant's sole
remedy for Landlord's failure to restore service as set forth above, and Tenant
shall not be entitled to damages (consequential or otherwise) as a result
thereof.
ARTICLE 7 - MAINTENANCE AND REPAIRS
-----------------------------------
SECTION 7.01. TENANT'S RESPONSIBILITY. During Lease Term, Tenant
shall, at its own cost and expense, maintain the Leased Premises in good
condition, regularly servicing and promptly making all repairs and replacements
thereto, including but not limited to the electrical systems, heating and air
conditioning systems, plate glass, floors, windows and doors, sprinkler and
plumbing systems, and shall obtain a preventive maintenance contract on the
heating, ventilating and air-conditioning systems, and provide Landlord with a
copy thereof. The preventive maintenance contract shall meet or exceed
Landlord's standard maintenance criteria, and shall provide for the inspection
and maintenance of the heating, ventilating and air conditioning system on not
less than a semi-annual basis.
SECTION 7.02. LANDLORD'S RESPONSIBILITY. During the term of this
Lease, Landlord shall maintain in good condition and repair, and replace as
necessary, the roof, exterior walls, foundation and structural frame of the
Building and the parking and landscaped areas and lighting thereof and shall
clean and maintain the common areas (including parking areas) including, without
limitation, the removal of snow and ice, the costs of which shall be included in
Operating Expenses except those items for which Landlord is reimbursed by
insurance and/or paid pursuant to warranties; provided, however, that to the
extent any of the foregoing items require repair because of the negligence,
misuse, or default of Tenant, its employees, agents, customers or invitees,
Landlord shall make such repairs solely at Tenant's expense.
SECTION 7.03. ALTERATIONS. Tenant shall not permit alterations in or
to the Leased Premises unless and until the plans have been approved by Landlord
in writing, which approval shall not be unreasonably delayed or denied. As a
condition of such approval, Landlord may require Tenant to remove the
alterations and restore the Leased Premises upon termination of this Lease;
otherwise, all such alterations shall at Landlord's option become a part of the
realty and the property of Landlord, and shall not be removed by Tenant. Tenant
shall ensure that all alterations shall be made in accordance with all
applicable laws, regulations and building codes, in a good and workmanlike
manner and of quality equal to or better than the original construction of the
Building. No person shall be entitled to any lien derived through or under
Tenant for any labor or material furnished to the Leased Premises, and nothing
in this Lease shall be construed to constitute a consent by Landlord to the
creation of any lien. If any lien is filed against the Leased Premises for work
claimed to have been done for or material claimed to have been furnished to
Tenant, Tenant shall cause such lien to be discharged of record within thirty
(30) days after filing. Tenant shall indemnify Landlord from all costs, losses,
expenses and attorneys' fees in connection with any construction or alteration
and any related lien.
ARTICLE 8 - CASUALTY
--------------------
SECTION 8.01. CASUALTY. In the event of total or partial destruction
of the Building or the Leased Premises by fire or other casualty, Landlord
agrees to promptly restore and repair the Leased Premises; provided, however,
Landlord's obligation hereunder shall be limited to the reconstruction of such
of the tenant finish improvements as were originally required to be made by
Landlord, if any. Rent shall proportionately abate during the time that the
Leased Premises or part thereof are unusable because of any such damage.
Notwithstanding the foregoing, if the Leased Premises are (i) so destroyed that
they cannot be repaired or rebuilt within one hundred eighty (180) days from the
casualty date; or (ii) destroyed by a casualty which is not covered by the
insurance required hereunder or, if covered, such insurance proceeds are not
released by any mortgagee entitled thereto or are insufficient to rebuild the
Building and the Leased Premises; then, in case of a clause (i) casualty, either
Landlord or Tenant may, or, in the case of a clause (ii) casualty, then Landlord
may, upon thirty (30) days' written notice to the other party, terminate this
Lease with respect to matters thereafter accruing. In the event of total or
partial destruction of the Building by fire or other casualty
<PAGE> 7
which renders the Leased Premises untenantable, Landlord shall use commercially
reasonable efforts to assist Tenant in finding temporary space for Tenant's
business operations.
SECTION 8.02. FIRE AND EXTENDED COVERAGE INSURANCE. During the Lease
Term, Landlord shall maintain all risk coverage insurance on the Building, but
shall not protect Tenant's property on the Leased Premises; and, notwithstanding
the provisions of SECTION 9.01, Landlord shall not be liable for any damage to
Tenant's property, regardless of cause, including the negligence of Landlord and
its employees, agents and invitees. Tenant hereby expressly waives any right of
recovery against Landlord for damage to any property of Tenant located in or
about the Leased Premises, however caused, including the negligence of Landlord
and its employees, agents and invitees. Notwithstanding the provisions of
SECTION 9.01 below, Landlord hereby expressly waives any rights of recovery
against Tenant for damage to the Leased Premises or the Building which is
insured against under Landlord's all risk coverage insurance however such damage
is caused, including the negligence of Tenant and its employees, agents and
invitees. All insurance policies maintained by Landlord or Tenant as provided in
this Lease shall contain an agreement by the insurer waiving the insurer's right
of subrogation against the other party to this Lease.
ARTICLE 9 - LIABILITY INSURANCE
-------------------------------
SECTION 9.01. TENANT'S RESPONSIBILITY. Tenant shall assume the risk
of, be responsible for, have the obligation to insure against, and indemnify
Landlord and hold it harmless from any and all liability for any loss or damage
or injury to any person (including death resulting therefrom) or property
occurring in the Leased Premises, regardless of cause, except for any loss or
damage covered by Landlord's insurance as provided in SECTION 8.02 and except
for that caused directly by the sole negligence of Landlord or its employees,
agents, customers or invitees; and Tenant hereby releases Landlord from any and
all liability for the same. Tenant's obligation to indemnify Landlord hereunder
shall include the duty to defend against any claims asserted by reason of such
loss, damage or injury and to pay any judgments, settlements, costs, fees and
expenses, including attorneys' fees, incurred in connection therewith. This
provision shall survive the expiration or earlier termination of this Lease.
SECTION 9.02. TENANT'S INSURANCE. Tenant shall carry general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance, including blanket,
contractual liability, broad form property damage, personal injury,
completed operations, products liability, and fire damage: Not less
than $3,000,000 Combined Single Limit for both bodily injury and
property damage.
C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler
Leakage insurance, if applicable, for the full cost of replacement of
Tenant's property.
D. Business interruption insurance.
The insurance policies shall protect Tenant and Landlord as their interests may
appear, naming Landlord and Landlord's managing agent and mortgagee as
additional insureds, and shall provide that they may not be canceled on less
than thirty (30) days' prior written notice to Landlord. Tenant shall furnish
Landlord with Certificates of Insurance evidencing all required coverages on or
before the Commencement Date. If Tenant fails to carry such insurance and
furnish Landlord with such Certificates of Insurance after a request to do so,
Landlord may obtain such insurance and collect the cost thereof from Tenant.
SECTION 9.03. LANDLORD'S RESPONSIBILITY. Landlord shall assume the risk of, be
responsible for, have the obligation to insure against, and indemnify Tenant and
hold it harmless from, any and all liability for any loss
<PAGE> 8
of or damage or injury to person (including death resulting therefrom) or
property (other than Tenant's property as provided in Section 8.02) occurring
in, on or about the common areas, regardless of cause, except for that caused by
the sole negligence of Tenant or its employees, agents, customers or invitees;
and Landlord hereby releases Tenant from any and all liability for the same.
Landlord's obligation to indemnify Tenant hereunder shall include the duty to
defend against any claims asserted by reason of such loss, damage or injury and
to pay any judgments, settlements, costs, fees and expenses, including
reasonable attorneys' fees, incurred in connection therewith. This provision
shall survive the expiration or earlier termination of this Lease.
ARTICLE 10 - EMINENT DOMAIN
---------------------------
If all or any substantial part of the Building or common areas shall
be acquired by the exercise of eminent domain, Landlord may terminate this Lease
by giving written notice to Tenant on or before the date that actual possession
thereof is so taken. If all or any part of the Leased Premises shall be acquired
by the exercise of eminent domain so that the Leased Premises shall become
unusable by Tenant for the Permitted Use, Tenant may terminate this Lease as of
the date that actual possession thereof is taken by giving written notice to
Landlord. All damages awarded shall belong to Landlord; provided, however, that
Tenant shall be entitled to any award expressly made to Tenant by any
governmental authority for the cost of or the removal of Tenant's stock,
equipment and fixtures and other moving expenses.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
------------------------------------
Tenant shall not assign this Lease or sublet the Leased Premises in
whole or in part without Landlord's prior written consent, which consent shall
not be unreasonably withheld, delayed or denied (provided that it shall not be
unreasonable for Landlord to withhold or deny its consent with respect to any
proposed assignment or subletting to a third party that is already a tenant in
the Building or the Park). In the event of any assignment or subletting, Tenant
shall remain primarily liable hereunder, and any extension, expansion, rights of
first offer, rights of first refusal or other options granted to Tenant under
this Lease shall be rendered void and of no further force or effect. The
acceptance of rent from any other person shall not be deemed to be a waiver of
any of the provisions of this Lease or to be a consent to the assignment of this
Lease or the subletting of the Leased Premises. Without in any way limiting
Landlord's right to refuse to consent to any assignment or subletting of this
Lease, Landlord reserves the right to refuse to give such consent if in
Landlord's opinion (i) the Leased Premises are or may be in any way adversely
affected; (ii) the business reputation of the proposed assignee or subtenant is
unacceptable; or (iii) the financial worth of the proposed assignee or subtenant
is insufficient to meet the obligations hereunder. Landlord further expressly
reserves the right to refuse to give its consent to any subletting if Tenant
publicly advertises in any manner that the proposed rent is to be less than the
then current rent for similar premises in the Park. Tenant agrees to reimburse
Landlord for reasonable accounting and attorneys' fees incurred in conjunction
with the processing and documentation of any such requested assignment,
subletting or any other hypothecation of this Lease or Tenant's interest in and
to the Leased Premises.
ARTICLE 12 - TRANSFERS BY LANDLORD
----------------------------------
SECTION 12.01. SALE OF THE BUILDING. Landlord shall have the right to
sell the Building at any time during the Lease Term, subject only to the rights
of Tenant hereunder; and such sale shall operate to release Landlord from
liability hereunder after the date of such conveyance.
SECTION 12.02. SUBORDINATION AND ESTOPPEL CERTIFICATE. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage. Within ten
(10) days following receipt of a written request from Landlord, Tenant shall
execute and deliver to Landlord, without cost, any reasonable instrument which
Landlord deems necessary or desirable to confirm the subordination of this Lease
and an estoppel certificate in such form as Landlord may reasonably request
certifying (i) that this Lease is in full force and effect and unmodified or
stating the nature
<PAGE> 9
of any modification, (ii) the date to which rent has been paid, (iii) that there
are not, to Tenant's knowledge, any uncured defaults or specifying such defaults
if any are claimed, and (iv) any other matters or state of facts reasonably
required respecting the Lease. Such estoppel may be relied upon by Landlord and
by any purchaser or mortgagee of the Building. Notwithstanding the foregoing, if
the mortgagee shall take title to the Leased Premises through foreclosure or
deed in lieu of foreclosure, Tenant shall be allowed to continue in possession
of the Leased Premises as provided for in this Lease so long as Tenant shall not
be in default. Upon written request by Tenant and at Tenant's sole cost and
expense, Landlord shall use commercially reasonable efforts to obtain a
Non-Disturbance Agreement reasonably acceptable to Tenant, Landlord, and the
Landlord's successor or lender.
ARTICLE 13 - DEFAULT AND REMEDY
-------------------------------
SECTION 13.01. DEFAULT. The occurrence of any of the following shall
be a Default":
(a) Tenant fails to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same is due, or Tenant fails to pay any
other amounts due Landlord from Tenant within ten (10) days after the same is
due.
So long as there is then no continuing default by Tenant under this
Lease, Landlord shall provide Tenant with a written courtesy notice of the first
monetary default by Tenant in any consecutive twelve (12) month period and
Tenant shall have an additional five (5) days after the date of such notice to
cure such default before Landlord exercises its default remedies; provided,
however, that Landlord shall not be required to give such courtesy notice more
than one (1) time with respect to any particular default, nor more than two (2)
times in any consecutive twelve (12) month period with respect to any payment
defaults in the aggregate.
(b) Tenant fails to perform or observe any other term, condition,
covenant or obligation required under this Lease for a period of thirty (30)
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than ten days are reasonably required to
cure, then such default shall be deemed to have been cured if Tenant commences
such performance within said thirty-day period and thereafter diligently
completes the required action within a reasonable time.
(c) Tenant shall assign or sublet all or a portion of the Leased
Premises in contravention of the provisions of Article 11 of this Lease.
(d) All or substantially all of Tenant's assets in the Leased
Premises or Tenant's interest in this Lease are attached or levied under
execution (and Tenant does not discharge the same within sixty (60) days
thereafter); a petition in bankruptcy, insolvency or for reorganization or
arrangement is filed by or against Tenant (and Tenant fails to secure a stay or
discharge thereof within sixty (60) days thereafter); Tenant is insolvent and
unable to pay its debts as they become due; Tenant makes a general assignment
for the benefit of creditors; Tenant takes the benefit of any insolvency action
or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its
assets if such receivership has not been vacated or set aside within thirty (30)
days thereafter; or, dissolution or other termination of Tenant's corporate
charter if Tenant is a corporation.
SECTION 13.02. REMEDIES. Upon the occurrence of any Default, Landlord
shall have the following rights and remedies, in addition to those allowed by
law or in equity, any one or more of which may be exercised without further
notice to Tenant:
(a) Landlord may apply the Security Deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action.
<PAGE> 10
(b) Landlord may terminate this Lease or, without terminating this
Lease, terminate Tenant's right to possession of the Leased Premises as of the
date of such Default, and thereafter (i) neither Tenant nor any person claiming
under or through Tenant shall be entitled to possession of the Leased Premises,
and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value (discounted at
the Prime Rate) of all rent which would have been due under this Lease for the
balance of the Lease Term to be immediately due and payable, whereupon Tenant
shall be obligated to pay the same to Landlord, together with all loss or damage
which Landlord may sustain by reason of Tenant's default ("Default Damages"),
which shall include without limitation expenses of preparing the Leased Premises
for re-letting, demolition, repairs, tenant finish improvements, brokers'
commissions and attorneys' fees, it being expressly understood and agreed that
the liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
present value (discounted at the Prime Rate) of the difference between the rent
provided for herein and that provided for in any lease covering a subsequent
re-letting of the Leased Premises, for the period which would otherwise have
constituted the balance of the Lease Term, together with all of Landlord's
Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for
any loss resulting from the Default.
SECTION 13.03. LANDLORD'S DEFAULT AND TENANT'S REMEDIES.
Landlord shall be in default if it fails to perform any term, condition,
covenant or obligation required under this Lease for a period of thirty (30)
days after written notice thereof from Tenant to Landlord; provided, however,
that if the term, condition, covenant or obligation to be performed by Landlord
is such that it cannot reasonably be performed within thirty (30) days, such
default shall be deemed to have been cured if Landlord commences such
performance within said thirty-day period and thereafter diligently undertakes
to complete the same. Upon the occurrence of any such default, Tenant may sue
for injunctive relief or to recover damages for any loss directly resulting from
the breach, but Tenant shall not be entitled to terminate this Lease or
withhold, offset or abate any sums due hereunder.
SECTION 13.04. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall
fail to perform any term, condition, covenant or obligation required to be
performed by it under this Lease and if Tenant shall, as a consequence thereof,
recover a money judgment against Landlord, Tenant agrees that it shall look
solely to Landlord's right, title and interest in and to the Building for the
collection of such judgment; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for the
satisfaction of Tenant's judgment.
SECTION 13.05. NONWAIVER OF DEFAULTS. Neither party's failure or
delay in exercising any of its rights or remedies or other provisions of this
Lease shall constitute a waiver thereof or affect its right thereafter to
exercise or enforce such right or remedy or other provision. No waiver of any
default shall be deemed to be a waiver of any other default. Landlord's receipt
of less than the full rent due shall not be construed to be other than a payment
on account of rent then due, nor shall any statement on Tenant's check or any
letter accompanying Tenant's check be deemed an accord and satisfaction. No act
or omission by Landlord or its employees or agents during the Lease Term shall
be deemed an acceptance of a surrender of the Leased Premises, and no agreement
to accept such a surrender shall be valid unless in writing and signed by
Landlord.
<PAGE> 11
SECTION 13.06. ATTORNEYS' FEES. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for reasonable attorneys' fees incurred in
connection therewith.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
------------------------------------------------
Landlord shall have the right upon at least ninety (90) days' prior
written notice to Tenant and with Tenant's approval which shall not be
unreasonably withheld, conditioned or delayed, to relocate Tenant and to
substitute for the Leased Premises other space in the Building or in the Park
containing at least as much rentable area as the Leased Premises. Such
substituted space shall have the same tax abatement benefits and Foreign Trade
Zone status as the Leased Premises and be improved by Landlord, at its expense,
with improvements at least equal in quantity and quality to those in the Leased
Premises. Landlord shall reimburse Tenant for all reasonable expenses incurred
in connection with such relocation. Landlord shall coordinate any relocation
with Tenant and shall use commercially reasonable efforts to minimize disruption
to Tenant's business. In no event shall Landlord be liable to Tenant for any
consequential damages as a result of any such relocation, including, but not
limited to, loss of business income or opportunity.
ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING
----------------------------------------------
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
--------------------------------------------
SECTION 15.01. DEFINITIONS.
a. "Environmental Laws" - All present or future federal, state and
municipal laws, ordinances, rules and regulations applicable to the
environmental and ecological condition of the Leased Premises, the rules and
regulations of the Federal Environmental Protection Agency or any other federal,
state or municipal agency or governmental board or entity having jurisdiction
over the Leased Premises.
b. "Hazardous Substances" - Those substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic substances"
"solid waste" or "infectious waste" under Environmental Laws.
SECTION 15.02. COMPLIANCE. With respect to Tenant's use, occupancy,
maintenance or alteration of the Leased Premises, Tenant, at its sole cost and
expense, shall promptly comply with the Environmental Laws including any notice
from any source issued pursuant to the Environmental Laws or issued by any
insurance company which shall impose any duty upon Tenant whether such notice
shall be served upon Landlord or Tenant.
SECTION 15.03. RESTRICTIONS ON TENANT. Tenant shall operate its
business and maintain the Leased Premises in compliance with all Environmental
Laws. Tenant shall not cause or permit the use, generation, release,
manufacture, refining, production, processing, storage or disposal of any
Hazardous Substances on, under or about the Leased Premises, or the
transportation to or from the Leased Premises of any Hazardous Substances,
except as necessary and appropriate for its Permitted Use in which case the use,
storage or disposal of such Hazardous Substances shall be performed in
compliance with the Environmental Laws and the highest standards prevailing in
the industry.
SECTION 15.04. NOTICES, AFFIDAVITS, ETC. Tenant shall immediately
notify Landlord of (i) any violation by Tenant, its employees, agents,
representatives, customers, invitees or contractors of the Environmental Laws
on, under or about the Leased Premises, or (ii) the presence or suspected
presence of any Hazardous Substances on, under or about the Leased Premises and
shall immediately deliver to Landlord any notice received by Tenant relating to
(i) and (ii) above from any source. Tenant shall execute affidavits,
representations and the like within five (5) days of Landlord's request therefor
concerning Tenant's best
<PAGE> 12
knowledge and belief regarding the presence of any Hazardous Substances on,
under or about the Leased Premises.
SECTION 15.05. LANDLORD'S RIGHTS. Landlord and its agents shall have
the right, but not the duty, upon advance notice (except in the case of
emergency when no notice shall be required) to inspect the Leased Premises and
conduct tests thereon to determine whether or the extent to which there has been
a violation of Environmental Laws by Tenant or whether there are Hazardous
Substances on, under or about the Leased Premises. In exercising its rights
herein, Landlord shall use commercially reasonable efforts to minimize
interference with Tenant's business but such entry shall not constitute an
eviction of Tenant, in whole or in part, and Landlord shall not be liable for
any interference, loss, or damage to Tenant's property or business caused
thereby.
SECTION 15.06. TENANT'S INDEMNIFICATION. Tenant shall indemnify
Landlord and Landlord's managing agent from any and all claims, losses,
liabilities, costs, expenses and damages, including attorneys' fees, costs of
testing and remediation costs, incurred by Landlord in connection with any
breach by Tenant of its obligations under this Article 15. The covenants and
obligations under this Article 15 shall survive the expiration or earlier
termination of this Lease.
SECTION 15.07. LANDLORD'S REPRESENTATION. Notwithstanding anything
contained in this Article 15 to the contrary, Tenant shall not have any
liability under this Article 15 resulting from any conditions existing, or
events occurring, or any Hazardous Substances existing or generated, at, in, on,
under or in connection with the Leased Premises prior to the Commencement Date
of this Lease except to the extent Tenant exacerbates the same.
ARTICLE 16 - MISCELLANEOUS
--------------------------
SECTION 16.01. BENEFIT OF LANDLORD AND TENANT. This Lease shall inure
to the benefit of and be binding upon Landlord and Tenant and their respective
successors and assigns.
SECTION 16.02. GOVERNING LAW. This Lease shall be governed in
accordance with the laws of the State of where the Building is located.
SECTION 16.03. GUARANTY. In consideration of Landlord's leasing the
Leased Premises to Tenant, Tenant shall provide Landlord with a Guaranty of
Lease executed by the guarantor(s) described in the Basic Lease Provisions, if
any.
SECTION 16.04. FORCE MAJEURE. Landlord and Tenant (except with
respect to the payment of any monetary obligation) shall be excused for the
period of any delay in the performance of any obligation hereunder when such
delay is occasioned by causes beyond its control, including but not limited to
work stoppages, boycotts, slowdowns or strikes; shortages of materials,
equipment, labor or energy; unusual weather conditions; or acts or omissions of
governmental or political bodies.
SECTION 16.05. EXAMINATION OF LEASE. Submission of this instrument
for examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 16.06. INDEMNIFICATION FOR LEASING COMMISSIONS. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are the Brokers. Each party shall
indemnify the other from any and all liability for the breach of this
representation and warranty on its part and shall pay any compensation to any
other broker or person who may be entitled thereto.
<PAGE> 13
SECTION 16.07. NOTICES. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to the party who is to receive such notice at the address
specified in Article 1. If delivered in person, notice shall be deemed given as
of the delivery date. If sent by overnight courier, notice shall be deemed given
as of the first business day after sending. If mailed, the notice shall be
deemed to have been given on the date which is three (3) business days after
mailing. Either party may change its address by giving written notice thereof to
the other party.
SECTION 16.08. PARTIAL INVALIDITY; COMPLETE AGREEMENT. If any
provision of this Lease shall be held to be invalid, void or unenforceable, the
remaining provisions shall remain in full force and effect.. This Lease
represents the entire agreement between Landlord and Tenant covering everything
agreed upon or understood in this transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof or in effect between
the parties. No change or addition shall be made to this Lease except by a
written agreement executed by Landlord and Tenant.
SECTION 16.09. FINANCIAL STATEMENTS. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent financial statements (certified and audited if the Minimum Annual
Rent hereunder exceeds $100,000) prepared as of the end of Tenant's fiscal year.
Such financial statements shall be signed by Tenant who shall attest to the
truth and accuracy of the information set forth in such statements. All
financial statements provided by Tenant to Landlord hereunder shall be prepared
in conformity with generally accepted accounting principles, consistently
applied.
SECTION 16.10. REPRESENTATIONS AND WARRANTIES. The undersigned
represent and warrant that (i) such party is duly organized, validly existing
and in good standing (if applicable) in accordance with the laws of the state
under which it was organized; and (ii) the individual executing and delivering
this Lease has been properly authorized to do so, and such execution and
delivery shall bind such party.
SECTION 16.11. AGENCY DISCLOSURE. Tenant acknowledges having reviewed
the Agency Disclosure Statement and Tenant acknowledges that said Statement is
signed and attached hereto and made a part hereof as EXHIBIT C. The broker
identified as representing Landlord in Item J of Section 1.01 hereof, and its
agents and employees, have represented only Landlord, and have not in any way
represented Tenant, in the marketing, negotiation and completion of this lease
transaction.
SECTION 16.12. RIGHT OF FIRST OFFER. Provided that (i) Tenant has not
been in default hereunder at any time during the Lease Term, (ii) the
creditworthiness of Tenant is then acceptable to Landlord, (iii) Tenant named
herein remains in possession of and has been continuously operating in the
entire Leased Premises throughout the Lease Term, and (iv) the current use of
the Leased Premises is acceptable to Landlord, and subject to any rights of
other tenants to the Offer Space, Landlord shall notify Tenant in writing
("Landlord's Notice") of the availability of the space shown crosshatched on the
attached EXHIBIT A containing approximately 53,000 rentable square feet of space
(the "Offer Space") before entering into a lease with a third party for such
Offer Space. Tenant shall have five (5) business days from its receipt of
Landlord's Notice to deliver to Landlord a written acceptance agreeing to lease
the Offer Space on the terms and conditions contained in Landlord's Notice. In
the event Tenant fails to notify Landlord of its acceptance within said five (5)
day period, such failure shall be conclusively deemed a waiver of Tenant's Right
of First Offer and a rejection of the Offer Space with respect to that
particular Landlord's Notice , whereupon Tenant shall have no further rights
with respect to the Offer Space with respect to that particular Landlord's
Notice and Landlord shall be free to lease the Offer Space to a third party. In
the event such Offer Space becomes available after Tenant has waived it rights
hereunder with respect to any particular Landlord Notice of offer, and subject
to provisions (i) through (iv) of this Section 16.12, Landlord shall provide
Tenant with Landlord's Notice of the subsequent offer and Tenant shall be
entitled to exercise its Right of First Offer as specified
<PAGE> 14
above. Provided, however, that nothing herein shall operate to require Landlord
to serve more than Landlord's Notice with repsect to any single period of offer
or to prevent a tenant of the Offer Space from renewing or extending its lease
thereof. In the event Tenant accepts the Offer Space on the terms and conditions
specified in the Landlord's Notice, the term for the Offer Space shall be
coterminous with the term for the original Leased Premises; provided, however,
that the minimum term for the Offer Space shall be sixty (60) months and the
Term for the original Leased Premises shall be extended, to be coterminous with
the term for the Offer Space. The Minimum Annual Rent for the Offer Space shall
be equal to the rate which is then being quoted by Landlord to prospective new
tenants for the Offer Space, excluding free rent and other concessions. The
Minimum Annual Rent for the original Leased Premises during any such extended
term shall be an amount equal to one hundred and fifteen percent (115%) of the
highest Minimum Annual Rent payable during the Lease Term for the original
Leased Premises.
SECTION 16.13. OPTION TO EXTEND. A. GRANT AND EXERCISE OF OPTION.
Provided that (i) Tenant has not been in default hereunder at any time during
the Term of this Lease (the "Original Term"), (ii) the creditworthiness of
Tenant is then acceptable to Landlord, (iii) Tenant named herein remains in
possession of and has been continuously operating in the entire Premises
throughout the Original Term and (iv) the current use of the Premises is
acceptable to Landlord, Tenant shall have one (1) option to extend the Original
Term for one (1) additional period of five (5) years (the "Extension Term"). The
Extension Term shall be upon the same terms and conditions contained in the
Lease for the Original Term except (i) Tenant shall not have any further option
to extend and (ii) the Minimum Annual Rent shall be adjusted as set forth herein
("Rent Adjustment"). Tenant shall exercise such option by delivering to
Landlord, no later than nine (9) months prior to the expiration of the Original
Term, written notice of Tenant's desire to extend the Original Term. Tenant's
failure to properly exercise such option shall waive it. If Tenant properly
exercises its option to extend, Landlord shall notify Tenant of the Rent
Adjustment no later than ninety (90) days prior to the commencement of the
Extension Term. Tenant shall be deemed to have accepted the Rent Adjustment if
it fails to deliver to Landlord a written objection thereto within five (5)
business days after receipt thereof. If Tenant properly exercises its option to
extend, Landlord and Tenant shall execute an amendment to the Lease (or, at
Landlord's option, a new lease on the form then in use for the Building)
reflecting the terms and conditions of the Extension Term, within thirty (30)
days after Tenant's acceptance of the Rent Adjustment.
B. MARKET RENT ADJUSTMENT. The Minimum Annual Rent for the Extension
Term shall be Four Dollars and Seventy-Two Cents ($4.72) per rentable square
foot of the Leased Premises. The Minimum Monthly Rent shall be an amount equal
to one-twelfth (1/12) of the Minimum Annual Rent for the Extension Term and
shall be paid at the same time and in the same manner as provided in the Lease.
SECTION 16.14. TENANT CONTINGENCY. In the event that Tenant has not
received a grant under the State of Ohio Job Creation Tax Credit program giving
a credit against State of Ohio income taxes with respect to new employees hired
by Tenant in connection with the Leased Premises providing for a credit based
upon the Ohio income tax payroll withholding applicable to such new employees,
on terms and conditions acceptable to Tenant in its sole discretion on or before
March 22, 1999, Tenant shall be entitled to terminate this Lease. Tenant shall
exercise its right to terminate this Lease as provided for herein by giving
written notice to Landlord of its intention to terminate within five (5) days of
March 22, 1999.
SECTION 16.15. PARKING. During the initial Lease Term and provided
Tenant is not in Default hereunder, Tenant shall have use of seventy-five (75)
non-reserved parking spaces located in the parking areas adjacent to the
Building which parking areas are shown on EXHIBIT A and are non-exclusive and
for the use of all Building tenants. Tenant shall not pay a fee for the use of
such parking spaces. Only one vehicle shall be parked in each space at any one
time.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
<PAGE> 15
<TABLE>
<CAPTION>
WITNESS: LANDLORD:
<S> <C>
/s/ Jeffrey D. Palmquist DUKE REALTY LIMITED PARTNERSHIP,
- --------------------------------
Jeffrey D. Palmquist an Indiana limited partnership
- --------------------------------
(printed)
By: Duke Realty Investments, Inc.,
/s/ Melanie Martin its General Partner
- --------------------------------
Melanie Martin
- --------------------------------
(printed) By: /s/ J. Kurt Dehner
-------------------------------------
J. Kurt Dehner
Vice President
Columbus Industrial Group
WITNESS: TENANT:
/s/ Thomas J. Carr PINNACLE DATA SYSTEMS, INC., an Ohio corporation
- --------------------------------
Thomas J. Carr
- --------------------------------
(printed) By: /s/ John D. Bair
--------------------------------------------
/s/ C. C. Hahn Printed: John D. Bair
- -------------------------------- ----------------------------------------
C. R. Hahn
- --------------------------------
(printed) Title: President
-----------------------------------------
________________________ 2/25/99
</TABLE>
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
Before me, a Notary Public in and for said County and State, personally
appeared J. Kurt Dehner, by me known and by me known to be the Vice President,
Columbus Industrial Group, of Duke Realty Investments, Inc., an Indiana
corporation, the general partner of Duke Realty Limited Partnership, an Indiana
limited partnership, who acknowledged the execution of the above and foregoing
Lease Agreement for and on behalf of said partnership.
WITNESS my hand and Notarial Seal this 9th day of March____, 1999.
/s/ Melanie Kay Martin
-------------------------------------------
Notary Public
Melanie Kay Martin
-------------------------------------------
(Printed Signature)
My Commission Expires: March 6, 2000
------------------------------
My County of Residence: Franklin
------------------------
<PAGE> 16
STATE OF______________________)
) SS:
COUNTY OF_____________________)
Before me, a Notary Public in and for said County and State, personally
appeared __JOHN D. Bair______________, by me known and by me known to be the
___PRESIDENT_________, of Pinnacle Data Systems, Inc., an Ohio corporation, who
acknowledged the execution of the above and foregoing Lease Agreement for and on
behalf of said corporation.
WITNESS my hand and Notarial Seal this 25 day of February___, 1999.
/s/ Jacqueline Miller
-------------------------------------------------
Notary Public
Jacquiline Miller
-------------------------------------------------
(Printed Signature)
My Commission Expires: Jan 24, 2000
--------------------------
My County of Residence: Franklin
-------------------------
<PAGE> 17
Exhibits:
- ---------
Exhibit A - Leased Premises
Exhibit B - Tenant Improvements
Exhibit C - Agency Disclosure Statement
Exhibit D - Building Rules and Regulations
Exhibit E - Letter of Understanding
<PAGE> 18
EXHIBIT D
---------
RULES AND REGULATIONS
(These Rules and Regulations have been adopted for the purpose of
insuring order and safety in the Building and of maintaining the rights of
Tenant and of the Landlord.)
1. The sidewalks, entrances, driveways and roadways serving and adjacent
to the Leased Premises, are the property of the Landlord, and shall not be
obstructed or used for any purpose other than ingress and egress. The Landlord
shall in all cases retain the right to control and prevent access to the
Property, of all persons whose presence, in the judgment of the Landlord or its
employees, shall be prejudicial to the safety, character, reputation or
interests of the property or neighboring buildings.
2. No awnings or other projections shall be attached to the outside walls
of the Building. Neither the interior nor the exterior of any windows shall be
coated or otherwise sunscreened without written consent of Landlord.
3. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown herein. All damages
resulting from any misuse of the fixtures shall be borne by the Tenant who, or
whose subtenants, assignees or any of their servants, employees, agents,
visitors or licensees shall have caused the same.
4. No Tenant shall mark, paint, drill into or in any way deface any part
of the exterior Leased Premises or in the Building. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
the Landlord and Landlord may direct.
5. No birds or animals of any kind shall be brought onto or kept in or
about the Property, and no cooking shall be done or permitted by any Tenant on
the Leased Premises, except that the preparation of coffee, tea, hot chocolate
and similar items and the use of a microwave oven for Tenants and their
employees shall be permitted provided power shall not exceed that amount which
can be provided by a 30-amp circuit. No Tenant shall cause or permit any unusual
or objectionable odors to be produced or permeate outside the Leased Premises.
6. No Tenant shall operate a business or an office in the Leased Premises
for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as
a retail or wholesale store or general office, in contradiction to the permitted
use in this Lease, without the express written consent of Landlord, not to be
unreasonably withheld. The Leased Premises shall not be used for lodging or
sleeping or for any immoral or illegal purpose.
7. No Tenant shall make, or permit to be made, any noise which may
disturb or interfere with occupants of neighboring buildings whether by the use
of any musical instrument, radio, phonograph, unusual noise or in any other way.
8. No Tenant, subtenant or assignees nor any of its servants, employees,
agents, visitors or licensees shall at any time bring or keep upon the Leased
Premises any flammable, combustible or explosive fluid, chemical or substance,
other than that which is ordinary and necessary for the Tenant's use of the
Leased Premises, as contemplated herein.
9. Each Tenant must upon the termination of its tenancy, deliver to the
Landlord all keys to the offices, storage rooms, toilet rooms, either furnished
to, or otherwise procured by, such Tenant.
<PAGE> 19
10. All persons employed by any Tenant to do work upon the Leased
Premises, while in the Building and outside of the Leased Premises, shall be
subject to and under the control and direction of the Tenant, and Tenant shall
be responsible for all acts of such persons.
11. Canvassing, soliciting and peddling in the adjacent buildings are
prohibited, and each Tenant shall report and otherwise cooperate to prevent the
same.
12. Tenant agrees that it shall not discriminate upon the basis of race,
color, religion, sex or national origin in the use and occupancy or in any
sublease or subletting of the Leased Premises.
13. No outside storage is permitted including without limitation the
storage of trucks and other vehicles.
14. The Landlord reserves the right to reasonably rescind, modify or
supplement any of these rules and to make such other and further reasonable
rules and regulations which, in the Landlord's judgment may from time to time be
necessary for the safety and cleanliness of the Leased Premises, and for the
assurance of good order therein. Landlord agrees to provide Tenant with a copy
of said rules which shall be deemed a part of this Lease.
Anything contained in these Rules and Regulations which is contrary to or
inconsistent with any express provision of the Lease shall be void and of no
force and effect.
<PAGE> 20
EXHIBIT E
---------
LETTER OF UNDERSTANDING
<TABLE>
<S> <C>
Tenant: _______________________________ ("Tenant")
Landlord: DUKE REALTY LIMITED PARTNERSHIP ("Landlord")
Regarding: Lease by and between Tenant and Landlord dated _____________ 199_
(the "Lease")
Leased Premises: _____________________________________
-------------------------------------
______, Ohio 43___
(the "Leased Premises")
</TABLE>
As of this date, Tenant confirms and acknowledges as follows:
1. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as indicated above; and the Lease
represents the entire agreement between the parties as to this leasing and/or
Tenant's rights to the Leased Premises.
2. The term of the Lease commenced on ______________, 199_ (the
"Commencement Date") and expires on _____________,_____ (the "Expiration Date").
3. Tenant hereby accepts possession of the Leased Premises for
occupancy and acknowledges that the condition of the Leased Premises, including
the Tenant Finish Improvements, and the Building are satisfactory and in
conformity with the provisions of the Lease.
The statements contained herein are true and may be relied upon by
Landlord.
Executed this _____ day of _______________, 1999.
TENANT:
--------------------------------------
By:___________________________________
Printed:______________________________
Title:________________________________
<PAGE> 1
EXHIBIT NO. 10(n)
LOAN AGREEMENT
This LOAN AGREEMENT (the "Loan Agreement" or "Agreement") is made and entered
into effective this 30th day of September, 1999 by and between FIRSTAR BANK,
N.A., a national banking corporation (the "Bank"), and PINNACLE DATA SYSTEMS,
INC. (the "Company" or "Borrower").
SECTION 1. THE LOAN(S).
1.1 THE REVOLVING LOAN. From the date hereof until September 30, 2000 (the
"Revolving Loan Maturity Date"), the Bank agrees to make loans and advances to
the Company on a revolving basis for the purpose of short-term working capital
up to the sum of $2,000,000.00, subject to the terms and conditions of this
Agreement (the "Revolving Loan"); provided, however, that the Bank shall have no
obligation to advance or readvance any sums pursuant hereto at any time when
there exists any set of facts or circumstances which, by themselves or upon
giving of notice or the lapse of time, or both, would constitute an Event of
Default under this Agreement. The Revolving Loan shall be evidenced by and
repayment thereof shall be made in accordance with the terms of a promissory
note of even date herewith (the "Revolving Note") or by one or more promissory
notes agreed upon by the parties hereto in substitution or partial substitution
therefor in favor of the Bank.
1.2 THE TERM LOAN. The Bank made a term loan to the Company in the amount
of $300,000.00 on January 20, 1998, which the Bank and the Company agree, shall
be subject to the terms and conditions of this Agreement (the "Term Loan"). The
Term Loan is evidenced by and repayment thereof shall be made in accordance with
the terms of a promissory note dated January 20, 1998 or by one or more
promissory notes agreed upon by the parties hereto in substitution or partial
substitution therefor in favor of the Bank (the "Term Note"). The principal
balance of the Term Loan shall be repaid in monthly installments of $5,000.00,
with the remaining principal balance and accrued interest thereon paid in full
on January 31, 2003. The Revolving Loan and the Term Loan shall be collectively
referred to herein as the "Loans".
1.3 REVOLVING LOAN INTEREST RATE. Borrower agrees to pay to Bank monthly
interest on the unpaid balance of the Revolving Loan at a variable rate of
interest (the "Prime Rate") equal to the Prime Rate of Bank from time to time in
effect. Each change in the Prime Rate automatically and immediately changes the
interest rate on the Revolving Loan without notice to Borrower. "Prime Rate" as
used herein shall mean the rate published by Bank from time to time as its Prime
Rate based on its consideration of economic, money market, business and
competitive factors, and it is not necessarily Bank's most favored rate. The
Prime Rate is currently 8.25%. Interest shall be calculated on a three hundred
sixty (360) day year basis and shall be based on the actual number of days that
elapse during the interest calculation period.
1.4 AVAILABILITY. Under the Revolving Loan the Borrower may borrow, repay,
and reborrow up to the lesser of: a) Eighty percent [80%] of Borrower's Eligible
Accounts Receivable; PLUS Fifteen percent [15%] of Borrower's Eligible
Components Inventory PLUS Thirty percent [30%] of Borrower's Eligible
Peripherals Inventory PLUS Forty percent [40%] of Borrower's Eligible Finished
Goods Inventory (the sum of which is the "Eligible Inventory") up to a maximum
Eligible Inventory advance of the lesser of $750,000 or 50% of the outstanding
balance on the Revolving Loan; MINUS the outstanding balance on the Term Loan;
or b) $2,000,000.00. The lesser of the amount computed in a) and the amount
shown in b) shall be called the "Amount Available". Should the total loan amount
outstanding at any time exceed the Amount Available, the Borrower shall, upon
notification, reduce the amount outstanding to an amount that is less than or
equal to the Amount Available. Advances under the Revolving Loan must be
requested in amounts of $25,000 or greater.
"Eligible Accounts Receivable" shall mean accounts receivable acceptable to
the Bank originating from the sale of inventory in the ordinary course of
business and outstanding less than ninety [90] days from the date of
invoice, MINUS the aggregate accounts receivable of any individual customer
if more than twenty-five percent [25%] of that customer's accounts
receivable is greater than 90 days from the date of invoice; MINUS accounts
receivable arising from a contract with the United States Government not
supported by an acceptable assignment of claim; MINUS accounts receivable
subject to a contra payable account; MINUS accounts receivable
<PAGE> 2
arising from a customer whose mailing address or executive office is
located outside the United States and is not supported by a letter of
credit acceptable to the Bank.
"Eligible Components Inventory", "Eligible Peripherals Inventory" and
"Eligible Finished Goods Inventory" shall mean product code subsets PDC1,
PDC5 and FGS, respectively, as accounted for in the Company's perpetual
inventory system. Eligible Inventory shall exclude: (i) capitalized labor
and overhead and (ii) Eligible Inventory not in the physical possession of
the Company or held outside the United States of America.
SECTION 2. REPRESENTATIONS & WARRANTIES. To induce the Bank to enter into this
Agreement and to agree to make the loans described in Section 1 hereof (the
"Loans"), the Borrower represents and warrants that:
2.1 CORPORATE EXISTENCE. Borrower is a corporation duly existing under the
laws of the State of Ohio, is qualified to do business in all states where
failure to be so qualified would have a material adverse effect on the Borrower
and has all requisite power and authority to own its property and carry on its
business as now being conducted.
2.2 BORROWING AUTHORIZATION. The execution by the Borrower and the delivery
and performance of this Agreement, the Note(s), and other documents connected to
the loans described herein have been authorized by necessary corporate action
and will not violate: 1) any provision of law; 2) the Articles of Incorporation
or By-laws of the Borrower; or 3) any agreement binding on the Borrower.
2.3 PURPOSE AND USE OF PROCEEDS. The proceeds of the Loan will be used by
the Borrower to support general working capital requirements.
2.4 FINANCIAL STATEMENTS. Financial statements of the Borrower dated
December 31, 1998 (a copy of which have been previously furnished to the Bank)
have been prepared in conformity with generally accepted accounting principles
consistently applied, and fairly represent the financial condition of the
Borrower and its operations as of the date of the statements, and since such
date there has been no material adverse change in its financial condition.
2.5 ACTIONS PENDING. There is no litigation pending or threatened against
or affecting the Borrower before any court or agency, or any contingent
liabilities that are not provided for in the financial statements referred to in
2.4, hereof.
2.6 LIENS. None of the assets of the Borrower are subject to any mortgage,
pledge, security interest, lien, or other encumbrance except for those noted in
the financial statements referred to in 2.4, hereof.
2.7 ENVIRONMENTAL MATTERS. All operations and property of the Borrower are
in full compliance with all federal, state, and local statutes, rules, and
regulations relating to air and water pollutants and hazardous waste disposal.
There is no judicial or administrative proceeding pending or threatened against
or affecting the Borrower with respect to such environmental matters.
2.8 COMPLIANCE. The Borrower is in compliance in all material respects with
all statutes, rules, and regulations applicable to it. No default (or event
which with notice or lapse of time, or both, would constitute a default) exists
under any agreement or instrument for borrowed money to which Borrower is a
party or pursuant to which any property of Borrower is encumbered.
2.9 LIABILITIES. All taxes, assessments, and other liabilities which are
due have been paid in full and in a timely manner, except for those taxes and
assessments which the Borrower is contesting in good faith and with respect to
which the Borrower has taken proper steps to perfect its appeal and which have
not resulted in liens on the Borrower's property which materially diminishes the
value of the property.
2.10 MILLENNIUM COMPLIANCE. Borrower has conducted a thorough review of its
mainframe information systems, PC/LAN systems, software, facilities, machinery
and equipment (collectively "Computer-Related Systems") and have determined the
total costs of becoming Year 2000 Compliant, including, costs related to
remediation, replacement, upgrading, conversion and testing of hardware and
other equipment and software. On the basis of this review, the Borrower has
concluded that the incremental cost to the Borrower of becoming Year 2000
Compliant will not have a material adverse effect on the financial condition of
the Borrower. Further, Borrower's Computer-Related Systems are Year 2000
Compliant or the Borrower has adequate plans and processes in place
<PAGE> 3
sufficient for all of the Borrower's Computer-Related Systems to become Year
2000 Compliant prior to such time that a failure to be Year 2000 Compliant might
reasonably be expected to have a material adverse effect upon Borrower's
business, operations, properties or financial condition. For purposes of this
Agreement, "Year 2000 Compliant" means that the Borrower's Computer-Related
Systems (1) will process all dates in and after the Year 2000 in a correct and
consistent manner in all applicable operations including but not limited to
input, output, comparisons (branching) and arithmetic operations (such as the
difference between two dates), (2) use fields providing at least four decimal
digits for the year portion of all stored dates, (3) calculate and handle leap
year dates correctly, and (4) will otherwise generally manipulate data and
generate output and reports in a fault-free manner during and after the Year
2000.
SECTION 3. COLLATERAL. All obligations of the Borrower to the Bank under this
Agreement and the Note(s) shall be secured by the following (collectively called
the "Collateral"):
3.1 A security interest in the Borrower's Accounts, Instruments, Chattel
Paper, Investment Property, Inventory, Equipment, Motor Vehicles, Fixtures, and
General Intangibles as such terms are defined in the Security Agreements, now
owned or hereafter acquired, their proceeds (cash or non-cash) and any insurance
proceeds related thereto;
3.2 An assignment of insurance in the amount of $1,000,000.00 on the life
of John D. Bair.
The Collateral and all documentation with respect thereto shall be in a form
satisfactory to the Bank, and the Borrower agrees to execute any and all
documents necessary to assure the protection, perfection, and/or enforcement of
the Bank's security interest in the Collateral.
SECTION 4. COVENANTS. In consideration of the Bank's promise to make the loans
described herein, the Borrower agrees that, from the date of this Agreement
until the Note(s) are paid in full, they will:
4.1 FINANCIAL STATEMENT. Furnish the Bank: 1) a copy of its audited
financial statements prepared in conformity with generally accepted accounting
principles applied on a basis consistent with the preceding years by independent
certified public accountants acceptable to the Bank within 120 days of the
Borrower's fiscal year end; and 2) a copy of its unaudited financial statements,
similarly prepared, in a form satisfactory to the Bank within 30 days of the end
of each of its fiscal months.
4.2 PERIODIC REPORTS. Provide the Bank 1) an aging of accounts receivable
in a form satisfactory to the Bank within 30 days of the end of each of the its
fiscal months; 2) a calculation of the Amount Available, substantially in the
form of the attached Exhibit "A" and a "no-default" certification, substantially
in the form of the attached Exhibit "B", both signed by an authorized officer of
the Borrower within 30 days of the end of each of its fiscal months; 3) a
breakdown of Eligible Inventory in a form satisfactory to the Bank within 30
days of the end of each of its fiscal months; and 4) other reports and
information as the Bank may reasonably request.
4.3 INSURANCE. Maintain insurance on all real and personal property with
carriers acceptable to the Bank in an amount and against hazards and liabilities
as is common with other companies in similar situations. The policies shall show
the Bank as "name insured" and "loss payee." The Borrower shall provide the Bank
with certificates of insurance or other satisfactory evidence upon request.
4.4 TAXES. Pay all taxes, assessments, and other liabilities when due,
except for those which are contested in good faith.
4.5 NOTICE. Give the Bank prompt notice of any: (i) default of this or any
other Agreement or contract under which the Borrower is liable; (ii)
environmental or labor dispute; (iii) lawsuit filed naming the Borrower as a
defendant; (iv) reportable event under ERISA; or (v) material change in the
Borrower's business prospects or financial condition.
4.6 CORPORATE EXISTENCE AND STATUS. Maintain its corporate existence and
remain in good standing under the laws of each jurisdiction where the Borrower
is duly qualified to conduct its business.
<PAGE> 4
4.7 MAINTENANCE OF PROPERTY. Maintain Borrower's property in good condition
and repair, and not commit or permit any action that may impair the value of the
property or the Bank's Collateral.
4.8 MILLENNIUM COMPLIANCE. Promptly evaluate each newly-acquired item of
software, hardware, machinery and equipment to determine if it is Year 2000
Compliant and promptly take steps to ensure that all material suppliers,
vendors, third-parties providing goods or services to the Borrower and all
material customers are Year 2000 Compliant or have a comprehensive and
reasonable plan to become Year 2000 Compliant in a timely manner, such that such
suppliers, vendors, third-parties and customers will not experience Year 2000
related problems that could result in a material adverse effect upon the
Borrower's business, operations, or financial condition.
4.9 DEBT SERVICE COVERAGE RATIO. Not permit its Debt Service Coverage Ratio
to be less than 1.25:1. "Debt Service Coverage Ratio" shall be defined as net
income plus depreciation and amortization expense plus interest expense less
dividends all divided by required principal payments, including capital lease
payments, plus interest expense. Debt Service Coverage shall be measured monthly
on the basis of a rolling twelve months. All financial terms in this Agreement
shall have the meanings given them under generally accepted accounting
principles.
4.10 TANGIBLE CAPITAL BASE. Not permit its Tangible Capital Base to be less
than $1,850,000 plus the greater of 80% of net income or $100,000 beginning with
the fiscal year ending December 31, 1998 and for each fiscal year thereafter.
"Tangible Capital Base" shall mean, as of any date, the sum of the Company's
total equity plus debts acceptably subordinated to the Bank minus any intangible
assets minus any loans or advances to officers, shareholders, or employees of
the Company.
4.11 LEVERAGE RATIO. Not permit its Leverage Ratio to be greater than
1.75:1. "Leverage Ratio" shall mean, as of any date, the quotient of the
Company's total liabilities less debt acceptably subordinated to the Bank
divided by the Company's Tangible Capital Base.
4.12 CAPITAL IMPROVEMENTS. Not expend for new equipment or capital
improvements (including capitalized leases) an amount in excess of $300,000 in
any one fiscal year. No accumulation of such amounts shall be allowed from
year-to-year.
4.13 FIRSTAR BANK, N.A. LOCKBOX. Maintain a lockbox at the Bank.
Substantially all corporate receipts are to be mailed to and processed through
this lockbox.
4.14 INDEBTEDNESS. Not incur or permit to exist any indebtedness, except:
(i) the borrowings evidenced by this Agreement; (ii) the borrowings provided for
in the financial statements referred to in Section 2.4, hereof; (iii) favorable
short-term unsecured trade credit granted in the ordinary course of business;
(vi) purchase money for equipment purchases or leases. Purchase money
indebtedness may not exceed $250,000 at any one time.
4.15 LIENS. Not create or permit to exist any mortgage, pledge, security
interest, or other encumbrance with respect to any assets now owned or hereafter
acquired, except for (i) liens created in favor of the Bank hereunder; or (ii)
purchase money interests created in connection with the acquisition of property
acquired after the date of this Agreement which attaches specifically to the
property acquired.
4.16 LOANS AND ADVANCES. Borrower will not make any loans or advances to
any person, corporation or entity. Loans or advances made for travel or other
expenses advanced to employees in the ordinary course of business are excluded
from this limitation.
4.17 RESTRICTED PAYMENTS. Neither (i) declare nor pay any dividend to
common shareholders; nor (ii) purchase or redeem any shares of its stock from
common or preferred shareholders.
4.18 GUARANTIES. Not guaranty any obligation or indemnify any other person
or enterprise except for the personal liability from the Borrower's own
officers', directors', or employees' own actions on behalf of the Borrower.
<PAGE> 5
4.19 MERGER AND SALE OF ASSETS. Not be a party to any merger,
consolidation, or reorganization (including the purchase of all or substantially
all of the equity or assets of any other enterprise). Not, except in the
ordinary course of its business, sell, transfer, or lease any part of its
property.
4.20 INVESTMENTS. Not invest in, loan, or make advances to any other
enterprises, except for (i) obligations of the United States Treasury and
agencies thereof, (ii) commercial paper maturing within one-year and rated
"A-1/P-l or better," or (iii) Certificates of Deposit of the Bank.
4.21 WAIVER. Any variance from these covenants shall be permitted only with
the prior written consent and/or waiver of the Bank. Any such waiver shall not
preclude the exercise of any power or right under this Agreement by the Bank.
SECTION 5. CLOSING CONDITIONS. The obligation of the Bank to make the Loans
described by this Agreement is subject to the satisfaction of each of the
following conditions:
5.1 RESOLUTIONS. The Borrower shall have delivered to the Bank a copy of
the resolutions of the Borrower's Boards of Directors authorizing the loans
described herein and the execution and delivery of this Agreement, the Note(s),
and other documents the Bank deems necessary for these loans, certified by
appropriate officers of the Borrower.
5.2 OTHER DOCUMENTS; INSPECTION. The Borrower shall have delivered to the
Bank such other documents as the Bank may request prior to the date of the
initial loan. The Bank or its designated representative shall have the
continuing right to inspect and review all the Borrower's records, documents,
and assets, whether or not directly related to the obligations hereunder.
5.3 DEFAULT. Before and after giving effect to the Loan(s) described
herein, no event of default (as defined below) or event, which would with the
passage of time become an event of default, shall have occurred and/or be
continuing.
5.4 WARRANTIES. Before and after giving effect to the loan(s) described
herein, the representations and warranties noted in Section 2 above shall be
true and correct on the date of this Agreement.
SECTION 6. EVENTS OF DEFAULT. Upon the occurrence of any of the following events
the Bank may declare the Note(s) due and immediately payable, without further
notice or demand and the Bank shall have all rights to realize on the
collateral. To the extent the Amount Available is not being utilized by the
Borrower, the Bank may upon such declaration of default terminate any unused
balance. The occurrence of any of the following events shall be an "Event of
Default" hereunder and under the Loan Documents:
6.1 Non-payment of principal or interest prescribed herein when due or when
notice of such non-payment is sent to the Borrower by the Bank, or any default,
demand, or acceleration under any Note or related instrument concerning the
Collateral; or
6.2 Non-payment of principal or interest on any other borrowed money
obligation when due or the holder of such obligation declares the obligation due
prior to its stated maturity unless the obligation is disputed in good faith; or
6.3 Any representation or warranty of the Borrower in this or any other
loan document is false; or
6.4 The Borrower violates any covenant or condition of this or any other
loan documentation; or
6.5 The Borrower is unable to pay its business debts as they become due or
the Borrower's consolidated financial statement indicates an insolvency or
deficit net worth; or
6.6 The Borrower applies for the appointment of a trustee or receiver of
any part of the assets of the Borrower or commences any proceedings relating to
Borrower under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, or other liquidation law of any jurisdiction;
or
<PAGE> 6
6.7 Any such application, if filed, or any such proceedings are commenced
against the Borrower, and the Borrower indicates its approval, consent, or
acquiescence; or an order is entered appointing such trustee or receiver, or
adjudicating the Borrower bankrupt or insolvent, or approving the petition in
any such proceedings, and such order remains in effect for thirty (30) days; or
6.8 A material part of the Borrower's operations shall cease for a period
of thirty (30) days, other than temporary or seasonal cessations which are
simultaneously experienced by other companies in the Borrower's lines of
business (which, if continued, would not have a material adverse effect on the
Borrower's operations or financial condition); or
6.9 If, in the reasonable opinion of the Bank, there has been a material
adverse change in the financial affairs or operating condition of the Borrower
or in the value of the Collateral which, in the reasonable judgment of Bank,
materially imperils the Borrower's ability to repay or secure its obligations to
the Bank under this Agreement.
The above recitations of Events of Default supplement and are in addition to any
defaults specified in any other Loan Documents. If any Event of Default occurs,
Bank may, without further notice or demand accelerate the obligations and any
other obligations of Borrower to Bank and thereupon all such obligations shall
immediately be due and payable, and the Bank shall have all rights provided
herein or in any of the other Loan Documents or otherwise provided by law to
realize on the Collateral, and to the extent that the Borrower has not borrowed
the maximum amount otherwise available to it under the Loans, Bank may elect to
make no further funds available to Borrower.
SECTION 7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Agreement supersedes all prior understandings
and agreements, whether written or oral, among the parties hereto relating to
the transactions provided herein.
7.2 LAW; JURISDICTION; VENUE. This Agreement, the Loans, and the Note(s)
shall be deemed made in Ohio, and all the rights and obligations of the parties
hereunder shall in all respects be governed by and construed in accordance with
the laws of the State of Ohio, including all matters of construction, validity,
and performance. Without limitation on the ability of the Bank to exercise all
its rights as to the Collateral security for any loan or note, or to initiate
and prosecute actions for repayment in any applicable jurisdiction, Bank and
Borrower agree that any action or proceeding commenced by or on behalf of the
parties relating to this Agreement, the loans, or the Note(s) shall be commenced
and maintained exclusively in courts of applicable jurisdiction located in
Franklin County, Ohio. These documents memorialize the entire Agreement between
the parties and any amendments to these documents may only be made in writing
and signed by all parties.
<PAGE> 7
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHTS TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE OF HIS PART OF COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE. (SEC. 2323.13 O.R.C.)
Accepted this _4TH__ day of October, 1999
BORROWER:
Pinnacle Data Systems, Inc.
By: /s/ Thomas J. Carr
-----------------------------------
Title: CFO
--------------------------------
BANK:
Firstar Bank, National Association
By: /s/ James C. Blythe
----------------------------------
James C. Blythe, Vice President
<PAGE> 8
EXHIBIT A
PINNACLE DATA SYSTEMS, INC.
BORROWING BASE CERTIFICATE
-----------------------------
(Date)
We submit the following information regarding accounts receivable and inventory
of the Company in connection with the Loan Agreement effective September 30,
1999 entered into by and between Pinnacle Data Systems, Inc. and Firstar Bank,
N.A. (the "Bank"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings given them in the Loan Agreement.
Completed as of ___________________.
<TABLE>
<S> <C> <C>
Total Accounts receivable $__________________
Less: Accounts receivable over 90 days from invoice date: ($_________________)
25% cross-age ($_________________)
Ineligible government receivables ($_________________)
Contra accounts payable ($_________________)
Ineligible foreign receivables ($_________________)
Eligible Accounts Receivable: (a) $__________________
Accounts receivable advance rate (b) x 80%
Accounts receivable advance (a x b) (c) $__________________
Eligible Components Inventory (d) $__________________
Eligible Components Inventory advance rate (e) x 15%
Components Inventory advance (c x d) (f) $__________________
Eligible Peripherals Inventory (g) $__________________
Eligible Peripherals Inventory advance rate (h) x 30%
PERIPHERALS INVENTORY ADVANCE (E X F) (I) $__________________
Eligible Finished Goods Inventory (j) $__________________
Eligible Finished Goods Inventory advance rate (k) x 40%
FINISHED GOODS INVENTORY ADVANCE (G X H) (L) $__________________
Less: Term Loan outstanding balance (m) ($_________________)
Amount Available: (c + f + i + l - m) $__________________
Less: Revolving Loan outstanding balance ($_________________)
AVAILABILITY EXCESS/(SHORTAGE) $__________________
If shortage, amount of pay down authorized by the Company through
a debit to its account number 486-468-127 $__________________
</TABLE>
I hereby certify that at no time during the past month did the Revolving Loan
outstanding balance exceed the amount available and that no Event of Default
exists at this time or existed during the period.
Pinnacle Data Systems, Inc.
By:____________________________ Its: ____________________________
<PAGE> 9
PINNACLE DATA SYSTEMS, INC.
ACCOUNTS RECEIVABLE RECONCILIATION
<TABLE>
<S> <C>
Accounts Receivable per the accounts receivable aging: $__________________
Accounts Receivable per the borrowing base certificate: $__________________
Accounts Receivable per the month end financial statement: $__________________
</TABLE>
Please provide explanations for any variances between the above accounts
receivable reports in the space below.
<PAGE> 10
EXHIBIT B
PINNACLE DATA SYSTEMS, INC.
COMPLIANCE CERTIFICATE
DATE:______________________
This certificate is given by Pinnacle Data Systems, Inc. ("Company"), pursuant
to subsection 4.2.2 of that certain Loan Agreement (the "Loan Agreement" or
"Agreement") effective September 30, 1999 by and between the Company and Firstar
Bank, N.A. (the "Bank"). Capitalized terms used herein without definition shall
have the meanings set forth in the Agreement.
The undersigned is an officer of the Company and is duly authorized to execute
and deliver this certificate on behalf of the Company. By executing this
certificate, the undersigned hereby certifies to the Bank that:
1. The financial statements delivered with this certificate in accordance with
subsection 4.1 as applicable of the Agreement fairly present in all
material respects the results of operations and financial condition of the
Company as of the date of such financial statements;
2. I have reviewed the terms of the Agreement and the Revolving Note
(collectively the "Revolving Notes") and have made, or have caused to be
made under my supervision, a review in reasonable detail of the
transactions and conditions of the Company during the accounting period
covered by such financial statements;
3. Such review has not disclosed the existence during or at the end of such
accounting period, and I have no knowledge of the existence as of the date
hereof, if any condition or event that constitutes an Event of Default, as
defined in both Section 6 of the Agreement and in the Revolving Note,
except as set forth in Attachment A hereto which includes a description of
the nature and period of existence of such an Event of Default and what
action the Company has taken, is undertaking and proposes to take with
respect thereto; and
4. The Company is in compliance with the covenants contained in Section 4 of
the Agreement, as demonstrated below in the financial covenant compliance
worksheet attached hereto as Attachment B. Any instances were the Company
is not in compliance should be described in Attachment A attached hereto.
IN WITNESS WHEREOF, the Company has caused this compliance certificate to be
executed by the authorized officer of the Company this ____ day of _______,
_______
Pinnacle Data Systems, Inc.
By:_______________________
Title:______________________
