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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1998
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-14192
VANSTAR CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2376431
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Abernathy Road, Building 500, Suite 1200
Atlanta, Georgia 30328
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 522-4700
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $0.001 par value New York Stock Exchange
("Common Stock")
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on May 15, 1998 (based on the closing New York Stock Exchange sale
price on such date) was $347,942,109 using beneficial ownership rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude stock
that may be beneficially owned by directors, executive officers or 10%
stockholders, some of whom might not be held to be affiliates upon judicial
determination.
The number of outstanding shares of Common Stock of the Registrant as of May 15,
1998 was 43,500,740.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders (the "1998 Proxy Statement") to be filed with the
Securities and Exchange Commission, are incorporated by reference into Part III
hereof.
Page 1 of 51
Exhibit Index begins on Page 48
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VANSTAR CORPORATION
INDEX TO FORM 10-K
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Page
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PART I
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 16
ITEM 6. SELECTED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 47
ITEM 11. EXECUTIVE COMPENSATION 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 48
SIGNATURES 51
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FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Annual Report on Form 10-K include forward-looking statements. Those statements
relate to dividends; business plans, programs and trends; results of future
operations; uses of future earnings; satisfaction of future cash requirements;
funding of future growth; acquisition plans; and other matters. Words or phrases
such as "will," "hope," "expect," "intend," "plan" or similar expressions
generally are intended to identify forward-looking statements. Those statements
involve risks and uncertainties that could cause actual results to differ
materially from the results discussed herein. Among the risks and uncertainties
to which the Company is subject are the risks inherent in the Company's
substantial indebtedness, the fact that the Company has experienced significant
fluctuations in revenues and operating results, the risks associated with
managing the Company's inventory and service offerings in light of product life
cycles and technological change, the risks associated with implementing
management responses to changing technology and market conditions, the Company's
relationship with its significant customers, intense price competition in the
Company's markets and the Company's dependence on its key vendors. For a
discussion of these factors and others, please see "Certain Business Factors" in
Item 1 of this Annual Report on Form 10-K. Readers are cautioned not to place
undue reliance on the forward-looking statements made in, or incorporated by
reference into, this Annual Report on Form 10-K or in any document or statement
referring to this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW AND HISTORY
Vanstar Corporation ("Vanstar" or the "Company") is a leading provider
of services and products designed to build, manage and enhance personal computer
("PC") network infrastructures for Fortune 1000 companies and other large
enterprises. The Company provides customized information technology and
networking solutions for its customers by integrating value-added professional
services with its expertise in sourcing, distributing and supporting PC
hardware, network products, computer peripherals and software from many vendors.
The Company's comprehensive solutions model, called Life Cycle
Management, spans design and consulting, acquisition and deployment, operation
and support, and enhancement and migration to support the customer's PC network
infrastructure throughout its entire life cycle. Life Cycle Management comprises
three distinct business units: Professional Services, Acquisition Services and
Life Cycle Services, each of which work discretely or in combination to support
a client's IT infrastructure.
The Company's current capabilities were developed internally and
through acquisitions. These strategic acquisitions included: (i) the
acquisition, from 1990 through 1992, of 23 of the Company's franchisees,
operating in 33 major United States metropolitan markets; (ii) the 1991
acquisition of NYNEX Business Centers; (iii) the 1992 acquisition of the
Customer Services Division of TRW, Inc.; (iv) the 1996 acquisition of the
western and southwestern regions of the Dataflex Corporation; (v) the 1996
acquisition of Mentor Technologies, Ltd; (vi) the 1996 acquisition of Contract
Data Services, Inc. (then doing business as "National Technology Group") and
(vii) the 1997 acquisition of certain assets of Sysorex Information Systems,
Inc.
The Company was incorporated in September 1987 under the name
"ComputerLand Corporation" following the acquisition by William Y. Tauscher,
Warburg, Pincus Capital Company, L.P. and Richard H. Bard of the majority of the
capital stock of the Company's predecessor, IMS Associates, Inc. ("IMS"). IMS
was merged with the Company after that acquisition. At that time, the Company
operated and franchised computer retail stores in the United States.
In 1994, the Company sold its remaining United States franchise
business to Merisel FAB, Inc., a wholly-owned subsidiary of Merisel Inc.,
adopted the name Vanstar, and changed its fiscal year end from September 30 to
April 30.
INDUSTRY OVERVIEW
Information technology infrastructure has become a vital element of an
organization's long-term business strategy, and the demand for distributed
computing has grown dramatically. In recent years, PC, software, and network
technologies have become increasingly flexible, efficient and user-friendly, and
both corporations and end users are seeking the efficiencies of increased and
easier access to data and applications throughout the organization. Moreover,
the emergence of the Internet as a dominant IT platform has generated additional
pressures on the IT infrastructure as the corporate network handles
unprecedented volumes of traffic and its reach becomes virtually unlimited.
A number of market dynamics are reshaping the nature of information
technology. The pace of technology adoption and innovation has accelerated to
create a more complex, dynamic enterprise environment. The migration of mission
critical applications from the mainframe to the network has increasingly made
the network the central nervous system of the corporation, escalating the
importance of a reliable infrastructure. The need for distributed enterprise
infrastructure and support have often outpaced corporate resources and
expertise. Today's chief information officers are faced with ever-increasing
responsibility and a range of daunting challenges.
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The Company believes that many companies are realizing that they lack
the systems and expertise to effectively manage enterprise PC networks. The
Company believes that its customers require increasingly sophisticated PC
network systems and support infrastructures, yet are constrained by limited
technical personnel to design, manage and enhance those infrastructures.
Vanstar believes many corporations are eager to partner with leading
service providers to implement and support the most advanced computer
technologies in an effort to increase productivity and profitability. Vanstar
seeks to satisfy corporate infrastructure requirements while minimizing its
customers' internal staff requirements and systems development risk. Companies
are seeking the services of full-service IT solutions providers who can evaluate
their current PC networking systems, design a system that will help them meet
business goals now and in the future, and support and maintain a distributed
environment on an ongoing basis.
The Company believes that the key criteria which businesses consider
when evaluating PC network integration service providers include the provider's
ability: (i) to evaluate and define the strategic business requirements of a
corporation's information technology environment, (ii) to deliver one integrated
solution (including highly-qualified technical personnel) spanning the PC
network life cycle; (iii) to supply multi-vendor network products customized to
specific end-user demands; and (iv) to offer support and maintenance services on
a national and international basis.
THE VANSTAR SOLUTION
Vanstar provides customized, integrated solutions for the network
infrastructure needs of its customers by combining strategic consultative
services, expertise in sourcing and distributing products from a variety of
vendors, and a comprehensive suite of value-added support offerings. The Company
believes that a single source solution enables customers to use fewer vendors
while providing tighter integration, which results in lower costs, minimized
risk, greater management control and increased accountability. Vanstar has built
substantial resource depth in all service areas and offers its integrated Life
Cycle Management services on a nationwide basis.
BUSINESS STRATEGIES
The Company's objective is to capture burgeoning market opportunities
with increasing demands for higher-level consultative services while maintaining
its position as a leading provider of a complete range of PC network
infrastructure products and support services to large businesses throughout the
world. To achieve its objective, the Company believes it must:
DEVELOP AND ENHANCE VALUE-ADDED SERVICES
Vanstar continues to see significant opportunity to increase its
operating margins by increasing the range of value-added services that it
currently offers its customers. While the Company's Life Cycle Services offering
is aimed at ensuring maximum customer value and reducing Total Cost of Ownership
("TCO"), the Company sees strong future growth in value-added services in the
Professional Services market, specifically in the assessment, design and
deployment of strategic IT solutions. More consultative in nature, such services
often involve an upfront assessment of business and technology needs, and result
in the deployment of enterprise systems that integrate strategic technologies
which help to facilitate business change. Vanstar continually evaluates and
pursues opportunities to acquire technology and other resources that will
enhance and extend the reach of its value-added service offerings.
EXPAND AND LEVERAGE RELATIONSHIPS
Customers. Preserving and enhancing its relationships with its
customers is the Company's first priority. The Company's customers are often
leaders in their respective industries and have made substantial investments in
information technology in order to build their businesses successfully. Vanstar
customer engagements involve sophisticated control and measurement processes
designed to ensure customer satisfaction and long-term opportunity for Vanstar.
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Vendors and Partners. Because of its long history in product
acquisition and configuration, the Company has a significant range of strategic
alliances with industry-leading technology vendors, including Cisco Systems,
Inc. ("Cisco Systems"), Compaq Computer Corporation ("Compaq"), Computer
Associates International, Inc., Hewlett-Packard Company ("Hewlett-Packard"),
International Business Machines Corporation ("IBM") and Microsoft Corporation
("Microsoft"), and leverages these relationships for the development of total IT
solutions. Specifically, Vanstar's long-time alliance with Microsoft has
resulted in the company having one of the industry's largest team of networking
professionals dedicated to the Windows NT platform.
RECRUIT AND RETAIN HIGHLY QUALIFIED PROFESSIONALS
Attracting and retaining exceptional employees is one of the Company's
priorities. With its aggressive business strategy, Vanstar recognizes the need
to make major investments to recruit, train and retain employees who can provide
outstanding service and help the Company achieve its goals. The Company operates
in a highly competitive environment which has a limited supply of talented and
qualified individuals. Vanstar is committed to creating and maintaining a work
environment that becomes a destination for the best employees in the industry.
SERVICES AND PRODUCTS
Vanstar's entire suite of services is organized around an integrated
model called "Life Cycle Management." Life Cycle Management includes design and
consulting, acquisition and deployment, operation and support, and enhancement
and migration to support the customer's PC network infrastructure throughout its
life cycle. The Company offers each service as a discrete service or as part of
an integrated Life Cycle Management program. The Company believes that proper
planning and management are essential to providing leading information
technology products and services and to attaining customer satisfaction. Through
planning and management, the Company seeks to optimize solutions at each point
in the PC network life cycle.
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BUSINESS GROUP DESCRIPTION SERVICES
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Professional Services New network infrastructure and - Design and Consulting
migration to new technologies - Enhancement and Migration
- Education Services
Life Cycle Services Day-to-day IT operations - Operation and Support
Acquisition Services Product acquisition and - Acquisition and Deployment
configuration
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PROFESSIONAL SERVICES
Vanstar's Professional Services Organization ("PSO") has built a track
record in providing design, consulting, integration, deployment and migration
services for the distributed network infrastructures that maximize a client's IT
investment, while leveraging PSO's expertise in four key technical disciplines
- -scalability, security, reliability, and flexibility. The Company's unique
engagement methodology, while integrating key stages of IT assessment and
development for a seamless solution, accommodates client entry at any stage of
the engagement. This methodology helps to reduce the cost, risk, and disruption
of changing technology platforms. With a full-time staff and contractors of
approximately 1,500, PSO offers an organization of highly experienced
consultants and engineers with backgrounds ranging from management consulting to
network engineering.
PSO consists of two principal groups -- Consulting Services and
Engineering Services -- with a Program and Project Management organization
supporting both.
Consulting Services provides architecture design and planning services
organized into two sets of national consulting practices based upon areas of
expertise. Technology-based practices include Enterprise Technologies,
Enterprise Network Design, and Enterprise Systems Management.
Business-improvement-
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based practices include Management Consulting and Education Services. PSO has
integrated its networking and systems integration expertise with business
process consulting services. By carefully aligning IT strategies with clients'
business processes, PSO delivers strategic IT solutions that not only enhance
the performance of existing infrastructures, but also generate long-term
business value for its clients by boosting productivity, increasing customer
service standards, and reducing cost of ownership. One such method is the
Company's Business Technology Requirements ("BTR") session, a one-day focused
session in which Vanstar topical experts assess a customer's business processes
and opportunities with a view toward strategic technology deployment. BTR
sessions are presently offered for Windows NT, help desk, messaging, security,
network design, and enterprise management.
The Company's Education Services are also based on a consultative
methodology that assesses the customer's business environment and the skill sets
of each user to identify training needs for critical applications in each area
of the business. Using a system called Polaris, the Company uses both
traditional and innovative training methods, training facilities and certified
instructors to deliver the appropriate training for each student. Vanstar is a
Microsoft Authorized Technical Education Center, providing training for
Microsoft Windows 95, Windows NT, and BackOffice. In each of the three fiscal
years ended April 30, 1998, 1997 and 1996, the Company's Education Services were
included in the Other Services for financial reporting purposes. Beginning in
the quarter ending July 31, 1998, Education Services will be included with
Professional Services.
Engineering Services provides implementation and deployment of
solutions created by the Consulting Services, third-party service providers or
customers. Engineering Services also offers short-term supplemental staffing to
customers to assist them in completing their projects. Vanstar's Engineering
Services personnel are certified in the major network operating systems and have
extensive experience with local and wide area networking products and protocols.
Program and Project Management provides nationwide project management
services for all Consulting Services and Engineering Services projects,
specializing in structuring and managing technology projects.
LIFE CYCLE SERVICES
Vanstar offers a variety of network operation and support services
aimed at maintaining the highest levels of network reliability and return on
investment for its customers. Life Cycle Services include repair and
maintenance, help desk and network monitoring and asset management.
The Company installs additional hardware and software to increase the
capacity of, or otherwise upgrade, existing products and systems. Generally,
moves, adds, and changes assist customers in avoiding the costs associated with
acquiring new systems.
The Company offers repair and maintenance services, including extended
warranty service, depot repair, and preventive maintenance. These services are
designed to minimize product failures and to extend the useful life of
equipment. On all products for which the Company is authorized to provide
warranty coverage, including certain products from Compaq, Hewlett-Packard, IBM
and others, the Company offers its customers extended warranty service on
standard manufacturer configurations and optional components, up to 24 hours per
day, 365 days per year, anywhere within 100 miles of any of Vanstar's
approximately 90 service locations in the United States.
The Company offers a single point of contact ("SPOC") service to
provide seamless integration and fulfillment of customer's needs for technology
products, services, training, and support. Customers' end users call one
toll-free number for all of their PC needs, including help desk; installs,
moves, adds, and changes ("IMAC"); system maintenance; procurement management;
asset management; training; and network management. The SPOC coordinates all of
the operations and support services with the goal of reducing the total cost of
PC/LAN/WAN ownership, reducing the risk of deploying new technology, increasing
end-user productivity and increasing end-user satisfaction.
The Company also maintains a network operations center to deliver
remote network and systems management services for its customers. The network
operations center provides remote management to actively monitor customer
networks for optimal performance, manage storage requirements and network
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capacity, manage standard PC configurations across the network, manage
electronic distribution of software, and provide network security monitoring and
administration.
The Company provides asset management services. The Company's asset
management system captures and maintains detailed information about a customer's
installed base of PC hardware and software assets, and about all subsequent
service events related to those assets. It generates reports and schedules
through an end-user interface. The Company can provide a detailed analysis of
the installed base for use in managing asset costs.
ACQUISITION SERVICES
Vanstar's Acquisition Services include product procurement,
configuration, distribution, installation, cabling and connectivity. The Company
sources PCs, servers, network products, computer peripherals, and software from
more than 700 vendors, including Compaq; IBM; Hewlett-Packard; Apple Computer,
Inc.; Sun Microsystems, Inc.; Microsoft; Novell, Inc.; Lotus Development; Cisco
Systems; 3Com Corporation; and Bay Networks, Inc. The Company's customer support
groups in Indianapolis, Indiana and Pleasanton, California provide complete
order management services from quotation to order processing, order tracking,
and fulfillment.
Vanstar maintains centralized configuration and distribution facilities
in two highly automated distribution centers located in Indianapolis, Indiana
and Livermore, California. Those distribution facilities handle product
receiving, warehousing, central configuration, testing, order handling, and
shipping to ensure timely and reliable network equipment deployment, with
services such as set-up, installation, cabling, server connection, and testing.
AUTOMATED SYSTEMS AND DELIVERY
Vanstar is committed to delivering its services in innovative ways in
order to keep pace with customer needs and behaviors. The Company offers
automated systems which utilize open architecture and enable Vanstar's customers
to change the processes they use to manage their PC network support
infrastructures, thereby reducing cost and managing complexity. Vanstar has
invested significant resources automating its internal service delivery systems
and developing electronic links between the Company's systems and its customers'
systems. The Company's automated systems include Vanstar's Aviator, Cockpit,
Distribution Center Management System ("DCMS"), FLEX and Tracker, and NOVA.
- Vanstar Aviator. Vanstar's Aviator is an order management system
designed to give customers access to information about products
available from the Company. Vanstar's Aviator is a web-based
system which provides customers with detailed information on
product pricing and availability, and can generate quotes,
purchase orders, order status, invoice history, on-line help, and
toll-free telephone support. With Aviator, customers can place and
track orders themselves.
- Cockpit. Vanstar's customer service representatives use the
Company's order management system, called "Cockpit," to generate
quotes and to enter and track product orders. Cockpit provides
real-time product availability and pricing information, and
maintains detailed, customer-specific account information,
including account history, standard product configurations,
special pricing, locations, authorized purchasing personnel, and
credit limits.
- DCMS, FLEX and Tracker. DCMS and its FLEX systems operate the
Company's automated distribution and configuration centers located
in Indianapolis, Indiana, and Livermore, California. DCMS and FLEX
manage the flow of orders through the distribution process and
provide the on-line information necessary to configure systems to
customers' standards. Operating on a LAN, DCMS assigns a unique
barcode fingerprint to each SKU as it arrives. Warehouse staff use
radio frequency, hand-held devices to manage and track the
movement of product orders through the centers. Vanstar's Tracker
system tracks each package from the warehouse to the customer
site. Vanstar's distribution centers are co-located with Skyway
depots. The Company's Tracker system is integrated with Skyway's
systems, providing complete point-to-point delivery and tracking.
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- NOVA. NOVA is the service delivery system for the management of
Vanstar's SPOC, dispatch, repair, service reengineering, and asset
management service offerings. NOVA's resource allocation system is
designed to ensure that the appropriate technical personnel are
available to respond to customer service calls. Service calls
placed by customers are received through Vanstar's First Touch
program. NOVA determines which field engineer is available and
sends all relevant customer information to the field engineer
through a field computing device. NOVA is backed by more than 50
strategic parts stocking locations in the United States; spare
parts can be delivered the same day or shipped overnight to either
the customer location or the field service engineer.
- Electronic Links. To create a cooperative service environment,
Vanstar uses electronic links to connect its systems to its
customers' systems through Electronic Data Interchange, the
Internet, or private WANs.
CUSTOMERS
The Company's broad customer base of primarily Fortune 1000 companies
and other large enterprises includes the following, all of which purchased
products and services in excess of $10 million during the 12 months ended April
30, 1998 from the Company:
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CUSTOMER NAME INDUSTRY
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Bechtel Corporation Engineering/Construction
BellSouth Corporation Telecommunications
Charles Schwab and Company Inc. Financial Services
Chevron Oil/Gas
Cigna Corporation Insurance
Coca Cola Enterprises Inc. Liquid Non-Alcoholic Beverages
Duke Power Company Utility
Federal Express Corporation Transportation
The Goodyear Tire and Rubber Company Tires and Rubber Products
Hoechst Celanese Corporation Chemicals
IBM Computers
Manpower Inc. Staffing
Microsoft Software
Motorola Inc. High Technology
Monsanto Company Life Sciences
Sun Microsystems, Inc. Computer Systems
Sybase Inc. Software
UNUM Corporation Insurance
Zurich American Insurance Insurance
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No single customer accounted for more than 10% of the Company's revenue
during fiscal year 1998.
Vanstar markets its PC network services by targeting executives of
large enterprises who have IT decision-making authority. As of April 30, 1998,
the Company's domestic sales force consisted of more than 700 field sales and
inside service representatives. Vanstar's direct sales force is comprised of
account managers and technical sales personnel. Vanstar's account management
force is responsible for prospecting new business, maintaining and expanding
relationships with current customers, and ensuring customer satisfaction.
Technical sales personnel provide the technical expertise to support and
supplement the sales effort. To improve sales productivity, Vanstar equips its
sales organization with sales force automation tools that provide them with a
complete suite of marketing and account management tools. These tools reduce the
sales representatives' physical dependence on the branch offices, allowing
Vanstar to operate a "virtual office" environment while sharing information
across multiple departments.
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CERTAIN BUSINESS FACTORS
Significant Fluctuations in Revenues and Operating Results
The Company's quarterly and annual revenues and operating results have
varied significantly in the past and are likely to continue to do so in the
future. Revenues and operating results may fluctuate as a result of the demand
for the Company's products and services, the introduction of new hardware and
software technologies offering improved features, the introduction of new
services by the Company and its competitors, changes in the level of operating
expenses, the amount of vendor incentive funds received by the Company (see
"Dependence on Key Vendors, Vendor Incentives and Product Supply" below), the
timing of major service projects, competitive conditions and economic conditions
generally. In particular, the Company's operating results are highly sensitive
to changes in the mix of the Company's product and service revenues, product
margins, inventory adjustments and interest rates. Although the Company attempts
to control its expense levels, these levels are based, in part, on anticipated
revenue levels. Therefore the Company may not be able to control spending in a
timely manner to compensate for any unexpected decrease in revenue or vendor
incentive funds. Further, the purchase of the Company's products and services
generally involves a significant commitment of capital, with the attendant
delays frequently associated with large capital expenditures and authorization
procedures within an organization. For these and other reasons, the Company's
operating results are subject to a number of significant risks over which the
Company has little or no control, including customers' technology life cycle
needs, budgetary constraints and internal authorization reviews. In addition,
the Company historically has experienced significant revenue fluctuations
because of shortages of supply from certain vendors. Shortages of supplies from
vendors have previously occurred due primarily to credit limitations placed on
the Company and the inability of certain manufacturers to supply product on a
timely basis. Any significant shortages of supplies could have a material
adverse effect on the Company. The Company may also experience fluctuations in
its operating costs in the future as it continues to make acquisitions,
implement new information management systems and adjust its business strategy in
the light of changing technology and market conditions. Accordingly, the Company
believes that quarterly and yearly period-to-period comparisons of its operating
results should not be relied upon as an indication of future performance. In
addition, the results of any quarterly period are not necessarily indicative of
results to be expected for a full fiscal year.
Substantial Indebtedness and Fixed Obligations; Dependence on IBMCC; Interest
Rate Sensitivity
The Company's business requires significant working capital to finance
product inventory and accounts receivable. The Company has funded a significant
portion of its working capital requirements through its financing program
agreement (the "Financing Program Agreement") with IBM Credit Corporation
("IBMCC"). As part of the Company's refinancing plan in the fiscal year ended
April 30, 1997, the Company used an aggregate of $300.7 million from its
offering of Preferred Securities (as defined herein) and the Securitization
Facility (as defined herein) to reduce the Company's outstanding indebtedness
under the Financing Program Agreement. At April 30, 1998, the outstanding
principal balance under the Financing Program Agreement was approximately $465.8
million, out of a total of $550 million in available credit. Borrowings under
the line of credit are secured by certain assets of the Company, including
accounts receivable, inventory and equipment. The line of credit is currently
available through October 31, 1998. In the event of termination of the Financing
Program Agreement, the outstanding borrowings under the Financing Program
Agreement mature at the end of the term of the line of credit. Borrowings under
the Financing Program Agreement bear interest at a rate equal to the London
Interbank Offered Rate ("LIBOR") plus 1.6 percentage points, which equated to a
rate of 7.3% as of April 30, 1998. There can be no assurance that IBMCC will
continue to finance the Company's operations, or if such financing is not
continued, that the Company will be able to secure additional debt financing.
During October 1996, Vanstar Financing Trust, a statutory business
trust formed under the laws of the State of Delaware by the Company as sponsor
(the "Trust"), issued 4,025,000 Trust Convertible Preferred Securities
("Preferred Securities") to certain initial purchasers in connection with a Rule
144A offering of the Preferred Securities. In addition, the Trust issued 124,484
common securities to the Company. The proceeds of those sales were invested by
the Trust in $207,474,200 aggregate principal amount of the Company's 6 3/4%
Convertible Subordinated Debentures due 2016 (the "Debentures"). The Preferred
Securities are mandatorily redeemable upon the maturity of the Debentures on
October 1, 2016 or earlier to the extent of any redemption by the Company of any
Debentures. Subject to the Company's right to defer interest payments
thereunder, the
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Company is obligated to make quarterly interest payments under the Debentures of
approximately $3.5 million.
Effective December 20, 1996, the Company established a revolving
funding trade receivables securitization facility (the "Securitization
Facility"), which currently provides the Company with up to $200 million in
available credit. In connection with the Securitization Facility, the Company
sells, on a revolving basis through a wholly-owned subsidiary, an undivided
interest in certain of its trade receivables ("Pooled Receivables"). As of April
30, 1998, the gross proceeds of those sales totaled $200 million. The majority
of those proceeds were used in fiscal year 1997 to reduce the Company's
outstanding indebtedness under the Financing Program Agreement. The additional
borrowings under the Securitization Facility are used, among other purposes, to
provide working capital.
As of April 30, 1998, the Company's total amount of debt outstanding
(including debt evidenced by the Debentures) was approximately $888 million and
the Company had stockholders' equity of approximately $208 million. In addition
to its substantial indebtedness, the Company has significant commitments and
obligations. There can be no assurance that the Company's operating results will
be sufficient for payment of all of its fixed obligations when due. The degree
to which the Company is leveraged could have important consequences including
the following: (i) the Company's ability to obtain other financing in the future
may be impaired or may be available only on terms dilutive to the Company's
stockholders; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness; and (iii) a high degree of leverage may make the Company more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures. The Company's ability to make scheduled payments on or,
to the extent not restricted pursuant to the terms thereof, to refinance its
indebtedness depends on its financial and operating performance, which is
subject to prevailing economic conditions and to financial, business and other
factors beyond its control.
Dependence on Key Vendors, Vendor Incentives and Product Supply
A significant portion of the Company's revenue is derived from sales of
PC network hardware, peripherals and software, including products of various
major vendors, particularly IBM, Compaq and Hewlett-Packard. The Company has
negotiated the terms of purchase arrangements, including product cost, price
protection, return policies, product allocations, delivery, training, and
support directly with all major vendors. The Company's agreements with its
vendors are generally on a non-exclusive basis and may be terminated by the
vendors upon notice typically ranging from 30 to 90 days. Those agreements
provide the Company with price protection on eligible products in the Company's
inventory. The loss of a major vendor, the deterioration of the Company's
relationship with a major vendor or the failure of the Company to establish good
relationships with major new vendors as they develop could have a material
adverse effect on the Company's business. The Company is also dependent, in
part, upon vendor financing for working capital requirements. The failure of the
Company to obtain vendor financing on satisfactory terms and conditions could
have a material adverse effect on the Company's business, financial condition
and results of operations.
As is typical in its industry, the Company's primary vendors also
provide various incentives for promoting and marketing their products. The
incentives typically range from 1% to 5% of sales or purchases of the vendor's
products. The three major forms of vendor incentives received by the Company are
co-operative funds, market development funds and vendor rebates. Co-operative
funds are earned based upon the sale of the vendor's products and generally must
be used to offset the costs associated with advertising and promotion pursuant
to programs established by the individual vendor. Market development funds are
earned based upon the Company's purchases or sales of the vendor's products and
generally must be used for market development activities approved by the
respective vendor. Vendor rebates are based upon the Company attaining certain
sales or purchase volume targets. Rebates generally can be used as the Company
deems appropriate. Any change in the provision of these incentives could have a
material adverse effect on the Company's operating results, at least until the
Company is able to adjust its expense levels.
The PC industry experiences significant product supply shortages and
customer order backlogs from time to time due to the inability of certain
manufacturers to supply certain products on a timely basis. In addition, certain
vendors have initiated new channels of distribution that increase competition
for the available product supply. The Company has experienced product supply
shortages in the past and expects to experience such shortages from time to time
in the future. Failure to obtain adequate product supplies to fulfill customer
orders on
10
<PAGE> 11
a timely basis could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company may from
time to time enter into long-term agreements with vendors and suppliers to
purchase certain amounts of product over an extended period of time. There can
be no assurance that the Company will be able to sell such levels of a product
or that such agreements will be ultimately beneficial to the Company.
Gross Margin Risk
Over the past several years, gross margins on computer product sales
have declined due to computer price reductions and intense competition. This
competition will continue to put pressure on the product sales gross margins.
The growth of Professional Services has been substantial for the Company over
the past two fiscal years. There can be no assurance that Professional Services
revenue will continue to grow at rates similar to the previous two years. In
addition, the gross margins for these Professional Services may also decline as
competition continues to intensify. This continued competition will also put
pressure on Professional Services billing and utilization rates. Any material
decrease in those rates may cause a decrease in both gross margin percentage and
the total gross margin. Any decrease in gross margin could have a material
adverse effect on the Company.
Inventory Management
The PC industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence, which can place inventory at considerable valuation risk.
Although it is industry practice for the Company's suppliers to provide price
protection intended to reduce the risk of inventory devaluation, such policies
are subject to change. The Company also has the option of returning, subject to
certain limitations, a percentage of its current product inventories each
quarter to certain manufacturers as it assesses each product's current and
forecasted demand. The amount of inventory that can be returned to suppliers
varies under the Company's agreements and such return policies may provide only
limited protection against excess inventory. There can be no assurance that
suppliers will continue such policies, that unforeseen new product developments
will not materially adversely affect the Company or that the Company can
successfully manage its existing and future inventories.
In order to adequately service its customers, the Company is required
to maintain significant quantities of consumable and repairable parts ("spare
parts") for extended periods of time. Any decrease in the demand for the
Company's maintenance services could result in a portion of the spare parts
becoming excess or obsolete. In addition, rapid changes in technology could
render portions of the Company's spares obsolete and unusable giving potential
to write-offs and a reduction in profitability. The inability of the Company to
effectively manage its spare parts or the need to write-off significant portions
due to obsolescence could have a material adverse effect on the Company's
operating results.
Build-to-Order Delivery Model and Final Assembly
Vanstar is participating in "Build-to-Order" and "Final Assembly"
programs with Compaq, IBM and Hewlett-Packard. To date, these programs have not
been used significantly, but the Company expects these programs to be used
during fiscal year 1999. The objective of these programs is to lower costs by
reducing finished goods inventory, increasing inventory turn ratios and reducing
inventory carrying costs. The Company believes that being able to effectively
utilize these programs will play an important role in providing a competitive
advantage. The potential disadvantage of the Build-to-Order and Final Assembly
programs is that reduced inventory levels could result in inventory shortages
and thereby negatively impact customer service. Conversely, the terms and
conditions associated with these programs typically provide more limited price
protection than has previously been available to the Company. As a result,
carrying higher inventory levels would expose the Company to risk from price
reductions.
Risks Associated with Rapid Technological Change; Dependence on Information
Systems
The markets for the Company's product and service offerings are
characterized by rapidly changing technology and frequent new product and
service offerings. The introduction of new technologies can render existing
products and services obsolete or unmarketable. The Company's continued success
will depend on its ability to enhance existing products and services and to
develop and introduce, on a timely and cost-effective
11
<PAGE> 12
basis, new products and services that keep pace with technological developments
and address increasingly sophisticated customer requirements. The Company's
business, financial condition and results of operations could be materially
adversely affected if the Company were to incur delays in sourcing and
developing product and service enhancements or new products and services or if
such product and service enhancements or new products and services did not gain
market acceptance.
In addition, the Company has developed proprietary automated systems to
enhance the delivery of its services and products and provide it with a
competitive advantage. No assurance can be given that the Company's automated
systems will function as anticipated, will result in lower costs to the Company
or its customers or will not be rendered obsolete as a result of technological
change.
Concentration of Revenues
No single customer accounted for more than 10% of the Company's
revenues during fiscal years 1998 or 1997. However, during fiscal 1998, the
Company derived approximately 48% of its revenues from its 50 largest customers.
To the extent that the Company is successful in expanding its relationship with
new and existing customers among large enterprises such as the Fortune 1000, its
revenues may become more concentrated. While the Company seeks to build
long-term customer relationships, revenues from any particular customer can
fluctuate from period to period due to such customer's purchasing patterns. Any
termination or significant disruption of the Company's relationships with any of
its principal customers could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, a
deterioration in the financial condition of any of its principal customers could
expose the Company to the possibility of large accounts receivable write-offs,
which could materially adversely affect the Company's financial condition and
results of operations.
Intense Competition
The markets in which the Company operates are characterized by intense
competition from several types of technical service providers, including
mainframe and mid-range computer manufacturers and outsourcers entering the PC
services marketplace. These include Digital Equipment Corporation Multi-Vendor
Services, Electronic Data Systems Corporation, Hewlett-Packard Multi-Vendor
Services and IBM Global Services. Other competitors include VARs, systems
integrators and third-party service companies, such as CompuCom Systems, Inc.;
DecisionOne Corporation; Entex Information Services, Inc.; GE Information
Technology Services; InaCom Corp.; MicroAge, Inc.; and Technology Service
Solutions. The Company's markets require it to maintain sales personnel to
compete for commercial customers and to have employees experienced in responding
to the competitive bidding requirements of government-related customers. The
Company expects to face further competition from new market entrants and
possible alliances between competitors in the future. Certain of the Company's
current and potential competitors have greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, to devote greater resources to the development, promotion and
sales of their products and services or be more effective in responding in
competitive bidding situations than the Company.
Government Contracts
The Company and its subsidiaries act as prime contractors and
subcontractors to various government entities, including agencies of the United
States government. The Company and its subsidiaries primarily provide computer
equipment and related products to governmental entities pursuant to fixed-priced
contracts. Under the contracts, the Company is obligated to deliver products at
a fixed price when and if ordered. All of the equipment sold by the Company to
government entities under those contracts is acquired from third parties at
then-prevailing market prices. Thus, the Company bears the burden of any
manufactures' price increases. The Company's government contracts are subject to
specific procurement regulations and a variety of socioeconomic and other
requirements. Failure to comply with such regulations and requirements could
lead to suspension or debarment, for cause, from additional government
contracting or subcontracting. Among the causes for debarment are violations of
various statutes, including those related to employment practices, the
protection of the environment and the accuracy of records. In addition,
government contractors are subject to oversight audits by government
representatives and may become subject to profit and cost control limitations.
12
<PAGE> 13
Although certain of the Company's government contracts have a term of
several years, appropriations for purchases under such contracts are typically
made on a fiscal-year basis only. In addition, even if appropriations are made
for purchases by a governmental entity, the entity may not use all of its
appropriations authority with respect to acquisitions of equipment from the
Company. Consequently, there can be no assurance regarding the actual volume of
sales that may be made thereunder, if any, during any period of time. Finally,
government contracts are typically subject to termination, in whole or in part,
without notice, at the convenience of the government or agency involved. Any
substantial reduction in purchases by governmental entities could have a
material adverse effect on the Company.
Dependence On and Need to Recruit and Retain Key Management and Technical
Personnel
The Company's success depends to a significant extent on its ability to
attract and retain key personnel. In particular, the Company is dependent on its
senior management team and technical personnel. The Company has significantly
expanded its technical staff, including its systems engineering force, in recent
years. As of May 31, 1998 the Company employed more than 4,600 technical
engineers and consulting professionals. Competition for such technical personnel
is intense and no assurance can be given that the Company will be able to
recruit and retain such personnel. The failure to recruit and retain management
and technical personnel could have a material adverse effect on the Company's
growth, revenues and results of operations.
In addition, the Company's growth resulting from expanding operations
and acquisitions has placed significant demands on the Company's management,
operational and technical resources. Such growth is expected to continue to
challenge the Company's sales, marketing, technical and support personnel and
senior management. The Company's future performance will depend in part on its
ability to manage expanding domestic and international operations and to adapt
its operational systems to respond to changes in its business. In particular,
the Company's success will depend on its ability to attract, retain and train
adequate numbers of technical field personnel and effectively integrate any
acquired business operations.
EMPLOYEES
As of May 1998, the Company had approximately 7,100 full-time
employees. The Company has never experienced a work stoppage and its employees
are not covered by a collective bargaining agreement. The Company believes that
its relations with its employees are good.
Technical Personnel. Vanstar deploys more than 4,600 technical
engineers and consulting professionals in the United States. The Company intends
to continue to expand its staff of technical professionals. The technical
personnel are both client dedicated and centrally dispatched, and provide
service on either a contract basis or a project basis. The Company is also
developing groups of technical professionals who specialize in the areas of
operations, methods and practices, process management, and consulting. PSO
currently has 6 groups of national consulting practices staffed with high-end
consultants focused on emerging technologies. The Company's engineering staff is
certified in the major network operating systems and has experience with LAN and
WAN networking products and protocols. The Company supports major network
operating systems, including Microsoft Windows NT and BackOffice, Novell
NetWare, IBM LAN Server and AppleShare.
13
<PAGE> 14
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the Company's executive officers is provided
below.
William Y. Tauscher, age 48, became Chairman of the Board of the
Company in September 1987 and Chief Executive Officer in September 1988. He was
President from September 1988 to July 1995. Prior to September 1988, Mr.
Tauscher was Chairman of the Board, President and Chief Executive Officer of
FoxMeyer Corporation, a wholesale pharmaceutical distributor and franchiser
which he co-founded in 1978 and a subsidiary of National Intergroup, Inc., a
diversified holding corporation.
Jay S. Amato, age 38, became President and Chief Operating Officer in
July 1995 and a director in December 1995. From January 1993 until July 1995, he
was Senior Vice President and President, North America Operations of the
Company. From June 1991 until January 1993, Mr. Amato was Senior Vice President,
Major Market Operations of the Company, and from April 1989 until June 1991, he
was Vice President of Business Development of the Company.
Richard N. Anderson, age 41, became Senior Vice President and General
Manager, Sales and Life Cycle Management in September 1997. He was Senior Vice
President, Sales from December 1993 to September 1997 and Vice President, Field
Sales from October 1992 until December 1993.
Kauko Aronaho, age 59, became Senior Vice President and Chief Financial
Officer in June 1997. He worked as an independent consultant in the technology
industry from June 1996 to June 1997. From August 1995 to June 1996, Mr. Aronaho
was the President of SHL Computer Innovations, Inc., a Canadian provider of
products and services to build and manage computer networks ("SHL Computer"). He
was Senior Vice President and Chief Financial Officer of SHL Computer from 1989
to August 1995.
H. Christopher Covington, age 48, became Senior Vice President, General
Counsel and Secretary in August 1994. From April 1993 until August 1994, he was
Vice President. From November 1990 until April 1993, Mr. Covington was Assistant
General Counsel and Assistant Secretary of the Company.
Wayne M. Keegan, age 43, became Senior Vice President, Human Resources
in October 1997. From September 1996 to October 1997, he was Vice President of
Human Resources for The London International Group, Inc., a medical technologies
company. From February 1991 to September 1996, Mr. Keegan was Vice President of
Human Resources and Administration for The Ertl Company, Inc., a producer of
toys, models and collectibles.
Chris M. Laney, age 41, became Senior Vice President and General
Manager, Professional Services in September 1997. He was Senior Vice President,
Networking Services from July 1995 to September 1997. From July 1993 until July
1995, Mr. Laney was Vice President, Networking Services. From April 1992 until
July 1993, he was Western Regional Director of Networking Services.
Ahmad Manshouri, age 57, became Senior Vice President and General
Manager Product Operations in July 1995. He was Senior Vice President,
Purchasing and Vendor Management from January 1993 until July 1995. From July
1992 until January 1993, Mr. Manshouri was a Vice President of the Company.
14
<PAGE> 15
ITEM 2. PROPERTIES
The Company leases 29,277 square feet of office space for its corporate
headquarters in Atlanta, Georgia under a lease expiring in August 1999. The
Company leases 92,335 square feet of office space in Alpharetta, Georgia under
two separate leases expiring in November of 1999 and December 2001. The Company
also leases three buildings in Roswell, Georgia totaling 86,880 square feet for
one of its corporate divisions, under a lease expiring in May of 2001. The
Company leases 89,086 square feet of office space in Pleasanton, California
under a lease expiring in May of 2006. The Company's main distribution center is
located in Indianapolis, Indiana, consisting of 415,680 square feet under a
lease expiring in April of 2007. Another distribution center is located in
Livermore, California and equates to 192,000 square feet along with a return
center nearby in Livermore, which consists of 29,000 square feet. The leases for
both facilities in Livermore expire in September of 1999. The Company also
leases a 51,520 square feet repair facility in Wharton, New Jersey. The lease
expires in September of 2004. The Company's new Solution Center, consisting of
85,852 square feet, is located in Tempe Arizona and has a lease term extending
until December of 2007. The Company leases a number of other smaller branch
facilities across the country which contribute to the day-to-day operations of
the Company. The Company believes that its facilities are suitable and adequate
for its present operations.
ITEM 3. LEGAL PROCEEDINGS
On July 3, 1997, a trust claiming to have purchased shares of the
Common Stock filed suit in Superior Court of the State of California. The suit
is entitled David T. O'Neal Trust, Dated 4/1/77, v. Vanstar Corporation, et al.,
Consolidated Case No. CV767266. On January 21, 1998, the same plaintiff, along
with another plaintiff claiming to have purchased shares of Common Stock, filed
suit in the United States District Court for the Northern District of
California, making allegations virtually identical to those in the earlier suit.
The recent suit is captioned David T. O'Neal Trust, Dated 4/1/77, et al. v.
Vanstar Corporation, et al., Case No. C-98-0216 MJJ. Both suits name as
defendants the Company, certain directors and officers of the Company, and the
Company's principal stockholder, Warburg Pincus Capital Co., L.P., and certain
of its affiliates. The complaints in both suits generally allege, among other
things, that the defendants made false or misleading statements or concealed
information regarding the Company and that the plaintiffs, as holders of the
Common Stock, suffered damage as a result.
The plaintiffs in both suits seek class action status, purporting to
represent a class of purchasers of Common Stock between March 11, 1996 and March
14, 1997, and seek damages in an unspecified amount, together with other relief.
The complaint in the first suit purports to state a cause of action under
California law; the complaint in the recent suit purports to state two causes of
action under the Securities Exchange Act of 1934. On January 28, 1998, the
California Superior Court dismissed the plaintiffs' complaint in the first suit
but granted the plaintiffs leave to amend to cure the deficiencies in their
complaint. The plaintiffs have amended the complaint, but the court has not yet
ruled on the sufficiency of that amended complaint. The Company believes that
the plaintiffs' allegations in both suits are without merit and intends to
defend the suits vigorously.
Various other legal actions arising in the normal course of business
have been brought against the Company and certain of its subsidiaries.
Management believes that the ultimate resolution of these actions will not have
a material adverse effect on the Company's financial position or results of
operations, taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended April 30, 1998.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "VST." The following table sets forth, for the periods
indicated, the range of high and low sales prices for the Common Stock on the
NYSE.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal Year Ended April 30, 1998:
Fourth Quarter $ 16 1/4 $ 11 1/4
Third Quarter 16 11
Second Quarter 17 1/4 11 9/16
First Quarter 15 1/2 7 1/4
Fiscal Year Ended April 30, 1997:
Fourth Quarter $ 16 1/2 $ 6 1/2
Third Quarter 28 1/4 13 3/4
Second Quarter 29 3/4 15 3/4
First Quarter 17 3/8 12 1/4
</TABLE>
As of May 15, 1998, there were 350 holders of record of the Common
Stock.
The Company has never declared or paid any cash dividends on the Common
Stock and does not presently intend to pay cash dividends on the Common Stock in
the foreseeable future. The Company intends to retain future earnings for
reinvestment in its business. The Company's Financing Program Agreement with
IBMCC limits the Company's ability to declare or pay cash dividends on the
Common Stock. In addition, the Indenture relating to the Debentures gives the
Company the right to defer interest payments on the Debentures. If the Company
exercises that interest payment deferral option, then during any deferral
period, the Company may not declare or pay dividends on, or make distributions
with respect to, the Common Stock, except dividends or distributions in shares
of the Common Stock.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated annual financial data presented below was
derived from the Company's audited consolidated financial statements. This
selected consolidated annual financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this report.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Seven
Months
Year Ended April 30, Ended Year Ended
------------------------------------------------------ April 30, September 30,
1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue $ 2,838,802 $ 2,178,566 $ 1,804,813 $ 1,385,392 $ 586,514 $ 1,099,813
Gross margin 414,684 313,964 244,927 210,538 97,002 178,024
Operating income (loss) 101,382 68,279 43,047 28,127 (434) (3,296)
Income (loss) from
continuing operations(1) 44,859 35,138 8,053 1,268 (6,969) (18,751)
Net income (loss) 35,947 29,994 17,247 1,268 44,505 (4,246)
Income (loss) from continuing
operations per share (2)(4)
Basic 0.83 0.72 0.25 0.04 (0.62) (2.02)
Diluted 0.81 0.69 0.23 0.04 (0.24) (1.57)
Income (loss) per share (2)(4)
Basic 0.83 0.72 0.53 0.04 3.78 (0.88)
Diluted 0.81 0.69 0.50 0.04 1.44 (0.68)
<CAPTION>
April 30,
-------------------------------------------------------------------- September 30,
1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 1,095,764 $ 761,423 $ 803,365 $ 705,295 $ 610,458 $ 576,279
Short-term borrowings 308,351 74,402 - - 262,783 194,660
Current maturities of
long-term debt 5,800 4,785 1,759 7,685 12,788 23,190
Long-term debt, less
current maturities 2,337 5,946 293,007 337,750 6,732 13,017
Company-obligated
mandatorily redeemable
convertible preferred
securities of subsidiary
trust holding solely
convertible subordinated
debt securities of
the company (3) 194,739 194,518 - - - -
Redeemable preferred stock
and accrued dividends - - - - 4,777 4,464
Total stockholders' equity 207,948 166,971 127,053 22,589 24,797 13,584
</TABLE>
(1) Represents income from continuing operations before distributions on
preferred securities of Trust of $8.9 million and $5.1 million (net of
applicable taxes) for the years ended April 30, 1998 and 1997,
respectively.
(2) Earnings per share for the fiscal years ended April 30, 1996 and 1995 are
presented giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the exchange of all outstanding
warrants for shares of Common Stock in connection with the Company's
initial public offering on March 11, 1996, as if the conversion had
occurred at the later of the beginning of fiscal year 1995 or the issuance
date of the respective security.
(3) The sole asset of the Trust is $207.5 million aggregate principal amount of
the Company's 6 3/4% Convertible Subordinated Debentures due year 2016.
(4) Effective during the year ended April 30, 1998, the Company adopted FASB
Statement No. 128, Earnings per Share ("Statement 128"). The Company has
restated all prior periods to reflect the change in method required by
Statement 128.
17
<PAGE> 18
QUARTERLY OPERATING RESULTS
The following tables set forth the unaudited operating results for each
of the four quarters in fiscal year 1998 and 1997. These numbers have been
derived from the Company's unaudited quarterly financial statements and in the
opinion of management, reflect all adjustments (of a normal and recurring
nature) which are necessary for a fair representation of the results of
operations for the interim periods.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1998
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Acquisition services $585,250 $575,606 $624,899 $581,249
Life cycle services 80,898 72,889 65,711 56,194
Professional services 43,095 43,195 42,470 35,053
Other 3,812 11,674 8,669 8,138
-------- -------- -------- --------
Total revenue 713,055 703,364 741,749 680,634
======== ======== ======== ========
GROSS MARGIN:
Acquisition services 59,012 56,161 58,831 56,604
Life cycle services 30,096 24,882 20,023 15,867
Professional services 18,975 18,353 20,791 14,692
Other 1,863 7,110 6,009 5,415
-------- -------- -------- --------
Total gross margin 109,946 106,506 105,654 92,578
======== ======== ======== ========
GROSS MARGIN PERCENTAGE:
Acquisition services 10.1% 9.8% 9.4% 9.7%
Life cycle services 37.2% 34.1% 30.5% 28.2%
Professional services 44.0% 42.5% 49.0% 41.9%
Other 48.9% 60.9% 69.3% 66.5%
-------- -------- -------- --------
Total gross margin percentage 15.4% 15.1% 14.2% 13.6%
======== ======== ======== ========
Selling, general and administrative expenses 82,281 77,862 79,701 73,458
% of total revenue 11.5% 11.1% 10.7% 10.8%
Operating income 27,665 28,644 25,953 19,120
% of total revenue 3.9% 4.1% 3.5% 2.8%
-------- -------- -------- --------
NET INCOME $ 9,630 $ 10,457 $ 9,300 $ 6,560
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.22 $ 0.24 $ 0.22 $ 0.15
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.22 $ 0.24 $ 0.21 $ 0.15
======== ======== ======== ========
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1997
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Acquisition services $457,656 $438,587 $463,057 $490,065
Life cycle services 50,697 47,944 42,532 38,939
Professional services 31,208 30,555 27,600 21,698
Other 8,640 10,456 10,544 8,388
-------- -------- -------- --------
Total revenue 548,201 527,542 543,733 559,090
======== ======== ======== ========
GROSS MARGIN:
Acquisition services 45,746 43,494 46,441 48,472
Life cycle services 17,444 16,762 14,548 14,485
Professional services 9,126 9,995 12,273 8,417
Other 5,577 6,417 8,019 6,748
-------- -------- -------- --------
Total gross margin 77,893 76,668 81,281 78,122
======== ======== ======== ========
GROSS MARGIN PERCENTAGE:
Acquisition services 10.0% 9.9% 10.0% 9.9%
Life cycle services 34.4% 35.0% 34.2% 37.2%
Professional services 29.2% 32.7% 44.5% 38.8%
Other 64.5% 61.4% 76.1% 80.4%
-------- -------- -------- --------
Total gross margin percentage 14.2% 14.5% 14.9% 14.0%
======== ======== ======== ========
Selling, general and administrative expenses 68,960 60,489 59,340 56,896
% of total revenue 12.6% 11.5% 10.9% 10.2%
Operating income 8,933 16,179 21,941 21,266
% of total revenue 1.6% 3.1% 4.0% 3.8%
-------- -------- -------- --------
NET INCOME $ 1,632 $ 7,521 $ 11,078 $ 9,763
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ .04 $ .18 $ .27 $ .24
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ .04 $ .17 $ .26 $ .23
======== ======== ======== ========
</TABLE>
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations for the three fiscal years ended
April 30, 1998 were impacted by the following transactions. On May 24, 1996, the
Company acquired certain of the assets and business operations of the western
and southwestern regions of Dataflex Corporation (the "Dataflex Regions"). The
Dataflex Regions offered PC product distribution, service and support in the
states of Arizona, California, Colorado, Nevada, New Mexico, and Utah with
combined revenues of $145 million reported for the fiscal year ended March 31,
1996. On September 4, 1996, the Company acquired Mentor Technologies, Ltd., an
Ohio limited partnership providing training and educational services in Ohio and
throughout the upper mid-western United States ("Mentor Technologies"). Mentor
Technologies reported revenues of $5.5 million for the calendar year ended
December 31, 1995. During October 1996, the Company, through the Vanstar
Financing Trust, issued 4,025,000 Preferred Securities. The Preferred Securities
are convertible into the Common Stock and pay cumulative cash distributions at
an annual rate of 6 3/4% of the liquidation amount of $50 per security. On
December 16, 1996, the Company acquired Contract Data Services, Inc. ("CDS"), a
North Carolina corporation with reported revenues of $74.3 million for the
fiscal year ended March 31, 1996. CDS provided outsourcing of integrated
information technology services, related technical support services and
procurement of computer hardware and software. Effective December 20, 1996, the
Company established the Securitization Facility, which currently provides the
Company with up to $200 million in available credit. On July 7, 1997, the
Company acquired certain assets and assumed certain liabilities of Sysorex
Information Systems, Inc. ("Sysorex"), a government technology provider which
reported revenues of approximately $150 million for its fiscal year ended
September 30, 1996.
Vanstar's four primary sources of revenue are: Acquisition Services
(formerly referred to as "Product"), Life Cycle Services, Professional Services,
and Other. The Company refers to the integration of the offerings of design and
consulting, acquisition and deployment, operation and support, and enhancement
and migration as "Life Cycle Management." For larger clients, Vanstar can manage
every phase of the life cycle of its customers' PC networks. Acquisition
Services revenue is primarily derived from the sale of computer hardware,
software, peripherals and communications devices manufactured by third parties
and sold by the Company, principally to implement integration projects. Life
Cycle Services revenue is primarily derived from services performed for the
desktop and focused on the client or user of the PC network. These support
services include desktop installation, repair and maintenance, moves, adds and
changes, extended warranty, asset management and help desk. Professional
Services revenue is primarily derived from high value-added services, including
services focused on the server and communication segments of the PC network
infrastructure. Professional Services revenue includes network installation,
design and consulting, and enhancement and migration, as well as server
deployment and support. Other revenue has been derived primarily from training
and education services and from fees earned on the distribution services
agreement with ComputerLand Corporation (formerly with Merisel FAB). Pursuant to
the distribution services agreement, the Company provided product distribution
to franchises and affiliates of ComputerLand Corporation ("Computerland"), a
subsidiary of Synnex Technologies, Inc. ("Synnex"), through January 1998.
20
<PAGE> 21
The following table sets forth, for the periods indicated, the
Company's (i) total revenue, gross margin and gross margin percentage by revenue
source, (ii) selling, general and administrative expenses in total and as a
percentage of total revenue and (iii) operating income in total and as a
percentage of total revenue:
<TABLE>
<CAPTION>
(Dollars in thousands)
YEAR ENDED APRIL 30,
-------------------------------------------------
1998 1997 1996
--------------- --------------- ------------
REVENUE:
<S> <C> <C> <C>
Acquisition services $2,367,004 $1,849,365 $1,578,298
Life cycle services 275,692 180,112 138,418
Professional services 163,813 111,061 58,127
Other 32,293 38,028 29,970
---------- ---------- ----------
Total revenue $2,838,802 $2,178,566 $1,804,813
========== ========== ==========
GROSS MARGIN:
Acquisition services $ 230,608 $ 184,153 $ 147,894
Life cycle services 90,868 63,239 49,131
Professional services 72,811 39,811 23,013
Other 20,397 26,761 24,889
---------- ---------- ----------
Total gross margin $ 414,684 $ 313,964 $ 244,927
========== ========== ==========
GROSS MARGIN PERCENTAGE
Acquisition services 9.7% 10.0% 9.4%
Life cycle services 33.0% 35.1% 35.5%
Professional services 44.4% 35.8% 39.6%
Other 63.2% 70.4% 83.0%
---------- ---------- ----------
Total gross margin percentage 14.6% 14.4% 13.6%
========== ========== ==========
Selling, general and administrative expenses $ 313,302 $ 245,685 $ 201,880
% of total revenue 11.0% 11.3% 11.2%
Operating income $ 101,382 $ 68,279 $ 43,047
% of total revenue 3.6% 3.1% 2.4%
</TABLE>
Year Ended April 30, 1998 as Compared to the Year Ended April 30, 1997
Acquisition services. Revenue increased 28.0% to $2.4 billion for the
year ended April 30, 1998 from $1.8 billion for the year ended April 30, 1997 as
a result of the Company's successful sales and marketing efforts, strengthened
market position and increased sales resulting from the acquisitions of CDS, the
Dataflex Regions and Sysorex. Gross margin increased 25.2% to $230.6 million for
the year ended April 30, 1998 from $184.2 million for the year ended April 30,
1997. Gross margin percentage decreased to 9.7% for the year ended April 30,
1998 from 10.0% for the year ended April 30, 1997. The decrease in gross margin
percentage was due to lower margins on sales to the federal government and the
intense competition that exists in the product sales business. This was
partially offset by an increase in vendor incentive funds. Vanstar operates in a
very aggressive business environment that will continue to put pressure on unit
pricing and gross margin received from product sales.
Life cycle services. Revenue increased 53.1% to $275.7 million for the
year ended April 30, 1998 from $180.1 million for the year ended April 30, 1997.
This increase was the result of increased demand for the Company's overall life
cycle service offerings plus increased sales as the result of the acquisition of
CDS in December 1996. Gross margin increased 43.7% to $90.9 million for the year
ended April 30, 1998 from $63.2 million for the year ended April 30, 1997. Gross
margin percentage decreased to 33.0% for the year ended April 30, 1998 from
35.1% for the year ended April 30, 1997 primarily due to one-time implementation
costs associated with the Life Cycle Services support system.
21
<PAGE> 22
Professional services. Revenue increased 47.5% to $163.8 million for
the year ended April 30, 1998 from $111.1 million for the year ended April 30,
1997. This increase was a result of increased demand for the Company's
higher-end consulting, design and project management services, as well as higher
rates charged for those services. The Company believes that increased customer
demand resulted from the continued transition by the Company's customers to new
higher-performance technologies and increased utilization of client/server
networks. Gross margin increased 82.9% to $72.8 million for the year ended April
30, 1998 from $39.8 million for the year ended April 30, 1997. Gross margin
percentage increased to 44.4% for the year ended April 30, 1998 from 35.8% for
the year ended April 30, 1997 primarily due to higher utilization rates, as well
as higher rates charged for professional services, which were partially offset
by higher labor costs.
Other. Revenue decreased 15.1% to $32.3 million for the year ended
April 30, 1998 from $38.0 million for the year ended April 30, 1997 primarily
due to a decrease in the fees earned on the distribution agreement with Synnex's
subsidiary, Computerland, partially offset by proceeds from the sale of the
classroom instruction portion of the Education Services business in January
1998. The Company completed its obligation under the Synnex agreement in January
1998. Gross margin decreased 23.8% to $20.4 million for the year ended April 30,
1998 from $26.8 million for the year ended April 30, 1997. Gross margin
percentage decreased to 63.2% for the year ended April 30, 1998 from 70.4% for
the year ended April 30, 1997 primarily as a result of a change in revenue mix.
In fiscal year 1998 training-related revenue accounted for 68.7% of the total
other services revenue compared to only 46.1% of the total other services
revenue in fiscal year 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 27.5% to $313.3 million for the year ended
April 30, 1998 from $245.7 million for the year ended April 30, 1997. Selling,
general and administrative expenses as a percentage of total revenue decreased
to 11.0% for the year ended April 30, 1998 from 11.3% for the year ended April
30, 1997. The increase in selling, general and administrative expenses was
primarily due to the continued increase in services revenue as a percentage of
total revenue (which carries higher selling, general and administrative expenses
than product) and increases in the corporate infrastructure. This was partially
offset by an increase in vendor incentive funds received. These vendor incentive
funds are based principally on the attainment of certain sales activities or
sales volumes of vendor's products. There can be no assurance that vendor
incentive funds will continue at the levels experienced during the year ended
April 30, 1998. A substantial reduction in these vendor funds available to the
Company could have a material adverse effect on selling, general and
administrative expenses as a percentage of revenue and future results of
operations.
Operating income. Operating income increased 48.5% to $101.4 million
for the year ended April 30, 1998 from $68.3 million for the year ended April
30, 1997. Operating income as a percentage of total revenue increased to 3.6%
for the year ended April 30, 1998 from 3.1% for the year ended April 30, 1997 as
a result of the increase in total gross margin percentage and a reduction in
selling, general and administrative expenses as a percentage of revenue.
Interest income. Interest income decreased 67.5% to $1.2 million for
the year ended April 30, 1998 from $3.7 million for the year ended April 30,
1997 primarily due to lower discounts taken.
Financing expenses, net. Financing expenses, net for the year ended
April 30, 1998 represents primarily interest incurred on borrowings under the
Company's Financing Program Agreement with IBMCC and discounts and net expenses
associated with the Securitization Facility. Financing expenses, net for the
year ended April 30, 1997 represents primarily interest incurred on borrowings
under the Financing Program Agreement and discounts and net expenses associated
with the Securitization Facility beginning in December 1996. Financing expenses,
net increased 90.4% to $32.5 million for the year ended April 30, 1998 from
$17.1 million for the year ended April 30, 1997 due to higher average borrowings
partially offset by lower interest rates. The increase in average borrowings was
due to increases in inventories that were funded with short-term borrowings and
additional funding requirements due to increased revenue.
Taxes. The effective tax rate for the year ended April 30, 1998 and
1997 of 36% was different than the U.S. statutory rate of 35.0% primarily due to
state tax provisions.
22
<PAGE> 23
Year Ended April 30, 1997 as Compared to the Year Ended April 30, 1996
Acquisition services. Revenue increased 17.2% to $1.8 billion for the
year ended April 30, 1997 from $1.6 billion for the year ended April 30, 1996 as
a result of the Company's successful sales and marketing efforts, strengthened
market position and increased sales resulting from the acquisitions of CDS and
the Dataflex Regions. Gross margin increased 24.5% to $184.2 million for the
year ended April 30, 1997 from $147.9 million for the year ended April 30, 1996.
Gross margin percentage increased to 10.0% for the year ended April 30, 1997
from 9.4% for the year ended April 30, 1996. The increase in gross margin
percentage reflects the changing nature of the Company's relationships with its
customers in moving toward long-term procurement service relationships as
opposed to periodic commodity buying.
Life cycle services. Revenue increased 30.1% to $180.1 million for the
year ended April 30, 1997 from $138.4 million for the year ended April 30, 1996.
This increase was the result of increased demand for the Company's overall life
cycle service offerings plus increased sales as the result of the acquisition of
CDS in December 1996. Gross margin increased 28.7% to $63.2 million for the year
ended April 30, 1997 from $49.1 million for the year ended April 30, 1996. Gross
margin percentage decreased to 35.1% for the year ended April 30, 1997 from
35.5% for the year ended April 30, 1996.
Professional services. Revenue increased 91.1% to $111.1 million for
the year ended April 30, 1997 from $58.1 million for the year ended April 30,
1996. This increase reflects the increased customer demand for the Company's
extensive consulting and deployment expertise through national practices focused
on emerging technologies. Gross margin increased 73.0% to $39.8 million for the
year ended April 30, 1997 from $23.0 million for the year ended April 30, 1996.
Gross margin percentage decreased to 35.8% for the year ended April 30, 1997
from 39.6% for the year ended April 30, 1996 due to significant investments made
in systems, recruiting, training, and development to enhance the Company's
professional service offerings.
Other. Revenue increased 26.9% to $38.0 million for the year ended
April 30, 1997 from $30.0 million for the year ended April 30, 1996 due to an
increase in training revenues primarily as a result of the acquisition of Mentor
Technologies. Gross margin increased 7.5% to $26.8 million for the year ended
April 30, 1997 from $24.9 million for the year ended April 30, 1996. Gross
margin percentage decreased to 70.4% for the year ended April 30, 1997 from
83.0% for the year ended April 30, 1996 as the contribution of training revenues
to total other services revenue increased. Revenue from training increased
127.0% and other revenue declined 7.8% for the year, resulting in an increase in
the contribution from training from 25.8% to 46.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 21.7% to $245.7 million for the year ended
April 30, 1997 from $201.9 million for the year ended April 30, 1996. Selling,
general and administrative expenses as a percentage of total revenue remained
relatively constant for the year ended April 30, 1997 as compared to the year
ended April 30, 1996. The increase in selling, general and administrative
expenses was due to an increase in services revenue as a percentage of total
revenue (which carries higher selling, general and administrative expenses than
product), lower than expected product revenues and certain costs associated with
resizing the Company to accommodate a reduction in the growth rate of the
product business. These increases were partially offset by the reversal of
certain amounts provided for in the original reserves established in connection
with the sale of the Company's U.S. franchise business.
Operating income. Operating income increased 58.6% to $68.3 million for
the year ended April 30, 1997 from $43.0 million for the year ended April 30,
1996. Operating income as a percentage of total revenue increased to 3.1% for
the year ended April 30, 1997 from 2.4% for the year ended April 30, 1996 as a
result of the increase in total gross margin percentage.
Interest income. Interest income decreased 33.5% to $3.7 million for
the year ended April 30, 1997 from $5.5 million for the year ended April 30,
1996 due to lower interest earned on the Company's extended credit on certain of
its trade receivables due from Merisel FAB plus lower discounts taken.
Financing expenses, net. Financing expenses, net for the year ended
April 30, 1997 represents primarily interest incurred on borrowings under the
Company's Financing Program Agreement with IBMCC and discounts and net expenses
associated with the Securitization Facility, which was established in December
1996. Financing expenses, net for the year ended April 30, 1996 represents
primarily interest incurred on borrowings under the Financing Program Agreement.
Financing expenses, net decreased 52.3% to $17.1 million for the year ended
23
<PAGE> 24
April 30, 1997 from $35.8 million for the year ended April 30, 1996 due to
significantly lower average borrowings and lower interest rates. The reduced
average borrowings that resulted in lower financing expenses were due to the
issuance of the Debentures to the Trust in October 1996, the proceeds of which
were used to repay borrowings under the Financing Program Agreement, combined
with improved cash flow from increased profitability (see note 9 of notes to
consolidated financial statements).
Taxes. The effective tax rate for the year ended April 30, 1997 of 36%
and 1996 of 37%, was different than the U.S. statutory rate of 35.0% primarily
due to state tax provisions.
Deferred Tax Assets
At April 30, 1998 and 1997, the Company has recorded net deferred tax
assets of $20.6 million and $14.9 million, respectively. The full realization of
the deferred tax assets carried at April 30, 1998 is dependent upon the
Company's generating future pretax earnings. Management believes that sufficient
taxable income will be generated from operations to realize the net deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has utilized cash generated from operations, including
sales of certain of its trade receivables, and proceeds from the issuance of
Preferred Securities and Common Stock to fund its significant revenue growth,
working capital requirements, payments on its debt obligations, and purchases of
businesses and capital expenditures.
In October 1996, the Trust issued the Preferred Securities, raising
gross proceeds of $201.3 million. The holders of the Preferred Securities are
entitled to cumulative cash distributions at an annual rate of 6 3/4% of the
liquidation amount of $50 per security. The distributions are payable quarterly
in arrears in the aggregate amount of approximately $3.5 million per quarter.
The aggregate net proceeds to the Company totaled $194.4 million after selling
expenses, discounts and commissions. The Company used the net proceeds of the
offering to reduce its outstanding indebtedness to IBMCC.
Effective December 20, 1996, the Company established the Securitization
Facility, which currently provides the Company with up to $200 million in
available credit. As of April 30, 1998, the Company had $200 million outstanding
under the Securitization Facility.
The Company currently has a $550 million line of credit under its
Financing Program Agreement with IBMCC. On July 1, 1998, the available line of
credit is scheduled to be reduced to $500 million. At April 30, 1998, the
Company had $465.8 million outstanding under this facility, of which $157.4
million is included in accounts payable and $308.4 million is classified as
short-term borrowings. Borrowings under the line of credit are subject to
certain borrowing base limitations and are secured by portions of the Company's
inventory, accounts receivable and certain other assets. Amounts borrowed under
the line of credit bear interest at a rate equal to the LIBOR plus 1.6%
(representing a rate of 7.3% at April 30, 1998). The line of credit is currently
scheduled to expire October 31, 1998.
During fiscal year 1998, the Company's operating activities used cash
of $151.5 million primarily as a result of increases in accounts receivable and
inventory. The increase in accounts receivable was due to an increase in revenue
and the increase in inventory was the result of the Company utilizing certain
favorable purchasing programs and incentives offered by certain of its vendors.
During fiscal year 1998, the Company used cash of $34.2 million (net of cash
acquired) to purchase various businesses and used cash of $40.4 million for
capital expenditures. The Company also used $10.1 million to make payments on
certain long-term obligations. The Company plans to make additional investments
in its automated systems and its capital equipment during fiscal year 1999.
During fiscal year 1998, the Company acquired Sysorex for $32.5 million
in cash, plus the assumption of certain liabilities, and a contingent payment of
500,000 shares of the Common Stock based on the future performance of the
acquired business. The Company continues to pursue the acquisition of other
companies that sell products and services that either complement or expand its
existing business.
24
<PAGE> 25
The Company intends to continue to finance a significant portion of its
working capital needs through credit facilities. The Company believes that cash
generated from operations and credit facilities will be sufficient to meet its
cash requirements and fund its planned growth through at least the end of fiscal
1999.
YEAR 2000
Many existing computer systems, including certain of the Company's
internal systems, use only the last two digits to identify years in the date
field. As a result, those systems may not accurately distinguish years in the
21st century from years in the 20th century, or may not function properly when
faced with years later than 1999. This problem is generally referred to as the
"Year 2000 Issue." Computer systems that are able to deal correctly with dates
after 1999 are referred to as "Year-2000-Compliant."
With respect to its internal systems and operations, the Company is
addressing the Year 2000 Issue through a five-phase project plan. The five
phases of the plan are:
(1) Inventory and Assessment, which included compiling an inventory of hardware
and software, then assessing the effects of 21st-century dates on each
system and, in the case of systems that are not yet Year-2000-Compliant,
the risk to the Company's business if that system were not operating.
(2) Solution Planning, which generally involved organizing and planning the
task of ensuring that the Company's computer systems are
Year-2000-Compliant. This process included classifying the systems into
units ("Production Groupings") and scheduling the Production Groupings for
conversion, generally with the goal of treating the most important and
vulnerable systems first. This phase also included contacting all vendors
for the status of their software and plans for compliance.
(3) Conversion, which involves making necessary changes to render each
Production Grouping Year-2000-Compliant.
(4) Testing each Production Grouping.
(5) Implementing each Production Grouping.
The Company has completed the first two phases of the plan and has
begun phase three. In addition, some of the Company's systems are already
Year-2000-Compliant. The Company hopes to complete all five phases of the plan
early in calendar year 1999.
The Company expects to implement successfully the systems and
programming changes necessary to address the Year 2000 Issue. Moreover, the
Company does not expect the costs associated with that implementation to be
material to the Company's financial position or results of operations over the
term of the project.
The statements above describing the Company's plans and objectives for
handling the Year 2000 Issue and the expected impact of the Year 2000 Issue on
the Company are forward-looking statements. Those statements involve risks and
uncertainties that could cause actual results to differ materially from the
results discussed above. Factors that might cause such a difference include, but
are not limited to, delays in executing the plan outlined above and increased or
unforeseen costs associated with the implementation of the plan and any
necessary changes to the Company's systems. Any inability on the part of the
Company to implement necessary changes in timely fashion could have an adverse
effect on future results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Non applicable.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Vanstar Corporation:
We have audited the accompanying consolidated balance sheets of Vanstar
Corporation as of April 30, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended April 30, 1998. Our audits also included the financial
statement schedule listed in Item 14(a) of this Annual Report on Form 10-K.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Vanstar Corporation at April 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended April 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
June 3, 1998
26
<PAGE> 27
VANSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
APRIL 30,
----------------------------
1998 1997
--------------- ----------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 9,476 $ 5,686
Receivables, net of allowance for doubtful accounts of
$8,262 at April 30, 1998 and $8,252 at April 30, 1997 342,752 183,005
Inventories 470,474 389,592
Deferred income taxes 17,387 14,855
Prepaid expenses and other current assets 14,304 8,618
---------- ----------
Total current assets 854,393 601,756
Property and equipment, net 53,303 39,240
Other assets, net 81,272 63,775
Goodwill, net of accumulated amortization of $10,113 at April 30,
1998 and $5,640 at April 30, 1997 106,796 56,652
---------- ----------
$1,095,764 $ 761,423
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 290,187 $ 255,147
Accrued liabilities 63,590 34,392
Deferred revenue 21,869 24,601
Short-term borrowings 308,351 74,402
Current maturities of long-term debt 5,800 4,785
---------- ----------
Total current liabilities 689,797 393,327
Long-term debt, less current maturities 2,337 5,946
Other long-term liabilities 943 661
Commitments and contingencies
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding solely
convertible subordinated debt securities of the Company 194,739 194,518
Stockholders' equity:
Common stock, $.001 par value: 100,000,000 shares authorized,
43,489,030 shares issued and outstanding at April 30, 1998,
42,896,779 shares issued and outstanding at April 30, 1997 43 43
Additional paid-in capital 132,703 125,926
Retained earnings (since a deficit elimination of $78,448
at April 30, 1994) 75,202 41,002
---------- ----------
Total stockholders' equity 207,948 166,971
---------- ----------
$1,095,764 $ 761,423
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
27
<PAGE> 28
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Acquisition services $ 2,367,004 $ 1,849,365 $ 1,578,298
Other services 471,798 329,201 226,515
----------- ----------- -----------
Total revenue 2,838,802 2,178,566 1,804,813
----------- ----------- -----------
Cost of revenue:
Acquisition services 2,136,396 1,665,212 1,430,404
Other services 287,722 199,390 129,482
----------- ----------- -----------
Total cost of revenue 2,424,118 1,864,602 1,559,886
----------- ----------- -----------
Gross margin 414,684 313,964 244,927
Selling, general and administrative expenses 313,302 245,685 201,880
----------- ----------- -----------
OPERATING INCOME 101,382 68,279 43,047
Interest income 1,198 3,685 5,539
Financing expense, net (32,485) (17,061) (35,804)
----------- ----------- -----------
Income from continuing operations before income taxes
and distributions on preferred securities of Trust 70,095 54,903 12,782
Income tax provision (25,236) (19,765) (4,729)
----------- ----------- -----------
Income from continuing operations before
distributions on preferred securities of Trust 44,859 35,138 8,053
Gain on disposal of discontinued businesses
(less income taxes of $5,400) -- -- 9,194
Distributions on convertible preferred securities
of Trust (less income taxes of $5,013 in 1998 and
$2,893 in 1997) (8,912) (5,144) --
----------- ----------- -----------
NET INCOME $ 35,947 $ 29,994 $ 17,247
=========== =========== ===========
EARNINGS PER SHARE:
Basic: Continuing operation .83 .72 .25
Discontinued operations -- -- .28
----------- ----------- -----------
$ .83 $ .72 $ .53
=========== =========== ===========
Diluted: Continuing operations .81 .69 .23
Discontinued operations -- -- .27
----------- ----------- -----------
$ .81 $ .69 $ .50
=========== =========== ===========
COMMON SHARE AND EQUIVALENTS OUTSTANDING
Basic 43,180 41,693 32,413
----------- ----------- -----------
Diluted 44,388 43,282 34,251
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE> 29
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK,
FORMERLY RETAINED
PREFERRED STOCK COMMON STOCK A COMMON STOCK B ADDITIONAL EARNINGS
---------------- -------------- -------------- PAID-IN (ACCUM.
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- ------ ------- ------ ------ ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1995 15,309 153 7,323 7 3,708 4 24,768 (2,343) 22,589
Redemption of Class A Common Stock -- -- (103) -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- -- 500 -- 500
Conversion of Class F Preferred Stock
and Senior Preferred Stock to
Class A Common Stock (15,309) (153) 15,309 15 -- -- 138 -- --
Conversion of Class B Common Stock
to Class A Common Stock -- -- 3,708 4 (3,708) (4) -- -- --
Conversion of warrants to Class A
Common Stock -- -- 4,996 5 -- -- (5) -- --
Issuance of Class A Common Stock -- -- 9,216 9 -- -- 83,382 -- 83,391
Accrued dividends forgiven -
Senior Preferred Stock -- -- -- -- -- -- 6,162 -- 6,162
Exercise of stock options -- -- 26 -- -- -- 152 -- 152
Net income -- -- -- -- -- -- -- 17,247 17,247
Dividends on preferred stock -- -- -- -- -- -- -- (2,988) (2,988)
------- ----- ------- ------ ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1996 -- -- 40,475 40 -- -- 115,097 11,916 127,053
Issuance of Common Stock:
Employee stock purchase plan -- -- 389 -- -- -- 3,898 -- 3,898
Exercise of stock options, including
income tax benefit -- -- 597 1 -- -- 6,854 -- 6,855
Business acquisitions -- -- 1,252 2 -- -- -- (2,281) (2,279)
Other -- -- 184 -- -- -- 77 -- 77
Unrealized holding gain on
available-for-sale securities -- -- -- -- -- -- -- 1,373 1,373
Net income -- -- -- -- -- -- -- 29,994 29,994
------- ----- ------- ------ ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1997 -- -- 42,897 43 -- -- 125,926 41,002 166,971
Issuance of Common Stock:
Employee stock purchase plan -- -- 407 -- -- -- 4,767 -- 4,767
Exercise of stock options, including
income tax benefit -- -- 236 -- -- -- 2,010 -- 2,010
Business acquisitions and other -- -- (51) -- -- -- -- --
Accumulated translation adjustment -- -- -- -- -- -- -- (167) (167)
Unrealized holding loss on
available-for-sale securities -- -- -- -- -- -- -- (1,580) (1,580)
Net income -- -- -- -- -- -- -- 35,947 35,947
------- ----- ------- ------ ------ ------ --------- -------- ---------
BALANCE AT APRIL 30, 1998 -- $ -- 43,489 $ 43 -- $ -- $ 132,703 $ 75,202 $ 207,948
======= ===== ======= ====== ====== ====== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 30
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------
1998 1997 1996
-------- -------- ---------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 35,947 $ 29,994 $ 17,247
Adjustments:
Depreciation and amortization 27,129 17,068 9,775
Deferred income taxes (4,858) 16,149 10,029
Provision for doubtful accounts 1,300 (2,705) 14,393
Noncash interest expense 244 -- --
Gain on disposal of discontinued businesses -- -- (14,594)
Changes in operating assets and liabilities:
Receivables (144,758) 154,619 (51,193)
Inventories (68,174) (35,472) (51,720)
Prepaid expenses and other current assets (8,812) (6,322) (2,462)
Accounts payable (2,205) (64,066) 42,177
Accrued and other liabilities 12,726 (22,939) 4,865
--------- --------- ---------
Total adjustments (187,408) 56,332 (38,730)
--------- --------- ---------
Net cash (used in) provided by operating activities (151,461) 86,326 (21,483)
Cash Flows from Investing Activities:
Capital expenditures (40,372) (25,224) (15,583)
Proceeds from sale of building -- 3,125 --
Purchase of businesses, net of cash acquired (34,161) (36,011) --
Sales of businesses -- -- 14,594
Investment in available-for-sale securities -- (10,073) --
--------- --------- ---------
Net cash used in investing activities (74,533) (68,183) (989)
Cash Flows from Financing Activities:
Payments on long-term debt (10,121) (13,506) (7,836)
Borrowings (repayments) under line of credit, net 233,949 (214,670) (46,999)
Proceeds from issuance of convertible preferred
securities of Trust, net -- 194,320 --
Issuance of common stock 5,956 6,901 84,044
--------- --------- ---------
Net cash provided by (used in) financing activities 229,784 (26,955) 29,209
--------- --------- ---------
Net increase (decrease) in cash 3,790 (8,812) 6,737
Cash at beginning of the period 5,686 14,498 7,761
--------- --------- ---------
Cash at end of the period $ 9,476 $ 5,686 $ 14,498
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------
1998 1997 1996
-------- -------- --------
Supplemental disclosure of cash flow information:
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 18,636 $ 17,075 $ 38,761
Discounts and net expenses on receivables
securitization 12,086 3,275 --
Distributions on preferred securities of
Trust 13,584 6,943 --
Income taxes, net of refunds 5,144 3,386 625
Supplemental disclosure of noncash investing and
financing activities:
Equipment acquired under capital leases $ 3,040 $ 8,416 $ 4,293
Dataflex Regions purchase:
Fair value of assets acquired $ 46,889
Cash paid, net of cash received (36,726)
--------
Liabilities assumed $ 10,163
========
Mentor Technologies pooling:
Fair value of assets acquired and
liabilities assumed $ 3,229
========
CDS pooling:
Fair value of assets acquired and
liabilities assumed $ 16,301
========
Sysorex purchase:
Fair value of assets acquired $ 85,448
Cash paid, net of cash received (32,486)
--------
Liabilities assumed $ 52,962
========
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Vanstar Corporation (the "Company") is a leading provider of services
and products designed to build, manage and enhance PC network infrastructures
for Fortune 1000 companies and other large enterprises. The Company provides
customized information technology and networking solutions for its customers by
integrating value-added professional services with its expertise in sourcing,
distributing and supporting PC hardware, network products, computer peripherals
and software from many vendors. The consolidated financial statements include
the accounts of Vanstar Corporation and its consolidated subsidiaries. All
significant intercompany balances have been eliminated. Certain prior period
amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Acquisition services revenue is primarily derived from the sale of
computer hardware, software, peripherals and communications devices manufactured
by third parties and sold by the Company, principally to implement integration
projects. Other services revenue is derived from value-added services, including
services focused on the server and communication segments of the PC network
infrastructure and services performed for the desktop. Product sales are
recognized at the time of shipment. Revenue from services is recognized as
services are performed or ratably if performed over a service contract period.
Deferred revenue primarily represents unrecognized service revenue.
Financial Instruments
The carrying amounts for cash, receivables, and accounts payable
approximate their respective fair values due to the short-term maturity of these
instruments. The carrying value for amounts outstanding under the Company's
Financing Program Agreement with IBM Credit Corporation ("IBMCC") approximates
fair value since those amounts bear interest at current market rates. Long-term
debt consists of variable-rate instruments at terms the Company believes would
be available if similar financing were obtained from another party. As such,
carrying amounts also approximate their fair value. The carrying value of the
Preferred Securities approximates their fair value based upon quoted market
prices.
Inventories
Inventory for resale and spare parts inventory are stated at the lower of
cost (first-in, first-out method) or market. Periodically, the Company assesses
the appropriateness of the inventory valuations giving consideration to
obsolete, slow-moving and nonsalable inventory.
In order to adequately service its customers, the Company is required to
maintain quantities of consumable and repairable parts ("spare parts") for
extended periods of time. Based on historical experience, the Company determines
an allocation of the spare parts to both current inventories and other long-term
assets.
32
<PAGE> 33
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Goodwill
Goodwill represents the excess of cost over the net assets of acquired
businesses and is amortized using the straight-line method over twenty to
twenty-five years. Amortization expense on goodwill was $4.5 million, $2.2
million, and $1.7 million for the fiscal years ended April 30, 1998, 1997, and
1996, respectively. The Company periodically assesses the appropriateness of the
carrying amount of goodwill and the amortization periods based on the
undiscounted value of the current and anticipated future cash flows and
projected profitability of the acquired businesses. If there are indicated
impairments, a write down is recorded to the extent the carrying amount exceeds
the fair value in accordance with Accounting Principles Board ("APB") Opinion
No. 17, Intangible Assets.
Marketing Development Funds
Primary vendors of the Company provide various incentives, in the form of
cash or credit against obligations, for certain training and for promoting and
marketing their products. The funds or credits received are based on the
purchases or sales of the vendors' products and are earned through performance
of specific marketing programs or upon the attainment of certain objectives
outlined by the vendors. Funds or credits earned are recorded as a reduction of
either cost of revenue or selling, general and administrative expenses, based on
the objectives of the program established by the vendors. Funds or credits from
the Company's primary vendors typically range from 1% to 5% of sales or
purchases of vendor products.
Earnings Per Share
Effective during the year ended April 30, 1998, the Company adopted
Financial Accounting Standards Board ("FASB") Statement No. 128, Earnings per
Share ("Statement 128"). Under Statement 128, Basic earnings per share are
computed using the weighted average number of shares of Common Stock during the
period and Diluted earnings per share are computed using the weighted average
number of shares of Common Stock and dilutive Common Stock equivalents
outstanding during the period. Common Stock equivalents are computed for the
Company's outstanding options using the treasury stock method. The Company
restated prior periods to reflect the change in method required by Statement
128. Earnings per share for the fiscal year ended April 30, 1996 are presented
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and the exchange of all outstanding warrants for shares of
Common Stock in connection with the Company's initial public offering on March
11, 1996 as if the conversion had occurred at the later of the beginning of
fiscal year 1996 or the issuance date of the respective security.
Stock-Based Compensation
The Company accounts for its stock option and employee stock purchase
plans in accordance with APB Opinion No. 25, Accounting For Stock Issued to
Employees ("APB 25"); accordingly, no compensation expense has been recognized.
Under APB 25, because the exercise price of the Company's stock options equals
the market value of the underlying stock on the date of the grant, no
compensation expense is recognized. Because the employee stock purchase plan is
considered a noncompensatory plan under APB 25, no compensation expense is
recognized. The Company has adopted the disclosure only provisions of FASB
Statement No. 123, Accounting For Stock-Based Compensation ("Statement 123").
Note 13 to the consolidated financial statements contains a summary of the pro
forma effects to reported net income and net income per share for the years
ended April 30, 1998, 1997 and 1996 as if the Company had elected to recognize
compensation cost based on the fair value of the options granted as prescribed
by Statement 123.
33
<PAGE> 34
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
New Accounting Pronouncements
The Financial Accounting Standards Board recently issued two standards
which will be applicable to the Company but which the Company is not yet
required to adopt, FASB Statement No. 130, Reporting Comprehensive Income, and
FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. The adoption of these statements will not impact the Company's
financial position or results of operations but may change the presentation of
certain items in the Company's financial statements and related disclosures.
2. ACQUISITIONS
On May 24, 1996, the Company, through a wholly-owned subsidiary, acquired
certain of the assets and assumed certain of the liabilities of Dataflex
Corporation and of Dataflex's wholly-owned subsidiary, Dataflex Southwest
Corporation. The assets acquired and liabilities assumed comprise substantially
all of the assets and business operations previously associated with the
business operations of Dataflex known as the Dataflex Western Region and
Dataflex Southwest Region (the "Dataflex Regions"). The Dataflex Regions offered
PC product distribution, service and support in the states of Arizona,
California, Colorado, Nevada, New Mexico, and Utah and reported revenues of
approximately $145 million for the fiscal year ended March 31, 1996. The
purchase price of the Dataflex Regions, was $37.7 million.
On September 4, 1996, the Company acquired Mentor Technologies, Ltd., an
Ohio limited partnership ("Mentor Technologies") providing training and
education services throughout the upper mid-western United States. A total of
300,000 shares of Common Stock (having an aggregate value on the closing date of
approximately $6.0 million) were issued in connection with the acquisition. For
the calendar year ended December 31, 1995, Mentor Technologies reported revenues
of approximately $5.5 million.
On December 16, 1996, the Company acquired Contract Data Services, Inc., a
North Carolina corporation ("CDS"), in exchange for 904,866 shares of the Common
Stock (having an aggregate value on the closing date of approximately $20.8
million). CDS provided outsourcing of integrated information technology
services, related technical support services and procurement of computer
hardware and software. For the fiscal year ended March 31, 1996, CDS reported
total revenues of approximately $74.3 million.
On January 9, 1997, the Company acquired inventory and equipment from DCT
Systems, Inc., a Minnesota corporation, Niloy, Inc., a Georgia corporation, and
NCT Systems, Inc., an Illinois corporation (collectively, "DCT"). The Company
purchased specified assets for $4.0 million. In addition, the asset purchase
agreement provided that DCT could receive a maximum of 180,000 shares of the
Common Stock upon the satisfaction of certain conditions. In February 1998,
120,000 of those shares were released to DCT. The Company also entered into a
servicing and marketing agreement on January 9, 1997 whereby the Company will
provide certain computer products and billing services to DCT. Based upon
certain criteria under the servicing and marketing agreement, DCT also may
receive, at DCT's election, cash or up to 40,000 additional restricted shares of
the Common Stock.
On July 7, 1997, the Company acquired certain assets and assumed certain
liabilities of Sysorex Information Systems, Inc. ("Sysorex"), a government
technology provider. The purchase price was approximately $54.5 million and a
contingent payment of 500,000 shares of Common Stock based on the future
financial performance of the acquired business.
The acquisitions of the Dataflex Regions, DCT and Sysorex were accounted
for as purchases and the excess of the cost over the fair value of net assets
acquired for each acquisition is being amortized on a straight line basis
ranging from 20 to 25 years. The operations of these acquisitions are included
in the consolidated statements of income from the respective dates of
acquisition.
34
<PAGE> 35
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The acquisitions of Mentor Technologies and CDS were accounted for as
pooling-of-interests business combinations. The consolidated statements of
income, cash flows, and stockholders' equity were not restated to reflect these
acquisitions due to the insignificance of the transactions. Accordingly, the
operations of these acquisitions are included in the consolidated statements of
income from the respective dates of acquisition, and the proforma amounts are
not disclosed due to the insignificance of the transactions.
3. DISCONTINUED OPERATIONS
On January 31, 1994, the Company sold certain assets and liabilities of
its U.S. franchise business, including all domestic franchise agreements, Datago
distribution agreements and the right to the "ComputerLand" name and trademark
within the United States to Merisel Franchise Aggregation Business ("Merisel
FAB"), a wholly-owned subsidiary of Merisel, Inc. ("Merisel"). Concurrent with
the sale, the Company entered into a distribution services agreement with
Merisel FAB. Pursuant to that agreement, the Company continued to supply product
and provide certain logistics and other support services to Merisel FAB and
received a monthly distribution fee for such services. The Company also granted
Merisel FAB $20.0 million in extended, interest-bearing credit on its product
purchases.
Effective January 31, 1996, the Company and Merisel FAB signed amendments
to the asset purchase agreement and distribution services agreement. The
amendments provided for: the term of the distribution services agreement to be
extended through April 30, 1997; the distribution fee to be reduced retroactive
to April 1, 1995; the additional consideration to be fixed at $14.6 million; the
maximum amount of the extended credit to be increased by $11.1 million, which
would be reduced in monthly installments from February 1996 through July 1997;
and the original amount of interest-bearing credit of $20.0 million to be
extended and reduced in three equal monthly installments from May 15, 1997
through July 15, 1997. The Company recorded a gain of $9.2 million, net of
applicable taxes, for the year ended April 30, 1996 as a result of the
additional consideration. As a result of announcements made by Merisel on
February 20, 1996, the Company decided to record a $31.1 million provision as of
January 31, 1996 against its extended credit due from Merisel FAB. On May 29,
1996, the Company entered into an agreement with a third party under which the
Company received $15.6 million in cash in exchange for providing the third party
the right to receive payments in May, June and July 1997 totaling $20.0 million
out of amounts collected from the extended credit owed to the Company by Merisel
FAB. As a result, the Company adjusted a portion of the reserve on its extended
credit from Merisel FAB resulting in additional pre-tax income of $15.6 million
during the quarter ended April 30, 1996.
On March 28, 1997, the distribution and services agreement was assigned
from Merisel FAB to ComputerLand Corporation, a wholly owned subsidiary of
Synnex Information Technologies, Inc., as a result of the sale by Merisel of
substantially all of the assets of Merisel FAB to ComputerLand Corporation. The
Company completed its obligation under that agreement in January 1998.
4. INVENTORIES
The composition of inventories at April 30, 1998 and 1997 is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Inventory for resale $ 462,110 $ 386,664
Less reserve for obsolete inventory 10,135 12,586
----------- -----------
451,975 374,078
Spare parts (current) 18,499 15,514
----------- -----------
$ 470,474 $ 389,592
=========== ===========
</TABLE>
35
<PAGE> 36
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. PROPERTY AND EQUIPMENT, NET
The composition of property and equipment at April 30, 1998 and 1997
was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Furniture and equipment $ 80,995 $ 84,751
Leasehold improvements 26,235 22,440
-------- --------
107,230 107,191
Less accumulated depreciation and amortization 53,927 67,951
-------- --------
$ 53,303 $ 39,240
======== ========
</TABLE>
The carrying value of property and equipment was adjusted to fair value
on April 30, 1994 in connection with the Company's quasi-reorganization.
Additions since April 30, 1994 have been recorded at cost. Property and
equipment is depreciated using the straight-line method over the estimated
useful lives of the related assets--3 to 5 years for furniture and equipment
and the lesser of the lease term or the useful life for leasehold improvements.
Depreciation expense associated with property and equipment was $19.4 million,
$14.4 million and $7.7 million for the fiscal years ended April 30, 1998, 1997
and 1996, respectively. During the year ended April 30, 1998 the Company
wrote-off approximately $32 million of fully depreciated property and equipment.
6. OTHER ASSETS, NET
The composition of other assets at April 30, 1998 and 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Spare parts (non-current) $40,497 $31,541
Capitalized software, net 24,098 17,551
Available-for-sale security 8,256 10,719
Deferred income taxes (non-current) 3,213 --
Other 5,208 3,964
------- -------
$81,272 $63,775
======= =======
</TABLE>
Capitalized software represents the costs associated with development
of software for the Company's internal use. Such costs are capitalized in
accordance with American Institute of Certified Public Accountants Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, and are amortized over the remaining useful economic
life of the software of up to five years. Accumulated amortization at April 30,
1998 and 1997 was $5.3 million and $2.0 million, respectively. Amortization
expense associated with capitalized software was $2.9 million, $0.5 million and
$0.3 million for the fiscal years ended April 30, 1998, 1997 and 1996,
respectively.
In December 1996, the Company purchased 7.5% of the common stock of
ComputerLand Poland S.A., a publicly traded foreign company, for $8.6 million.
The investment is classified as an "available-for sale" security in accordance
with FASB Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities. At April 30, 1998 the fair market value of the investment was
$8.3 million and the gross unrealized holding loss was $.3 million. At April 30,
1998, the net unrealized holding loss of $.2 million (net of taxes of $0.1
million) was included as a reduction to retained earnings. At April 30, 1997,
the net unrealized holding gain of $1.4 million (net of taxes of $.8 million)
was included as an increase to retained earnings. On April 30, 1997, the Company
purchased additional restricted common stock of ComputerLand Poland S.A. for
$1.5 million. At April 30, 1998, the Company owns approximately 8.3% of the
common stock of ComputerLand Poland S.A.
36
<PAGE> 37
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. DEBT
Outstanding debt at April 30, 1998 and 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Line of credit $308,351 $ 74,402
Obligations under capital leases 7,479 9,838
Other 658 893
-------- --------
Total outstanding debt 316,488 85,133
Less current maturities 314,151 79,187
-------- --------
Long-term debt $ 2,337 $ 5,946
======== ========
</TABLE>
The Company's line of credit represents amounts borrowed pursuant to
the Financing Program Agreement with IBMCC, an affiliate of one of the Company's
principal vendors. At April 30, 1998, the line of credit had an aggregate limit
of $550 million. On July 1, 1998, the available line of credit is scheduled to
be reduced to $500 million. The line of credit is secured by portions of the
Company's inventory, accounts receivable and certain other assets. The Financing
Program Agreement is renewable every 12 months, and is terminable by the Company
or IBMCC at any time upon 90 days written notice. In the event of such
termination, the outstanding borrowings are not due and payable to IBMCC until
the end of the term of the Financing Program Agreement, currently October 31,
1998. The terms of the Financing Program Agreement include financial covenants
requiring the Company to maintain compliance with certain financial ratios, and
also limit the Company's ability to pay cash dividends on its Common Stock. As
of April 30, 1998, the Company had complied with or obtained a waiver for any
noncompliance with those financial covenants. At April 30, 1998, amounts
outstanding under the line of credit totaled $465.8 million, of which $157.4
million and $308.4 million were classified as accounts payable and short-term
borrowings, respectively. Amounts outstanding and classified as short-term
borrowings bear interest at LIBOR plus 1.6%, which was 7.3% at April 30, 1998.
Amounts outstanding and classified as short-term borrowings in 1997 bear
interest at the Prime Rate minus .8%, which was 7.7% at April 30, 1997.
Aggregate maturities of long-term debt, excluding the line of credit,
are approximately $5.8 million, $2.0 million, $0.2 million, and $0.1 million,
respectively for each of the succeeding four years.
8. SALE OF ACCOUNTS RECEIVABLE
Effective December 20, 1996, the Company, through a non-consolidated
wholly-owned special purpose corporation, established the Securitization
Facility, which currently provides the Company with up to $200 million in
available credit. In connection with the Securitization Facility, the Company
sells on a revolving basis, certain Pooled Receivables to the special purpose
corporation which in turn sells a percentage ownership interest in the Pooled
Receivables to a commercial paper conduit sponsored by a financial institution.
These transactions have been recorded as a sale in accordance with FASB
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. The amount of the Pooled Receivables, which
totaled $335.2 million at April 30, 1998, is reflected as a reduction of
receivables. The Company retains an interest in certain of the assets sold. At
April 30, 1998, the amount of that retained interest totaled $160.6 million and
is included in receivables. The Company is retained as servicer of the Pooled
Receivables. Although management believes that the servicing revenues earned
will be adequate compensation for performing the services, estimating the fair
value of the servicing asset was not considered practicable. Consequently, a
servicing asset has not been recognized. The gross proceeds resulting from the
sale of the percentage ownership interests in the Pooled Receivables totaled
$200 million as of April 30, 1998. Such proceeds are included in cash flows from
operating activities in the consolidated statements of cash flows. Discounts and
net expenses associated with the sales of the receivables totaling $12.1 and
$3.4 million
37
<PAGE> 38
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
are included in financing expenses, net on the consolidated statements of income
for the years ended April 30, 1998 and 1997, respectively.
9. CONVERTIBLE PREFERRED SECURITIES OF TRUST
During October 1996, the Trust, of which the Company owns all of the
common trust securities, issued 4,025,000 Preferred Securities. The Preferred
Securities have a liquidation value of $50 per security and are convertible at
any time at the option of the holder into shares of Common Stock at a conversion
rate of 1.739 shares for each Preferred Security, subject to adjustment in
certain circumstances. Distributions on Preferred Securities accrue at an annual
rate of 6 3/4% of the liquidation value of $50 per Preferred Security and are
included in "Distributions on convertible preferred securities of Trust, less
income taxes" in the consolidated statements of income. The proceeds of the
private placement, which totaled $194.4 million (net of initial purchasers'
discounts and estimated offering expenses totaling $6.9 million) are included in
"Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trust holding solely convertible subordinated debt securities of the
Company" on the consolidated balance sheets. The Company has entered into
several contractual arrangements (the "Back-up Undertakings") for the purpose of
fully and unconditionally supporting the Trust's payment of distributions,
redemption payments and liquidation payments with respect to the Preferred
Securities. Considered together, the Back-up Undertakings constitute a full and
unconditional guarantee by the Company of the Trust's obligations on the
Preferred Securities.
The Trust invested the proceeds of the offering in the Debentures
issued by the Company. The Debentures bear interest at 6 3/4% per annum,
generally payable quarterly on January 1, April 1, July 1 and October 1. The
Debentures are redeemable by the Company, in whole or in part, on or after
October 5, 1999 at designated redemption prices. If the Company redeems the
Debentures, the Trust must redeem the Preferred Securities on a pro rata basis
having an aggregate liquidation value equal to the aggregate principal amount of
the Debentures redeemed. The sole assets of the Trust are the Debentures, which
have an aggregate principal amount of $207.5 million. The Debentures and related
income statement effects are eliminated in the Company's consolidated financial
statements.
10. CONCENTRATION OF CREDIT RISK
The Company purchases and sells multi-vendor PC products and provides
various PC-related services to end-users. Although receivables from end-users
are uncollateralized, the credit risk is limited due to the large number and
diversity of customers comprising the Company's customer base. No single
customer accounted for more than 10% of the Company's revenue during fiscal year
1998 and 1997. During fiscal year 1996, no customer other than Microsoft
accounted for more than 10% of the Company's total revenues. Revenues from
Microsoft represented 12.0% of the Company's total revenues for fiscal year
1996.
11. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has entered into an agreement with one of its vendors that
requires it to purchase a minimum of $55 million of computer software over a
five-year period. At April 30, 1998, the remaining purchase commitment pursuant
to that agreement was $43 million.
Leases
The Company leases certain administrative, warehousing and other
facilities under operating leases, and equipment under a combination of
operating and capital leases. Most of the Company's facility operating leases
are subject to annual escalation clauses ranging from two to five percent.
Several facilities under operating leases have been sublet.
38
<PAGE> 39
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The future minimum lease payments on noncancelable operating leases
with an initial term in excess of one year and future sublease income under
noncancelable subleases as of April 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Minimum
Lease Sublease
Payments Income
-------- --------
<S> <C> <C>
Year Ending April 30,
1999 $16,737 $ 255
2000 12,415 149
2001 9,419 91
2002 7,427 --
2003 6,100 --
Thereafter 18,649 --
------- -------
$70,747 $ 495
======= =======
</TABLE>
In connection with leases on facilities associated with acquisitions,
the Company established reserves for future lease payments on certain duplicate
or excess facilities. The balance of these reserves at April 30, 1998 was
approximately $1.7 million, which has not reduced the amounts shown above.
Rental expense, under operating leases, charged to operations was $23.5
million, $19.4 million and $13.8 million during fiscal years ended April 30,
1998, 1997 and 1996, respectively.
The cost of assets recorded under capital leases was $15.0 million and
$12.7 million at April 30, 1998 and 1997, respectively. Accumulated amortization
on such assets was $8.1 million and $3.3 million at April 30, 1998 and 1997,
respectively. The present value of minimum lease payments under capital leases
as of April 30, 1998 was $7.5 million.
Legal Proceedings
On July 3, 1997, a trust claiming to have purchased shares of the
Common Stock filed suit in Superior Court of the State of California. The suit
is entitled David T. O'Neal Trust, Dated 4/1/77, v. Vanstar Corporation, et al.,
Consolidated Case No. CV767266. On January 21, 1998, the same plaintiff, along
with another plaintiff claiming to have purchased shares of Common Stock, filed
suit in the United States District Court for the Northern District of
California, making allegations virtually identical to those in the earlier suit.
The recent suit is captioned David T. O'Neal Trust, Dated 4/1/77, et al. v.
Vanstar Corporation, et al., Case No. C-98-0216 MJJ. Both suits name as
defendants the Company, certain directors and officers of the Company, and the
Company's principal stockholder, Warburg Pincus Capital Co., L.P., and certain
of its affiliates. The complaints in both suits generally allege, among other
things, that the defendants made false or misleading statements or concealed
information regarding the Company and that the plaintiffs, as holders of the
Common Stock, suffered damage as a result.
The plaintiffs in both suits seek class action status, purporting to
represent a class of purchasers of Common Stock between March 11, 1996 and March
14, 1997, and seek damages in an unspecified amount, together with other relief.
The complaint in the first suit purports to state a cause of action under
California law; the complaint in the recent suit purports to state two causes of
action under the Securities Exchange Act of 1934. On January 28, 1998, the
California Superior Court dismissed the plaintiffs' complaint in the first suit
but granted the plaintiffs leave to amend to cure the deficiencies in their
complaint. The plaintiffs have amended the complaint, but the court has not yet
ruled on the sufficiency of that amended complaint. The Company believes that
the plaintiffs' allegations in both suits are without merit and intends to
defend the suits vigorously.
39
<PAGE> 40
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Various legal actions arising in the normal course of business have
been brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of these actions will not have a material
adverse effect on the Company's financial position or results of operations,
taken as a whole.
12. STOCKHOLDERS' EQUITY
Initial Public Offering
On March 11, 1996, the Company completed an initial public offering
selling 9,215,770 shares of its Common Stock for approximately $83.4 million,
net of issuance costs.
Preferred Stock, Common Stock and Warrants
Concurrent with the consummation of the initial public offering, all
outstanding shares of Senior Preferred Stock, Class F Preferred Stock and Class
B Common Stock were converted into 19,018,088 shares of Common Stock.
Additionally, all outstanding warrants were exchanged for 4,995,691 shares of
Common Stock, all accrued dividends payable to the holder of the Senior
Preferred Stock totaling $6.2 million were forgiven and all such stock and
warrants converted to Common Stock were canceled.
As of April 30, 1998, the Company had 15,000,000 shares of undesignated
Preferred Stock, $0.01 par value, authorized. No shares have been issued.
At April 30, 1998, the Company had 7,300,640 shares of Common Stock
reserved for future issuance in connection with the Company's stock option and
stock purchase plans.
13. EMPLOYEE BENEFIT PLANS
The Company has elected to follow APB 25 and related interpretations,
in accounting for employee stock options issued to certain of the Company's
employees. Under APB 25, because the exercise price of the Company's stock
options equals the market value of the underlying stock on the date of the
grant, no compensation expense is recognized.
Stock Option Plans
The Company has three stock option plans which provide for the issuance
of incentive stock options ("ISOs"), stock options that are non-qualified for
Federal income tax purposes ("NQSOs") and stock appreciation rights ("SARs").
The 1988 Stock Option Plan was adopted in July 1988 and provides for the
issuance of ISOs, NQSOs and SARs to key employees and directors. The 1993 Stock
Option/Stock Issuance Plan was adopted in April 1993 and provides for the
issuance of shares of Common Stock, ISOs, NQSOs and SARs to highly compensated,
managerial employees, officers and directors. The 1996 Stock Option/Stock
Issuance Plan was adopted in August 1996 and provides for the issuance of shares
of Common Stock, ISOs, NQSOs and SARs to officers, directors and employees of,
and consultants to, the Company. The exercise price of the ISOs under all plans
may not be less than 100% of the fair market value of the Common Stock at the
time of grant. Under the 1993 plan, the exercise price of the NQSOs may not be
less than 85% of the fair market value at the time of grant. At April 30, 1998,
the total number of shares of Common Stock for which options may be granted
pursuant to the 1988, 1993, and 1996 plans were 2.3 million, 2.4 million and 3.3
million, respectively. Under all plans, options generally become exercisable
ratably over a four or five year period and expire in ten years. At April 30,
1998, no SARs had been issued.
40
<PAGE> 41
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of the Company's stock option activity, and related
information for the fiscal years ended April 30, 1998, 1997 and 1996 is as
follows (in thousands, except for weighted-average exercise prices):
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Balance at April 30, 1995 2,161 $ 5.71
Granted 2,967 4.35
Exercised (26) 5.83
Canceled (1,285) 5.80
------
Balance at April 30, 1996 3,817 $ 4.62
Granted 1,557 14.22
Exercised (597) 4.87
Canceled (307) 6.07
------
Balance at April 30, 1997 4,470 $ 7.83
Granted 1,763 10.03
Exercised (236) 5.21
Canceled (768) 8.45
------
Balance at April 30, 1998 5,229 $ 8.60
======
Exercisable at April 30, 1998 2,408 $ 7.66
======
Shares Available for Grant at April 30, 1998 1,868
======
</TABLE>
The following table summarizes information about the Company's stock
options outstanding and exercisable by price range at April 30, 1998 (options in
thousands):
<TABLE>
<CAPTION>
Exercise Price Ranges Total
------------------------------------------------------ --------------
$0.18 - $5.55 $6.00 - $10.00 $10.13 - $23.87 $0.18 - $23.87
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Number outstanding at April 30, 1998 1,906 1,661 1,662 5,229
Weighted-average remaining
contractual life 5.90 years 8.55 years 8.91 years 7.70 years
Weighted-average exercise price for
options outstanding $ 3.58 $9.15 $13.82 $8.60
Number exercisable at April 30, 1998 1,249 590 569 2,408
Weighted-average exercise price for
options exercisable $ 3.88 $9.25 $14.29 $7.66
</TABLE>
Stock Purchase Plan
The Company provides an employee stock purchase plan (the "Stock
Purchase Plan") allowing eligible employees to purchase shares of the Common
Stock. The Stock Purchase Plan is intended to qualify as an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The total number of shares of Common Stock authorized for issuance
under the plan is 1,000,000. All full-time employees of the Company are eligible
to participate, subject to certain limited exceptions. The Stock Purchase Plan
provides a means for the Company's employees to purchase stock through payroll
deductions of up
41
<PAGE> 42
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
to 10% of their gross compensation. The purchase price for shares offered under
the Stock Purchase Plan is equal to 85% of the lower of the closing price of the
Common Stock on the first or last day of the six month offer period. During
fiscal year 1998 and 1997, the Company sold 406,827 and 389,245 shares,
respectively of Common Stock under the Stock Purchase Plan to its employees.
Pro Forma Information
Pro forma disclosure information regarding net income and earnings per
share is required by Statement 123, and has been determined as if the Company
had accounted for its stock options and the Stock Purchase Plan under the fair
value method of that Statement.
For purposes of pro forma disclosures only, the estimated fair value of
the options is amortized to expense over the options' vesting period. The fair
value for all options was estimated at the date of grant using the Black-Scholes
multiple option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected volatility 69% 71% 71%
Risk-free interest rate 5.8% 6.2% 6.0%
Expected life of options 2.0 years 2.0 years 2.0 years
Expected dividend yield 0.0% 0.0% 0.0%
</TABLE>
The weighted-average fair value per share of options granted during the
years ended April 30, 1998, 1997 and 1996 was $10.03, $8.09 and $2.55,
respectively. Pro forma net income reflects only options granted in fiscal year
1998, 1997 and 1996. Therefore, the impact of calculating compensation cost for
stock options will not be fully reflected in the pro forma net income and pro
forma earnings per share amounts until fiscal year 2000.
For purposes of pro forma disclosures only, compensation cost
associated with the Stock Purchase Plan is estimated for the fair value of the
employees' purchase rights using the Black-Scholes model with the following
assumptions
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Expected volatility 61% 58% 72%
Risk-free interest rate 5.4% 5.3% 5.4%
Expected life of options .5 years .5 years .5 years
Expected dividend yield 0.0% 0.0% 0.0%
</TABLE>
The weighted-average fair value per share of those purchase rights
granted in fiscal year 1998, 1997 and 1996 was $2.75, $2.94 and $2.12,
respectively.
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
42
<PAGE> 43
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Pro forma net income, earnings per share and compensation expense are
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Net income As reported $35,947 $29,994 $17,247
Pro forma 29,578 23,926 15,119
Basic earnings per share As reported .83 .72 .53
Pro forma .70 .58 .48
Diluted earnings per share As reported .81 .69 .50
Pro forma .68 .56 .45
Compensation expense Pro forma 8,937 8,555 3,221
</TABLE>
401(k) Plan
The Company provides a savings plan under section 401(k) of the Code to
substantially all domestic employees who are over the age of 21. Employees can
contribute up to 12% of their annual salary to the plan up to the maximum
allowed by the Code. Prior to August 1, 1996, the Company matched 100% of
certain eligible employee contributions up to $200 not to exceed the maximum of
1% of the employee's eligible compensation. If the employee contributed more
than $200 to the plan, the Company contributed an amount equal to the greater of
$200 or 25% of the employee's contribution up to a maximum of 1% of the
employee's eligible compensation. Effective August 1, 1996, the Company changed
its matching policy to 50% on the first 4% of eligible compensation contributed
by an eligible employee up to a maximum of 2% of the employee's eligible
compensation. The amount charged to expense for the matching contribution was
$2.1 million, $1.3 million and $0.7 million, for the fiscal years ended April
30, 1998, 1997 and 1996, respectively.
14. INCOME TAXES
The income tax provision for the years ended April 30, 1998, 1997 and
1996 computed under FASB Statement No. 109, Accounting for Income Taxes,
consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 21,371 $ 623 $ --
State 3,710 100 100
-------- -------- --------
25,081 723 100
-------- -------- --------
Deferred
Federal (4,698) 14,319 8,561
State (160) 1,830 1,468
-------- -------- --------
(4,858) 16,149 10,029
-------- -------- --------
Total provision for income taxes $ 20,223 $ 16,872 $ 10,129
======== ======== ========
</TABLE>
43
<PAGE> 44
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The income tax provision for the years ended April 30, 1998, 1997 and
1996 is allocated between discontinued and continuing operations as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Provision on income before distribution on
preferred securities of Trust $ 25,236 $ 19,765 $ 4,729
Tax benefit allocable to distribution on preferred
securities of Trust (5,013) (2,893) --
-------- -------- --------
Net provision allocated to continuing operations 20,223 16,872 4,729
Provision allocated to operations of discontinued
Businesses and income on disposal of
discontinued businesses -- -- 5,400
-------- -------- --------
Total provision for income taxes $ 20,223 $ 16,872 $ 10,129
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and income tax purposes. Significant components of deferred
tax assets at April 30, 1998 and 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards $ -- $ 1,490
Reserves 11,837 8,237
Inventory 4,554 5,128
State income taxes 1,567 --
Alternative minimum tax credits 2,163 --
Other expenses, not currently deductible 479 --
------- -------
Total net deferred tax assets $20,600 $14,855
======= =======
</TABLE>
The full realization of the $20.6 million of deferred tax assets
carried at April 30, 1998 is dependent upon the Company achieving sufficient
future pretax earnings. Although realization is not assured, management believes
that sufficient taxable income will be generated through operations to realize
the net deferred tax assets.
A reconciliation for the years ended April 30, 1998, 1997 and 1996 of
the U.S. statutory income tax rate and the effective rate of the income tax
provision allocated to continuing operations is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate at 35% $ 19,660 $ 16,403 $ 4,473
State income taxes, net of federal benefit 2,308 1,930 536
Other (1,745) (1,461) (280)
-------- -------- --------
$ 20,223 $ 16,872 $ 4,729
======== ======== ========
</TABLE>
44
<PAGE> 45
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. EARNINGS PER SHARE
Effective during the year ended April 30, 1998, the Company adopted
Statement No. 128. Statement No. 128 supersedes Accounting Principles Board
Opinion No. 15, Earnings Per Share and changes the presentation of earnings per
share. Statement No. 128 replaces the presentation of primary EPS and fully
diluted EPS with basic EPS and diluted EPS. Basic EPS is based on the weighted
average number of common shares outstanding. Diluted EPS is based on the
weighted average number of common shares outstanding and potentially dilutive
common shares, such as stock options. The Company has restated earnings per
share for all prior periods presented. (in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income $35,947 $29,994 $17,247
======= ======= =======
Weighted average number of common
shares outstanding 43,180 41,693 32,413
======= ======= =======
Earnings per share $ 0.83 $ 0.72 $ 0.53
======= ======= =======
DILUTED EARNINGS PER SHARE
Net Income $35,947 $29,994 $17,247
======= ======= =======
Weighted average number of common
shares outstanding 43,180 41,693 32,413
Common equivalent shares from stock
options using the treasury stock method 1,208 1,589 1,838
------- ------- -------
Shares used in the per share calculation 44,388 43,282 34,251
======= ======= =======
Earnings per share $ 0.81 $ 0.69 $ 0.50
======= ======= =======
</TABLE>
45
<PAGE> 46
SCHEDULE II
VANSTAR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
(Reductions)
Charged
Balance at (Credited) Balance at
Beginning to Costs and Write-offs/ End of
of Period Expenses Other Period
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended April 30, 1996 $12,326 $14,393 * $11,907** $14,812
Year ended April 30, 1997 14,812 (2,705)*** 3,855 8,252
Year ended April 30, 1998 8,252 1,300 1,290 8,262
INVENTORY RESERVES:
Year ended April 30, 1996 $11,435 $3,854 $2,649 $12,640
Year ended April 30, 1997 12,640 2,300 2,354 12,586
Year ended April 30, 1998 12,586 - 2,451 10,135
</TABLE>
* Includes a provision for $4.4 million against the extended interest-bearing
credit and $7.8 million against the extended credit both due from Merisel FAB
(see note 3 of notes to consolidated financial statements).
** Includes the write-off of $4.4 million of the extended interest-bearing
credit due from Merisel FAB.
*** Includes the reversal of $4.2 million of provisions against the extended
interest-bearing credit due from Merisel FAB.
46
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material under the headings "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the 1998 Proxy Statement is
incorporated herein by reference in response to this item. Certain information
regarding executive officers of the Company is set forth under the heading
"Executive Officers of the Company" in Part I of this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The material under the heading "Executive Compensation" in the 1998
Proxy Statement is incorporated herein by reference in response to this item,
except for the material under the subheadings "Compensation Committee Report on
Executive Compensation" and "Comparison of Cumulative Total Returns," which are
not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material under the heading "Security Ownership of Certain
Beneficial Owners, Directors, and Management" in the 1998 Proxy Statement is
incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material under the heading "Certain Transactions" in the 1998 Proxy
Statement is incorporated herein by reference in response to this item.
47
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets at April 30, 1998 and 1997
Consolidated Statements of Income for the years ended April
30, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended April 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
April 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedule:
Supplemental Schedule II - Valuation of Qualifying Accounts
and Reserves
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant (1)
3.2 By-laws of the Registrant, as amended
4.1 Certificate of Trust of Vanstar Financing Trust (4)
4.2 Amended and Restated Declaration of Trust of Vanstar Financing
Trust dated as of October 2, 1996, among Jeffrey S. Rubin, Leslie
J. Alvarez, John J. Dunican, Jr. and Wilmington Trust Company as
trustees and Vanstar Corporation as sponsor (4)
4.3 Indenture dated as of October 2, 1996 between Vanstar Corporation
as issuer and Wilmington Trust Company as trustee (4)
4.4 Form of 6 3/4% Preferred Securities (4) (incorporated by reference
to Exhibit A-1 to Exhibit 4.2)
4.5 Form of 6 3/4% Convertible Subordinated Debentures Due 2016 (4)
(incorporated by reference to Exhibit B to Exhibit 4.2)
4.6 Preferred Securities Guarantee Agreement dated October 2, 1996
between Vanstar Corporation as guarantor and Wilmington Trust
Company as preferred guarantee trustee (4)
*10.1 Form of Indemnity Agreement between the Company and each of its
directors and certain officers (1)
10.2 Second Amended and Restated Financing Program Agreement dated
April 30, 1995, between the Registrant and IBM Credit Corporation
("IBMCC"), as amended (1)
*10.3 Form of Executive Involuntary Severance Agreement
10.4 Amended and Restated Registration Rights Agreement dated as of
May 18, 1995, among the Registrant, NYNEX Worldwide Services
Group, Inc., Warburg, Pincus Capital Company, L.P., WP Capco,
Inc., William Y. Tauscher, Richard H. Bard and Microsoft
Corporation (1)
10.5 Lease Agreement dated as of July 14, 1988, entered into between
the Registrant and Rosewood Associates (1)
10.6 Lease Agreement dated as of November 27, 1996 , entered into
between the Registrant and Trans-Fabu, L.P. as amended
10.7 Lease Agreement dated as of December 9, 1993, entered into
between the Registrant and WRC Properties, Inc. (1)
10.8 Lease Agreement dated as of August 21, 1991, entered into among
the Registrant, Lincoln Las Positas and Patrician Associates,
Inc. (1)
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C>
10.9 Standard Industrial/Commercial Single-Tenant Lease-Gross dated as
of March 27, 1995, entered into among the Registrant, Thomas G.
Allan and Annie L. Henry (1)
10.10 Lease Agreement dated as of March 29, 1994, entered into between
the Registrant and TMC Properties, Inc. (1)
10.11 Lease Agreement dated as of November 1, 1991, entered into
between the Registrant and ASC North Fulton Associates Joint
Venture (1)
10.12 Lease Agreement dated as of August 18, 1997 , entered into
between the Registrant and SVA Oxford Limited Partnership
10.13 Lease Agreement dated as of September 3, 1997 , entered into
between the Registrant and Opus Southwest Corporation as amended
10.14 Lease Agreement dated as of June 3, 1996 entered into between the
Registrant and Duke Realty Limited Partnership (5)
10.15 Second Lease Amendment dated as of May 30, 1996 entered into
between the Registrant and Dugan Realty, L.L.C. (5)
10.16 Lease Agreement dated as of June 3, 1996 entered into between the
Registrant and Duke Realty Limited Partnership (5)
10.17 Lease Amendment dated May 15, 1996 entered into between the
Registrant and CM Winprop, Inc. (5)
10.18 Amendment No. 7 to Second Amended and Restated Financing Program
Agreement, dated October 31, 1997, between the Registrant and
IBMCC (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 31, 1997)
*10.19 1988 Stock Option Plan (1) (incorporated by reference to Exhibit
4.1)
*10.20 Form of Nontransferable Non-Qualified Stock Option Agreement
under the 1988 Stock Option Plan of the Registrant (1)
(incorporated by reference to Exhibit 4.2)
*10.21 1993 Stock Option/Stock Issuance Plan (1) (incorporated by
reference to Exhibit 4.3)
*10.22 Form of Stock Option Grant and Stock Purchase Agreement under the
1993 Stock Option Plan (1) (incorporated by reference to Exhibit
4.4)
10.23 Employee Stock Purchase Plan (1) (incorporated by reference to
Exhibit 4.5)
*10.24 1996 Stock Option/Stock Issuance Plan, as amended (4)
(incorporated by reference to Exhibit 10.25)
10.25 Amendment No. 5 to Second Amended and Restated Financing Program
Agreement, dated September 25, 1996, between the Registrant and
IBMCC (6)
10.26 Amendment No. 6 to Second Amended and Restated Financing Program
Agreement, dated December 20, 1996, between the Registrant and
IBMCC (7) (incorporated by reference to Exhibit 10.3)
10.27 Receivables Purchase Agreement, dated December 20, 1996, among
Vanstar Finance Co., as seller, the Registrant, as servicer,
Pooled Accounts Receivable Capital Corporation, as purchaser, and
Nesbitt Burns Securities, Inc., as agent (7) (incorporated by
reference to Exhibit 10.1)
10.28 Purchase and Contribution Agreement, dated as of December 20,
1996, between the Registrant and Vanstar Finance Co. (7)
(incorporated by reference to Exhibit 10.2)
10.29 Intercreditor Agreement, dated as of December 20, 1996, among PAR
Accounts Receivable Capital Corporation, the Registrant, Vanstar
Finance Co., and Nesbitt Burns Securities, Inc. (7) (incorporated
by reference to Exhibit 10.4)
10.30 Amendment No. 8 to Second Amended and Restated Financing Program
Agreement, dated December 11, 1997, between the Registrant and
IBMCC (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1998)
10.31 Assignment, Consent to Assignment and Assumption, and Release
Agreement, dated as of March 28, 1997, by and among the
Registrant, Merisel, Inc., Merisel FAB, Inc., and ComputerLand
Corporation (incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on From 10-K for the fiscal year ended
April 30, 1997)
10.32 Amendment No. 9 to Second Amended and Restated Financing Program
Agreement, dated March 16, 1998, between the Registrant and IBMCC
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C>
21 List of Subsidiaries
23 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for the year ended April 30, 1998.
27.2 Restated Financial Data Schedule for the periods ended July 31,
1997 and October 31, 1997.
27.3 Restated Financial Data Schedule for the periods ended July 31,
1996, October 31, 1996, and January 31, 1997.
27.4 Restated Financial Data Schedule for the periods ended April 30,
1996 and April 30, 1997.
</TABLE>
(1) Incorporated by reference to exhibits with the corresponding numbers
(except as otherwise noted) filed with Registrant's Registration Statement
on Form S-1 (Reg. No. 33-80297) as declared effective by the Commission on
March 8, 1996.
(2) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated May 24, 1996.
(3) Incorporated by reference to Exhibit 10 to the Registrant's Current Report
on Form 8-K dated May 29, 1996.
(4) Incorporated by reference to exhibits with the corresponding numbers
(except as otherwise noted) filed with that Registration Statement on Form
S-1 (Reg. Nos. 333-16307 and 333-16307-01) filed by the Registrant and
Vanstar Financing Trust, as declared effective by the Commission on January
15, 1997.
(5) Incorporated by reference to exhibits with the corresponding numbers filed
with the Registrant's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996.
(6) Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 31, 1996.
(7) Incorporated by reference to exhibits with the indicated numbers filed with
the Registrant's Current Report on Form 8-K dated December 26, 1996 and
filed with the Commission on January 10, 1997.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by the Company during the quarter
ended April 30, 1998.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VANSTAR CORPORATION
(Registrant)
Dated: July 23, 1998 By: /s/ William Y. Tauscher
-----------------------
William Y. Tauscher
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATED
--------- ----- -----
<S> <C> <C>
/s/ William Y. Tauscher Chairman of the Board, Chief Executive Officer and July 23, 1998
----------------------- Director (Principal Executive Officer)
William Y. Tauscher
/s/ Kauko O. Aronaho Senior Vice President and Chief Financial Officer July 23, 1998
-------------------- (Principal Financial and Accounting Officer)
Kauko O. Aronaho
/s/ Jay S. Amato President, Chief Operating Officer and Director July 23, 1998
----------------
Jay S. Amato
/s/ John W. Amerman Director July 23, 1998
-------------------
John W. Amerman
/s/ Richard H. Bard Director July 23, 1998
-------------------
Richard H. Bard
/s/ Stephen W. Fillo Director July 23, 1998
--------------------
Stephen W. Fillo
/s/ Stewart K.P. Gross Director July 23, 1998
----------------------
Stewart K.P. Gross
/s/ William H. Janeway Director July 23, 1998
----------------------
William H. Janeway
/s/ John R. Oltman Director July 23, 1998
------------------
John R. Oltman
/s/ John L. Vogelstein Director July 23, 1998
----------------------
John L. Vogelstein
/s/ Josh S. Weston Director July 23, 1998
------------------
Josh S. Weston
</TABLE>
51
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
VANSTAR CORPORATION,
AS AMENDED
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of VANSTAR
CORPORATION (the "Corporation"), in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware, and the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 2. Other Offices. The Corporation may also have an office or
offices at any other place or places within or outside the State of Delaware.
ARTICLE II
Meetings of Stockholders; Stockholders'
Consent in Lieu of Meeting
SECTION 1. Annual Meetings. The annual meeting of the stockholders for
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, date and hour as
shall be fixed by the Board of Directors (the "Board") and designated in the
notice or waiver of notice thereof, except that no annual meeting need be held
if all actions, including the election of directors, required by the General
Corporation Law of the State of Delaware (the "Delaware Statute") to be taken at
a stockholders' annual meeting are taken by written consent in lieu of meeting
pursuant to Section 10 of this Article II.
SECTION 2. Special Meetings. A special meeting of the stockholders for
any purpose or purposes may be called by the Board, the Chairman, the President
or the record holders of at least a majority of the issued and outstanding
shares of Common Stock of the Corporation, to be held at such place, date and
hour as shall be designated in the notice or waiver of notice thereof.
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SECTION 3. Notice of Meetings. Except as otherwise required by statute,
the Certificate of Incorporation of the Corporation (the "Certificate") or these
By-laws, notice of each annual or special meeting of the stockholders shall be
given to each stockholder of record entitled to vote at such meeting not less
than 10 nor more than 60 days before the day on which the meeting is to be held,
by delivering written notice thereof to him personally, or by mailing a copy of
such notice, postage prepaid, directly to him at his address as it appears in
the records of the Corporation, or by transmitting such notice thereof to him at
such address by telegraph, cable or other telephonic transmission. Every such
notice shall state the place, the date and hour of the meeting, and, in case of
a special meeting, the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy, or who shall,
in person or by attorney thereunto authorized, waive such notice in writing,
either before or after such meeting. Except as otherwise provided in these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the stockholders need be specified in any such notice or waiver of
notice. Notice of any adjourned meeting of stockholders shall not be required to
be given, except when expressly required by law.
SECTION 4. Quorum. At each meeting of the stockholders, except where
otherwise provided by the Certificate or these By-laws, the holders of a
majority of the issued and outstanding shares of Common Stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. In the absence of a
quorum, a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote, or, in the absence of all the
stockholders entitled to vote, any officer entitled to preside at, or act as
secretary of, such meeting, shall have the power to adjourn the meeting from
time to time, until stockholders holding the requisite amount of stock to
constitute a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 5. Organization.
(a) Unless otherwise determined by the Board, at each meeting
of the stockholders, one of the following shall act as chairman of the meeting
and preside thereat, in the following order of precedence:
(i) the Chairman;
(ii) the President;
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<PAGE> 3
(iii) any director, officer or stockholder of the
Corporation designated by the Board to act as chairman of such meeting
and to preside thereat if the Chairman or the President shall be
absent from such meeting; or
(iv) a stockholder of record who shall be chosen
chairman of such meeting by a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote
thereat.
(b) The Secretary or, if he shall be presiding over such
meeting in accordance with the provisions of this Section 5 or if he shall be
absent from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary has been appointed and is present) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 6. Order of Business. The order of business at each meeting of
the stockholders shall be determined by the chairman of such meeting, but such
order of business may be changed by a majority in voting interest of those
present in person or by proxy at such meeting and entitled to vote thereat.
SECTION 7. Voting. Except as otherwise provided by law, the Certificate
or these By-laws, at each meeting of the stockholders, every stockholder of the
Corporation shall be entitled to one vote in person or by proxy for each share
of Common Stock of the Corporation held by him and registered in his name on the
books of the Corporation on the date fixed pursuant to Section 7 of Article VI
as the record date for the determination of stockholders entitled to vote at
such meeting. Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. A person whose stock is pledged shall be entitled to
vote, unless, in the transfer by the pledgor on the books of the Corporation, he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee or his proxy may represent such stock and vote thereon. If shares or
other securities having voting power stand in the record of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary shall be
given written notice to the contrary and furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:
(a) if only one votes, his act binds all;
(b) if more than one votes, the act of the majority
so voting binds all; and
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<PAGE> 4
(c) if more than one votes, but the vote is evenly split on
any particular matter, such shares shall be voted in the manner provided by law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 7 shall be
a majority or even-split in interest. The Corporation shall not vote directly or
indirectly any share of its own capital stock. Any vote of stock may be given by
the stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted after three years from its date, unless
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Certificate or
these By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot upon any question, such vote by ballot shall be taken. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
SECTION 8. Inspection. The chairman of the meeting may at any time
appoint one or more inspectors to serve at any meeting of the stockholders. Any
inspector may be removed, and a new inspector or inspectors appointed, by the
Board at any time. Such inspectors shall decide upon the qualifications of
voters, accept and count votes, declare the results of such vote, and subscribe
and deliver to the secretary of the meeting a certificate stating the number of
shares of stock issued and outstanding and entitled to vote thereon and the
number of shares voted for and against the question, respectively. The
inspectors need not be stockholders of the Corporation, and any director or
officer of the Corporation may be an inspector on any question other than a vote
for or against his election to any position with the Corporation or on any other
matter in which he may be directly interested. Before acting as herein provided,
each inspector shall subscribe an oath faithfully to execute the duties of an
inspector with strict impartiality and according to the best of his ability.
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<PAGE> 5
SECTION 9. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of its stock ledger to
prepare and make, at least 10 days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to any such meeting,
during ordinary business hours, for a period of at least 10 days prior to such
meeting, either at a place within the city where such meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 10. Stockholders' Consent in Lieu of Meeting. Any action
required by the Delaware Statute to be taken at any annual or special meeting of
the stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, by a consent in writing, as permitted
by the Delaware Statute.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION 2. Number and Term of Office. The number of directors shall be
fixed from time to time by the Board. Directors need not be stockholders. Each
director shall hold office until his successor is elected and qualified, or
until his earlier death or resignation or removal in the manner hereinafter
provided.
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<PAGE> 6
SECTION 3. Election of Directors. At each meeting of the stockholders
for the election of directors at which a quorum is present, the persons
receiving the greatest number of votes, up to the number of directors to be
elected, of the stockholders present in person or by proxy and entitled to vote
thereon shall be the directors; provided, however, that for purposes of such
vote no stockholder shall be allowed to cumulate his votes. Unless an election
by ballot shall be demanded as provided in Section 7 of Article II, election of
directors may be conducted in any manner approved at such meeting.
SECTION 4. Resignation, Removal and Vacancies.
(a) Any director may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if no time shall
be specified therein, upon receipt thereof; unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
(b) Any director or the entire Board may be removed, with or
without cause, at any time by vote of the holders of a majority of the shares
then entitled to vote at an election of directors or by written consent of the
stockholders pursuant to Section 10 of Article II.
(c) Vacancies occurring on the Board for any reason may be
filled by vote of the stockholders or by the stockholders' written consent
pursuant to Section 10 of Article II, or by vote of the Board or by the
directors' written consent pursuant to Section 6 of this Article III. If the
number of directors then in office is less than a quorum, such vacancies may be
filled by a vote of a majority of the directors then in office.
SECTION 5. Meetings.
(a) Annual Meetings. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization and
the transaction of other business, unless it shall have transacted all such
business by written consent pursuant to Section 6 of this Article III.
(b) Other Meetings. Other meetings of the Board shall be held
at such times and places as the Board, the Chairman, the President or any
director shall from time to time determine.
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(c) Notice of Meetings. Notice shall be given to each director
of each meeting, including the time, place and purpose of such meeting. Notice
of each such meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least two days before the date on which
such meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such
place or places within or outside the State of Delaware as the Board may from
time to time determine, or as shall be designated in the respective notices or
waivers of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total
number of directors then in office shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and the vote of a majority of those directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or act of the Board, except as otherwise expressly required by law or
these By-laws. In the absence of a quorum for any such meeting, a majority of
the directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(f) Organization. At each meeting of the Board, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(i) the Chairman;
(ii) the President (if a director); or
(iii) any director designated by a majority of the
directors present.
The Secretary or, in the case of his absence, an Assistant Secretary, if an
Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
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SECTION 6. Directors' Consent in Lieu of Meeting. Any action required
or permitted to be taken at any meeting of the Board may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by all the directors then in
office and such consent is filed with the minutes of the proceedings of the
Board.
SECTION 7. Action by Means of Conference Telephone or Similar
Communications Equipment. Any one or more members of the Board may participate
in a meeting of the Board by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
SECTION 8. Committees. The Board may, by resolution or resolutions
passed by a majority of the whole Board, designate one or more committees, each
such committee to consist of one or more directors of the Corporation, which to
the extent provided in said resolution or resolutions shall have and may
exercise the powers of the Board in the management of the business and affairs
of the Corporation and may authorize the seal of the Corporation to be affixed
to all papers which may require it, such committee or committees to have such
name or names as may be determined from time to time by resolution adopted by
the Board. A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board shall
otherwise provide. The Board shall have power to change the members of any such
committee at any time, to fill vacancies and to discharge any such committee,
either with or without cause, at any time.
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<PAGE> 9
ARTICLE IV
Officers
SECTION 1. Executive Officers. The principal officers of the
Corporation shall be a Chairman, if one is appointed (and any references to the
Chairman shall not apply if a Chairman has not been appointed), a President, a
Secretary and a Treasurer, and may include such other officers as the Board may
appoint pursuant to Section 3 of this Article IV. Any two or more offices may be
held by the same person.
SECTION 2. Authority and Duties. All officers, as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws or, to the
extent so provided, by the Board.
SECTION 3. Other Officers. The Corporation may have such other
officers, agents and employees as the Board may deem necessary, including one or
more Assistant Secretaries, one or more Assistant Treasurers and one or more
Vice Presidents, each of whom shall hold office for such period, have such
authority, and perform such duties as the Board, the Chairman or the President
may from time to time determine. The Board may delegate to any principal officer
the power to appoint and define the authority and duties of, or remove, any such
officers, agents or employees.
SECTION 4. Term of Office, Resignation and Removal.
(a) All officers shall be elected or appointed by the Board
and shall hold office for such term as may be prescribed by the Board. Each
officer shall hold office until his successor has been elected or appointed and
qualified or until his earlier death or resignation or removal in the manner
hereinafter provided. The Board may require any officer to give security for the
faithful performance of his duties.
(b) Any officer may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if no time shall
be specified therein, at the time it is accepted by action of the Board. Except
as aforesaid, the acceptance of such resignation shall not be necessary to make
it effective.
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<PAGE> 10
(c) All officers and agents elected or appointed by the Board
shall be subject to removal at any time by the Board or by the stockholders of
the Corporation with or without cause.
SECTION 5. Vacancies. If the office of Chairman, President, Secretary
or Treasurer becomes vacant for any reason, the Board shall fill such vacancy,
and if any other office becomes vacant, the Board may fill such vacancy. Any
officer so appointed or elected by the Board shall serve only until such time as
the unexpired term of his predecessor shall have expired, unless reelected or
reappointed by the Board.
SECTION 6. The Chairman. The Chairman shall preside at meetings of the
Board and of the stockholders at which he is present, or he or she may delegate
such authority to any other director or officer of the Corporation. The Chairman
shall have such other powers and perform such other duties as may be provided
for herein and as may be incident to the office and as the Board may determine
from time to time.
SECTION 7. The President. The President shall have such powers and
perform such duties as may be provided for herein and as may be incident to the
office and as the Board may determine from time to time.
SECTION 8. The Secretary. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of the
stockholders and shall record all votes and the minutes of all proceedings in a
book to be kept for that purpose. He may give, or cause to be given, notice of
all meetings of the stockholders and of the Board, and shall perform such other
duties as may be prescribed by the Board, the Chairman or the President, under
whose supervision he shall act. He shall keep in safe custody the seal of the
Corporation and affix the same to any duly authorized instrument requiring it
and, when so affixed, it shall be attested by his signature or by the signature
of the Treasurer or, if appointed, an Assistant Secretary or an Assistant
Treasurer. He shall keep in safe custody the certificate books and stockholder
records and such other books and records as the Board may direct, and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
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<PAGE> 11
SECTION 9. The Treasurer. The Treasurer shall have the care
and custody of the corporate funds and other valuable effects, including
securities, shall keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board, taking proper vouchers
for such disbursements, shall render to the Chairman, President and directors,
at the regular meetings of the Board, or whenever they may require it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation and shall perform all other duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board, the Chairman or the President.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 1. Execution of Documents. The Board shall designate,
by either specific or general resolution, the officers, employees and agents of
the Corporation who shall have the power to execute and deliver deeds,
contracts, mortgages, bonds, debentures, checks, drafts and other orders for the
payment of money and other documents for and in the name of the Corporation, and
may authorize such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation; unless so designated or expressly
authorized by these By-laws, no officer, employee or agent shall have any power
or authority to bind the Corporation by any contract or engagement, to pledge
its credit or to render it liable pecuniarily for any purpose or amount.
SECTION 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise as the Board or Treasurer, or any other officer of the
Corporation to whom power in this respect shall have been given by the Board,
shall select.
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SECTION 3. Proxies with Respect to Stock or Other Securities
of Other Corporations. The Board shall designate the officers of the Corporation
who shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent with respect to such
stock or securities. Such designated officers may instruct the person or persons
so appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.
ARTICLE VI
Shares and Their Transfer; Fixing Record Date
SECTION 1. Certificates for Shares. Every owner of stock of
the Corporation shall be entitled to have a certificate certifying the number
and class of shares owned by him in the Corporation, which shall be in such form
as shall be prescribed by the Board. Certificates shall be numbered and issued
in consecutive order and shall be signed by, or in the name of, the Corporation
by the Chairman, the President or any Vice President, and by the Treasurer (or
an Assistant Treasurer, if appointed) or the Secretary (or an Assistant
Secretary, if appointed). In case any officer or officers who shall have signed
any such certificate or certificates shall cease to be such officer or officers
of the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted by the Corporation
and be issued and delivered as though the person or persons who signed such
certificate had not ceased to be such officer or officers of the Corporation.
SECTION 2. Record. A record in one or more counterparts shall
be kept of the name of the person, firm or corporation owning the shares
represented by each certificate for stock of the Corporation issued, the number
of shares represented by each such certificate, the date thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name shares of stock stand on the stock
record books of the Corporation shall be deemed the owner thereof for all
purposes regarding the Corporation.
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<PAGE> 13
SECTION 3. Transfer and Registration of Stock.
(a) The transfer of stock and certificates which represent the
stock of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6
of the Delaware Code (the Uniform Commercial Code), as amended from time to
time.
(b) Registration of transfers of shares of the Corporation
shall be made only on the books of the Corporation upon request of the
registered holder thereof, or of his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and upon
the surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a stock power duly executed.
SECTION 4. Addresses of Stockholders. Each stockholder shall designate
to the Secretary an address at which notices of meetings and all other corporate
notices may be served or mailed to him, and, if any stockholder shall fail to
designate such address, corporate notices may be served upon him by mail
directed to him at his post-office address, if any, as the same appears on the
stock record books of the Corporation or at his last known post-office address.
SECTION 5. Lost, Destroyed and Mutilated Certificates. The holder of
any shares of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board may,
in its discretion, cause to be issued to him a new certificate or certificates
for such shares, upon the surrender of the mutilated certificate or, in the case
of loss or destruction of the certificate, upon satisfactory proof of such loss
or destruction, and the Board may, in its discretion, require the owner of the
lost or destroyed certificate or his legal representative to give the
Corporation a bond in such sum and with such surety or sureties as it may direct
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate.
SECTION 6. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning the
issue, transfer and registration of certificates for stock of the Corporation.
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<PAGE> 14
SECTION 7. Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall be not more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by the
Board, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall be not more than 10 days after the date upon which
the resolution fixing the record date is adopted by the Board. If no record date
has been fixed by the Board, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required by the Delaware Statute, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in this State, its principal place of business or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board and prior
action by the Board is required by the Delaware Statute, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
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(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
ARTICLE VII
Seal
The Board may provide a corporate seal, which shall be in the
form of a circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "Corporate Seal -
Delaware".
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be the calendar year
unless otherwise determined by the Board.
ARTICLE IX
Indemnification and Insurance
SECTION 1. Indemnification.
(a) As provided in the Certificate, to the fullest extent
permitted by the Delaware Statute as the same exists or may hereafter be
amended, a director of this Corporation shall not be liable to the Corporation
or its stockholders for breach of fiduciary duty as a director.
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(b) Without limitation of any right conferred by paragraph (a)
of this Section 1, each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity while serving as a director, officer or employee
or in any other capacity while serving as a director, officer or employee, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Statute, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability and loss (including
attorneys' fees, judgments, fines, excise taxes or amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer or employee and shall inure to the benefit of the indemnitee's
heirs, testators, intestates, executors and administrators; provided, however,
that such person acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and with
respect to a criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful; provided further, however, that no indemnification
shall be made in the case of an action, suit or proceeding by or in the right of
the Corporation in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such director, officer, employee or agent is
liable to the Corporation, unless a court having jurisdiction shall determine
that, despite such adjudication, such person is fairly and reasonably entitled
to indemnification; provided further, however, that, except as provided in
Section 1(c) of this Article IX with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) initiated by such indemnitee was authorized
by the Board. The right to indemnification conferred in this Article IX shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however, that,
if the Delaware Statute requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such
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expenses under this Section or otherwise.
(c) If a claim under Section (b) of this Article IX is not
paid in full by the Corporation within 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of any undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met the applicable standard of conduct set forth in
the Delaware Statute. Neither the failure of the Corporation (including the
Board, independent legal counsel or the stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware Statute, nor an actual
determination by the Corporation (including the Board, independent legal
counsel, or the stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the Corporation.
(d) The rights to indemnification and to the advancement of
expenses conferred in this Article IX shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Certificate, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 2. Insurance. The Corporation may purchase and maintain
insurance, at its expense, to protect itself and any person who is or was a
director, officer, employee or agent of the Corporation or any person who is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware Statute.
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ARTICLE X
Amendment
Any by-law (including these By-laws) may be adopted, amended
or repealed by the vote of the holders of a majority of the shares then entitled
to vote or by the stockholders' written consent pursuant to Section 10 of
Article II, or by the vote of the Board or by the directors' written consent
pursuant to Section 6 of Article III.
* * * * *
* * *
*
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EXHIBIT 10.3
EXECUTIVE INVOLUNTARY SEVERANCE AGREEMENT
THIS EXECUTIVE INVOLUNTARY SEVERANCE AGREEMENT, dated as of
______________, 1998, is made by and between VANSTAR CORPORATION, a Delaware
corporation (the "Company"), and ______________________ ("Executive").
R E C I T A L S
WHEREAS, Executive is a key management executive employed by the Company;
and
WHEREAS, the Company considers the retention of a sound management team
to be essential to protecting and enhancing the interests of the Company and
its stockholders; and
WHEREAS, the Company wishes to have the benefit of Executive's full time
and attention to the affairs of the Company, particularly during any period or
circumstances that may otherwise cause diversion;
NOW, THEREFORE, in order to induce Executive to continue in the
employment of the Company, and in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the Company and Executive agree as follows:
1. DEFINITIONS. The terms defined in this Section shall have the
meanings specified below:
"ACQUIRING ENTITY" shall mean any business entity which shall acquire all or
any substantial portion of the assets or businesses of the Company in a
transaction constituting a Change of Control. There may be more than one
Acquiring Entity at any point in time.
"CAUSE" shall mean any one of the following:
(i) repeated, unexplained or unjustified absence of Executive
from the Corporation's business;
(ii) a material, willful violation by Executive of any federal or
state law for which Executive could be subject to incarceration for in
excess of one (1) year, other than any violation of laws relating to the
operation of a motor vehicle or which do not involve moral turpitude;
(iii) the commission by Executive of an act of fraud upon the
Company;
(iv) an act or acts of dishonesty by Executive constituting a
felony or intended to result, directly or indirectly, in substantial gain
or personal enrichment to Executive at the expense of the Company;
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(v) Executive's continued willful misconduct in the performance of
his or her duties and responsibilities as an officer of the Company
(other than a failure resulting from his or her incapacity due to
physical or mental illness) after specific written notice of such
misconduct is delivered to Executive by the Company; and
(vi) the refusal by Executive to accept employment with an
Acquiring Entity to whom this Agreement has been properly assigned
pursuant to Section 7.a hereof.
"CHANGE OF CONTROL" means any of the following events:
(i) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which
shares of common stock of the Company would be converted into cash,
securities or other property, other than a merger of the Company in which
the holders of common stock of the Company immediately prior to the
merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger or which would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately following such consolidation or merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, of the assets of the Company;
(iii) the implementation of a plan of liquidation or dissolution of
the Company approved by the stockholders of the Company;
(iv) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company itself or any employee stock
ownership plan sponsored by the Company, becoming the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 50.1% or
more of the total voting power represented by the Company's then
outstanding voting securities;
(v) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Company's entire Board of
Directors ceasing for any reason to constitute a majority thereof, unless
the election, or the nomination for election by the Company's
stockholders, of each new director was approved by the affirmative vote
of at least two thirds of the directors then still in office who were
directors at the beginning of the period; or
(vi) any change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, as in effect on the date hereof, promulgated under the
Exchange Act.
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"COMPENSATION," with respect to any termination of Executive's employment,
shall mean, as of the date of such termination, the sum of (i) an amount equal
to the average of Executive's annual base salary for each of (A) the year of
termination and (B) the preceding year, plus (ii) an amount equal to the last
annual cash bonus payment received by Executive, plus (iii) an amount equal to
the average of the last three annual awards received by Executive with respect
to each other incentive plan of the Company (other than restricted stock, stock
bonus or stock option plans). (Notwithstanding the immediately preceding
sentence, "Compensation" shall not include any amounts which are excluded from
the calculation of "excess parachute payments" pursuant to Section 280G or
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any amounts paid for bona fide services actually rendered by Executive to the
Company following the termination of Executive's employment with the Company.)
"GOOD REASON" shall mean the continuation of any of the following for 60 days
following written notice to the Company from Executive of the existence
thereof:
(i) a substantial diminution in Executive's duties with the
Company from the duties existing prior to a Change of Control;
(ii) a reduction by the Company in Executive's annual base salary
in effect on the date of a Change of Control or as in effect thereafter
if such annual base salary has been increased and such increase was
approved prior to the Change of Control;
(iii) a substantial reduction by the Company in the overall value
of employment-related benefits (including all profit sharing, retirement,
pension, health, medical, dental, disability, insurance, automobile and
similar benefits, but not including restricted stock, stock bonus and
stock option plans) provided to Executive from those in effect on the
date of a Change of Control or as in effect thereafter if such benefits
have been increased and such increase was approved prior to the Change of
Control;
(iv) a failure to continue in effect any stock option or other
equity-based or non-equity-based incentive compensation plan in effect
immediately prior to a Change of Control, or a reduction in Executive's
participation or entitlement with regard thereto, unless Executive is
afforded an opportunity of reasonably equivalent value to participate in
an alternative incentive compensation plan;
(v) a failure to provide Executive with substantially the same
number of paid vacation days per year as were available prior to the
Change of Control, or any material reduction or elimination of a material
benefit or perquisite enjoyed by Executive immediately prior to a Change
of Control as a consequence of Executive's employment or position with
the Company;
(vi) relocation of Executive's principal place of employment to a
place more than fifty (50) miles from Executive's principal place of
employment as of a Change of Control;
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(vii) any material breach by the Company of any provision of this
Agreement or of any incentive compensation, stock option or similar
benefit plan of the Company in which Executive then participates or is
eligible to participate;
(viii) conduct by the Company, against Executive's volition, which
could cause Executive to commit, on his or her own behalf or as an
officer of the Company, a fraudulent act or which could expose Executive
to civil or criminal liability or to sanction by any professional
licensing body or self-regulatory organization; or
(ix) the failure by the Company to obtain the agreement of any
successor of the Company or any entity or entities acquiring all or
substantially all of the assets of the Company, to assume the Company's
obligations under this Agreement or under any incentive compensation or
similar benefit plan (other than any restricted stock, stock bonus, stock
option or similar equity-based plan) of the Company; provided, however,
that for the purposes of clause (ii) through (v) above, "good reason"
shall not exist if (a) the aggregate value of all salary, benefits,
incentive compensation arrangements, perquisites and other compensation
following a Change of Control is reasonably equivalent to the aggregate
value of salary, benefits, incentive compensation arrangements,
perquisites and other compensation as in effect immediately prior
thereto, or as in effect thereafter if the aggregate value of such items
has been increased and such increase was approved prior to the Change of
Control; or (b) the reduction in aggregate value is due to reduced
performance by the Company, a business unit of the Company for which
Executive has primary management responsibility, or Executive
individually, in any such case applying standards reasonably equivalent
to those utilized by the Company in judging performance prior to the
Change of Control in question.
2. AGREEMENT TO PROVIDE SERVICES; RIGHT TO TERMINATE; VESTING.
a. The Company agrees to employ Executive and Executive agrees to
be employed by the Company; provided, however, that nothing in this Agreement
nor anything contained herein shall be deemed to confer on Executive any right
to or obligation of continued employment with the Company or to impose on the
Company any obligation with respect to the continued employment of Executive.
b. Any termination of Executive's employment with the Company,
whether by the Company or by Executive, shall be communicated by written notice
to the other party hereto.
c. This Agreement is not intended to amend or modify the provisions
of any other agreement or arrangement between the Company and Executive.
Without limiting the generality of the foregoing, notwithstanding any Change of
Control or other transaction, the terms and conditions of the Company's stock
option plans and any applicable award agreements thereunder shall control with
respect to the vesting of any options or other awards thereunder then held by
Executive. No provision of this Agreement shall restrict the Company's ability
to
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amend any agreement to which it is a party, any stock option or benefit plan
established by it or any provision of its Certificate of Incorporation or
Bylaws.
3. TERM OF AGREEMENT. Unless sooner terminated in accordance with the
following sentence, the term of this Agreement shall be for an initial two (2)
year period commencing on the date hereof, and shall be automatically renewed
at the end of the initial two year period and annually thereafter, for
additional one (1) year periods, unless the Company gives notice of non-renewal
at any time after the initial two-year term and at least one (1) year prior to
the date of termination of this Agreement; provided, however, that if a Change
of Control occurs prior to the expiration of the term hereof, this Agreement
shall be extended through the first anniversary of the Change of Control. No
termination by Executive of Executive's employment with the Company shall
constitute a termination of this Agreement unless Executive and the Company
shall otherwise agree in a writing specifically describing this Agreement and
the provisions hereof to be terminated. Subject to the preceding sentence,
notwithstanding any termination of this Agreement by its terms, the rights and
obligations of the parties hereunder shall survive until such obligations have
been satisfied.
4. ENTITLEMENT UPON TERMINATION OF EMPLOYMENT. Executive shall be
entitled to the applicable benefits described in Sections 5 and 6 hereof upon
any termination of Executive's employment with the Company while this Agreement
is in effect.
5. COMPENSATION UPON TERMINATION; OTHER AGREEMENTS.
a. In the event that Executive is terminated for Cause, whether or
not a Change of Control has occurred, Executive shall be entitled only to
amounts described in Section 5.h.
b. In the event that Executive is terminated without Cause at
any time prior to a Change of Control, Executive shall be entitled to receive
an amount equal to [ALTERNATIVE 1, FOR PRESIDENT AND SENIOR VICE PRESIDENTS:
EXECUTIVE'S COMPENSATION] [ALTERNATIVE 2, FOR VICE PRESIDENTS: 0.5 TIMES
EXECUTIVE'S COMPENSATION].
c. In the event that the Company shall terminate Executive without
Cause, following a Change of Control but prior to the second anniversary
thereof, Executive shall be entitled to receive an amount equal to Executive's
Compensation multiplied by [____].
d. Any voluntary termination by Executive of Executive's employment
shall be treated as a termination by the Company for Cause if it occurs prior
to a Change of Control.
e. Any voluntary termination by Executive of Executive's employment
without Good Reason at any time following a Change of Control shall be treated
as a termination by the Company for Cause.
f. Any voluntary termination by Executive of Executive's employment
for Good Reason, following any Change of Control but prior to the second
anniversary thereof, shall be treated as a termination by the Company without
Cause.
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g. Except where there has been an assignment of this Agreement
pursuant to Section 7.a below, in the event that Executive shall voluntarily
terminate Executive's employment and shall accept employment with an Acquiring
Entity within six months of a Change of Control in connection with which the
Acquiring Entity acquired assets or businesses of the Company, such termination
shall be treated as a termination by the Company for Cause.
h. In addition to the payments required pursuant to Sections 5.a
through 5.g above, if any, in the event of any termination of Executive's
employment, Executive shall be entitled to receive all salary and other
Compensation accrued but unpaid through the date of such termination, together
with any benefits or awards (including cash and stock components) which
pursuant to the terms of any of the Company's compensation plans have been
earned or otherwise become payable through the date of termination, but which
have not yet been paid (including amounts which previously have been deferred
at Executive's election), with all such payments to be made not later than the
tenth (10th) day following the date of termination, except to the extent that
the amount of such payments is in dispute, in which case the non-disputed
portion of such payments will be made not later than the tenth (10th) day
following the day of termination and the remainder shall be paid within ninety
(90) days. Subject to the following sentence, this Section 5.h shall be deemed
an election by Executive to receive any Compensation previously earned but
deferred under an elective salary deferral or similar plan (to the extent such
an election is permitted under such plan), and an acknowledgment by Executive
that receipt of such amounts may entail substantial tax liability to Executive.
Notwithstanding the foregoing provisions requiring payment of deferred
Compensation in the event of any termination of Executive's employment,
Executive may elect, if permitted by the plan in question, to continue to defer
amounts which would otherwise be paid hereunder for such periods as may be
permitted under the plan in question.
i. In addition to and without limitation of any similar benefits
accruing to Executive outside the scope of this Agreement, the Company shall
maintain in full force and effect, for the continued benefit of Executive and
Executive's dependents, for two (2) years after the date of any termination of
Executive's employment following a Change of Control, insured and self-insured
employee welfare benefit plans in which Executive was entitled to participate
immediately prior to the date of termination, provided that Executive's
continued participation (or that of Executive's dependents) is possible under
the general terms and provisions of such plans (and any applicable funding
mechanism) and that Executive continues to pay an amount equal to Executive's
regular contribution (as if Executive remained an employee of the Company)
under such plans for such participation. In the event that Executive's
participation in any such plans is barred, the Company, at its sole expense,
shall arrange to have issued for the benefit of Executive and Executive's
dependents, individual policies of insurance providing benefits substantially
similar on an after-tax basis to those that Executive otherwise would have been
entitled to receive under such plans pursuant to this Section 5.i and Executive
shall pay to the Company the amount or amounts that would have been required as
contribution from Executive, or, if such insurance is not available at a
reasonable cost to the Company, the Company shall otherwise provide
substantially equivalent benefits (on an after-tax basis).
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j. The amount of any payment provided for in this Section 5 shall
not be reduced, offset or subject to recovery by the Company by reason of any
compensation earned by Executive as a result of employment with another
employer after the date of termination or otherwise. Executive shall be under
no obligation to seek other employment following any termination of Executive's
employment with the Company or to mitigate any damages Executive may incur as a
result of any breach of this Agreement by the Company.
6. OBLIGATION TO REIMBURSE FOR TAXES.
a. Except as provided hereafter, the Company shall not be obligated
to reimburse Executive for Executive's liability to pay any applicable
federal, state or local income or employment taxes which result from any
payments made pursuant to this Agreement. Notwithstanding the foregoing,
in the event it shall be determined that any payment by the Company to or
for the benefit of Executive (whether paid or payable) pursuant to the
terms of this Agreement, but determined without regard to any additional
payments required by this Section 6 (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such excise tax, or
any similar excise tax levied by any state or local government (such
excise tax and any such interest and penalties are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed on the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
b. Subject to the remaining provisions of this Section 6, all
determinations required to be made under this Section 6, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's outside auditors
immediately prior to the Change of Control in question, or such other
certified public accounting firm as may be designated by the Company and
agreed to by Executive (which agreement will not be unreasonably
withheld) (the "Accounting Firm"). The assumptions of the Accounting Firm
shall be reasonable and based upon the actual circumstances of Executive
and the Company. Any of such assumptions shall be subject to challenge by
the Company or Executive; provided, however, that all such challenges
shall be made and demand for an arbitration with regard thereto made (or
postponed by agreement of the Company and Executive) within thirty (30)
days of the delivery of the Accounting Firm's determination of the
amount, if any, of the Gross-Up Payment. All fees and expenses of the
Accounting Firm shall be borne by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 6, shall be paid by the Company to
Executive within thirty (30) days of the receipt of the Accounting Firm's
determination. The payment contemplated in the preceding sentence shall
be made notwithstanding any dispute regarding the Accounting Firm's
assumptions or determination, subject to refund
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of any overpayment by Executive or the provisions of this Section 6
relating to "Underpayments" (as defined hereafter). As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent with the
calculation required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to this Section 6, and Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company
to or for the benefit of Executive.
c. Executive shall notify the Company in writing of any claim by
the Internal Revenue Service, or any similar agency of any state, that,
if successful, would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as practicable but in
no event later than ten (10) business days after Executive is informed in
writing of such claim. Executive shall not pay any such claim prior to
the expiration of the thirty-day period following the date on which
Executive gives notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If
the Company notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
i. give the Company any information reasonably requested
by the Company relating to such claim,
ii. take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected
by the Company and reasonably acceptable to Executive,
iii. cooperate with the Company and the Company's counsel in
good faith in order to effectively contest such claim, and
iv. permit the Company to participate in any proceedings
relating to such claim.
d. Notwithstanding the provisions of Section 6.c above, however,
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with the
contest of any Excise Tax and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of any such claim and
may, at its sole option, either direct Executive to pay the tax claimed
and sue
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for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of financial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to
Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and provided that any extension of the statute
of limitations relating to the payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the
Company's control of the contest of any Excise Tax shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
e. If, after receipt by Executive of any amount advanced by the
Company pursuant to Section 6.d, Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 6.d) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt
by Executive of an amount advanced by the Company pursuant to the
preceding paragraph, a determination is made that Executive shall not be
entitled to any refund with respect to such claim, and the Company does
not notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall be offset, to
the extent thereof, against the amount of the Gross-Up Payment required
to be paid.
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7. SUCCESSORS AND ASSIGNS.
a. This Agreement shall be binding upon and shall inure to the
benefit of the respective successors and assigns of the Company. The
Company shall be entitled to assign this Agreement to any Acquiring
Entity who shall have offered to employ Executive upon terms and in a
position not so different from the terms of Executive's employment and
position with the Company as to constitute Good Reason, and following any
such assignment, the Acquiring Entity shall be substituted for all
purposes hereunder for the Company, except that the Company shall not be
relieved of financial responsibility should the Acquiring Entity fail to
perform its obligations hereunder at any time prior to the third
anniversary of this Agreement. This Agreement shall inure to the benefit
of any successor to the Company by reason of any merger, consolidation,
sale of assets, dissolution or other reorganization; provided, however,
that except as specifically provided in this Section 7.a, no such
successor shall be deemed the employer of Executive unless Executive
shall otherwise specifically agree.
b. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
If Executive should die while any amount would still be payable
hereunder, if Executive had continued to live, all such amounts, unless
otherwise provided herein specifically, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee or other
designee or, if there be no such devisee, legatee, or designee to
Executive's estate.
8. FEES AND EXPENSES. The Company shall reimburse Executive, on a current
basis, for all reasonable legal fees and related expenses incurred by Executive
in seeking to obtain or enforce any right or benefit provided by this
Agreement, regardless of whether or not Executive's claim is upheld by an
arbitral panel or a court of competent jurisdiction; provided, however, that
Executive shall be required to repay any such amounts to the Company to the
extent that an arbitral panel or a court issues a final and non-appealable
order, judgment, decree or award setting forth the determination that the
position taken by Executive was frivolous or advanced by Executive in bad
faith.
9. TAXES. Except as provided in Section 6 of this Agreement, all payments
to be made to Executive under this Agreement will be subject to required
withholding of federal, state and local income and employment taxes.
10. SET-OFF. The right of Executive to receive benefits under this
Agreement shall be absolute and, except as provided below, shall not be subject
to any set-off, counter-claim, recoupment, defense, duty to mitigate or other
rights the Company may have. Notwithstanding anything therein to the contrary,
benefits to Executive accruing under this Agreement shall be off-set by the
amount of any severance benefits otherwise payable to Executive under any
Company plan or policy applicable to employees of the Company generally.
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11. EXECUTIVE'S INDEMNITY. It shall be a continuing obligation of the
Company to provide to Executive the benefits of the indemnities provided by the
Company's Certificate of Incorporation, Bylaws and any agreements between the
Company and Executive providing for indemnity as such indemnities exist
immediately prior to any Change of Control. To the extent that the Company
shall amend its Certificate of Incorporation or Bylaws or the rights of
Executive to indemnity thereunder or under any agreement between the Company
and Executive shall be reduced following any Change of Control (including any
reduction resulting from the termination of Executive's employment with the
Company during the term of this Agreement), the indemnities existing prior to
such change shall be deemed contractual in nature and due and owing to
Executive pursuant to this Section 11 and shall survive any Change of Control
or the termination of Executive's employment with the Company during the term
of this Agreement, indefinitely. The provisions of this Section 11 shall inure
to the benefit of Executive's personal or legal representatives, executives,
administrators, successors, heirs, distributees, divisees and legatees.
12. NONSOLICITATION. Until the first anniversary of the termination of
Executive's employment with the Company, Executive will not, directly or
indirectly, solicit, take away, hire, employ or endeavor to employ any person
who is an employee of the Company or any of its subsidiaries and shall further
refrain from providing, directly or indirectly, assistance to any third party
who seeks to solicit, take away, hire, employ or endeavor to employ any such
person.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without regard to principles
of choice of laws.
14. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to Vanstar, 1100 Abernathy Road,
Building 500, Suite 1200, Atlanta, Georgia 30328 (until changed by the Company
as provided below) or, in the case of Executive, to the address set forth below
Executive's signature, provided that all notices to the Company shall be
directed to the Chairman of the Board of the Company with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
15. SURVIVAL. The respective obligations of, and benefits afforded to,
the Company and Executive as provided in Sections 5, 6, 7, 8, 9, 10, 11, 12, 17
and 18 of this Agreement shall survive termination of this Agreement.
16. SEVERABILITY. The invalidity and unenforceability of any particular
provision of this Agreement shall not affect any other provision of this
Agreement, and the Agreement shall be construed in all respects as if the
invalid or unenforceable provision were omitted.
17. MISCELLANEOUS. The Company may amend this Agreement without
Executive's consent upon one (1) year's written notice to Executive at any time
following the completion of
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the initial two-year term of this Agreement and prior to a Change of Control;
provided, however, that no amendment may modify any obligation of the Company
which has previously accrued but is unpaid as of the date of such amendment.
Except as set forth in the preceding sentence, no provision of this Agreement
may be modified, waived or discharged unless such modification, waiver or
discharge is agreed to in writing signed by Executive and a duly authorized
officer of the Company. No waiver by a party hereto at any time of any breach
by the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
18. ARBITRATION. Any disputes or controversy arising in connection with
this Agreement shall be settled exclusively by arbitration in the State of
Georgia by three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction, except that documentary
discovery and depositions shall be freely permitted. Except as provided in
Section 8, the Company shall bear all costs and expenses arising in connection
with any arbitration proceeding pursuant to this Section 18.
19. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VANSTAR CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXECUTIVE
Address:
- ------------------------------
- ------------------------------ ----------------------------------------
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EXHIBIT 10.6
STATE OF GEORGIA
COUNTY OF COBB
LEASE AGREEMENT
THIS LEASE, made this 27th day of November, 1996, by and between
TRANS-FABU, L.P. (hereinafter called "Lessor") and VANSTAR CORPORATION
(hereinafter called "Lessee").
WITNESSETH:
WHEREAS, Lessor is the owner of Building 200, 2001 Westside Parkway,
Alpharetta, Georgia 30201 (hereinafter called the "Building", said Building,
the parcel of land upon which it and its amenities is situated and all
improvements and betterments of any nature thereon are hereinafter collectively
called the "Property", and;
WHEREAS, Lessee wishes to lease form Lessor 27,363 rentable square feet of
space known as SUITE 260 of the Building, as outlined on the diagram marked
EXHIBIT A attached hereto and by this reference incorporated herein
(hereinafter called the "Premises")
NOW, THEREFORE, in consideration of the payment and the rent and the
keeping and performance of the covenants and agreements by Lessee as
hereinafter set forth, Lessor does hereby lease to Lessee, the Lessee does
hereby lease from Lessor, the Premises. Lessee hereby accepts the Premises in
their condition existing as of the date hereof.
FOR AND IN CONSIDERATION of the leasing of the Premises as aforesaid, the
parties hereby covenant and agree as follows:
1. TERM. The term (hereinafter called the "Lease Term") of this Lease
shall commence on the later of DECEMBER 1, 1996 or the date which Lessor
completes Lessor's work as identified in Exhibit C Paragraph 2 (hereinafter
called the "Commencement Date") and, unless sooner terminated pursuant to the
provisions hereof, shall expire at midnight on NOVEMBER 30, 1999.
2. RENT.
2.1 Lessee agrees to pay an annual base rental (hereinafter called
"Annual Base Rental") for each year during the Lease Term determined in
accordance with this Paragraph. During the first year of the Lease Term,
Annual Base Rental shall be $342,037.50. The Annual Base Rental for each
subsequent year of the Lease Term shall adjust according to the Rent Schedule
described on EXHIBIT C and by this reference incorporated herein. If the final
period of the Lease Term is not equal to one year, Annual Base Rental for such
partial year shall be prorated based on a 30 day month and a 360 day year.
2.2 Annual Base Rental shall be paid in equal monthly installments
(hereinafter called "Base Rent"), said Base Rent to be paid in advance on the
first day of every calendar month no later than the 5th day of every calendar
month (except that the first month's rent shall be paid at the time this Lease
is executed). For any partial month Base Rent shall be adjusted on the basis
of a 30 day month.
2.3 Upon execution of this Lease by Lessee, Lessee shall pay a deposit in
the amount of $28,503.12 (hereinafter called the "Security Deposit"), which
Security Deposit may be applied by Lessor towards (but not necessarily in
satisfaction of) Lessor's damage or injury by virtue of any default by Lessee
in the performance of Lessee's covenants and obligations under this Lease. If
at the expiration or other termination of this Lease the Security Deposit has
not been previously applied and Lessee is not in default of any of its
covenants, the Security Deposit shall be returned by Lessor without interest.
If Lessee if not in default under the Lease the Security Deposit shall be
refunded on the first anniversary of the Lease.
2.4 Lessee shall pay the rent and all other sums, amounts, liabilities
and obligations which Lessee herein assumes or agrees to pay or is liable for
(whether designated Base Rent, Additional Rent, Common Costs, taxes, insurance,
costs, expenses, damages, losses, or otherwise) (all of which are hereinafter
called "Amount Due") promptly at the time and in the manner herein specified
without deduction, setoff, abatement, counterclaim or defense, and regardless
of whether or not the Lease Term has previously ended. If any Amount Due is
not received
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by Lessor within 3 days of the due date Lessee shall pay Lessor interest on such
Amount Due from the date on which the same was due until the date the same is
actually paid at a rate per annum equal to the greater of (i) the prime rate of
interest announced by Wachovia Bank of Georgia, Atlanta, Georgia (or successor
thereto) from time to time plus five percent (5%) or (ii) the maximum rate
permitted by applicable usury law, provided however, Lessee shall pay a minimum
late fee of $250.00. ANY AMOUNT DUE SHALL BE PAID AT SUCH PLACE OR PLACES AS
LESSOR MAY FROM TIME TO TIME DESIGNATE IN WRITING, BUT SHALL INITIALLY BE MADE
PAYABLE AND MAILED TO:
TRANS-FABU, L.P.
C/O THE HAWKINS COMPANIES
2255 CUMBERLAND PARKWAY, BUILDING 300A
ATLANTA, GA 30339
ATTN: SCOTT HAWKINS
3. TAXES AND INSURANCE STOPS; COMMON COST RECOVERY.
3.1 For every whole or partial calendar year during the Lease
Term, Lessee agrees to pay as Additional Rent the excess of Actual Taxes over
the Tax Base. "Actual Taxes" means the result obtained by (i) dividing Taxes by
the Area of the Property and (ii) multiplying the result by the Area of the
Premises. "Area of the Premises" means 27,363 square feet, plus any subsequent
additions thereto. "Area of the Property" shall mean the area of all space in
all the buildings on the Property (including expansions thereof, if any), which
is presently 102,670 square feet. "Taxes" for any calendar year shall mean (i)
personal property taxes imposed upon the Property or any part thereof, (ii) real
estate taxes, assessments, sanitary taxes, and any other governmental charge,
general or special, ordinary or extraordinary, now or hereafter levied or
assessed against or allocable to the Property or any portion thereof, or Lessor,
as owner of the Property, and (iii) fees and charges of consultants incurred by
Lessor with respect to items (i) and (ii) of this sentence. "Tax Base" means the
product obtained by multiplying the Area of the Premises by Taxes for the 1997
calendar year divided by "Area of the Property."
3.2 For every whole or partial calendar year during the Lease
Term, Lessee agrees to pay as Additional Rent the excess of Actual Insurance
Premiums over the Insurance Bow. "Actual Insurance Premiums" means the result
obtained by (i) dividing Lessor's Insurance Premiums by the Area of the
Property, and (ii) multiplying that result by the Area of the Premises.
"Lessor's Insurance Premiums" means the premiums charged by Lessor's insurers
for Lessor's Insurance during the calendar year in question. "Lessor's
Insurance" means insurance carried by Lessor attributable or allocable to the
Property for fire and extended coverage insurance, public liability and property
damage insurance, rent loss insurance and any other insurance which Lessor is
required to carry by the holder of any Mortgage on the Property or any part
thereof or which would otherwise be carried by a prudent property owner.
"Insurance Base" means the product obtained by multiplying the Area of the
Premises by Lessor's Insurance Premium for the 1997 calender year divided by
Area of the Property.
3.3 For any partial calendar year, payments under Paragraphs 3.1
and 3.2 shall be prorated based on the actual number of days in such partial
year. If Actual Taxer, for any calendar year are less than the Tax Base, no
payment shall be due under Paragraph 3.1, nor will Lessor have any obligation to
make any payment or reimbursement to Lessee on account thereof. If Actual
Insurance Premiums for any calendar year are less than the Insurance Base, no
amount shall be due Lessor under Paragraph 3.2 nor will Lessor have any
obligation to make any payment or reimbursement to Lessee on account thereof.
Lessor will send Lessee a statement or statements showing amounts due under
Paragraph 3.1 or 3.2 as the case may be, and the amounts reflected on any such
statements shall be due and payable in full 30 days after any such statement is
mailed by Lessor provided, however, that for the calendar year in which the
Lease Term expires, Lessor may but is not obligated to bill Lessee under
Paragraph 3.1 and 3.2 for such partial calendar year at any time within 60 days
prior to the expiration of the Lease Term, with said bill or bills being due and
payable on the earlier of 30 days after mailing thereof or the day the Lease
Term expires, said bill or bills to be based on Lessor's estimate of the amount
due Lessor, with an appropriate adjustment or adjustments being made at such
time as actual figures are available.
3.4 For every whole or partial calendar year during the Lease
Term, Lessee agrees to pay as Additional Rent Lessee's Proportionate Share of
Common Costs, as hereinafter set forth.
3.4.1 "Lessee's Proportionate Share of Common Costs" means the
result obtained by (i) dividing Common Costs by the Area of the Property and
(ii) multiplying that result by the Area of the Premises. "Common Costs" mean
(a) all expenses incurred by Lessor allocable or attributable to, or for the
operation, management and maintenance of the Property, or any part thereof,
other than Taxes and Lessor's Insurance Premiums, including, without limitation,
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costs incurred for lighting; painting; policing of common areas; exterior
cleaning; traffic control; driveway, sidewalk and parking lot maintenance;
garbage or debris collection and removal; landscape maintenance and replacement;
building and utility line maintenance and replacement; and electric, water and
sewer charges not separately metered to lessees of the Property; nightly or
other patrols; and (b) and all levies, assessments, special assessments, dues
and other charges allocable to the Property by virtue of any owner's association
or similar group of which Lessor is a part, the Property's share of costs of
maintenance and repair of common amenities (such as roadways, lakes, streams,
paths, and entrances) for the Project known as OXFORD LAKE BUSINESS CENTER of
which the Property is a part, including any expansions of the Project, and
covenants, restrictions or other agreements affecting the Property or any
portion thereof, including those described in Section 23 hereof.
3.4.2 From and after the Commencement Date, Lessee agrees to pay
Lessor on the first day of each month during the Lease Term a sum equal to
one-twelfth of Lessor's estimate of Lessee's Proportionate Share of Common Costs
for the calendar year (or portion thereof) in question. For the calendar year in
which the Commencement Date occurs, Lessor's estimate of Lessee's Proportionate
Share of Common Costs shall be deemed to be $0.55 per square foot times the Area
of the Premises. For each subsequent calendar year or portion thereof during the
Lease Term, Lessor will provide Lessee with an estimate of Common Costs and a
calculation of the monthly payment due under this subparagraph 3.4.2. If Lessor
does not provide said data prior to January 1 of the calendar year in question,
Lessee shall continue paying monthly amounts from the previous calendar year
until a new estimate is provided, at which time Lessee shall pay on or before
the first day of the next month any shortfall for previous months (or take a
credit against subsequent payments). For any period of less than a month, an
appropriate proration will be made based on the actual number of days involved.
3.4.3 After each calendar year, Lessor will furnish Lessee with a
statement of Lessee's Proportionate Share of Common Costs for such year. If
Lessee's Proportionate Share of Common Costs exceeds the estimated payments made
by Lessee under subparagraph 3.4.2 for the year in question, Lessee will pay
such excess within 30 days after Lessor's statement is mailed. If said estimated
payments exceed Lessee's Proportionate Share of Common Costs, the overpayment
win be credited against the next payments coming due under subparagraph 3.4.2
hereof. For any partial calendar year, an appropriate proration win be made
based on the actual number of days invoked.
3.5 The payment obligations set forth in this Section 3 shall
survive the expiration of the Lease Term.
4. USE.
4.1 Lessee shall use the Premises only for GENERAL OFFICE
purposes, and for no other purpose without the prior written consent of Lessor.
Lessee shall operate its business at the Premises in a reputable manner in
compliance with all applicable laws, ordinances, Building rules, regulations,
covenants, restrictions and other matters shown on the public records, now in
force or hereafter enacted. Lessee will not permit, create or maintain any
outside storage, disorderly conduct, trespass, noise or nuisance, whatsoever,
about the Premises or the Common Areas, or annoy or disturb any persons
occupying other parts of the Property.
4.2 Lessee shall not install any equipment that will exceed or
overload the capacity of the Building, or the utility facilities located at the
Premises. If any equipment installed by Lessee shall require additional utility
facilities, the same shall be installed by Lessor at Lessee's expense in
accordance with plans and specifications approved by Lessor prior to
installation.
4.3 Lessee shall not, and shall not allow or suffer (whether
intentionally or otherwise), any Hazardous Substance to be introduced, kept,
stored, created, emitted, released, impregnated or discharged into, on or in the
Property (including sanitary and storm sewer systems), the Building or the
Premises. As used herein "Hazardous Substance" means any hazardous, toxic or
dangerous waste, substance or material, whether or not in excess of maximum
levels set by any governmental or other authority. Lessee shall be liable for
any damage caused by its violation hereof, including, but not limited to the
cost of removal of any Hazardous Substance from the Property, the Building or
the Premises the cost of repairing and restoring the same loss, expense or
damage relating to the existence of any Mortgage (including cost of compliance
with lender requirements and damage caused by default, acceleration or
foreclosure); reimbursement for any fines or impositions imposed by any
governmental authority, agency or court and the cost of complying with the
requirements of any governmental authority, agency or court.
5. UTILITIES
5.1 Lessee shall pay for electricity, gas, telephone and other
utilities service supplied to the Premises.
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5.2 Lessor shall not be held liable for any damage or injury
suffered by Lessee or by any of Lessee's licensees, agents, invitees, servants,
employees, contractors or subcontractors, resulting directly or indirectly from
the installation, use or interruption of any utility service to the Premises or
Property. No temporary interruption of services shall relieve Lessee from
fulfillment of any covenant of this Lease or constitute a constructive eviction.
6. MAINTENANCE.
6.1 Lessor shall keep the roof, foundation, exterior walls and all
sewer and utility lines to the Building in good order and repair, except as to
damage to which Section 14 is applicable.
6.2 Lessor shall have no obligation to make any repairs unless and
until Lessee notifies Lessor in writing of the necessity thereof, in which event
Lessor shall have a reasonable time in which to make such repairs.
6.3 Lessee shall keep the Premises maintained free from all
litter, dirt, debris and obstructions and in a clean and sanitary condition.
Notwithstanding anything herein to the contrary, Lessee shall maintain, replace
and repair any improvements (including, but not limited to, utility lines, sewer
connections, plumbing, wiring and glass) which are or were installed for Lessee.
Lessee will purchase and keep in force a maintenance agreement covering the
servicing of the heating and air conditioning equipment serving the Premises. At
the expiration or other termination of this Lease, Lessee shall surrender the
Premises (and keys thereto) in as good condition as when received, ordinary wear
and tear only excepted.
7. FORCE MAJEURE. In the event that Lessor shall be delayed or
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive government laws or regulations, riots,
insurrection, war or other reason of a like nature (other than for financial
reasons) not the fault of Lessor, then performance of such act shall be excused
for the period of the delay and the period for the performance of such act shall
be extended for a period equivalent to the period of such delay. The provisions
of this Section 7 shall not cancel or postpone or delay the due date of any
payment to be made hereunder.
8. PROPERTY AND LIABILITY INSURANCE.
8.1 Throughout the Lease Term, Lessor will insure the Property
(excluding foundations and excavations) and the machinery and equipment
contained therein owned by Lessor (excluding any property with respect to which
Lessee is obligated to insure pursuant to Paragraph 8.3 below) against damage by
fire, lightning, explosion and extended coverage, in amounts and with carriers
satisfactory to Lessor. All property of Lessee, Lessee's agent, servants,
employees, invitees, licensees, contractors, subcontractors, or any other
person, shall be on the Premises at the risk of Lessee only, and Lessor shall
not be responsible therefor.
8.2 Lessee shall comply with all insurance regulations so the
lowest fire, lightning, explosion, extended coverage and liability insurance
rates available for the Property may be obtained by Lessor, and nothing shall be
done or kept in or on the Property or Premises by Lessee which win cause
cancellation of any such insurance or increase the rate thereof, or threat
thereof Lessee shall remedy any condition giving rise to such cancellation,
reduction or cost increase or threat thereof within twenty-four (24) hours after
notice thereof by Lessor.
8.3 Lessee shall, during its occupancy of the Premises and during
the entire Lease Term, at its sole cost and expense, obtain, maintain and keep
in full force and effect, and with Lessee, Lessor and Lessor's mortgagees named
as additional insureds therein as their respective interests may appear, all
insurance required by law and such insurance as is reasonably required by Lessor
for risks against which a prudent tenant would protect itself, including,
without limitation the following:
8.3.1 Upon property of every description and kind owned by Lessee
and located at the Property or for which Lessee is legacy liable or installed by
or on behalf of Lessee, including, without limitation, furniture, fittings,
installations, alterations, additions, partitions and fixtures, in an amount not
less than one hundred percent (100%) of the full replacement cost thereof.
8.3.2 Public liability insurance in an amount not less than
$1,000,000.00 for any one occurrence or such higher limits as Lessor may
reasonably require from time to time; such insurance shall include a waiver of
subrogation clause in favor of Lessor and coverage against liability for bodily
injuries or property damage arising out of the use
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by or on behalf of Lessee of owned, non-owned or hired automobiles and other
vehicles for a limit not less than that specified above.
8.4 All insurance policies shall be taken out with companies
licensed and registered to operate in the State of Georgia acceptable to Lessor
and in form satisfactory to Lessor. Lessee shall deliver certificates evidencing
such insurance policies, and any endorsement, rider or renewal thereof, to
Lessor; certificates evidencing renewals shall be delivered to Lessor in no
event less than thirty (30) days prior to any material change, cancellation or
termination thereof
9. ALTERATIONS AND IMPROVEMENTS.
9.1 See Exhibit "C".
9.2 Other than the matters specified in this Lease, Lessee shall
not make any alterations, additions or improvements in or to the Premises, nor
install or attach fixtures in or to the Premises, without the prior written
consent of Lessor which consent shall not be unreasonably withheld. All
alterations, additions or improvements made, installed in or attached to the
Premises by Lessee shall be made at Lessee's expense in a good and workmanlike
manner, strictly in accordance with the plans and specifications approved by
Lessor. Prior to the commencement of any such work by Lessee, Lessee shall
deliver to Lessor certificates issued by insurance companies licensed and
registered to operate in the State of Georgia, evidencing that workers'
compensation insurance, public liability insurance and property damage
insurance, all in amounts satisfactory to Lessor, are in force and effect and
maintained by all contractors and subcontractors engaged by Lessee to perform
such work.
9.3 Lessee shall keep the Premises free from all liens, rights to
liens or claims of liens of contractors, subcontractors, mechanics or
materialmen for work done or materials furnished to the Property at the request
of Lessee. If any claim of lien, or other statutory notice relating to mechanics
and materialmen's liens, is filed, Lessor may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by procuring
the discharge of such lien or statutory notice by deposit or by bonding
proceedings. Any amount so paid by Lessor and all costs and expenses, including
without limitation attorneys' fees incurred by Lessor in connections therewith
shall constitute Additional Rent payable by Lessee on demand. Lessee shall not
have the authority to subject the interest or estate of Lessor or the Property
or any part thereof to any liens, right to liens or claims of liens for
services, materials, supplies or equipment furnished to Lessee.
9.4 All alterations, additions or improvements including, but not
limited to, fixtures, partitions, counters and window and floor Coverings, which
may be made or installed by either of the parties hereto upon the Premises,
irrespective of the manner of annexation and irrespective of which party may
have paid the cost thereof, excepting only movable office furniture office
equipment and appliances put in at the expense of Lessee, shall be the property
of Lessor, and shall remain upon and be surrendered in good condition with the
Premises at the expiration or other termination of this Lease. Notwithstanding
the foregoing, however, if Lessor so elects, it shall be Lessee's obligation
prior to expiration of this Lease at Lessee's expense (notwithstanding the
expiration of the Lease Term to restore the Premises to the condition they were
in previous to such alterations, additions, improvements, partitions and
fixtures.
10. ASSIGNMENT OR SUBLETTING.
10.1 Lessee shall not assign this Lease, or any interest herein, or
sublet or allow any other person, firm or corporation to use or occupy the
Premises, or any part thereof, without the prior written consent of Lessor,
which consent shall not be unreasonably withheld. Any consent by Lessor under
the preceding sentence shall not be deemed to be a consent to any subsequent
event within the scope of the preceding sentence. An assignment of stock,
general partnership or other ownership interest in Lessee, or any merger,
consolidation or other corporate reorganization, shall be deemed an assignment
within the meaning of this Paragraph.
10.2 If Lessee shall make any assignment of this Lease or shall
make any subletting hereunder in any way not authorized by the terms hereof, the
acceptance by Lessor of any rent or other Amount Due from any person claiming as
assignee, sublessee or otherwise shall not be construed as a recognition of or
consent to such assignment or subletting or as a waiver of the right of Lessor
thereafter to collect any rent from Lessee, it being agreed that Lessor may at
any time accept rent or any other Amount Due under this Lease from any person
offering to pay the same without thereby acknowledging the person so paying as a
Lessee in place of Lessee hereinabove named, and
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without releasing said Lessee from the obligations of this Lease, but the same
shall be taken to be a payment on account by Lessee.
10.3 In the case of any assignment consented to or permitted by
Lessor hereunder, at the time of such assignment Lessee shall pay Lessor as
consideration therefor, as Additional Rent, an amount equal to all sums and
other consideration paid to Lessee by the assignee for or by reason of such
assignment (including any sum paid for the sale, rental or use of Lessee's
property) less the reasonable brokerage commissions and legal fees, if any,
actually paid by Lessee to unaffiliated third parties in connection with such
assignment. In the case of any subletting consented to or permitted by Lessor
hereunder, at the time of such subletting, Lessee shall pay Lessor as
consideration therefor as Additional Rent, an amount equal to any rents,
additional charges or other consideration payable under the sublease to Lessee
by the subtenant (including any sums paid for the sale, rental or use of
Lessee's property) which are in excess of the Base Rent during the term of the
sublease in respect of the subleased space, less the reasonable brokerage
commissions and legal fees, if any, actually paid by Lessee to unaffiliated
third parties in connection with such subletting.
11. DEFAULTS
11.1 In the event that (i) the Base Rent or any Additional Rent
herein reserved, or any part thereof, or any other Amount Due, shall not be paid
within five (5) business days after written notice or (ii) Lessee shall fail to
comply with any of the other terms, covenants, conditions or agreements herein
contained or in any of the rules and regulations now or hereafter established
for the government or operation of the Building and such failure shall continue
for 30 days or more after written notice, or (iii) Lessee shall fail to comply
with any term, provision condition or covenant of any other agreement between
Lessor and Lessee and such failure shall continue for 30 days or more after
written notice, or (iv) Lessee makes an assignment for the benefit of creditors,
fails to pay its debts as they mature, seeks, prepares to seek, or has filed
against it, any petition for relief under any federal, state or other
bankruptcy, debtor relief or insolvency law now or hereafter enacted, or a
receiver or trustee is appointed for any substantial portion of Lessee's assets
or business; then, in any such event, Lessor shall have the option, but not the
obligation, to do any or more of the following:
11.1.1 Terminate this Lease, in which event Lessee shall surrender
the Premises to Lessor immediately without further notice or demand; and Lessor
may, without further notice or demand, thereupon enter the Premises and take
possession of any repossess the same, and expel, remove and put out of
possession Lessee and its effects, using such help, assistance and force in so
doing as may be needful and proper, without being liable for prosecution or
damages therefor, and without prejudice to any other remedy allowed in such
cases. If Lessor exercises its rights under this subparagraph 11.1.1., Lessee
agrees that in addition to any other recovery permitted hereunder or by law,
Lessor shall be entitled to recover all Amounts Due (with interest as herein
provided) plus fees and costs under Section 28 hereof, as elements of Lessor's
damages.
11.1.2 Without terminating this Lease and without in any way
diminishing Lessee's liability for the payment of all Annual Base Rental,
Additional Rent and all other Amounts Due, whether past due or which come due
during the remainder of the Lease Term (except for the credit for rentals
collected upon reletting set forth in the next sentence), retake possession of
the Premises (whether by self-help, dispossessory or eviction proceeding or
otherwise), and, if Lessor desires to do so (though it shall have absolutely no
obligation to do so), rent same, or any part thereof, for Lessee's account for
such term or terms and for such rent and upon such conditions as Lessor may, in
its sole discretion, think best, making such changes, improvements, alterations
and repairs to the Premises as may be required. In the event Lessor does relet
the Premises pursuant to this Paragraph, whether or not Lessor elects to collect
liquidated damages hereunder, all rent received by Lessor from such reletting
during the Lease Term shall be applied first, to the payment of any Amount Due
other than Base Rent; second, to the payment of any costs and expenses of such
reletting, including but not limited to brokerage fees, attorneys' fees, and
costs of such changes, improvements, alterations and repairs; third, to Base
Rent due and unpaid hereunder, fourth, any residue shall be held by Lessor and
applied in payment of future rent or damage as the same may become due and
payable hereunder; and fifth, when all of Lessee's obligations have been
satisfied, any balance remaining shall be paid to Lessee. In the event Lessor
exercises its rights under this Paragraph 11.1.2. at Lessor's sole option Lessee
shall pay Lessor upon demand as liquidated damages for Lessee's breach and not
as a penalty, an amount equal to the sum of (i) all unpaid Annual Base Rental
discounted at the rate of six (6%) percent per annum from the date each
installment is due hereunder, plus (ii) all Amounts Due (with interest as herein
provided), plus (iii) fees and costs as provided in Section 28 hereof. It is the
express intent of the parties that the liquidated damages provided for in the
preceding sentence be treated as a full liquidation of damages for such breach,
the parties agreeing that said liquidated damages are a fair and
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reasonable pre-estimate of Lessor's damages and that the actual amount of
damages sustained by Lessor in the event of breach is not readily ascertainable.
11.1.3 Correct or cure such default and recover such amount expended
as an Amount Due hereunder.
11.1.4 Recover any and all costs incurred by Lessor resulting
directly, indirectly, proximately or remotely from such default, including but
not limited to reasonable attorneys' fees, as an Amount Due hereunder.
11.2 In the event of a default or threatened default of this Lease
by Lessee, Lessor shall be entitled to all equitable remedies, including without
limitation injunction and specific performance. The various rights, remedies,
powers, options and elections of Lessor reserved, expressed or contained in this
Lease are cumulative, and no one of them shall be deemed to be exclusive of the
others, or of such other rights, remedies, powers, options or elections as are
now, or may hereafter, be conferred upon Lessor by law or in equity. Failure by
Lessor to enforce one or more of the remedies herein provided shall not be
deemed or construed to constitute a waiver of such default, or any violation or
breach of any of the terms, provisions, or covenants herein contained, or a
waiver of Lessor's right thereafter to insist upon strict compliance with the
terms hereof.
12. DAMAGE AND CONDEMNATION.
12.1 In the event during the Lease Term the Premises are damaged by
fire or other casualty, but not to such an extent that repairs and rebuilding
cannot reasonably be completed within one hundred twenty (120) days of the date
of the event causing such damage, Lessor may, at Lessor's option, repair and
rebuild the Premises. If Lessor elects to repair and rebuild the Premises, this
Lease shall remain in full force and effect, but Lessor may require Lessee to
temporarily vacate the Premises while the same are being repaired and, subject
to the provisions of this Paragraph 12.1, rent shall abate during this period to
the extent that the Premises are untenantable; provided, however, that Lessor
shall not be liable to Lessee for any damage or expense which temporarily
vacating the Premises may cause Lessee. If the Premises are not repaired,
rebuilt, or otherwise made suitable for occupancy by Lessee within the aforesaid
one hundred twenty (120) day period, Lessee shall have the right, by written
notice to Lessor, to terminate this Lease, in which event rent shall be abated
for the unexpired Lease Term, effective as of the date of such written
notification, but the other terms hereof shall remain in full force and effect.
If Lessor elects not to repair and rebuild the Premises or if the Building or
any part thereof be so damaged that repairs and rebuilding cannot reasonably be
completed within one hundred twenty (120) days of the date of the event causing
such damage, Lessor may by written notice to Lessee terminate this Lease in
which event rent shall be abated for the unexpired Lease Term, effective as of
the date of such written notification, but the other terms hereof shall remain
in full force and effect.
12.2 In the event the Building shall be taken, in whole or in part,
by condemnation or the exercise of the right of eminent domain, or if in lieu of
any formal condemnation proceedings or actions, if any, Lessor shall sell and
convey the Premises, or any portion thereof, to the governmental or other public
authority, agency, body or public utility, seeking to take said Premises or any
portion thereof, then Lessor, at its option, may terminate this Lease as of the
date possession is taken by the condemning authority upon ten (10) days prior
written notice to Lessee and prepaid rent shall be proportionately refunded from
the date of possession by the condemning authority. All damages or other sums
awarded in connection with any condemnation or taking of any portion of the
Premises or the Property, or paid as the purchase price for any conveyance in
lieu of formal condemnation proceedings, whether for the fee or the leasehold
interest, shall belong to and be the property of Lessor. Lessee shall execute
and delivery any instruments as Lessor may deem necessary to expedite any
condemnation proceedings or to effectuate a proper transfer of title to such
governmental or other public authority, agency, body or public utility seeking
to take or acquire the said lands and Premises or any portion thereof. If Lessor
chooses not to terminate this Lease, then to the extent and availability of
condemnation proceeds received by Lessor and subject to the rights of any
mortgagee thereto, Lessor shall at the sole cost and expense of Lessor and with
due diligence and in a good and workmanlike manner, restore the Premises within
a period of twelve (12) months after the date of the physical taking, and such
restoration shall make the same reasonably tenantable and suitable for the
general use being made by Lessee prior to the taking; provided, however, that
Lessor shall have no obligation to restore and reconstruct Lessee's leasehold
improvements unless and to the extent that Lessor receives an award of
condemnation proceeds specifically designated as compensation for such
improvements. Notwithstanding the foregoing, if Lessor has not completed such
restoration and reconstruction on or before twelve (12) months after the date of
physical taking or if the Premises (or so much thereof as would render them
untenantable) are taken in condemnation, Lessee shall have the right to cancel
this Lease by prompt notice after such occurrence. If this lease continues in
effect after such physical
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taking, the rent payable hereunder be equitably adjusted both during the period
of restoration operations of Lessor and during the unexpired portion of the
Lease Term.
12.3 In the event Lessor, during the Lease Term, shall be required
by any governmental authority or the order or decree of any court, to repair,
alter, remove, reconstruct or improve any part of the Premises, such repairs,
alterations, removal reconstruction or improvement shall not in any way affect
the obligations or covenants of Lessee herein contained, and Lessee hereby
waives all claims for damages or abatement of rent because of such repairs,
alterations, removal, reconstruction or improvement, except that rent shall
abate during the period of and to the extent of untenantability; provided, if
Lessor reasonably concludes that the work involved cannot be reasonably
accomplished within one hundred eighty (180) days, Lessor may at its option
terminate this lease by notice to Lessee; provided, further, that where the
requirement by a governmental authority to repair, alter, remove, reconstruct or
improve any part of the Premises arises out of any act of omission or commission
by Lessee, then such repair, alteration, removal, reconstruction or improvement
shall be effected promptly at the sole cost and expense of Lessee, and there
shall not, in any event, be any abatement of rent nor any right in Lessee to
terminate this Lease.
13. TRANSFER. This Section shall apply only at such times and from
time to time as the Area of the Premises is 5,000 square feet or less. In such
event, Lessor hereby reserves the right, at its sole option and upon giving at
least sixty (60) days prior written notice to Lessee, to transfer and remove
Lessee from the Premises from time to time to any other available space in the
Property of substantially equal area. Lessor hereby agrees to bear the expense
of such transfer and removal, as well as the expense of any renovations or
alterations which are necessary to make the new space conform substantially in
layout and appointment to the Premises.
14. LIABILITY OF LESSOR. Notwithstanding that joint or concurrent
liability may be imposed upon Lessor by law, Lessee shall indemnify, defend and
hold harmless Lessor and the Property, at Lessee's expense, against any loss,
cost, damage or expense (including attorneys' fees and court costs) relating to
or as a result of (a) any default or failure to comply with the terms hereof
(whether in connection with termination hereof or otherwise) by Lessee or any
permitted sub-tenant hereunder; (b) any act or negligence of Lessee or its
agents, contractors, employees, invitees or licensees; and (c) all claims for
damages to persons or property by reason of the use or occupancy of the Premises
not caused by Lessor. Moreover, Lessor shall not be liable for any damage or
injury to the Premises, Lessee's property, to Lessee, its agents, contractors,
employees, invitees or licensees, arising from any use or condition of the
Property or the act or neglect of co-tenants or any other person, or the
malfunction of any equipment or apparatus serving the Premises. Any and all
claims against Lessor for any damage referred to in this Section 14 are hereby
waived and released by Lessee. Notwithstanding anything contained herein to the
contrary, in the event Lessor incurs any liability to Lessee hereunder, such
liability shall be satisfied only out of Lessor's interest in the Premises, it
being agreed that the liability of Lessor, its venturers, partners (individually
and as partners), shareholders, officers, agents and employees, shall in all
events be satisfied out of Lessor's interest in the Premises.
15. RIGHT OF ENTRY. Lessor reserves the right to use, at its
discretion, the Property and every part thereof, except the interior of the
Premises, in any manner which does not materially interfere with the use of the
Premises to be made by Lessee hereunder. Lessor reserves the right, for itself
or its mortgagees and prospective purchasers or tenants, or their respective
agents and duly authorized representatives, to enter and be upon the Premises at
any time and from time to time to inspect the Premises to see that Lessee is
complying with all obligations hereunder and to repair, maintain, alter, improve
and remodel, but Lessor shall not materially interfere with Lessee's normal
operations except in case of an emergency. Lessee shall not be entitled to any
compensation, damages, or abatement or reduction in rent on account of any such
repairs, maintenance, alterations, improvements or remodeling. Except as
otherwise provided in this Lease, nothing contained in this Section 15 shall
imply any duty on the part of Lessor to repair, maintain, alter, improve or
remodel,
16. BUILDING RULES AND REGULATIONS. Lessor reserves the right to
establish rules and regulations pertaining to the use and occupancy of the
Building, which rules and regulations may be changed by Lessor from time to
time. As and when established, such rules and regulations will be deemed
incorporated into this Lease. Lessee shall comply with any such rules and
regulations established by Lessor.
17. PROPERTY LEFT ON THE PREMISES. If upon the expiration of this
Lease, or if the Premises should be vacated or abandoned by Lessee at any time,
or this Lease should terminate for any cause, Lessee or Lessee's agents,
servants, employees, invitees, licensees, contractors, subcontractors or any
other person should leave any property of any kind or character in or upon the
Property or Premises, the fact of such leaving of property in or upon the
Property or Premises shall be conclusive evidence of intent by Lessee or such
person to abandon such
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property, and such leaving shall constitute abandonment of the property. Lessor,
its agents or attorneys, shall have the right and authority without notice to
Lessee or anyone else except as required by law, to remove and destroy, store,
sell or otherwise dispose of, such property, or any part thereof, without being
in any way liable to Lessee or anyone else therefor. Lessee shall be liable to
Lessor for all expenses incurred under this Section, notwithstanding the
expiration or termination of this Lease. The proceeds from the sale or other
disposition of such property shall belong to the Lessor as compensation for the
removal and disposition of said property.
18. OTHER INTERESTS.
18.1 This Lease and Lessee's interest hereunder shall at all times
be subject and subordinate to the lien and security title of any deeds to secure
debt, security agreement, mortgages, or other interests heretofore or hereafter
granted by Lessor or which otherwise encumber or affect the Premises and to any
and all advances to be made thereunder and to all renewals, modifications,
consolidations, replacements, substitutions and extensions thereof (all of which
are hereinafter the "Mortgage"). This clause shall be self-operative and no
further instrument of subordination need be required by any holder of any
Mortgage. Lessee hereby waives and releases any claim it might have against
Lessor or any other party for any actions lawfully taken by the holder of any
Mortgage.
18.2 In the event of a sale or conveyance by Lessor of Lessor's
interest in the Premises (including a long term ground lease) other than a
transfer for security purposes only, Lessor shall be relieved, from and after
the date of transfer, of all obligations and liabilities accruing thereafter on
the part of Lessor, provided that any funds in the hands of Lessor at the time
of transfer in which Lessee has an interest shall be delivered to the successor
of Lessor. This Lease shall not be affected by any such sale and Lessee shall
attorn to the purchaser or assignee.
18.3 If the holder of a Mortgage shall hereafter succeed to the
rights of Lessor under this Lease, whether through possession or foreclosure
action or delivery of a new lease, Lessee shall, at the option of the holder of
such Mortgage, attorn to and recognize such successor as Lessee's landlord under
this Lease and shall promptly execute and deliver any instrument that may be
necessary to evidence such attornment. Upon such attornment, this Lease shall
continue in full force and effect as a direct lease between every successor
landlord and Lessee, subject to all of the terms, covenants and conditions of
this Lease, and Lessee's tenancy hereunder shall not be disturbed so long as
Lessee is in full compliance with the terms and conditions hereof.
18.4 In the event that lessee is notified of the existence of any
Mortgage and of the address of the holder of any such Mortgage, Lessee agrees
that it will give the holder of any such Mortgage notice of any claimed default
by Lessor under this Lease, and win exercise no remedies which it may have on
account thereof until forty-five (45) days have elapsed alter the receipt of
such notice by the holder of said Mortgage without cure thereof.
18.5 Lessee shall, at Lessor's request, promptly execute,
acknowledge and deliver any instrument which may be required to evidence or
confirm the subordination and attornment provisions set forth in Paragraphs
18.1, 18.2 and 18.3 hereof, and, upon Lessee's failure to do so, Lessor may, in
addition to any other rights or remedies hereunder, execute, acknowledge, and
delivery any document needed to accomplish same, as the agent and
attorney-in-fact of Lessee, and Lessee hereby irrevocably and unconditionally
constitute Lessor as its attorney-in-fact for such purpose, Lessee acknowledging
that such appointment is coupled with an interest.
19. LANDLORD'S LIEN.
19.1 Intentionally omitted.
19.2 Lessee covenants to occupy the Premises on or before the
Commencement Date.
20. DELAYED POSSESSION. If Lessor shall fail to deliver to Lessee
actual possession of the Premises by the Commencement Date rent shall abate
until such possession is given, but Lessor shall not be liable to Lessee for
such failure nor shall the Lease Term be thereby extended. Notwithstanding the
foregoing, however, if the Premises are not available for occupancy by Lessee
within thirty (30) days after the Commencement Date through no default of
Lessee, this Lease shall be voidable by either party, and if voided, any
payments made to Lessor by Lessee hereunder shall be immediately refunded to
Lessee; provided however that such date shall be extended to the extent
permitted under Section 7 hereof. The Premises shall be "available for
occupancy" when they are so completed that Lessee may conduct normal operations,
or when a Certificate of Occupancy has been issued for the Premises, whichever
is earlier.
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21. HOLDING OVER. In the event Lessee remains in possession of the
leased Premises after the expiration or earlier termination of the term of this
Lease, with Lessor's consent or acquiescence but without any express written
agreement of the parties, Lessee shall be a tenant at will and such tenancy
shall be subject to all of the terms and provisions hereof, except that the
Monthly Base Rental and the monthly Additional Rent for such holdover period
shall be one hundred fifty percent (150%) of the Monthly Base Rental and the
monthly Additional Rent due under this lease for the month immediately preceding
the month during which such expiration or earlier termination of the Term of
this Lease occurs, and there shall be no renewal of this lease by operation of
law or otherwise. Nothing in this paragraph shall be interpreted or construed to
give Lessee any right whatsoever to remain in possession of the leased Premises
after the expiration or earlier termination of the term of this lease.
22. NO WAIVER. Lessee understands and acknowledges that not
assent, express or implied, by Lessor to any breach of any one or more of the
terms, covenants or conditions hereof, shall be deemed or taken to be a waiver
of any succeeding or other breach, whether of the same or any other term,
covenant or condition hereof, or of Lessor's right thereafter to insist upon
strict compliance with the terms hereof.
23. COMPLIANCE WITH PROTECTIVE COVENANTS. In addition to and
without in any way limited any of the foregoing provisions, Lessee shall comply
with any protective covenants now or hereafter of record against the Property
and with any changes to such covenants and/or rules and standards duly adopted
in accordance with the procedures for either therein.
24. SIGNS. Lessee shall not install paint, display, inscribe,
place or affix any sign, picture, advertisement, notice, lettering or direction
(hereinafter collectively called a "Sign") which could be visible from outside
of the Premises without first securing written consent from Lessor therefor. Any
Sign permitted by Lessor shall at all times conform with all municipal
ordinances or other laws, regulations, deed restrictions and protective
covenants applicable thereto. Lessee shall remove all Signs at the expiration or
other termination of this Lease, at Lessee's sole expense, and shall in a good
and workmanlike manner property repair any damage caused by the installation,
existence or removal of Lessee's Signs.
25. ESTOPPEL CERTIFICATE. Lessee shall, at any time, and from time
to time, upon not less than ten (10) days prior written notice from Lessor,
execute, acknowledge and deliver to Lessor without charge a statement in writing
in such form and substance as may be required by Lessor (a) certifying that this
Lease is unmodified and in full force and effect and the dates to which the rent
and other charges are paid in advance, if any; (b) certifying the Commencement
Date of this Lease and the monthly Base Rent and Additional Rent under Paragraph
3 hereof being paid by Lessee; (c) acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor or Lessee hereunder and
that Lessee has no right of offset, counterclaim or deduction from or against
future rent; (d) stating that no rent not yet due and payable as of the date of
the letter has been paid in advance and no concessions, rebates, allowances or
other considerations for free or reduced rent in the future have been granted;
(e) all improvements or other work required to be made or performed by the
Lessor have been fully completed in accordance with the plans and specifications
therefor and to the satisfaction of the Lessee; and (f) the Lessee has accepted
and occupied the Premises, and Lessee is in full and complete possession of the
Premises and actively conducting its business therein. Any such statement may be
relied upon by any prospective purchaser of, or lender upon the security of, the
Premises.
26. COMMON AREA CONTROL.
26. Lessee acknowledges and agrees that all areas outside of the
Premises shall at all times be subject to the exclusive control and management
of Lessor.
26.2 Lessee and its servants, agents, employees, contractors,
subcontractors, invitees and licensees shall not be entitled to use more of the
parking spaces for the Building than 4 spaces per thousand square feet of Area
of the Premises. Lessor shall have the right, but not the duty, to assign
parking spaces to tenants of the Building.
27. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given and effective when
delivered in person or when deposited in the United States Mail, return receipt
requested, addressed, if to Lessor, at the following addresses:
Hawkins Properties, Inc., as Property Manager
c/o The Hawkins Companies
2255 Cumberland Parkway, Building 300A
Atlanta, GA 30339
Attn: Scott D. Hawkins
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with a copy to:
Trans-Fabu, L.P.
c/o Lambert Smith Hampton
Piedmont Place, Suite 410
3520 Piedmont Road, NE
Atlanta, GA 30305-1516
Attn: Ralph G. Edwards, Jr.
or to such other addresses as Lessor may direct from time to time by fifteen
(15) days prior written notice, and if to Lessee, Vanstar Corporation, 5964 West
Las Positas Blvd., Pleasanton, California, 34566, Attention: Tom Heinrich with a
copy to the Premises. Lessee hereby appoints as its agent to receive service of
all dispossessory or distraint proceedings and notices in connection therewith,
the person in charge of or occupying the Premises at the time; and if no person
is in charge of or occupying the Premises, then such service or notice may be
made by attaching the same on the main entrance to the Premises and on the same
day enclosing, directing, stamping and marking by first class mail a copy of
such service or notice to Lessee at the last known address of Lessee.
28. ATTORNEYS' FEES. If any Amount Due hereunder is collected by or through
an attorney Lessee agrees to pay reasonable attorneys fees, together with any
costs and expenses which Lessor incurs in attempting to enforce any of the
obligations or Lessee under this Lease, if Lessee does not prevail in such
proceedings.
29. HOMESTEAD. Lessee waives all homestead rights and exemptions which it
may have undo any law as against any obligations owing under this Lease. Lessee
hereby assigns to Lessor its homestead and exemption.
30. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the Base Rent, Additional Rent or any other Amount Due herein
stipulated shall be deemed to be other than on account of the earliest of the
same then due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Lessor may accept such check or payment without prejudice to Lessor's right
to recover the balance of such rent or pursue any other remedy provided in this
Lease.
31. BROKERS. Other than Hawkins Properties, Inc. and Carter (hereinafter
collectively called "Agent" ) Lessee warrants and represents that it has had no
dealings with any broker or agent in connection with this Lease and covenants to
pay, hold harmless and indemnify Lessor and Agent from and against any and all
cost, expense or liability for any compensation, commissions and charges claimed
by any broker or agent with respect to this Lease or negotiations thereof who
purports to have been engaged by Lessee.
32. MISCELLANEOUS.
32.1 All the terms and provisions of this Lease shall be binding upon and
apply to the successors, permitted assigns and legal representatives of Lessor
and Lessee or any person claiming by, through or under either of them or their
agents or attorneys, subject always, as to Lessee, to the restrictions contained
in Section 10 hereof. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural unless the context otherwise requires.
32.2 The captions are inserted in this Lease for convenience only, and in no
way define, limit, or describe the scope of intent of this Lease, or of any
provision hereof, nor in any way affect the interpretation of this Lease.
32.3 This Lease is made and delivered in, and shall be interpreted,
construed and enforced in accordance with, the laws of the state of Georgia.
32.4 This Lease and the schedules and exhibits attached hereto and forming
part hereof set forth all of the covenants, promises, agreements, conditions and
unman between Lessor and Lessee concerning the Premises and the Property, and
thereafter no covenants, promises, terms, conditions or understandings, either
oral or written, between them other than as are herein set forth. Except as
herein otherwise provided, no subsequent alteration, amendment, change or
addition to this Lease shall be binding upon Lessor or Lessee unless reduced to
writing and signed by the party to be bound thereby.
32.5 The terms, conditions, covenants and provisions of this Lease shall be
deemed to be severable and legally independent. If any Cause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but such other
clauses or provisions shall remain in full force and effect.
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32.6 This Lease, or any portion hereof, shall not be recorded, unless both
parties hereto agree to such recording.
32.7 Time is of the essence of this Lease.
32.8 This Lease shall create the relationship of landlord and tenant between
Lessor and Lessee, and nothing contained herein shall be deemed or construed by
the parties hereto, or by any third party, as creating the relationship of
principal and agent, or of partnership, or of joint venture, or of any
relationship other than landlord and tenant, between the parties hereto; no
estate shall pass out of Lessor; Lessee has only a usufruct not subject to levy
and sale.
For additional terms and Special Stipulations of this Lease (if any) see Exhibit
C, attached hereto and by this reference incorporated herein.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written,
LESSOR: TRANS-FABU, L.P.
By: /s/ Robert M. Day (SEAL)
---------------------------------
Authorized Signatory
LESSEE: Vanstar Corporation
By: /s/ R.C. Kuntzendorf
---------------------------------
Title: SENIOR VP
Attest: /s/ Richard D. English
-----------------------------
Title: ASST. SECRETARY
[CORPORATE SEAL]
<PAGE> 13
EXHIBIT C
SPECIAL STIPULATIONS
1. BASE RENTAL
The base monthly rental shall adjust as follows:
December 1, 1996 - November 30, 1997 $28,503.12/month
December 1, 1997 - November 30, 1998 $29,358.21/month
December 1, 1998 - November 30, 1999 $30,238.96/month
2. Landlord shall be responsible for the cost of providing new carpet and
painting throughout.
3. Landlord shall insure that all building systems (electrical, mechanical
and plumbing) are in normal working condition upon lease commencement.
4. Within fifteen (15) days of the Commencement Date, Landlord or
Landlord's selected contractor shall service all HVAC systems for the
Premises to insure that each unit is in proper working condition.
Additionally, Landlord shall warrant each unit for the first year of
the lease term.
<PAGE> 14
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment") made as of this ____
day of April, 1997, by and between Highwoods/Forsyth Limited Partnership
("Lessor") and Vanstar Corporation (hereinafter called "Lessee").
W I T N E S S E T H:
WHEREAS, Lessee and Trans-Fabu Limited Partnership, predecessor in
interest to Lessor, entered into a Lease ("Lease") dated November 27, 1996 for
certain leased premises known as 2001 Westside parkway, Suite 260, Alpharetta,
Georgia 30201 (the "Premises");
WHEREAS, as of March 30, 1997, Lessor acquired title to the Premises
and took an assignment of lessor's interest under the Lease;
WHEREAS, Lessee and Lessor desire to expand the Premises pursuant to
this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, Lessee and Lessor agree as follows:
1. As of May 1, 1997, the Effective Date, the "Premises" shall
be expanded to include Suite 220 consisting of 6,710 square feet as shown on
floor plan attached as Exhibit A. The new "Area of the Premises" shall mean
34,073 square feet.
2. Lessee and Lessor agree that the Lease Term for the
"Premises" shall expire at midnight on November 30, 1999. The Base Monthly
Rental rate for the "Premises" shall adjust as follows:
<TABLE>
<S> <C>
May 1, 1997 - November 30, 1997 $35,492.71/Month
December 1, 1997 - November 30, 1998 $36,543.29/Month
December 1, 1997 - November 30, 1999 $37,650.67/Month
</TABLE>
Monthly payments equal to one-twelfth of Lessor's estimate of Lessee's
Proportionate Share of Common Costs for the applicable calendar year shall also
be paid by Lessee. Beginning May 1, 1997 this monthly amount shall, subject to
adjustment as provided in the Lease, be $1,561.68.
3. Lessor will provide the Lessee with a paint and carpet
improvement allowance in the amount of $11,138.00.
4. This Amendment shall only become effective if Memotec, Inc.
and Lessor fully execute a Termination Agreement for Suite 220 on or before May
9, 1997.
<PAGE> 15
Except as modified in this Agreement, the terms of the Lease shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the year and date written below.
WITNESS TO LESSEE: LESSEE:
/s/ Therese Pimentel VANSTAR CORPORATION
- ----------------------------
/s/ Tom Heinrich
- ---------------------------- ------------------------------------
Its Director Facilities
---------------------------------
Date 7-17-97
--------------------------------
WITNESS TO LESSOR: LESSOR:
HIGHWOODS/FORSYTH LIMITED
- ---------------------------- PARTNERSHIP
- ---------------------------- By: Highwoods Properties, Inc.,
general partner
By: /s/ Gene Anderson
------------------------
Gene Anderson
Senior Vice President
(CORPORATE SEAL)
<PAGE> 1
EXHIBIT 10.12
LAKEVIEW 400
OFFICE LEASE AGREEMENT
THIS LEASE is made as of the 18th day of August, 1997 between SVA OXFORD
LIMITED PARTNERSHIP, a Texas limited partnership (hereinafter called "Landlord")
and VANSTAR CORPORATION, a Delaware corporation (hereinafter called "Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
those premises (hereinafter called "Premises") shown on Exhibit "A" attached
hereto and made a part thereof, being 58,262 square feet of space located in a
single story office building (the "Building") constructed on a parcel of land
(the "Property") located in Fulton County, Georgia and more particularly
described on Exhibit "B" attached hereto and made a part hereof. The Building
and Property, together with any adjacent or nearby property and improvements
thereon from time to time owned by Landlord and operated in conjunction with the
Building and Property, are sometimes referred to in this Lease as the "Lakeview
400 Complex".
PREMISES: 2575 WESTSIDE PARKWAY
SUITE 500
ALPHARETTA, GEORGIA 30201
1. TERM AND POSSESSION.
(a) The term of the Lease shall be for sixty (60) months (or until sooner
terminated as herein provided) (the "Lease Term"), beginning on the
"Commencement Date" (as hereinafter defined), except that if the date the Lease
Term begins is other than the first day of a calendar month, the term hereof
shall be extended for the remainder of that calendar month. The first lease year
("Lease Year") shall begin on the date the Lease Term commences and shall end on
the last day of the twelfth (12th) full month following the date the Lease Term
commences. Succeeding Lease Years shall each consist of a twelve (12)-month
period beginning with the first day of the first month following the end of the
prior Lease Year.
(b) The Commencement Date shall be the earlier of (i) the date upon which
the Premises have been substantially completed in accordance with the plans and
specifications of Landlord (other than any work which cannot be completed on
such date provided such incompletion will not substantially interfere with
Tenant's use of the Premises), or (ii) the date on which Tenant takes possession
of all of the Premises; provided, however, that if Landlord shall be delayed in
such substantial completion as a result of any of the following (hereinafter, a
"Tenant Delay"): (1) Tenant's failure to agree to plans, specifications, or cost
estimates with a reasonable period of time; (2) Tenant's request for materials,
finishes or installations other than Landlord's standard, provided Landlord has
notified Tenant at the time of Tenant's request that such request may result in
a delay in substantial completion; (3) Tenant's changes in plans, provided
Landlord has notified Tenant at the time of Tenant's request that such request
may result in a delay in substantial completion; or (4) the performance or
completion by a party employed by Tenant; or (5) Tenant's failure for any reason
to perform any obligation under the Lease (including, but not limited to,
Exhibit "C" attached hereto) within the specified period, the Commencement Date
and the payment of rent hereunder shall be accelerated by the number of days of
such delay.
(c) The Premises shall be deemed substantially completed and possession
delivered when Landlord has substantially completed the work to be constructed
or installed pursuant to the plans and specifications described in Exhibit "C"
attached hereto and made a part hereof, subject only to the completion of items
on Landlord's punch list (and exclusive of the installation of all telephone and
other communications facilities and equipment and other finish work to be
performed by or for Tenant), and Landlord has obtained a certificate of
occupancy (or temporary certificate of occupancy which permits Tenant to
commence conducting Tenant's business from the Premises). Tenant shall have the
right prior to the Commencement Date to enter upon the Premises to prepare same
for occupancy by Tenant, including, but not limited to, installation of
telephone, data and other telecommunication equipment, office furniture and
furniture systems, installation of security devices and locks, and other finish
work to be performed by or for Tenant.
(d) The taking of possession by Tenant shall be deemed conclusively to
establish that the Building, other improvements, and the Premises have been
completed in accordance with the plans and specifications and are in good and
satisfactory condition as of when possession was so taken, except for latent
defects and punchlist items.
2. MONTHLY RENTAL.
(a) Tenant shall pay to Landlord throughout the term of this Lease annual
rental as set forth below, payable in equal monthly rental installments payable
in advance on the first day of each month during every year of the term hereby
demised in lawful money of the United States, without deduction or offset
whatsoever, to Landlord or to such other firm as Landlord may from time to time
designate in writing. Said rental is subject to adjustments as provided
hereinbelow. If this Lease commences on a day other than the
<PAGE> 2
first day of a calendar month, the monthly rental for the fractional month shall
be appropriately prorated. The annual and monthly rental, subject to adjustment
as hereinafter provided, is as follows:
<TABLE>
<CAPTION>
Lease Base Rent
Year $/RSF/Yr. Annual Monthly
---- --------- ------ -------
<S> <C> <C> <C>
One $12.25 $713,709.50 $59,475.79
Two $12.62 $735,120.79 $61,260.07
Three $13.00 $757,174.41 $63,097.87
Four $13.39 $779,889.64 $64,990.80
Five $13.79 $803,286.33 $66,940.53
</TABLE>
(b) Tenant recognizes that late payment of any rent or other sum due
hereunder from Tenant to Landlord will result in administrative expense to
Landlord, the extent of which additional expense is extremely difficult and
economically impractical to ascertain. Tenant therefore agrees that if rent or
any other payment due hereunder from Tenant to Landlord remains unpaid ten (10)
days after said amount is due, the amount of such unpaid rent or other payment
shall be increased by a late charge to be paid to Landlord by Tenant in an
amount equal to five percent (5%) of the amount of the delinquent rent or other
payment. The amount of the late charge to be paid to Landlord by Tenant for any
month shall be computed on the aggregate amount of delinquent rents and other
payments, including all accrued late charges then outstanding, and shall be
deemed to be rental for all purposes hereunder. Tenant agrees that such amount
is a reasonable estimate of the loss and expense to be suffered by Landlord as a
result of such late payment by Tenant and may be charged by Landlord to defray
such loss and expense. The provisions of this paragraph in no way relieve Tenant
of the obligation to pay rent or other payments on or before the date on which
they are due, nor do the terms of this paragraph in any way affect Landlord's
remedies pursuant to Paragraph 18 of this Lease in the event said rent or other
payment is unpaid after the date due.
(c) The monthly rental payable hereunder shall be subject to adjustment
each calendar year during the term of this Lease in the following manner:
(i) Throughout the term of this Lease, Tenant shall pay to Landlord
as additional rent Tenant's proportionate share of the Direct Operating Expenses
(as hereinafter defined) incurred by Landlord in the operation of the Building
during each calendar year of the Lease Term. Tenant's Proportionate Share of
Direct Operating Expenses (as hereinafter defined) shall be prorated on a daily
basis using a 365-day calendar year, as necessary for any year during which this
Lease is in effect for less than the full twelve month calendar year. Direct
Operating Expenses shall be calculated on an accrual basis. For the purpose of
estimating the Direct Operating Expenses during each year, Landlord shall
reasonably estimate such expenses based on the actual Direct Operating Expenses
for the preceding year, if available, any then-known cost changes or additional
expenses which can be reasonably anticipated to occur within the year for which
such expenses are estimated, Landlord's experience with similar office
buildings, the costs of contracts already entered, commercially reasonable
quotes obtained, commercially reasonable representations of providers of the
services and equipment, consultation with specialists such as insurers, and
other factors a prudent lessor would use to make a fair and accurate estimate of
operating costs.
The parties agree that (i) the estimated Direct Operating Expenses for
calendar year 1997 shall be $4.25 per RSF, or $20,634.46 per month (as reflected
on Exhibit "H" attached hereto and made a part hereof), and shall thereafter be
subject to adjustments as provided for in this paragraph 2(c); and (ii) that,
notwithstanding anything in this Lease to the contrary, such $4.25 per RSF
charge is an estimate by the parties to cover Landlord's costs of all Direct
Operating Expenses (other than light bulb replacement and the cost of all
maintenance and repairs to Tenant's mechanical systems, including Tenant's HVAC
system) for the Premises, including, but not limited to, (i) Tenant's cost for
metered electricity usage and consumption on the Premises for lights,
convenience power and operation of the Premises' dedicated HVAC system, and
janitorial cleaning of the Premises; and (ii) Tenant's proportionate share of
the cost of (a) real estate taxes and Building insurance; (b) water and sewer
service, janitorial, systems maintenance, trash removal, property management
fees; and (c) Landlord's maintenance and repair expenses of the common areas of
the Project, including landscaping. Landlord shall charge Tenant a reasonable
fee to cover Landlord's expenses to administer the payment of the above
described Tenant expenses ("Administrative Expenses"), which fee will be $0.18
per RSF for each calendar year during the Lease Term and will be in addition to
Direct Operating Expenses. Landlord shall cause the timely payment of all such
costs that Landlord is administering for Tenant. At the end of each calendar
year, Landlord and Tenant Will reconcile Landlord's estimated Administrative
Expenses with Landlord's actual Administrative Expenses for the previous
calendar year in the same manner as Landlord's Direct Operating Expenses. At any
time during the Lease Term, Tenant shall have the right as to any subsequent
calendar year to have Landlord cease administering the payment of some or all of
Tenant's expenses which relate solely to Tenant upon giving Landlord not less
than thirty (30) days written notice thereof prior to the commencement of such
subsequent calendar year. Thereafter, Tenant shall be responsible for paying its
own such expenses directly, and the estimated monthly Direct Operating Expense
Additional Rent payment paid by Tenant shall be appropriately adjusted downward
to reflect the financial impact of Tenant paying such expenses of Tenant
directly. Tenant acknowledges that electricity, gas and certain other bills and
accounts will be in Tenant's name and that Tenant will be liable for such bills
notwithstanding that they are sent to Landlord for purposes of payment.
-2-
<PAGE> 3
(ii) "Tenant's Proportionate Share of Direct Operating Expenses"
shall mean, for each calendar year (or portion thereof), the product of (i) the
Direct Operating Expenses multiplied by (ii) a fraction, the numerator of which
is the number of square feet contained in the Premises (58,262) and the
denominator of which is the number of rentable square feet contained in the
Building (89,119).
(iii) For purposes of this Lease, the term "Direct Operating
Expenses" shall consist of all "operating costs" (as hereinafter defined) for
the Building, and the Building's share of all operating costs for any parking,
landscaping and common areas serving the Building, and the Property (the
Building, such parking, landscaping and common areas and the Property being
hereinafter referred to collectively as the "Project"). To the extent any costs
are incurred for the benefit of the Building and the other ounce building
located on the Property, such costs shall be appropriately allocated to the
Building and such other building, and if the actual allocation cannot be
determined, the cost shall be shared on a proportionate basis relative to the
rentable square footage of each of the respective buildings. For purposes of
this Lease, the term "operating costs" shall mean all reasonable expenses, costs
and disbursements computed on the accrual basis, relating to or incurred or paid
in connection with the operation, maintenance and repair of the Project,
including, but not limited to the following:
a. Building personnel costs, including, but not limited to,
salaries, wages, fringe benefits, social security taxes and other direct and
indirect costs of building personnel engaged in the operation and maintenance of
the Project and associated overhead.
b. The cost of all supplies, tools, equipment and materials used in
the operation and maintenance of the Project, including the cost of all
agreements for the maintenance and service of such items.
c. The cost of water, sewer, gas, heating, lighting, ventilation,
electricity, air conditioning, and any other utilities supplied or paid for by
Landlord for the Project and the costs of maintaining the systems supplying the
same, including, but not limited to, any utility and service costs incurred by
Landlord.
d. The cost of all agreements for maintenance and service of the
Project, including, but not limited to, agreements relating to security service,
window cleaning, Building management, and landscaping maintenance.
e. The cost of maintaining sprinkler systems, fire extinguishers and
fire hoses, systems and equipment that may be now or hereafter required by the
Americans With Disabilities Act, and the cost of all security services and
protective services or devices rendered to or in connection with the Project or
any part thereof, to the extent supplied or paid for by Landlord.
f. Insurance premiums for insurance for the Project required to be
maintained by Landlord hereunder or which a prudent owner would carry,
including, but not limited to, premiums for insurance maintained by Landlord,
business interruption or rental abatement insurance, and liability insurance.
g. The cost of repairs and general maintenance of the Project
(excluding repairs, alterations and general maintenance paid by proceeds of
insurance or attributable solely to tenants of the Project other than Tenant,
but including deductibles paid by Landlord), including, but not limited to:
maintenance and cleaning of common areas and facilities; lawn mowing, gardening,
landscaping, and irrigation of landscaped areas; line painting, pavement repair
and maintenance, sweeping, and sanitary control; removal of snow, trash,
rubbish, garbage, and other refuse; the cost of personnel to implement such
services, to direct parking, and to police the common areas; the cost of
exterior and interior painting of common areas; all maintenance and repair
costs; and the cost of maintenance of sewers and utility lines.
h. The amortization (together with reasonable financing charges) of
the cost (including labor and materials) of capital investment items, subject to
the provisions of Paragraph 2(c)(iii)(d) on page 4 of this Lease.
i. All taxes, assessments, and governmental or other charges,
general or special, ordinary or extraordinary, foreseen or unforeseen, which are
levied, assessed, or otherwise imposed against the Project, street lights,
personal property or rents, or on the right or privilege of leasing the Project,
collecting rents therefrom or parking vehicles thereon, by any federal, state,
county, or municipal government or by any special sanitation district or by any
other governmental or quasi-governmental entity that has taxing or assessment
authority, and any other taxes and assessments, together with any interest and
penalties thereon, attributable to the Project or its operation (herein
collectively called the "Impositions"), but exclusive of federal, state and
local income taxes of Landlord, inheritance taxes, estate taxes, gift taxes,
transfer taxes, excess profit taxes and any taxes imposed in lieu of such taxes.
If at any time during the Lease Term, the present method of taxation or
assessment shall be so changed that the whole or any part of the Impositions now
levied, assessed or imposed on real estate and the improvements thereon shall be
discontinued and as a substitute therefor, or in lieu of and in addition
thereof, taxes, assessments, levies, impositions or charges shall be levied,
assessed and/or imposed wholly or partially as a capital levy or otherwise on
the rents received from the Project or the rents reserved herein or any part
thereof, then such substitute or additional taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or imposed, shall be
-3-
<PAGE> 4
deemed to be included within the Impositions and the operating costs. Tenant
will be responsible for ad valorem taxes on its personal property and on the
value of the leasehold improvements in the Premises to the extent the same
exceed building standard allowances (and if the taxing authorities do not
separately assess Tenant's leasehold improvements, Landlord may make a
reasonable allocation of the ad valorem taxes allocated to the Project to give
effect to this sentence).
j. All assessments (if any) assessed against the Project during the
Lease Term with respect to the lake located on and adjacent to the Property.
k. Reasonable fees of accountants, attorneys and other consultants,
professionals or advisors incurred by Landlord with respect to the Project.
l. Any other costs or expenses reasonably incurred by Landlord in
the operation of the Project.
Anything in this Lease to the contrary notwithstanding, Direct Operating
Expenses under this Lease shall not include:
(a) Any and all costs of improvements or alterations (i) to any
of the premises of any other tenants in the Building (other than general
maintenance and repair to any such tenant's premises which is Landlord's
responsibility under tenant leases for the Building generally), or (ii) to
any areas of the Building not presently leased or designated as leasable
area in order to convert it into leasable area (other than general
maintenance repair to any such areas);
(b) Expenses incurred in leasing or procuring new tenants or
renewing leases or expanding leaseholds of existing tenants (including
lease commissions, legal fees, advertising expenses, expenses of renovating
space for new or existing tenants, and construction or other allowances to
new or existing tenants);
(c) Except as provided in subparagraph (d) below, principal or
interest payments on loans secured by mortgages, or trust deeds or
assignments of rent, on the Property or Building;
(d) Costs of capital improvements, except that Direct Operating
Expenses shall include the cost of any capital improvement which (i) can be
reasonably expected to reduce any component cost included within Direct
Operating Expenses, (ii) is appropriate to replace or repair existing items
which have worn out or are in need of repair (but excluding the repair or
replacement of heating, ventilating or air conditioning systems or
equipment or other systems or equipment serving only the Premises), or
(iii) which are necessary to keep the Project, Premises or Building in
compliance with all present and future governmental laws, rules and
regulations applicable from time to time thereto. Costs of capital
improvements permitted to be charged as Direct Operating Expenses hereunder
shall be amortized over a reasonable period consistent with generally
accepted principles of accounting, with interest on the unamortized amount,
at the rate of two percent (2%) per annum above the base rate of interest
charged on corporate loans at large U.S. money center commercial banks as
published in the Wall Street Journal (but in no event at a rate which is
more than the highest lawful rate allowable in the State of Georgia);
(e) Expenses for repairs or other work occasioned by fire,
windstorm or other insured casualty or resulting from the exercise of a
power of eminent domain; provided, that the amount of Landlord's insurance
deductible for the Lakeview 400 complex may be included in Direct Operating
Expenses up to, but not exceeding in any event, the amount of $50,000 per
calendar year;
(f) Legal and other expenses incurred in negotiating or
enforcing the terms of any tenant lease, and legal fees not relating to the
operation or maintenance of the Project;
(g) Ground rent or land lease obligations with respect to the
Property or Building;
(h) Wages, salaries and other compensation paid to any employee
above the grade of the highest ranking Senior Property Manager, as prorated
based upon the amount of time any such employee spends with respect to the
Project;
(i) Expenses for utility or other services for which Landlord
receives direct reimbursement from any tenant or other party (other than
through the Direct Operating Expenses reimbursement provisions of leases);
(j) Depreciation expense, except in the form of amortized costs
of capital improvements to the extent expressly permitted in subparagraph
2(c)(iii)(d) set forth above;
(k) Any interest, fines or penalties and all related expenses
(including attorneys fees) incurred as a result of Landlord's violation of
any governmental rule, statute or authority, or any mortgage or other
instrument affecting the Property or Building, or other wrongful conduct of
Landlord; and
-4-
<PAGE> 5
(1) Losses of rent, bad debts and any damages or settlements
paid to any tenant, prospective tenant or occupant of the Building.
(iv) Tenant acknowledges that various services and other costs
relating to the Building may be incurred in connection with the Building and one
or more other buildings within the Lakeview 400 Complex. In such event, such
costs shall be appropriately allocated among the Building and such other
buildings for purposes of determining the portion of such costs to be included
in Direct Operating Expenses.
(v) Nothing contained in this Section shall imply any duty on the
part of Landlord to pay any expense or provide any service not otherwise imposed
by the express terms of this Lease.
(vi) On or about December 31 of each calendar year during the Lease
Term, Landlord shall estimate the amount of Direct Operating Expenses and
Tenant's Proportionate Share of Direct Operating Expenses for the ensuing
calendar year or (if applicable) fractional part thereof and notify Tenant in
writing of such estimate. Such estimate shall be made by Landlord in the
exercise of its discretion, and shall not be subject to dispute by Tenant. The
amount of additional rent specified in such notification shall be paid by Tenant
to Landlord in equal monthly installments in advance on the first day of each
month of such ensuing calendar year, at the same time and in the same manner as
base rent.
(vii) Within One Hundred Twenty (120) days after December 31 of any
calendar year during the Lease Term for which additional rent is due under this
Section, Landlord shall advise Tenant in writing, of the amount of actual Direct
Operating Expenses for such calendar year. If the Direct Operating Expenses for
such calendar year prove to be greater than the amount previously estimated,
Landlord shall invoice Tenant for the deficiency as soon as practicable after
the amount of underpayment has been determined, and Tenant shall pay such
deficiency to Landlord within thirty (30) days following its receipt of such
invoice. If, however, Direct Operating Expenses for such calendar year are lower
than the amount previously estimated, Tenant shall receive a credit (or in the
event the term of this Lease has then expired, Tenant shall receive a cash
refund) toward the next ensuing monthly payment or payments of the estimated
amount of Tenant's Proportionate Share of Direct Operating Expenses in the
amount of such overpayment until depleted, but in no event shall Tenant's
Proportionate Share of Direct Operating Expenses be deemed to be less than zero.
Landlord agrees that Tenant, within ninety (90) days after receipt by Tenant of
such annual statement from Landlord, shall have the right during normal business
hours and after at least ten (10) business days' prior written notice from
Tenant to Landlord to audit Landlord's records at the place where such records
are kept with respect to Direct Operating Expenses for the immediately preceding
one (1) calendar year period, at Tenant's cost (except where the total variance
is greater than ten percent (10%) overcharging of Tenant in which case Landlord
shall pay the cost of the audit), provided that the results of any such audit
shall be kept strictly confidential by Tenant and shall not be disclosed to any
party except pursuant to litigation between Landlord and Tenant concerning
Direct Operating Expenses. Any resulting undercharging or overcharging of Tenant
shall be adjusted between Landlord and Tenant within thirty (30) days after such
amount is finally determined.
3. [INTENTIONALLY OMITTED]
4. OCCUPANCY AND USE.
(a) Tenant shall use and occupy the Premises for general office purposes
and for no other use or purpose without the prior written consent of Landlord.
(b) Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them, nor use or allow
the Premises to be used for any improper, immoral, unlawful, or objectionable
purposes or for any business, use or purpose deemed to be disreputable or
inconsistent with the operation of a first class office building, nor shall
Tenant cause or maintain or permit any nuisance in, on, or about the Premises.
Tenant shall not commit or suffer the commission of any waste in, on, or about
the Premises.
5. COMPLIANCE WITH LAWS.
(a) Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance, or governmental rule, regulation or requirement now in force or which
may hereafter be enacted or promulgated. Tenant shall not do or permit anything
to be done on or about the Premises or bring or keep anything therein which will
in any way increase the rate of any insurance upon the Building in which the
Premises are situated or any of its contents or cause a cancellation of said
insurance or otherwise affect said insurance in any manner, and Tenant shall at
its sole cost and expense promptly comply with all laws, statutes, ordinances,
and governmental rules, regulations, or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting the condition, use, or occupancy of the Premises.
(b) Tenant shall not use, handle, store, deal in, discharge, or fabricate
any Hazardous Materials (as herein defined) on or about the Premises. Tenant
shall indemnify Landlord (and anybody claiming by,
-5-
<PAGE> 6
through, or under Landlord) from and against any and all claims, damages,
losses, and expenses (including reasonable attorneys' fees and court costs)
incurred by Landlord or anybody claiming by, through, or under Landlord as a
result of the existence of any Hazardous Materials on or about the Premises or
any environmental problems relating to the Premises which are caused by or
related to the delivery, deposit or creation of Hazardous Materials on or about
the Premises during the term of this Lease. As used herein, "Hazardous
Materials" means any petroleum or chemical liquids or solids, liquid or gaseous
products, contaminants, oils, radioactive materials, asbestos, PCB's,
urea-formaldehyde, or any toxic or hazardous waste or hazardous substances, as
those terms are used in (A) the Resources Conservation Recovery Act, as amended
by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.ss. 6901 et
seq.; (B) the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. ss.ss. 9601 et seq.; (C) the Clean Water Act, 33 U.S.C. ss.ss.
1251 et seq.; (D) the Toxic Substances and Control Act, 15 U.S.C. ss.ss. 2601 et
seq.; (E) the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.; (F) any and all
applicable environmental laws and regulations of the State of Georgia; and (G)
any and all other applicable federal, state or local law or regulation governing
hazardous substances or workplace health or safety, as such laws may be amended
from time to time.
(c) Subject to such matters, if any, as are disclosed in any existing
environmental reports or audits with respect to the Property, Landlord
represents that it has not received any notice of the existence of any Hazardous
Materials on or about the Premises in violation of any applicable federal, state
or local environmental law or regulation.
6. ALTERATIONS; SIGNS.
(a) Tenant shall not make or suffer to be made any alterations, additions,
or improvements in, on, or to the Premises or any part thereof without the prior
written consent of Landlord, which consent, as to nonstructural alterations or
additions which are not visible from the exterior of the Premises, shall not be
unreasonably withheld, delayed or conditioned, and no such alterations,
additions or improvements shall be made without the supervision of Landlord's
designated agent or representative. All such alterations, additions, or
improvements in, on, or to said Premises, except for Tenant's movable furniture
and equipment, shall immediately become Landlord's property and, at the end of
the term hereof, shall remain on the Premises without compensation to Tenant. In
the event Landlord consents to the making of any such alterations, additions, or
improvements by Tenant, the same shall be made by Tenant, at Tenant's sole cost
and expense, in accordance with all applicable laws, ordinances, and regulations
and all requirements of Landlord's and Tenant's insurance policies, and in
accordance with plans and specifications approved by Landlord, and any
contractor or person selected by Tenant to make the same, and all
subcontractors, must first be approved in writing by Landlord, or, as to any
structural alterations, additions or improvements or any alterations, additions
or improvements affecting the roof, exterior walls, foundation or Building
systems, at Landlord's option, the alteration, addition or improvement shall be
made by Landlord for Tenant's account and Tenant shall reimburse Landlord for
the cost thereof upon demand. Upon the expiration or sooner termination of the
term herein provided, Tenant shall, upon demand by Landlord, at Tenant's sole
cost and expense, forthwith and with all due diligence remove any or all
alterations, additions, or improvements made by or for the account of Tenant,
designated by Landlord to be removed, provided, however, that Landlord made such
removal a condition of its consent at the time Tenant requested and Landlord
granted its prior written approval of same, and Tenant shall forthwith and with
all due diligence, at its sole cost and expense, repair and restore the Premises
to their original condition, less normal wear and tear. Tenant agrees that
Landlord shall have the right to charge a commercially reasonable fee for any
and all construction supervision provided by Landlord's designated agents or
representatives in connection with any alterations, additions, or improvements
to the Premises by Tenant. Such fee, at Landlord's option, shall be either a
fixed fee or a fee calculated on an hourly basis, considering the time expended
by Landlord's agents or representatives in supervising Tenant's construction.
Notwithstanding any provision to the contrary herein, any alteration, addition
or improvement which is non-structural and which is not visible from the
exterior of the Premises, and which has an aggregate cost of less than $2,500.00
(a "Minor Alteration"), shall not require notice to or the prior written consent
of Landlord.
(b) No sign, advertisement or notice referring to Tenant shall be
inscribed, painted, affixed, or otherwise displayed on any part of the exterior
or the interior of the Building, except on the doors of offices and such other
areas as are designated by Landlord, and then only in such place, number, size,
color and style as are approved by Landlord. All of Tenant's signs that are
approved by Landlord shall be installed by Landlord at Tenant's cost and
expense. If any sign, advertisement or notice that has not been approved by
Landlord is exhibited or installed by Tenant, Landlord shall have the right to
remove the same at Tenant's expense. Landlord shall have the right to prohibit
any advertisement of or by Tenant which in its opinion tends to impair the
reputation of the Building or its desirability as a first class office building,
and upon written notice from Landlord, Tenant shall immediately refrain from and
discontinue any such advertisement. Landlord reserves the right to affix,
install and display signs, advertisements and notices on any part of the
exterior or interior of the Building; provided, however, that any temporary
exterior signage shall be consistent of the operation of similar first class
office buildings in the area in which the Building is located, and exterior
signs advertising the Premises for lease shall not be permitted prior to the
date that is six (6) months prior to the expiration of this Lease without
Tenant's prior written approval. Upon the termination of this Lease, Landlord,
at Tenant's expense, shall remove all of Tenant's signs and shall repair any
injury or damage caused by such removal. At Tenant's expense, Landlord shall
install Tenant's name on a monument sign near the walkway to the Premises, in
accordance with Landlord's signage standards. Tenant may, at Tenant's expense,
install its corporate name and logo (conforming to Tenant's corporate
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standard graphics) on the exterior door to the Premises, subject to compliance
with Landlord's building standards for all such signage. The estimated cost of
Tenant's signage is $350.00.
7. REPAIR.
By taking possession of the Premises, Tenant accepts the Premises as being
in the condition in which Landlord is obligated to deliver them and otherwise in
good order, condition and repair, except for latent defects and punchlist items.
Except as otherwise provided in Paragraph 12(a) hereof. Tenant shall, at all
times during the term hereof at Tenant's sole cost and expense, keep the
Premises and every part thereof in good order, condition and repair, excepting
ordinary wear and tear, damage thereto by fire, earthquake, act of God or the
elements. Tenant shall upon the expiration or sooner termination of the term
hereof, unless Landlord demands otherwise as in Paragraph 6 hereof provided,
surrender to Landlord the Premises and all repairs, changes, alterations,
additions and improvements thereto in the same condition as when received, or
when first installed, ordinary wear and tear, damage by fire, earthquake, act of
God, or the elements excepted. It is hereby understood and agreed that Landlord
has no obligation to alter, remodel, improve, repair, decorate, or paint the
Premises or any part thereof except as described on Exhibit "C" hereto, and that
no representations respecting the condition of the Premises or the Building have
been made by Landlord to Tenant, except as specifically herein set forth. Repair
of damage to the Premises caused by the grossly negligent or intentional acts of
Landlord or Landlord's employees, agents or contractors shall be at Landlord's
expense.
8. LIENS.
Tenant shall keep the Premises free from any liens arising out of any work
performed, material furnished, or obligations incurred by Tenant. In the event
that Tenant shall not, within ten (10) days following notice of the recordation
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered additional rent and
shall be payable to Landlord by Tenant on demand and with interest at the rate
of four percentage points higher than the prime commercial lending rate from
time to time of First Union National Bank of Georgia in Atlanta, Georgia,
provided, however, that if such rate exceeds the maximum rate permitted by law,
the maximum lawful rate shall apply; the interest rate so determined is
hereinafter called the "Agreed Interest Rate". Landlord shall have the right at
all times to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Building, and any other party having an interest
therein, from mechanics' and materialmen's liens, and, except with respect to a
Minor Alteration, Tenant shall give to Landlord at least five (5) business days
prior notice of commencement of any construction on the Premises.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not sell, assign, encumber or otherwise transfer by
operation of law or otherwise this Lease or any interest herein, sublet the
Premises or any portion thereof, or suffer any other person to occupy or use the
Premises or any portion thereof, without the prior written consent of Landlord
as provided herein, which consent shall not be unreasonably withheld,
conditioned or delayed, nor shall Tenant permit any lien to be placed on the
Tenant's interest by operation of law. Tenant shall, by written notice, advise
Landlord of its desire from and after a stated date (which shall not be less
than ten (10) business days after the date of Tenant's notice) to sublet the
Premises or any portion thereof for any part of the term hereof; and supply
Landlord with such information, financial statements, verifications and related
materials as Landlord may request or desire to evaluate the written request to
sublet. Upon receiving said notice by Tenant with respect to any of the
Premises, Landlord may withhold or grant its consent to Tenant's subletting the
Premises specified in said notice, which consent shall not be unreasonably
withheld, conditioned or delayed. Tenant shall, at Tenant's own cost and
expense, discharge in full any commissions which may be due and owing as a
result of any proposed assignment or subletting. Tenant agrees to pay to
Landlord, promptly after request therefor, the amount of all attorneys' fees
and expenses incurred by Landlord in connection with any assignment or
subletting issues or review of documentation relating thereto.
(b) Any subletting or assignment hereunder by Tenant shall not result in
Tenant being released or discharged from any liability under this Lease. As a
condition to Landlord's prior written consent as provided for in this paragraph,
the assignee or subtenant shall agree in writing to comply with and be bound by
all of the terms, covenants, conditions, provisions and agreements of this
Lease, and Tenant shall deliver to Landlord promptly after execution, an
executed copy of each sublease or assignment and an agreement of said compliance
by each sublessee or assignee.
(c) Landlord's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent occurrence.
Any sale, assignment, encumbrance, subletting, occupation, lien or other
transfer of this Lease which does not comply with the provisions of this
Paragraph 9 shall be void.
(d) Landlord's consent to a proposed assignment or subletting pursuant to
this Paragraph 9 shall not be unreasonably withheld, delayed or conditioned,
but, in addition to any other grounds for denial,
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Landlord's consent shall be deemed reasonably withheld if, in Landlord's
reasonable judgment, any of the following conditions exist:
(i) the proposed assignee or subtenant intends to use any part of
the Premises for the operation of a retail business or for a purpose
not permitted under this Lease; or
(ii) the use of the Premises or the Building by the proposed
assignee or subtenant would, in Landlord's reasonable judgment,
significantly increase the pedestrian traffic in and out of the
Building, or would require material or substantial alterations to the
Building, Premises or Project in order to comply with applicable laws;
or
(iii) the proposed use by such subtenant or assignee would result in
a violation of an exclusive right granted to another tenant in the
Building, or require rezoning or a zoning variance; or
(iv) the proposed subtenant or assignee is a governmental agency; or
(v) the business and operations of the proposed assignee or
subtenant are inconsistent with the maintenance of a Class A Building,
and/or would be incompatible with the businesses and operations being
conducted by other tenants in the Building or Project; or
(vi) the proposed use by such subtenant or assignee could create a
condition that is dangerous to persons or property (e.g. a foreign
consulate) or could create an atmosphere or condition that could be
disruptive to the operation of the Building or Project (e.g. an
abortion or methadone clinic), or could create substantially heavier
volumes of traffic in the Project than the Project was designed for;
or
(vii) as a result of the number of people to be officed in the space
proposed for sublease or assignment, the efficiency of the Premises'
HVAC system would be materially diminished; or
(viii) with respect to a sublease, Tenant proposes to demise the
sublease space in a commercially unreasonable manner (e.g. in a
configuration that would not be readily leasable at the end of the
Lease Term) and does not provide Landlord with additional security in
an amount equal to all reasonably anticipated restoration costs.
10. INSURANCE AND INDEMNIFICATION.
(a) Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord for any injury or damages to any person or property in
or about the Premises or the Project by or from any cause whatsoever, without
limiting the generality of the foregoing, whether caused by water leakage of any
character from the roof, walls, basement, or other portion of the Premises or
the Building, caused by gas, fire, or explosion of the Building or the complex
of which it is a part or any part thereof, or caused by theft or other act or
omission of any person, except to the extent caused by the gross negligence or
willful misconduct of Landlord or Landlord's employees, agents or contractors.
(b) Tenant shall hold Landlord harmless from and defend and indemnify
Landlord against any and all claims or liability for any injury or damage to any
person or property whatsoever: (i) occurring in, on or about the Premises or any
part thereof, (ii) occurring in, on, or about any facilities (including, without
limitation, stairways, parking areas, passageways, walkways or hallways), the
use of which Tenant may have in conjunction with other tenants of the Building,
when such injury or damage shall be caused in part or in whole by the act,
neglect, fault of, or omission of any duty with respect to the same by Tenant,
its agents, servants, employees, or invitees (but excluding and injury or damage
caused by the gross negligence or willful misconduct of Landlord or Landlord's
employees, agents or contractors). Tenant further agrees to indemnify, defend
and save harmless Landlord against and from any and all claims in any manner
relating to any work or thing whatsoever done by Tenant in or about, or any
transactions of Tenant concerning, the Premises, and will further indemnify,
defend and save Landlord harmless against and from any and all claims arising
from any breach or default on the part of Tenant in the performance of any
covenant or agreement on the part of Tenant to be performed pursuant to the
terms of this Lease, or arising from any act or negligence of Tenant, or any of
its agents, contractors, servants, employees and licensees, and from and against
all costs, counsel fees, expenses and liabilities incurred in connection with
any such claim or action or proceeding brought thereon. Furthermore, in case any
action or proceeding be brought against Landlord by reason of any claims or
liability, Tenant agrees to defend such action or proceeding at Tenant's sole
expense by counsel reasonably satisfactory to Landlord. The provisions of this
Lease with respect to any claims or liability occurring prior to the termination
or expiration of this Lease shall expressly survive such termination or
expiration of this Lease.
(c) Tenant agrees to purchase at its own expense and to keep in force
during the term of this lease a policy or policies of worker's compensation and
comprehensive general liability insurance, including personal injury and
property damage, with contractual liability endorsement, in the amount of Two
Million Dollars ($2,000,000.00) for property damage and Three Million Dollars
($3,000,000.00) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises. Said policies shall: (i) name Landlord as an
additional insured (except for the worker's compensation policy, which shall
instead include a waiver of subrogation endorsement in favor of Landlord), (ii)
be issued by an insurance company which has
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a Best's Insurance Guide Rating of at least A- and which is licensed to do
business in the State of Georgia, and (iii) provide that said insurance shall
not be canceled unless thirty (30) days prior written notice shall have been
given to Landlord. Said policy or policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the term of the Lease and
written request of Landlord and upon each renewal of said insurance.
(d) Tenant represents that Tenant has not engaged or worked with any real
estate brokers or agents other than Brannen/Goddard Company and Carter &
Associates (collectively, "Broker") in connection with this Lease or the
Premises. Tenant shall indemnify and hold harmless Landlord and Landlord's
agents from and against any and all claims for commissions or other
compensation, and any liabilities, damages and costs relating thereto, that may
be asserted by any person or entity other than Broker to the extent that Tenant
has engaged such person or such claim results from any action of Tenant.
11. WAIVER OF SUBROGATION.
Each of Landlord and Tenant hereby releases the other from any and all
liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured in policies of insurance covering
such property, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible, including any other tenants or occupants of the remainder of the
Building in which the Premises are located; provided, however, that this release
shall be applicable and in force and effect only to the extent that such release
shall be lawful at that time and in any event only with respect to loss or
damage occurring during such time as the releasor's policies shall contain a
clause or endorsement to the effect that any such release shall not adversely
affect or impair said policies or prejudice the right of the releaser to
coverage thereunder and then only to the extent of the insurance proceeds
payable under such policies. Each of Landlord and Tenant agrees that it will
request its insurance carriers to include in its policies such a clause or
endorsement. If extra cost shall be charged therefor, each party shall advise
the other thereof and of the amount of the extra cost, and the other party, at
its election, may pay the same, but shall not be obligated to do so. If such
other party fails to pay such extra cost, the release provisions of this
Paragraph shall be inoperative against such other party to the extent necessary
to avoid invalidation of such releasor's insurance.
12. SERVICE, UTILITIES, AND PARKING.
(a) Landlord shall maintain the public and common areas of the Property,
and the roof, exterior walls (excluding plate glass and doors except as
otherwise provided in Paragraph 7 above) and foundation of the Building, in
reasonably good order and condition except for damage occasioned by the act of
Tenant, which damage shall be repaired by Landlord at Tenant's expense. Tenant
shall be responsible for all other maintenance, repair and replacement with
respect to the Premises, including, without limitation, maintenance, repair and
replacement of the mechanical, plumbing, electrical and heating, ventilating and
air conditioning equipment and systems within or upon the Premises, and Landlord
shall have no responsibility therefor. Landlord shall warrant the Tenant
Improvements (as defined in Exhibit "C" attached hereto and made a part hereof)
against material defects in materials or workmanship for a period of one (1)
year from the Commencement Date.
(b) Landlord agrees to provide water, electricity and gas (when available)
service connections into the Premises in accordance with the plans and
specifications, if any, described in Exhibit "C" attached hereto and made a part
hereof; but Tenant shall pay for all gas, heat, light, power, water, sewer,
telephone, sprinkler charges and other utilities and services used on or from
the Premises, together with any taxes, penalties, surcharges or the like
pertaining thereto, and any maintenance charges for utilities, and shall furnish
all electric light bulbs and tubes. Landlord agrees to furnish to the Premises
water for lavatory and drinking purposes, subject to the provisions of
subparagraph 12(c) below. Landlord shall in no event be liable for any
interruption or failure of utility services on the Premises.
(c) Tenant will not without the written consent of Landlord use any
apparatus or device in the Premises, which will in any way increase the amount
of water or other resource usually furnished or supplied for use of the Premises
as general office space. If Tenant in Landlord's judgment shall require water or
any other resource in excess of that usually furnished or supplied by Landlord
for use of the Premises as general office space (it being understood that such
an excess may result from the number of fixtures, apparatus and devices in use,
the nature of such fixtures, apparatus and devices, the hours of use, or any
combination of such factors), Tenant shall first procure the consent of
Landlord, which Landlord may refuse, to the use thereof, and Landlord may cause
a special meter to be installed in the Premises so as to measure the amount of
excess water or other resource consumed for any such other use. The cost of any
such meters and of installation, maintenance, and repair thereof shall be paid
for by Tenant, and Tenant agrees to pay Landlord promptly upon demand by
Landlord for all such excess water or other resource consumed, as shown by said
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meters, at the rates charged by the local public utility furnishing the same,
plus any additional expense incurred in keeping account of the water or other
resource so consumed. Landlord shall not be in default hereunder or be liable
for any damages directly or indirectly resulting from, nor shall the rental
herein reserved be abated by reason of (i) the installation, use or interruption
of use of any equipment in connection with the furnishing of any of the
foregoing utilities and services, (ii) failure to furnish or delay in furnishing
any such utilities or services when such failure or delay is caused by acts of
God or the elements, labor disturbances of any character, any other accidents or
other conditions beyond the reasonable control of Landlord, or by the making of
repairs or improvements to the Premises or to the Building, (iii) the
limitation, curtailment, rationing or restriction on use of water or
electricity, gas or any other form of energy or any other service utility
whatsoever serving the Premises or the Building. Furthermore, Landlord shall be
entitled to cooperate voluntarily in a reasonable manner with the efforts of
national, state or local governmental agencies or utilities suppliers in
reducing energy or other resources consumption.
(d) Any sums payable under this Paragraph 12 shall be considered
additional rent and may be added to any installment of rent thereafter becoming
due, and Landlord shall have the same remedies for a default in payment of such
sums as for a default in the payment of rent.
(e) Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventative maintenance/service contract with a maintenance
contractor for servicing all hot water, heating, ventilating, and air
conditioning systems and equipment within the Premises. The maintenance contract
and the contractor must be approved by Landlord, which approval shall not be
unreasonably withheld or delayed. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and must become effective (and copy thereof delivered to the Landlord) within
thirty (30) days of the date Tenant takes possession of the Premises.
(f) All janitorial services provided by Tenant must be by a janitorial
contractor at all times satisfactory to Landlord. Any such services provided by
Tenant shall be at Tenant's sole risk and responsibility.
(g) Landlord shall provide to Tenant and Tenant's employees, agents and
business invitees the nonexclusive use of at least five (5) parking spaces per
one thousand (1,000) square feet of rentable area occupied by Tenant, such
spaces to be within the surface parking areas now or hereafter located on the
Property. Landlord reserves the right to designate certain of the parking spaces
located upon the Property as "Reserved" and to otherwise limit parking in or
restrict access to portions of said parking areas in Landlord's discretion;
provided, however, that Tenant shall continue to have access to at least five
(5) parking spaces per 1,000 square feet of rentable area occupied by Tenant.
13. ESTOPPEL CERTIFICATE.
Within seven (7) days following the Commencement Date or any written
request which Landlord may make from time to time, Tenant shall execute and
deliver to Landlord a certificate substantially in the form attached hereto as
Exhibit "D" and made a part hereof, indicating thereon any exceptions thereto
which may exist at that time. Failure of Tenant to execute and deliver such
certificate shall at Landlord's option constitute a default hereunder. Landlord
and Tenant intend and agree that any statement delivered pursuant to this
paragraph may be relied upon by Landlord or by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein or
anyone to whom Landlord may provide said certificate.
14. HOLDING OVER.
Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the Premises or any part thereof after such termination, then
Landlord may, at its option, serve written notice upon Tenant that such holding
over constitutes any one of, (i) creation of a month to month tenancy, upon the
terms and conditions set forth in this Lease, or (ii) creation of a tenancy of
sufferance, in any case upon the terms and conditions set forth in this Lease;
provided, however, that the monthly rental (or daily rental under (ii)) shall,
in addition to all other sums which are to be paid by Tenant hereunder, whether
or not as additional rent, be equal to one hundred fifty percent (150%) of the
rental being paid monthly to Landlord under this Lease immediately prior to such
termination (prorated in the case of (ii) on the basis of a 365 day year for
each day Tenant remains in possession). If no such notice is served, then a
tenancy at sufferance shall be deemed to be created at the rent in the preceding
sentence. The foregoing provision for holdover rent shall not preclude Landlord
from seeking to recover from Tenant any damages suffered by Landlord as a result
of Tenant retaining possession of any portion of the Premises after the
termination of this Lease. The provisions of this paragraph shall not constitute
a waiver by Landlord of any right of reentry as herein set forth; nor shall
receipt of any rent or any other act in apparent affirmance of the tenancy
operate as a waiver of the right to terminate this Lease for a breach of any of
the terms, covenants, or obligations herein on Tenant's part to be performed.
15. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to: (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building, the land upon
which the Building or any common areas are situated, and (b) the lien or
interest of any mortgage or deed to secure
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debt which may now exist or hereafter be executed in any amount for which said
Building, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens or
interests of mortgages or deeds to secure debt to this Lease. In the event that
any ground lease or underlying lease terminates for any reason or any mortgage
or deed to secure debt is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination, attorn to
and become the Tenant of the successor in interest to Landlord at the option of
such successor in interest. Tenant agrees to execute such subordination and
attornment agreements as the holder of any mortgage or deed to secure debt on
the Building may reasonably require. Attached hereto as Exhibit "G" and
incorporated herein is a form of subordination and nondisturbance agreement,
which form Tenant agrees is reasonable and agrees to enter into. Tenant
covenants and agrees to execute and deliver, upon demand by Landlord and in the
form requested by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed to secure debt. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver
and record any such documents in the name and on behalf of Tenant.
16. RE-ENTRY BY LANDLORD.
Landlord reserves and shall at all times have the right, upon reasonable
prior notice (except in the event of emergency, in which event no prior notice
shall be necessary) and exercising reasonable care to re-enter the Premises to
inspect the same, to supply any service to be provided by Landlord to Tenant
hereunder, to show said Premises to prospective purchasers, mortgagees or
tenants, to post notices of nonresponsibility, and to alter, improve, or repair
the Premises and any portion of the Building of which the Premises are a part or
to which access is conveniently made through the Premises, without abatement of
rent, and may for that purpose erect, use, and maintain scaffolding, pipes,
conduits, and other necessary structures in and through the Premises where
reasonably required by the character of the work to be performed, provided that
entrance to the Premises shall not be blocked thereby, and further provided that
the business of Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages for any inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors,
in, upon, and about the Premises, and Landlord shall have the right to use any
and all means which Landlord may deem necessary or proper to open said doors in
an emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises, or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portions
thereof. Landlord shall also have the right at any time, without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement and/or location of
entrances or passage ways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known.
17. INSOLVENCY OR BANKRUPTCY.
The appointment of a receiver to take possession of all or substantially
all of the assets of Tenant, or an assignment of Tenant for the benefit of
creditors, or any action taken or suffered by Tenant under any insolvency,
bankruptcy, or reorganization act, shall at Landlord's option constitute a
breach of this Lease by Tenant. Upon the happening of any such event or at any
time thereafter, this Lease shall terminate five (5) days after written notice
of termination from Landlord to Tenant. In no event shall this Lease be assigned
or assignable by operation of law or by voluntary or involuntary bankruptcy
proceedings or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, or
reorganization proceedings.
18. DEFAULT AND REMEDIES.
The following events shall be deemed to be events of default by Tenant
under this Lease:
(a) Tenant shall fail to pay when or before due any sum of money becoming
due to be paid to Landlord hereunder, whether such sum be any installment of the
rent herein reserved, any other amount treated as additional rent hereunder, or
any other payment or reimbursement to Landlord required herein, whether or not
treated as additional rent hereunder, and such failure shall continue for a
period of ten (10) days after receipt of written notice of non-payment from
Landlord; provided, however, notwithstanding the foregoing, Landlord shall not
be required to give such notice to Tenant more than two (2) times in any
calendar year with respect to Tenant's obligation to make any monetary payment
under this Lease, and after Landlord shall have given two (2) such notices in
any given calendar year, Tenant shall not be entitled to any notice or cure
period for any subsequent default within with such calendar year; or
(b) Tenant shall fail to comply with any term, provision or covenant of
this Lease other than by failing to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, and such failure shall continue
for a period of thirty (30) days after written notice thereof is given to Tenant
(provided, if the default is of a nature that cannot be cured within thirty (30)
days, no default shall occur if
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Tenant commences the cure within such thirty (30) day period and thereafter
diligently and continuously pursues the same to conclusion within not more than
ninety (90) days); or
(c) Tenant shall fail to take occupancy of the Premises or shall abandon
the Premises during the first thirty-six (36) months of the Lease Term; or
(d) Tenant shall create or allow to be created in or about the demised
Premises any condition or circumstance constituting a hazard to people or
property, a nuisance, a trespass, or other condition offensive to Landlord or
others, whether or not such condition or circumstance rises to the level of a
civil or criminal law violation or action; or
(e) Tenant shall fail to vacate the Premises immediately upon termination
of this Lease, by lapse of time or otherwise, or upon termination of Tenant's
right to possession only;
(f) If, in spite of the provisions hereof, the interest of Tenant shall be
levied upon under execution or be attached by process of law or Tenant shall
fail to contest diligently the validity of any lien or claimed lien and give
sufficient security to Landlord to insure payment thereof or shall fail to
satisfy any judgment rendered thereon and have the same released, and such
default shall continue for ten (10) days after written notice thereof to Tenant;
or
(g) Tenant shall assign, sublet or transfer its interest hereunder in
violation of this Agreement.
Upon the occurrence of any such events of default described in this
paragraph or elsewhere in this Lease, Landlord shall have the option to pursue
any one or more of the following remedies without any notice or demand
whatsoever:
(i) Landlord may, at its election, terminate this Lease or terminate
Tenant's right to possession only, without terminating the Lease.
(ii) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises in such event with or without process of law and to repossess the
Premises and to expel or remove Tenant and any others who may be occupying or
within the Premises and to remove any and all property therefrom, without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom; Tenant
hereby waiving any right to claim damage for such reentry and expulsion, and
without relinquishing Landlord's right to rent or any other right given to
Landlord hereunder or by operation of law.
(iii) Upon termination of this Lease, whether by lapse of time, by or
in connection with a dispossessory proceeding or otherwise, Landlord shall be
entitled to recover as Landlord's actual accrued damages, all rent, including
any amount treated as additional rent hereunder, and other sums due and payable
by Tenant on the date of termination, plus, as Landlord's liquidated damages for
the balance of the stated term hereof and not as a forfeiture or penalty, the
sum of: (a) an amount equal to the then present value of the rent, including any
amounts treated as additional rent hereunder, and other sums provided herein to
be paid by Tenant for the residue of the stated term hereof, less the fair
rental value of the Premises for such residue (taking into account the time and
expenses necessary to obtain a replacement tenant or tenants, including expenses
hereinafter described in subparagraph (iv)(B) relating to recovery of the
Premises, preparation for reletting and for reletting itself), and (b) the cost
of performing any other covenants which would have otherwise been performed by
Tenant.
(iv) (A) Upon termination of Tenant's right to possession of the
demised Premises, regardless of whether such termination occurs as a result of a
dispossessory proceeding, distraint proceeding, exercise of right of
termination, re-entry, lease expiration or otherwise, Tenant shall remain liable
for payment of all rent thereafter accruing and for performance of all
obligations thereafter performable under this Lease. Landlord may, at Landlord's
option, enter the Premises, remove Tenant's signs and other evidences of
tenancy, and take and hold possession thereof as provided in subparagraph
(g)(ii) above, without such entry and possession releasing Tenant from any
obligation, including Tenant's obligation to pay rent, including any amounts
treated as additional rent, hereunder for the full term of the Lease.
(B) Landlord may, but need not, relet the Premises or any part
thereof for such rent and upon such terms as Landlord in its sole discretion
shall determine (including the right to relet the Premises for a greater or
lesser term than that remaining under this Lease, the right to relet the
Premises as a part of a larger area, and the right to change the character and
use made of the Premises) and Landlord shall not be required to accept any
tenant offered by Tenant or to observe any instructions given by Tenant about
such reletting. In any such case, Landlord may make repairs, alterations and
additions in or to the Premises, and redecorate the same to the extent Landlord
deems necessary or desirable, and Tenant shall, upon demand, pay the cost
thereof, together with Landlord's expenses for reletting, including, without
limitation, any broker's commission incurred by Landlord. If the consideration
collected by Landlord upon any such reletting plus any sums previously collected
from Tenant are not sufficient to pay the full amount of all rent, including any
amounts treated as additional rent hereunder and other sums reserved in this
Lease for the
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<PAGE> 13
remaining term hereof, together with the costs of repairs, alterations,
additions, redecorating, and Lessor's expenses of reletting and the collection
of the rent accruing therefrom (including attorneys' fees and broker's
commissions), Tenant shall pay to Landlord, as Landlord's liquidated damages and
not as a forfeiture or penalty, the amount of such deficiency upon demand and
Tenant agrees that Landlord may file suit to recover any sums falling due under
this section from time to time.
(v) Landlord may, at Landlord's option, enter into and upon the
Premises, with or without process of law, if Landlord determines in its sole
discretion that Tenant is not acting within a commercially reasonable time to
maintain, repair or replace anything for which Tenant is responsible hereunder,
and correct the same, without being deemed in any manner guilty of trespass,
eviction or forcible entry and detainer and without incurring any liability for
any damage resulting therefrom, and Tenant agrees to reimburse Landlord, on
demand, as additional rent, for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease.
(vi) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by or
at the direction of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option, be
deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord to Tenant.
Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law or available in equity (all such remedies being cumulative), nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants herein
contained. No act or thing done by Landlord or its agents during the term hereby
granted shall be deemed a termination of this Lease or an acceptance of the
surrender of the Premises, and no agreement to terminate this Lease or accept a
surrender of said Premises shall be valid unless in writing signed by Landlord.
No waiver by Landlord of any violation or breach of any of the terms, provisions
and covenants herein contained shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions and
covenants herein contained. Landlord's acceptance of the payment of rental or
other payments hereunder after the occurrence of an event of default shall not
be construed as a waiver of such default, unless Landlord so notifies Tenant in
writing. Forbearance by Landlord in enforcing one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default or of Landlord's right to enforce any such remedies
with respect to such default or any subsequent default. If, on account of any
breach or default by Tenant in Tenant's obligations under the terms and
conditions of this Lease, it shall become necessary or appropriate for Landlord
to employ or consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay reasonable
attorneys' fees so incurred.
Without limiting the foregoing, to the extent permitted by law,
Tenant hereby: (x) appoints and designates the Premises as a proper place for
service of process upon Tenant, and agrees that service of process upon any
person apparently employed by Tenant upon the Premises or leaving process in a
conspicuous place within the Premises shall constitute personal service of such
process upon Tenant (provided, however, Landlord does not hereby waive the right
to serve Tenant with process by any other lawful means); (y) expressly waives
any right to trial by jury; and (z) expressly waives the service of any notice
under any existing or future law of the State of Georgia applicable to landlords
and tenants.
19. DAMAGE BY FIRE, ETC.
(a) If the Building, improvements, or Premises are rendered partially or
wholly untenantable by fire or other casualty, and if such damage cannot, in
Landlord's reasonable estimation, be materially restored within ninety (90) days
of such damage, then Landlord may, at its sole option, terminate this Lease as
of the date of such fire or casualty. Landlord shall exercise its option
provided herein by written notice to Tenant within thirty (30) days of such fire
or other casualty. For purposes hereof, the Building, improvements, or Premises
shall be deemed "materially restored" if they are in such condition as would not
prevent or materially interfere with Tenant's use of the Premises for the
purpose for which it was then being used.
(b) If this Lease is not terminated pursuant to Paragraph 19(a), then to
the extent of available insurance proceeds, Landlord shall proceed with all due
diligence to repair and restore the Building, improvements or Premises, as the
case may be (except that Landlord may elect not to rebuild if such damage occurs
during the last year of the term of this Lease exclusive of any option which is
unexercised at the date of such damage).
(c) If this Lease shall be terminated pursuant to this Paragraph 19, the
term of this Lease shall end on the date of such damage as if that date had been
originally fixed in this Lease for the expiration of the term hereof. If this
Lease shall not be terminated by Landlord pursuant to this Paragraph 19 and if
the Premises is untenantable in whole or in part following such damage, the rent
payable during the period in which the
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<PAGE> 14
Premises is untenantable shall be reduced to such extent, if any, as may be fair
and reasonable under all of the circumstances.
In no event shall Landlord be required to rebuild, repair or replace
any part of the partitions, fixtures, additions or other improvements which may
have been placed in or about the Premises by Tenant. Any insurance which may be
carried by Landlord or Tenant against loss or damage to the Building or Premises
shall be for the sole benefit of the party carrying such insurance and under its
sole control.
(d) Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed to secure debt covering
the Premises, Building or Property, or the ground lessor of the Property,
requires that any insurance proceeds be paid to it, then Landlord shall have the
right to terminate this Lease by delivering written notice of termination to
Tenant within fifteen (15) days after such requirement is made by any such
person, whereupon the Lease shall end on the date of such damage as if the date
of such damage were the date originally fixed in this Lease for the expiration
of the term.
(e) In the event of any damage or destruction to the Building or the
Premises by any peril covered by the provisions of this Paragraph 19, Tenant
shall, upon notice from Landlord, remove forthwith, at its sole cost and
expense, such portion or all of the property belonging to Tenant or its
licensees from such portion or all of the Building or the Premises as Landlord
shall request and Tenant hereby indemnifies, defends and holds Landlord harmless
from any loss, liability, costs, and expenses, including attorneys' fees,
arising out of any claim of damage or injury as a result of such removal and any
alleged failure to properly secure the Premises prior to such removal.
20. CONDEMNATION.
(a) If any substantial part of the Premises should be taken for any public
or quasi-public use under governmental law, ordinance or regulation, or by right
of eminent domain, or by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the use of the Premises for the purpose for
which it is then being used, this Lease shall terminate effective when the
physical taking shall occur in the same manner as if the date of such taking
were the date originally fixed in this Lease for the expiration of the term
hereof. As used herein, "substantial part" shall mean more than twenty percent
(20%).
(b) If part of the Premises shall be taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this Lease is not terminated
as provided in the subparagraph above, this Lease shall not terminate but the
rent payable hereunder during the unexpired portion of this Lease shall be
reduced to such extent, if any, as may be fair and reasonable under all of the
circumstances and Landlord, to the extent of available condemnation awards,
shall undertake to restore the Premises to a condition suitable for Tenant's
use, as near to the condition thereof immediately prior to such taking as is
reasonably feasible under all circumstances.
(c) Tenant shall not share in any condemnation award or payment in lieu
thereof or in any award for damages resulting from any grade change of adjacent
streets, the same being hereby assigned to Landlord by Tenant; provided,
however, that Tenant may separately claim and receive from the condemning
authority, if legally payable, compensation for Tenant's removal and relocation
costs and for Tenant's loss of business and/or business interruption.
(d) Notwithstanding anything to the contrary contained in this paragraph,
if the temporary use or occupancy of any part of the Premises shall be taken or
appropriated under power of eminent domain during the term of this Lease, this
Lease shall be and remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all rent payable hereunder by Tenant during the
term of this Lease; in the event of any such temporary appropriation or taking,
Tenant shall be entitled to receive that portion of any award which represents
compensation for the use of or occupancy of the Premises during the term of this
Lease, and Landlord shall be entitled to receive that portion of any award which
represents the cost of restoration of the Premises and the use and occupancy of
the Premises after the end of the term of this Lease.
21. SALE BY LANDLORD.
In the event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. Tenant agrees to
attorn to the purchaser or assignee in any such sale.
22. RIGHT OF LANDLORD TO PERFORM.
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to perform any
acts, covenants or agreements to be performed by Tenant under any of the terms
of this Lease or to pay any sum of money, other than rent, required to be paid
by it hereunder, and such failure shall continue for ten (10) days after written
notice thereof by Landlord, Landlord may, but shall not be obligated so to do,
and without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such act, covenant or agreement on Tenant's part to
be made or performed as in this Lease
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<PAGE> 15
provided. All sums so paid by Landlord or costs related to Landlord's
performance of such acts, covenants or agreements and all necessary incidental
costs, together with interest thereon at the Agreed Interest Rate as defined in
Paragraph 8 hereof from the date of such payment by Landlord. shall be payable
as additional rent to Landlord on demand, and Tenant covenants to pay any such
sums, and Landlord shall have, in addition to any other right or remedy of the
Landlord, the same rights and remedies in the event of nonpayment thereof by
Tenant as in the case of default by Tenant in the payment of the rent.
23. SURRENDER OF PREMISES.
(a) At the end of the term or any renewal thereof or other sooner
termination of this Lease, the Tenant will peaceably deliver up to the Landlord
possession of the Premises, together with all improvements, alterations or
additions upon or belonging to the same, by whomsoever made, in the same
condition as received, or first installed, ordinary wear and tear, damage by
fire, earthquake, act of God, or the elements alone excepted. Tenant shall, upon
the termination of this Lease, remove all movable furniture, equipment and
computer and telephone cables belonging to Tenant, at Tenant's sole cost, title
to which shall be in name of Tenant until such termination, repairing any
material damage caused by such removal. Property not so removed shall be deemed
abandoned by the Tenant, and title to the same shall thereupon pass to Landlord.
Unless otherwise agreed to in writing by Landlord, Tenant shall remove, at
Tenant's sole cost, any or all permanent improvements or additions to the
Premises installed by or at the expense of Tenant and all movable furniture,
equipment and computer and telephone cables belonging to Tenant which may be
left by Tenant and repair any damage resulting from such removal.
(b) The voluntary or other surrender of this lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of the
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all such
subleases or subtenancies.
24. WAIVER.
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein. Furthermore, the acceptance of rent by Landlord
shall not constitute a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, regardless of Landlord's knowledge of such
preceding breach at the time Landlord accepted such rent. Failure by Landlord to
enforce any of the terms, covenants or conditions of this Lease for any length
of time shall not be deemed to waive or to decrease the right of Landlord to
insist thereafter upon strict performance by Tenant. Waiver by Landlord of any
term, covenant or condition contained in this Lease may only be made by a
written document signed by Landlord.
25. NOTICES.
Whenever any notice, demand or request is required or permitted hereunder,
such notice, demand or request shall be hand-delivered in person, by reputable
courier service or sent by United States Mail, registered, postage prepaid, to
the addresses set forth below:
IF TO LANDLORD: SVA Oxford Limited Partnership
c/o Simmons, Vedder & Co.
1293 Peachtree Street, N.E., Suite 222
Atlanta, Georgia 30309
Attention: Mr. David N. Arnow
Fax: 404-873-5422
WITH A COPY TO: Brannen/Goddard Company
780 Johnson Ferry Road, N.W.
Suite 155
Atlanta, Georgia 30342
Attention: Property Manager, Lakeview 400
Fax: 404-250-1784
IF TO TENANT: Vanstar Corporation
5964 West Las Positas Boulevard
Pleasanton, California 94566
Attention: Director of Corporate Facilities
Fax: (510) 734 4226
Any notice, demand or request which shall be served upon either of the
parties in the manner aforesaid shall be deemed sufficiently given for all
purposes hereunder (i) at the time such notices, demands or requests are
hand-delivered in person or (ii) on the third day after the mailing of such
notices, demands or requests in accordance with the preceding portion of this
paragraph.
Either Landlord or Tenant shall have the right from time to time to
designate by written notice to the other party such other places in the United
States as Landlord or Tenant may desire written notice to be
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delivered or sent in accordance herewith; provided, however, at no time shall
either party be required to send more than an original and two copies of any
such notice, demand or request required or permitted hereunder.
26. CERTAIN RIGHTS RESERVED TO THE LANDLORD.
Landlord reserves and may exercise the following rights without affecting
Tenant's obligations hereunder:
(a) To change the name of the Building (provided that Landlord shall
reimburse Tenant for Tenant's reasonable additional stationery costs resulting
from such name change);
(b) To designate all sources furnishing sign painting and lettering,
toilet supplies, lamps and bulbs used in the Premises; provided such designated
sources are consistent with the operation of a first class office building;
(c) To retain at all times pass keys to the Premises;
(d) To grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building provided such designated person or
entity is consistent with the operation of a first class office building;
(e) To take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Premises or the
Building, and identification and admittance procedures for access to the
Building as may be necessary or desirable for the safety, protection,
preservation or security of the Premises or the Building or Landlord's interest,
or as may be necessary or desirable in the operation of the Building.
Landlord may enter upon the Premises and may exercise any or all of
the foregoing rights hereby reserved without being deemed guilty of an eviction
or disturbance of Tenant's use or possession and without being liable in any
manner to Tenant and without abatement of rent or affecting any of Tenant's
obligations hereunder.
27. ABANDONMENT.
During the first thirty-six (36) months of the Lease Term, Tenant shall not
abandon the Premises at any time during the term, and if Tenant shall abandon or
surrender said Premises or be dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall, at the
option of Landlord, be deemed to be abandoned and title thereto shall thereupon
pass to Landlord.
28. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Paragraph 9 hereof, the terms, covenants, and
conditions contained herein shall be binding upon and inure to the benefit of
the heirs, successors, executors, administrators and assigns of the parties
hereto.
29. ATTORNEY'S FEES.
In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to reasonable attorneys'
fees to be fixed by the Court in such action or proceeding.
30. AUTHORITY.
If Tenant signs as a corporation, partnership or limited liability company,
each of the persons executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing entity, that
Tenant has and is qualified to do business in Georgia, that Tenant has full
right and authority to enter into this Lease, and that each of the persons
signing on behalf of Tenant were authorized to do so. Upon Landlord's request
Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord
confirming the foregoing covenants and warranties.
31. MORTGAGE APPROVALS.
Any provisions of this Lease requiring the approval or consent of Landlord
shall not be deemed to have been unreasonably withheld if any mortgagee (which
shall include the holder of any deed to secure debt) of the Premises, Building
or Property or any portion thereof shall refuse or withhold its approval or
consent thereto. Any requirement of Landlord pursuant to this Lease which is
imposed pursuant to the direction of any such mortgagee shall be deemed to have
been reasonably imposed by Landlord if made in good faith.
32. MISCELLANEOUS.
(a) The paragraph headings herein are for convenience of reference and
shall in no way define, increase, limit, or describe the scope or intent of any
provision of this Lease. The term "Landlord" as used in this Lease shall include
the Landlord, its successors and assigns. In any case where this Lease is signed
by more than one person, the obligations hereunder shall be joint and several.
The term "Tenant" or any pronoun used in place thereof shall indicate and
include the masculine or feminine, the singular or plural
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<PAGE> 17
number, individuals, firms or corporations, and their and each of their
respective successors, executors, administrators, and permitted assigns,
according to the context hereof.
(b) Time is of the essence of this Lease and all of its provisions. This
Lease shall in all respects be governed by the laws of the State of Georgia.
This Lease, together with its exhibits, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its exhibits. This Lease may not be
modified except by a written instrument by the parties hereto.
(c) If for any reason whatsoever any of the provisions hereof shall be
unenforceable or ineffective, all of the other provisions shall be and remain in
full force and effect.
(d) All obligations of Tenant and Landlord hereunder not fully performed
as of the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof.
(e) If any clause, phrase, provision or portion of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease or any other clause,
phrase, provision or portion hereof, nor shall it affect the application of any
clause, phrase, provision or portion hereof to other persons or circumstances,
and it is also the intention of the parties to this Lease that in lieu of each
such clause, phrase, provision or portion of this Lease that is invalid or
unenforceable, there be added as a part of this Lease a clause, phrase,
provision or portion as similar in terms to such invalid or unenforceable
clause, phrase, provision or portion as may be possible and be valid and
enforceable.
(f) Except for monetary obligations, including, but not limited to, the
payment of rent and other obligations that can be satisfied solely by the
payment of money, whenever a period of time is herein prescribed for action to
be taken by either party, that party shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time, any
delays due to causes of any kind whatsoever which are beyond the control of such
party.
(g) Notwithstanding any other provisions of this Lease to the contrary, if
the Commencement Date hereof shall not have occurred before the twentieth (20th)
anniversary of the date hereof, this Lease shall be null and void and neither
party shall have any liability or obligation to the other hereunder. The purpose
and intent of this provision is to avoid the application of the rule against
perpetuities to this Lease.
33. [INTENTIONALLY OMITTED]
34. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements herein set forth, shall peaceably and quietly
have, hold and enjoy the Premises for the term hereof without hindrance or
molestation from Landlord subject to the terms and provisions of this Lease.
Landlord shall not be liable for any interference, nuisance or disturbance by
other tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference, nuisance or disturbance.
35. LANDLORD'S LIABILITY.
Any liability of Landlord under this Lease shall be enforceable only out of
the interest of Landlord in the Building and in no event out of the separate
assets of Landlord or any shareholder, partner or member of Landlord.
36. [INTENTIONALLY OMITTED]
37. NO ESTATE.
This contract shall create the relationship of Landlord and Tenant, and no
estate shall pass out of Landlord. Tenant has only a usufruct, not subject to
levy and sale and not assignable by Tenant, except as provided for herein and in
compliance herewith.
38. LEASE EFFECTIVE DATE.
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not effective as
a lease or otherwise until execution and delivery by both Landlord and Tenant.
39. RULES AND REGULATIONS.
(a) Tenant shall faithfully observe and comply with the rules and
regulations set forth on Exhibit "E" attached hereto and made a part hereof, and
all reasonable modifications thereof and additions thereto, from
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<PAGE> 18
time to time put into effect by Landlord. Landlord shall supply Tenant with any
such changes or amendments to said rules. Landlord shall not be responsible for
the nonperformance by any other tenant or occupant of the Building of any of
said rules and regulations. Tenant will be responsible for causing its
employees, customers, subtenants, licensees, invitees, agents, concessionaires
and contractors to comply with all such rules and regulations.
(b) Tenant acknowledges and agrees that Landlord may insist upon
compliance with and enforce the rules and regulations as well as any laws,
statutes, ordinances or governmental rules or regulations as mentioned in
Paragraph 5 above, and may, pursuant to the Georgia Criminal Trespass Statute
(Official Code of Georgia Annotated, Section 16-7-21), prohibit any person
including any of Tenant's employees, agents, customers, licensees, guests,
invitees, concessionaires, or contractors from entering or remaining upon all or
any portion of the Building, including the Premises, or any other building or
property within the Lakeview 400 project, if Landlord determines in its sole
discretion that said person has not complied with any law, ordinance, rule or
regulation or poses a threat to the safety, welfare or health of any person or
to the maintenance or orderliness of the administration of the Building. Tenant
further agrees that it shall not interfere with or object to Landlord's
enforcement of any such laws, ordinances, rules and regulations including
Official Code of Georgia Annotated, Section 16-77-21 or any similar statute.
40. SPECIAL STIPULATIONS.
Special Stipulations to this Lease are set forth on Exhibit "F" attached
hereto and made a part hereof. In the event of any conflict between any
provision set forth in Exhibit "F" and any provision contained elsewhere in this
Lease, the former in all events shall supersede, prevail and control.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LANDLORD:
SVA OXFORD LIMITED PARTNERSHIP,
a Texas limited partnership
By: Simmons, Vedder Co., a Texas corporation,
general partner
By: /s/ David Arnow
---------------------------
Name: David Arnow
Title: Vice President
TENANT:
VANSTAR CORPORATION,
a Delaware corporation
By: /s/ Tom Heinrich 8-13-97
------------------------------------
Name: Tom Heinrich
-----------------------------
Title: Director Facilities
-----------------------------
Attest: /s/ Theresa Pimentel
---------------------------------
Name: Theresa Pimentel
-------------------------------
Title: Supervisor Facilities
-----------------------------
(CORPORATE SEAL)
-18-
<PAGE> 1
EXHIBIT 10.13
08/21/97 12/01/92
LEASE
THIS INDENTURE of lease, dated as of the 3rd day of September, 1997,
by and between OPUS SOUTHWEST CORPORATION, a Minnesota corporation, owner of
the Complex (as hereinafter defined), hereinafter referred to as "Lessor", and
VANSTAR CORPORATION, a Delaware corporation.
WITNESSETH:
That Lessor, in consideration of the rents and covenants hereinafter
set forth, does hereby lease and let unto Lessee, and Lessee does hereby hire
and take from Lessor, that certain space shown and designated on the site plan
attached hereto and made a part hereof as Exhibit A, which space consists of a
minimum of 85,852 square feet on the ground floor (except as hereinafter
provided), located in the office and warehouse complex known and described as
Tempe Commerce Park located in Tempe, Arizona, and the Premises is located at
7333 South Hardy Road, Tempe, Arizona 85253. In the event Lessee's space plan
for the Premises as mutually approved by Lessor and Lessee, in accordance with
the terms of this Lease, Lessor hereby agrees to construct not less than 14,000
square feet of space on a mezzanine level. The aforesaid space leased and let
unto Lessee is hereinafter referred to as the "Premises"; the land (including
all easement areas appurtenant thereto) upon which the building ("Building")
of which the Premises are a part is hereinafter referred to as the "Property";
and the Property and all buildings and improvements and personal property of
Lessor used in connection with the operation or maintenance thereof located
therein and thereon and the appurtenant parking facilities, if any, are
hereinafter called the "Complex". The parties hereto acknowledge and agree that
Lessor shall construct, as a part of the Tenant Improvements (as defined in
Article XXIX hereof), an approximate 20,000 to 24,000 square foot area located
at the southern end of the Building (the "Temporary Space") for occupancy by
Lessee prior to substantial completion of the balance of the Premises. The
Temporary Space, together with the balance of the Premises, is sometimes
hereinafter referred to "Permanent Premises".
Lessee hereby accepts this Lease and the Premises upon the covenants
and conditions set forth herein and subject to any encumbrances, covenants,
conditions, restrictions and other matters of record and all applicable zoning,
municipal, county, state and federal laws, ordinances and regulations governing
and regulating the use of the Premises.
TO HAVE AND TO HOLD THE SAME PREMISES, without any liability or
obligation on the part of Lessor to make any alterations, improvements or
repairs of any kind on or about the Premises, except as expressly provided
herein, commencing, with respect to the Temporary Space, upon substantial
completion of the Temporary Space, and commencing, with respect to the
Permanent Premises, upon substantial completion of the Permanent Premises,
which Lessor estimates will occur on or about the 1st day of February, 1998.
The term of this Lease shall end on the date 10 years following the date of
substantial completion of the Permanent Premises unless sooner terminated in
the manner provided hereinafter, to be occupied and used by Lessee for general
office and warehouse purposes and for no other purpose, subject to the
covenants and agreements hereinafter contained.
ARTICLE I. BASE RENT: In consideration of the leasing aforesaid, Lessee agrees
to pay to Lessor, at c/o Normandale Properties Southwest Corporation, 4742
North 24th Street, Suite 100, Phoenix, Arizona 85016, Attention: Accounting
Department, after October 1, 1997, to Lessor at c/o Normandale Properties
Southwest Corporation, 2415 East Camelback, Suite 850, Phoenix, Arizona 85016,
Attention: Accounting Department, or at such other place as Lessor from time to
time may designate in writing, an annual rental as hereinafter set
<PAGE> 2
forth, commencing on the first day of the term and continuing on the first day
of each and every month thereafter for the next succeeding months during the
balance of the term:
<TABLE>
<CAPTION>
APPLICABLE PORTION ANNUAL
OF TERM BASE RENT
------------------ ---------
<S> <C>
Years 1-5 $10.64
Years 6-10 $11.96
</TABLE>
If the term commences on a date other than the first day of a calendar
month or ends on a date other than the last day of a calendar month, monthly
rent for the first month of the term or the last month of the term, as the case
may be, shall be prorated based upon the ratio that the number of days in the
term within such month bears to the total number of days in such month.
ARTICLE II. ADDITIONAL RENT: In addition to the Base Rent payable by Lessee
under the provisions of Article I hereof, Lessee shall pay to Lessor
"Additional Rent" as hereinafter provided for in this Article II. All sums
under this Article II and all other sums and charges required to be paid by
Lessee under this Lease (except Base Rent), however denoted, shall be deemed to
be "Additional Rent". If any such amounts or charges are not paid at the time
provided in this Lease, they shall nevertheless be collectible as Additional
Rent with the next installment of Base Rent falling due.
For purposes of this Article II, the parties hereto agree upon the
following Definitions:
A. The term "Lease Year" shall mean each of those calendar years
commencing with and including the year during which the term
of this Lease commences, and ending with the calendar year
during which the term of this Lease (including any extensions
or renewals) terminates.
B. The term "Real Estate Taxes" shall mean and include all
personal property taxes of Lessor relating to Lessor's
personal property located in the Complex and used or useful
in connection with the operation and maintenance thereof,
real estate taxes and installments of special assessments,
including interest thereon, relating to the Property and the
Complex, and all other governmental charges, general and
special, ordinary and extraordinary, foreseen as well as
unforeseen, of any kind and nature whatsoever, or other tax,
however described, which is levied or assessed by the United
States of America or the state in which the Complex is
located or any political subdivision thereof, against Lessor
or all or any part of the Complex as a result of Lessor's
ownership of the Property or the Complex, and payable during
the respective Lease Year. The term "Real Estate Taxes" shall
also include any assessments or other charges imposed against
Lessor or all or any part of the Complex and payable during
the respective Lease Year as a result of the Complex being
subject to any covenants, conditions or restrictions now or
hereafter recorded, as the same may be amended from time to
time. It shall not include any net income tax, estate tax or
inheritance tax.
C. The term "Operating Expenses" shall mean and include all
expenses incurred with respect to the maintenance and
operation of the Property and the Complex as determined by
Lessor's accountant in accordance with generally accepted
accounting principles consistently followed, including, but
not limited to, insurance premiums (including insurance
premiums for rent insurance), maintenance and repair costs,
steam, electricity, water, sewer, gas and other utility
charges, fuel, lighting,
<PAGE> 3
window washing and janitorial services, trash and rubbish
removal, wages payable to employees of Lessor whose duties
are connected with the operation and maintenance of the
Property and the Complex (but only for the portion of their
time allocable to work related to the Complex), amounts paid
to contractors or subcontractors for work or services
performed in connection with the operation and maintenance of
the Property and the Complex, all costs of uniforms, supplies
and materials used in connection with the operation and
maintenance of the Property and the Complex, all payroll
taxes, unemployment insurance costs, vacation allowances and
the cost of providing disability insurance or benefits,
pensions, profit sharing benefits, hospitalization,
retirement or other so-called fringe benefits, and any other
expense imposed on Lessor or its contractors or
subcontractors, pursuant to law or pursuant to any collective
bargaining agreement covering such employees, all services,
supplies, repairs, replacements or other expenses for
maintaining and operating the Complex, reasonable attorneys,
fees and costs in connection with appeal or contest of real
estate or other taxes or levies, and such other expenses as
may be ordinarily incurred in the operation and maintenance
of a warehouse complex and not specifically set forth herein,
including reasonable management fees and the costs of a
building office at the Complex. The term "Operating Expenses"
shall not include any capital improvement to the Complex
other than replacements required for normal maintenance and
repair, nor shall it include repairs, restoration or other
work occasioned by fire, windstorm or other insured casualty,
expenses incurred in leasing or procuring tenants, leasing
commissions, advertising expenses, expenses for renovating
space for new tenants, legal expenses incident to enforcement
by Lessor of the terms of any lease, interest or principal
payments on any mortgage or other indebtedness of Lessor,
compensation paid to any employee of Lessor above the grade
of building superintendent, depreciation allowance or
expense. Notwithstanding the foregoing, in the event Lessor
installs equipment in or makes improvements or alterations to
the Complex which are for the purpose of reducing energy
costs, maintenance costs or other Operating Expenses or which
are required under any governmental laws, regulations or
ordinances which were not required at the date of
commencement of the term of this Lease, Lessor may include in
Operating Expenses reasonable charges for interest on such
investment and reasonable charges for depreciation on the
same so as to amortize such investment over the reasonable
life of such equipment, improvement or alteration on a
straight line basis. Operating Expenses shall also be deemed
to include expenses incurred by Lessor in connection with
city sidewalks adjacent to the Property and any pedestrian
walkway system (either above or below ground) or other public
facility to which Lessor or the Complex is from time to time
subject in connection with operations of the Property and the
Complex.
D. The term "Lessee's Pro Rata Share of Real Estate Taxes" shall
mean that percentage of the Real Estate Taxes determined by
dividing (i) the actual total square footage of the Premises
by (ii) the actual total square footage of the Building for
the applicable Lease Year, and the term "Lessee's Pro Rata
Share of Operating Expenses" shall mean that percentage of
the Real Estate Taxes determined by dividing (i) the actual
total square footage of the Premises by (ii) the actual total
square footage of the Building for the applicable Lease Year.
Notwithstanding the foregoing, the percentages for
-3-
<PAGE> 4
Lessee's Pro Rata Share of Operating Expenses and for
Lessee's Pro Rata Share of Real Estate Taxes shall be amended
each Lease Year to the greater of the following: (i) if the
total rentable area leased in the Complex (pursuant to leases
under which the term has commenced) is ninety-five percent
(95%) or less than the total rentable area of the Complex,
the percentages shall be that which the rentable area of the
Premises bears to ninety-five percent (95%) of the total
rentable area of the Complex for such Lease Year; or (ii) if
the total rentable area leased in the Complex (pursuant to
leases under which the term has commenced) is greater than
ninety-five percent (95%), the percentages shall be that
which the rentable area of the Premises bears to the actual
rentable area of the Complex for such Lease Year. Rentable
area shall in no event include basement storage space or
garage space.
E. Anything herein to the contrary notwithstanding, it is agreed
that in the event the Complex is not fully occupied during
any calendar year or Lease Year, a reasonable and equitable
adjustment shall be made by Lessor in computing the Operating
Expenses for such year so that the Operating Expenses shall be
be adjusted to the amount that would have been incurred had
the Complex been fully occupied during such year.
As to each Lease Year after the term of this Lease commences, Lessor
shall estimate for each such Lease Year (i) the total amount of Real Estate
Taxes; (ii) the total amount of Operating Expenses; (iii) Lessee's Pro Rata
Share of Real Estate Taxes; (iv) Lessee's Pro Rata Share of Operating Expenses;
(v) the computation of the annual and monthly rental payable during such Lease
Year as a result of increases or decreases in Lessee's Pro Rata Share of Real
Estate Taxes and Lessee's Pro Rata Share of Operating Expenses. Said estimate
shall be in writing and shall be delivered or mailed to Lessee at the Premises.
Lessee shall pay, as Additional Rent, the amount of Lessee's Pro Rata
Share of Real Estate Taxes for each Lease Year and Lessee's Pro Rata Share of
Operating Expenses for each Lease Year, so estimated, in equal monthly
installments, in advance, on the first day of each month during each applicable
Lease Year. In the event that said estimate is delivered to Lessee after the
first day of January of the applicable Lease Year, said amount, so estimated,
shall be payable as Additional Rent, in equal monthly installments, in advance,
on the first day of each month over the balance of such Lease Year, with the
number of installments being equal to the number of full calendar months
remaining in such Lease Year.
From time to time during any applicable Lease Year, Lessor may
reestimate the amount of Real Estate Taxes and Operating Expenses and Lessee's
Pro Rata Share thereof, and in such event Lessor shall notify Lessee, in
writing, of such reestimate in the manner above set forth and fix monthly
installments for the then remaining balance of such Lease Year in an amount
sufficient to pay the reestimated amount over the balance of such Lease Year
after giving credit for payments made by Lessee on the previous estimate.
Upon completion of each Lease Year, Lessor shall cause its accountants
to determine the actual amount of Real Estate Taxes and Operating Expenses for
such Lease Year and Lessee's Pro Rata Share thereof and deliver a written
certification of the amounts thereof to Lessee after the end of each Lease
Year. If Lessee has paid less than its Pro Rata Share of Real Estate Taxes or
its Pro Rata Share of Operating Expenses for any Lease Year, Lessee shall pay
the balance of its Pro Rata Share of the same within ten (10) business days
after the receipt of such statement. If Lessee has paid more than its Pro Rata
Share of Real Estate Taxes or its Pro
-4-
<PAGE> 5
Rata Share of Operating Expenses for any Lease Year, Lessor shall, at Lessee's
option, either (i) refund such excess, or (ii) credit such excess against the
most current monthly installment or installments due Lessor for its estimate of
Lessee's Pro Rata Share of Real Estate Taxes and Lessee's Pro Rata Share of
Operating Expenses for the next following Lease Year. A pro rata adjustment
shall be made for a fractional Lease Year occurring during the term of this
Lease or any renewal or extension thereof based upon the number of days of the
term of this Lease during said Lease Year as compared to three hundred
sixty-five (365) days and all additional sums payable by Lessee or credits due
Lessee as a result of the provisions of this Article II shall be adjusted
accordingly.
Further, Lessee shall pay, also as Additional Rent, all other sums and
charges required to be paid by Lessee under this Lease, and any tax or excise
on rents, gross receipts tax, transaction privilege tax or other tax, however
described, which is levied or assessed by the United States of America or the
state in which the Complex is located or any political subdivision thereof, or
any city or municipality, against Lessor in respect to the Base Rent,
Additional Rent, or other charges reserved under this Lease or as a result of
Lessor's receipt of such rents or other charges accruing under this Lease;
provided, however, Lessee shall have no obligation to pay net income taxes of
Lessor.
ARTICLE III. LATE CHARGE AND OVERDUE AMOUNTS - RENT INDEPENDENT:
Lessee shall pay to Lessor, as liquidated damages, a late charge equal to five
percent (5%) of any amount not paid on the date when the same is due to
compensate Lessor for its costs in connection with such late payment by Lessee.
The assessment or collection of a late charge hereunder shall not constitute
the waiver by Lessor of a default by Lessee under this Lease and shall not bar
the exercise by Lessor of any rights or remedies available under this Lease. In
addition, any installment of Base Rent, Additional Rent or other charges to be
paid by Lessee accruing under the provisions of this Lease, which shall not be
paid when due, shall bear interest at the rate of eighteen percent (18%) per
annum from the date when the same is due until the same shall be paid, but if
such rate exceeds the maximum interest rate permitted by law, such rate shall
be reduced to the highest rate allowed by law under the circumstances. Lessee's
covenants to pay the Base Rent and the Additional Rent are independent of any
other covenant, condition, provision or agreement herein contained. Nothing
herein contained shall be deemed to suspend or delay the payment of any amount
of money or charge at the time the same becomes due and payable hereunder, or
limit any other remedy of Lessor. Base Rent and Additional Rent are sometimes
collectively referred to as "rent". Rent shall be payable without deduction,
offset, prior notice or demand, in lawful money of the United States.
ARTICLE IV. POSSESSION OF PREMISES: Lessor anticipates that Lessor
will require approximately eight (8) weeks following execution of this Lease
and delivery by Lessee of a final, approved, space plan for substantial
completion of the Temporary Space, which schedule is based upon an expedited
review process by the City of Tempe. If Lessor shall be unable to give
possession of the Permanent Premises on the completion date contained in the
construction schedule to be mutually agreed upon by Lessor and Lessee and
delivered by Lessor to Lessee (which construction schedule shall be delivered
to Lessee concurrently with Lessor's receipt of a building permit for the
Tenant Improvements) ("the Target Commencement Date") because the construction
of the Complex or the completion of the Premises has not been sufficiently
completed to make the Premises ready for occupancy, or for any other reason,
Lessor shall not be subject to any claims, damages or liabilities for the
failure to give possession on said date; provided, however, that if substantial
completion of the Tenant Improvements (as hereinafter defined) is not achieved
within sixty (60) days following the Target Commencement Date (provided,
-5-
<PAGE> 6
however, that if delay in substantial completion of the Tenant Improvements is
caused or contributed to by act or neglect of Lessee or those acting for or
under Lessee, or by labor disputes, casualties, acts of God or the public
enemy, governmental embargo restrictions, shortages of fuel, labor or building
materials, action or nonaction of public utilities, or of local, state or
federal governments affecting the Tenant Improvements (such as a delay in the
issuance of a certificate of occupancy or other governmental approvals), or
other causes beyond Lessor's reasonable control, then the Target Commencement
Date shall be extended for the additional time caused by such delay), then
Lessor shall afford Lessee one day of occupancy, free of Base Rent and
Additional Rent, for each one day of delay between the date which is sixty (60)
days after the Target Commencement Date and the actual commencement date, up to
a maximum of ninety (90) days of such free occupancy. In the event Lessor is
unable to deliver the substantially completed Premises to Lessee on or before
the date 150 days following the Target Commencement Date, then either party may
thereafter terminate this Lease by delivery of written notice thereof to the
other party on or before Lessor's substantial completion of the Tenant
Improvements. For purposes of this Article IV, substantial completion of the
Tenant Improvements shall be deemed to have occurred when the only Tenant
Improvement work remaining to be completed is such work which can be
accomplished without material adverse interference with Lessee's business.
Except as specifically set forth in the preceding provisions of this Article
IV, if Lessor shall be unable to give possession of the Premises on the Target
Commencement Date because the completion of the Premises has not been
sufficiently completed to make the Premises ready for occupancy, or for any
other reason, Lessor shall not be subject to any claims, damages or liabilities
for the failure to give possession of said date. Under said circumstances, the
rent reserved and covenant to pay same shall not commence until possession of
the Premises is given or the Premises are ready for occupancy, whichever is
earlier (subject to Lessee's right to abatement of rent as set forth in the
first sentence of this Article), and failure to give possession on the Target
Commencement Date shall in no way affect the validity of this Lease or the
obligations of Lessee hereunder; provided, however, that if the date of
commencement of the initial term is delayed beyond the Target Commencement
Date, the expiration date of the initial term shall be extended to provide for
a full ten-year zero-month initial term of this Lease; and provided further,
however, if Lessee receives an abatement of Base Rent and Additional Rent
pursuant to the first sentence of this Article, then the expiration date of the
initial term shall be further extended by the same number of days as within
such abatement period. If Lessee is given and accepts possession of the
Premises on a date earlier than the Target Commencement Date, the rent reserved
herein and all covenants, agreements and obligations herein and the term of
this Lease shall commence on the date that possession of the Premises is given
to Lessee.
The acceptance of possession by Lessee shall be deemed conclusively to
establish that the Premises and all other improvements of the Complex required
to be constructed by Lessor for use thereof by Lessee hereunder have been
completed at such time to Lessee's satisfaction and in conformity with the
provisions of this Lease in all respects unless Lessee notifies Lessor in
writing within sixty (60) days after commencement of the term as to any items
not completed. Lessee waives any claim as to matters not listed in said notice.
Lessee acknowledges that neither Lessor nor any agent of Lessor has made any
representation or warranty with respect to the Premises or the Complex or with
respect to the suitability or fitness of either for the conduct of Lessee's
business or for any other purpose.
ARTICLE V. SERVICES:
-6-
<PAGE> 7
A. All electric lighting bulbs and tubes and all ballasts and
starters within the Premises shall be replaced by Lessee at
the expense of Lessee.
B. Subject to Article II hereof, Lessor shall provide
maintenance in good order, condition and repair of the
parking facilities and all driveways leading thereto and
keeping the same free from any unreasonable accumulation of
snow. Lessor shall keep and maintain the landscaped area and
parking facilities in a neat and orderly condition. Lessor
reserves the right to designate areas of the appurtenant
parking facilities where Lessee and its agents, employees and
invitees shall park and may exclude Lessee, its agents,
employees and invitees from parking in other areas as
designated by Lessor; provided, however, Lessor shall not be
liable to Lessee for the failure of any tenant or its
invitees, employees, agents or customers to abide by Lessor's
designations or restrictions.
No interruption in, or temporary stoppage of, any of the aforesaid
services caused by repairs, renewals, improvements, alterations, strikes,
lockouts, labor controversies, accidents, inability to obtain fuel or supplies,
or other causes shall be deemed an eviction or disturbance of Lessee's use and
possession, or render Lessor liable for damages, by abatement of rent or
otherwise or relieve Lessee from any obligation herein set forth. In no event
shall Lessor be required to provide any heat, air conditioning, electricity or
other service in excess of that permitted by voluntary or involuntary
guidelines or laws, ordinances or regulations of governmental authority.
ARTICLE VI. USE: The Premises shall be used for general office and warehouse
purposes and for carrying on such activities as may be incidental thereto and
for no other purpose; provided, however, Lessee may not use or occupy the
Premises, or knowingly permit the Premises to be used or occupied, contrary to
any statute, rule, order, ordinance, requirement or regulation or any covenant,
condition or restriction now or hereafter applicable thereto, or in any manner
which would violate any certificate of occupancy or permit affecting the same,
or which would cause structural injury to the Premises or cause the value or
usefulness of the Premises, or any part thereof, substantially to diminish
(reasonable wear and tear excepted) or which would constitute a private or
public nuisance or waste, and Lessee agrees that it will promptly, upon
discovery of any such use, take all necessary steps to compel the
discontinuance of such use.
ARTICLE VII. CERTAIN RIGHTS RESERVED BY LESSOR: Lessor reserves the following
rights exercisable without notice and without liability to Lessee and without
effecting an eviction, constructive or actual, or disturbance of Lessee's use
or possession, or giving rise to any claim for setoff or abatement of rent:
A. To control, install, affix and maintain any and all signs on
the Property, or on the exterior of the Complex and in any
common corridors, entrances and other common areas thereof,
except those signs within the Premises not visible from
outside the Premises.
B. To reasonably designate, limit, restrict and control any
service in or to the Complex, including but not limited to
the designation of sources from which Lessee may obtain sign
painting and lettering. Any restriction, designation,
limitation or control imposed by reason of this subparagraph
shall be imposed uniformly on Lessee and other tenants
occupying space in the Complex.
-7-
<PAGE> 8
C. To retain at all times and to use in appropriate instances
keys to all doors within and into the Premises. No locks
shall be changed without the prior written consent of Lessor.
This provision shall not apply to Lessee's safes or other
areas maintained by Lessee for the safety and security of
monies, securities, negotiable instruments or like items.
D. To make repairs, improvements, alterations, additions or
installations, whether structural or otherwise, in and about
the Complex, or any part thereof, and for such purposes to
enter upon the Premises during regular business hours with at
least 24 hours prior notice (except in the event of an
emergency), and during the continuation of any of said work,
to temporarily close doors, entryways, public spaces and
corridors in the Complex and to interrupt or temporarily
suspend services and facilities.
E. To approve the weight, size and location of safes and other
heavy equipment and articles in and about the Premises and
the Complex and to require all such items to be moved into
and out of the Complex and the Premises only at such times
and in such manner as Lessor shall direct in writing.
ARTICLE VIII. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make any
improvements, alterations, additions or installations in or to the Premises
(hereinafter referred to as the "Work") without Lessor's prior written consent,
which consent shall not be unreasonably withheld or delayed except in the event
that any such Work involves or affects the roof or the structural, mechanical,
electrical, plumbing, or fire/life safety systems in the Premises or the
Complex, in which event such consent may be withheld in Lessor's sole
discretion. Along with any request for Lessor's consent and before commencement
of the Work or delivery of any materials to be used in the Work to the Premises
or into the Complex, Lessee shall furnish Lessor with plans and specifications,
names and addresses of contractors, copies of contracts, necessary permits and
licenses, an indemnification in such form and amount as may be reasonably
satisfactory to Lessor. Lessee agrees to defend and hold Lessor forever
harmless from any and all claims and liabilities of any kind and description
which may arise out of or be connected in any way with said improvements,
alterations, additions or installations. All Work shall be done only by
contractors or mechanics reasonably approved by Lessor and at such time and in
such manner as Lessor may from time to time reasonably designate. All work done
by Lessee or its agents, employees or contractors shall be done in such a
manner as to avoid labor disputes. Lessee shall pay the cost of all such
improvements, alterations, additions or installations (including a reasonable
charge for Lessor's services and for Lessor's inspection and engineering time)
and the cost of painting, restoring or repairing the Premises and the Complex
occasioned by such improvements, alterations, additions or installations. Upon
completion of the Work, Lessee shall furnish Lessor with contractor's
affidavits, cull and final waivers of liens and receipted bills covering all
labor and materials expended and used. The Work shall comply with all insurance
requirements and all laws, ordinances, rules and regulations of all
governmental authorities and shall be constructed in a good and workmanlike
manner. Lessee shall permit Lessor to inspect construction operations in
connection with the Work. Lessee shall not be allowed to make any improvements,
alterations, additions or installations if such action results or would result
in a labor dispute or otherwise would materially interfere with Lessor's
operation of the Complex. Lessor, by
-8-
<PAGE> 9
written notice to Lessee giving at or prior to termination of this Lease, may
require Lessee, at Lessee's sole cost and expense, to remove any improvements
exclusive of Tenant Improvement as set forth herein, alterations, additions or
installations installed by Lessee in the Premises and to repair or restore any
damage caused by the installation and removal of such improvements,
alterations, additions or installations; provided, however, the only
improvements, additions or installations which Lessee shall remove shall be
those specified in Lessor's notice. Lessee shall keep the Premises and the
Complex free from any liens arising out of any work performed, material
furnished or obligations incurred by Lessee, and shall indemnify, protect,
defend and hold harmless Lessor from any liens and encumbrances arising out of
any work performed or material furnished by or at the direction of Lessee. In
the event that Lessee shall not, within twenty (20) days following the
imposition of any such lien, cause such lien to be released of record by
payment or posting of a proper bond, Lessor shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation,
to cause the same to be released by such means as it shall deem proper,
including payment of and/or defense against the claim giving rise to such lien.
All such sums paid by Lessor and all expenses incurred by it in connection
therewith, including attorneys' fees and costs, shall be payable as Additional
Rent to Lessor by Lessee on demand with interest at the rate provided in
Article III accruing from the date paid or incurred by Lessor until reimbursed
to Lessor by Lessee.
ARTICLE IX. REPAIRS: Subject to Article X hereof, Lessee shall, during the term
of this Lease, at Lessee's expense, keep the Premises in as good order,
condition and repair as they were at the time Lessee took possession of the
same, reasonable wear and tear and damage from fire and other casualties
excepted. Lessee shall keep the Premises in a neat and sanitary condition, and
Lessee shall not commit any nuisance or waste on the Premises or in, on or
about the Complex, throw foreign substances in the plumbing facilities, or
waste any of the utilities furnished by the Lessor. All uninsured damage or
injury to the Premises or to the Complex caused by Lessee moving furniture,
fixtures, equipment or other devices in or out of the Premises or the Complex
or by installation or removal of furniture, fixtures, equipment, devices or
other property of Lessee or its agents, contractors, servants or employees, due
to carelessness, omission, neglect, improper conduct or other cause of Lessee
or its servants, employees, agents, visitors or licensees, shall be repaired,
restored and replaced promptly by Lessee at its sole cost and expense to the
satisfaction of Lessor. All repairs, restorations and replacements shall be in
quality and class equal to the original work.
Lessor and its employees and agents shall have the right to enter the
Premises during or as a result of any emergency, or at any reasonable time or
times for the purpose of inspection, cleaning, repairs, altering or improving
the same but nothing contained herein shall be construed as imposing any
obligation on Lessor to make any repairs, alterations or improvements which are
the obligation of Lessee.
Lessee shall give written notice to Lessor at least thirty (30) days
prior to vacating the Premises for the express purpose of arranging a meeting
with Lessor for a joint inspection of the Premises. In the event of Lessee's
failure to give such notice and arrange such joint inspection, Lessor's
inspection at or after Lessee's vacation of the Premises shall be conclusively
deemed correct for purposes of determining Lessee's responsibility for repairs
and restoration hereunder.
ARTICLE X. INSURANCE: Lessor shall keep the Complex insured for the benefit of
Lessor in an amount equivalent to the full replacement value thereof (excluding
foundation, grading and excavation costs) against:
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(a) loss or damage by fire; and
(b) such other risk or risks of a similar or dissimilar nature as are now
or may be customarily covered with respect to buildings and improvements
similar in construction, general location, use, occupancy and design to the
Complex, including, but without limiting the generality of the foregoing,
windstorms, hail, explosion, vandalism, malicious mischief, civil commotion and
such other coverage as may be deemed necessary by Lessor, provided such
additional coverage is obtainable and provided such additional coverage is such
as is customarily carried with respect to buildings and improvements similar in
construction, general location, use, occupancy and design to the Complex.
These insurance provisions shall in no way limit or modify any of the
obligations of Lessee under any provision of this Lease. Lessor agrees that
such policy or policies of insurance shall permit releases of liability as
provided herein and/or waiver of subrogation clause as to Lessee, and Lessor
waives, releases and discharges Lessee from all claims or demands whatsoever
which Lessor may have or acquire arising out of damage to or destruction of the
Complex or loss of use thereof occasioned by fire or other casualty, whether
such claim or demand may arise because of the negligence or fault of Lessee or
its agents, employees, customers or business invitees, or otherwise, and Lessor
agrees to look to the insurance coverage only in the event of such loss.
Notwithstanding the foregoing, Lessee shall be obligated to pay the rental
called for hereunder in the event of damage to or destruction of the Premises
or the Complex if such damage or destruction is occasioned by the negligence or
fault of Lessee, its agents or employees. Insurance premiums paid thereon shall
be a portion of the "Operating Expenses" described in Article II hereof.
Notwithstanding the above, in the event a release of Lessee or waiver of
subrogation as to Lessee (without invalidation of coverage) becomes generally
unavailable in insurance policies as to commercial warehouse projects similar
to the Complex, the release and any waiver of subrogation above provided for
shall cease upon written notice by Lessor to Lessee of such event. Thereafter,
Lessee may, upon written notice to Lessor, require Lessor to secure a waiver of
subrogation as to Lessee if (a) a right to waive subrogation as to Lessee
thereafter becomes available without increased premium, or (b) a right to waive
subrogation as to Lessee becomes available and Lessee pays any increased
premium required in connection therewith.
Lessee shall keep all of its machinery, equipment, furniture,
fixtures, personal property (including also property under the care, custody or
control of Lessee) and business interests which may be located in, upon or
about the Premises insured for the benefit of Lessee in an amount equivalent to
the full replacement value or insurable value thereof against:
(a) loss or damage by fire; and
(b) such other risk or risks of a similar or dissimilar nature as are
now, or may in the future be, customarily covered with respect to a tenants
machinery, equipment, furniture, fixtures, personal property and business
located in a building similar in construction, general location, use, occupancy
and design to the Complex, including, but without limiting the generality of
the foregoing, windstorms, hail, explosions, vandalism, theft, malicious
mischief, civil commotion and such other coverage as Lessee may deem
appropriate or necessary.
Lessee agrees that such policy or policies of insurance shall permit
releases of liability as provided herein and/or waiver of subrogation clause as
to Lessor, and Lessee waives, releases and discharges Lessor and its agents,
employees and contractors from all claims or demands whatsoever which Lessee
may have or acquire
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arising out of damage to or destruction of the machinery, equipment, furniture,
fixtures, personal property and loss of use thereof occasioned by fire or other
casualty, whether such claim or demand may arise because of the negligence or
fault of Lessor or its agents, employees, contractors or otherwise, and Lessee
agrees to look to the insurance coverage only in the event of such loss.
Lessor shall, as a portion of the Operating Expenses defined in
Article II, maintain, for its benefit and the benefit of its managing agent,
general public liability insurance against claims for personal injury, death or
property damage occurring upon, in or about the Complex, such insurance to
afford protection to Lessor and its managing agent.
Lessee shall, at Lessee's sole cost and expense but for the mutual
benefit of Lessor, its managing agent and Lessee, maintain general public
liability insurance against claims for personal injury, death or property
damage occurring upon, in or about the Premises, such insurance to afford
protection to Lessor, its managing agent and Lessee to the limit of not less
than One Million and No/100 Dollars ($1,000,000.00) in respect to the injury or
death to a single person, and to the limit of not less than Three Million and
No/100 Dollars ($3,000,000.00) in respect to any one accident, and to the limit
of not less than Five Hundred Thousand and No/100 Dollars ($500,000.00) in
respect to any property damage. Such policies of insurance shall be written in
companies reasonably satisfactory to Lessor, naming Lessor and its managing
agent as additional insureds thereunder, and such policies, or a memorandum or
certificate of such insurance, shall be delivered to Lessor endorsed "Premium
Paid" by the company or agent issuing the same or accompanied by other evidence
satisfactory to Lessor that the premium thereon has been paid. At such time as
insurance limits required of tenants in warehouse buildings in the area in
which the Complex is located are generally increased to greater amounts, Lessor
shall have the right to require such greater limits as may then be customary.
Lessee agrees to include in such policy the contractual liability coverage
insuring Lessee's indemnification obligations provided for herein. Any such
coverage shall be deemed primary to any liability coverage secured by Lessor.
Such insurance shall also afford coverage for all claims based upon acts,
omissions, injury or damage, which claims occurred or arose (or the onset of
which occurred or arose) in whole or in part during the policy period.
Except to the extent of any claims, losses, costs, liabilities,
actions or damages arising from the gross negligence or willful misconduct of
Lessor, Lessee agrees to indemnify, protect, defend and hold harmless Lessor and
Lessor's partners, shareholders, employees, lender and managing agent harmless
from and against any and all claims, losses, costs, liabilities, actions and
damages, including without limitation attorneys' fees and costs, by or on behalf
of any person or persons, firm or firms, corporation or corporations, arising
from any breach or default on the part of Lessee in the performance of any
covenant or agreement on the part of Lessee to be performed, pursuant to the
terms of this Lease, or arising from any act or negligence on the part of Lessee
or its agents, contractors, servants, employees or licensees, or arising from
any accident, injury or damage to the extent caused by Lessee or its agents or
employees to any person, firm or corporation occurring during the term of this
Lease or any renewal thereof, in or about the Premises and the Complex, and from
and against all costs, reasonable counsel fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought thereon; and
in case any action or proceeding be brought against Lessor or its managing agent
by reason of any such claim, Lessee, upon notice from Lessor, covenants to
resist or defend such action or proceeding by counsel reasonably satisfactory to
Lessor.
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Lessee agrees, to the extent not expressly prohibited by law, that
Lessor and Lessor's agents, employees and servants shall not be liable, and
Lessee waives all claims for damage to property and business sustained during
the term of this Lease by Lessee occurring in or about the Complex, resulting
directly or indirectly from any existing or future condition, defect, matter or
thing in the Premises, the Complex or any part thereof, or from equipment or
appurtenances becoming out of repair, or from accident, or from any occurrence
or act or omission of Lessor, Lessor's agents, employees or servants (except
for any act or omission involving the gross negligence or willful misconduct of
Lessor or its agents, employees, servants or contractors), any tenant or
occupant of the Complex or any other person. This paragraph shall apply
especially, but not exclusively, to damage caused as aforesaid or by the
flooding of basements or other subsurface areas, or by refrigerators,
sprinkling devices, air conditioning apparatus, water, snow, frost, steam,
excessive heat or cold, falling plaster, broken glass, sewage, gas, odors or
noise, or the bursting or leaking of pipes or plumbing fixtures, and shall
apply equally, whether any such damage results from the act or omission of
other tenants or occupants in the Complex or any other persons, and whether
such damage be caused by or result from any of the aforesaid, or shall be
caused by or result from other circumstances of a similar or dissimilar nature.
Anything herein to the contrary notwithstanding, in the event any
damage to the Complex results from any act or omission of Lessee, its agents,
employees or invitees, and all or any portion of Lessor's loss is within the
"deductible" portion of Lessor's insurance coverage, Lessee shall pay to Lessor
the amount of such deductible loss (not to exceed $1,000 per event). All
property in the Complex or on the Premises belonging to Lessee or its agents,
employees or invitees or otherwise located at the Premises, shall be at the
risk of Lessee only, and Lessor shall not be liable for damage thereto or
theft, misappropriation or loss thereof, and Lessee agrees to defend and hold
Lessor and Lessor's agents, employees and servants harmless and indemnify them
against claims and liability for injuries to such property. Lessee shall not do
or permit anything to be done in or about the Premises nor bring or keep
anything therein which will in any way increase the existing rate of or affect
in any other way any fire or other insurance upon the Complex or any of its
contents, or cause a cancellation of any insurance policy covering the Complex
or any of its contents. Notwithstanding anything to the contrary contained
herein, Lessee shall promptly, upon demand, reimburse Lessor for the full
amount of any additional premium charged for such policy by reason of Lessee's
failure to comply with the provisions of this paragraph, it being understood
that such demand for reimbursement shall not be Lessor's exclusive remedy.
Lessee shall promptly, upon demand, reimburse Lessor for any additional premium
charged for any such policy by reason of Lessee's failure to comply with the
provisions of this Article.
In the event Lessee fails to provide Lessor with evidence of insurance
required under this Article X, Lessor may, but shall not be obligated to,
without further demand upon Lessee, and without waiving or releasing Lessee
from any obligation contained in this Lease, obtain such insurance and Lessee
agrees to repay, upon demand, all such sums incurred by Lessor in effecting
such insurance. All such sums shall become a part of the Additional Rent
payable hereunder, but no such payment by Lessor shall relieve Lessee from any
default under this Lease.
ARTICLE XI. ASSIGNMENT AND SUBLETTING: Lessee shall not, without the prior
written consent of Lessor, which consent shall not be withheld unreasonably,
(i) transfer, pledge, mortgage or assign this Lease or any interest hereunder;
(ii) permit any assignment of this Lease by voluntary act, operation of law or
otherwise; (iii) sublet the Premises or any part thereof; or (iv) permit the
use of
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the Premises by any parties other than Lessee and its agents and employees.
Lessee shall seek such written consent of Lessor by a written request therefor,
setting forth such information as Lessor may deem necessary. Lessee shall, by
notice in writing, advise Lessor of Lessee's intention, from, on and after a
stated date (which shall not be less than thirty (30) days after the date of
Lessee's notice), to assign this Lease or to sublet any part or all of the
Premises for the balance or any part of the term. Lessee's notice shall include
all of the terms of the proposed assignment or sublease and shall state the
consideration therefor. In such event, Lessor shall have the right, to be
exercised by giving written notice to Lessee within thirty (30) days after
receipt of Lessee's notice, to recapture the space described in Lessee's notice
and such recapture notice shall, if given, cancel and terminate this Lease with
respect to the space therein described as of the date stated in Lessee's
notice. Lessee's notice shall state the name and address of the proposed
assignee or subtenant and a true and complete copy of the proposed assignment
or sublease shall be delivered to Lessor with Lessee's notice. If Lessee's
notice shall cover all of the Premises, and Lessor shall have exercised its
foregoing recapture right, the term of this Lease shall expire and end on the
date stated in Lessee's notice as fully and completely as if that date had been
herein definitely fixed for the expiration of the term. If, however, this Lease
be canceled with respect to less than the entire Premises, the Base Rent and
Additional Rent shall be equitably adjusted by Lessor with due consideration of
the size, location, type and quality of the portion of the Premises so
remaining after the "recapture" and such rent shall be reduced accordingly from
and after the termination date for said portion, and this Lease as so amended
shall continue thereafter in full force and effect. The rent adjustments
provided for herein shall be evidenced by an amendment to this Lease executed
by Lessor and Lessee. If this Lease shall be terminated in the manner
aforesaid, either as to the entire Premises or only a portion thereof, to such
extent the term of this Lease shall end upon the appropriate effective date of
the proposed sublease or assignment as if that date had been originally fixed
in this Lease for such expiration, and in the event of a termination affecting
less than the entire Premises, Lessee shall comply with Article XIV ("Surrender
of Premises") of this Lease with respect to such portion of the Premises
affected thereby.
In the event of any termination pursuant to this paragraph, Lessee
shall, at its sole cost and expense, discharge in full (i) any outstanding
commission obligation on the part of Lessor with respect to that part of this
Lease so terminated, and (ii) any commission which may be due and owing as a
result of any proposed assignment or subletting, whether or not the subject
portion of the Premises is "recaptured" pursuant thereto and rented by Lessor to
the proposed tenant or any other tenant.
If Lessor, upon receiving Lessee's notice with respect to any such
space, shall not exercise its right to recapture as aforesaid, Lessor will not
unreasonably withhold its consent to Lessee's assignment of the Lease or
subletting such space to the party identified in Lessee's notice, provided,
however, that in the event Lessor consents to any such assignment or
subletting, and as a condition thereto, Lessee shall pay to Lessor ninety
percent (90%) of all profit derived by Lessee from such assignment or
subletting. For purposes of the foregoing, profit shall be deemed to include,
but shall not be limited to, the amount of all rent payable by such assignee or
sublessee in excess of the Base Rent, and rent adjustments, payable by Lessee
under this Lease. If a part of the consideration for such assignment or
subletting shall be payable other than in cash, the payment to Lessor shall be
in cash for its share of any non-cash consideration based upon the fair market
value thereof.
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Lessee shall and hereby agrees that it will furnish to Lessor upon
request from Lessor a complete statement, certified by an independent certified
public accountant, setting forth in detail the computation of all profit
derived and to be derived from such assignment or subletting, such computation
to be made in accordance with generally accepted accounting principles. Lessee
agrees that Lessor and its authorized representatives shall be given access at
all reasonable times to the books, records and papers of Lessee relating to any
such assignment or subletting, and Lessor shall have the right to make copies
thereof. The percentage of Lessee's profit due Lessor hereunder shall be paid
by Lessee to Lessor within five (5) days of receipt by Lessee of all payments
made from time to time by such assignee or sublessee to Lessee.
For purposes of the foregoing, any change in the partners of Lessee,
if Lessee is a partnership, or, if Lessee is a corporation, any transfer of any
or all of the shares of stock of Lessee by sale, assignment, operation of law
or otherwise resulting in a change in the present control of such corporation
by the person or persons owning a majority of such shares as of the date of
this Lease, shall be deemed to be an assignment within the meaning of this
Article XI.
Any subletting or assignment hereunder shall not release or discharge
Lessee of or from any liability, whether past, present or future, under this
Lease, and Lessee shall continue fully liable thereunder. The subtenant or
subtenants or assignee shall agree in a form satisfactory to Lessor to agree to
be obligated for, comply with, and be bound by all of the terms, covenants,
conditions, provisions and agreements of this Lease to the extent of the space
sublet or assigned, and Lessee shall deliver to Lessor promptly after execution
an executed copy of each such sublease or assignment and an agreement of
compliance by each such subtenant or assignee. Consent by Lessor to any
assignment of this Lease or to any subletting of the Premises shall not be a
waiver of Lessor's rights under this Article as to any subsequent assignment or
subletting.
Any sale, assignment, mortgage, transfer or subletting of this Lease
which is not in compliance with the provisions of this Article XI shall be of
no effect and void. Lessor's right to assign its interest in this Lease shall
remain unqualified. Lessor may make a reasonable charge to Lessee for any
reasonable attorneys' fees or expenses incident to a review of any
documentation related to any proposed assignment or subletting by Lessee.
Notwithstanding anything to the contrary in this Lease, Lessee shall
not assign its rights under this Lease or sublet all or any part of the
Premises to a person, firm or corporation which is (or, immediately prior to
such subletting or assignment, was) a tenant or occupant of the Complex or any
warehouse or office building on property contiguous to the Complex owned by
Lessor.
The consent of Lessor to a transfer may not be unreasonably withheld,
provided that Lessor's withholding its consent for any of the following reasons,
which list is not exclusive, shall be deemed to be reasonable:
(a) Financial strength of the proposed transferee must be acceptable
to Lessor in Lessor's reasonable discretion;
(b) A proposed transferee whose occupation of the Premises would
cause a diminution in the reputation of the Complex or the other
businesses located therein;
(c) A proposed transferee whose impact on the common areas or the
other occupants of the Complex would be disadvantageous; or
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(d) A proposed transferee whose occupancy will require any variation
in the terms and conditions of this Lease.
ARTICLE XII. DAMAGE BY FIRE OR OTHER CASUALTY: If fire or other casualty shall
render the whole or any material portion of the Premises untenantable, and the
Premises can reasonably be expected to be made tenantable within one hundred
twenty (120) days from the date of such event, then Lessor shall repair and
restore the Premises and the Complex to as near their condition prior to the
fire or other casualty as is reasonably possible within such one hundred twenty
(120) day period (subject to delays for causes beyond Lessor's reasonable
control) and notify Lessee that it will be doing so, such notice to be mailed
within thirty (30) days from the date of such damage or destruction, and this
Lease shall remain in full force and effect, but the rent for the period during
which the Premises are untenantable shall be abated pro rata (based upon the
portion of the Premises which is untenantable). If Lessor is required to repair
the Complex and/or the Premises, as aforesaid, said work shall be undertaken
and prosecuted with all due diligence and speed.
If fire or other casualty shall render the whole or any material part
of the Premises untenantable and the Premises cannot reasonably be expected to
be made tenantable within one hundred twenty (120) days from the date of such
event, then either party, by notice in writing to the other mailed within
thirty (30) days from the date of such damage or destruction, may terminate
this Lease effective upon a date within thirty (30) days from the date of such
notice.
In the event that more than fifty percent (50%) of the value of the
Complex is damaged or destroyed by fire or other casualty, and irrespective of
whether damage or destruction can be made tenantable within one hundred twenty
(120) days thereafter, then at Lessor's option, by written notice to Lessee,
mailed within forty-five (45) days from the date of such damage or destruction,
Lessor may terminate this Lease effective upon a date within ninety (90) days
from the date of such notice to Lessee.
If fire or other casualty shall render any portion of the Premises or
any material portion of the Complex untenantable and the insurance proceeds are
not sufficient to make repairs, then Lessor may, by notice to Lessee, mailed
within thirty (30) days from the date of such damages or destruction, terminate
this Lease effective upon a date within thirty (30) days from the date of such
notice.
If the Premises or the Complex is damaged, and such damage is of the
type insured against under the fire and special form property damage insurance
maintained by Lessor hereunder, the cost of repairing said damage up to the
amount of the deductible under said insurance policy shall be included as a
part of the Operating Expenses. If the damage is not covered by such insurance
policies and Lessor elects to repair the damage, then Lessee shall pay Lessor a
pro rata share of the "deductible amount" (if any) under Lessor's insurance
policies based on Lessee's percentage interest of the Premises and, if the
damage was due to an act or omission of Lessee, Lessee shall pay Lessor the
difference between the actual cost of repair and any insurance proceeds
received by Lessor.
If fire or other casualty shall render the whole or any material part
of the Premises untenantable and the Premises cannot reasonably be expected to
be made tenantable within one hundred twenty (120) days from the date of such
event and neither party hereto terminates this Lease pursuant to its rights
herein or in the event that more than fifty percent (50%) of the value of the
Complex is damaged or destroyed by fire or other casualty, and Lessor does not
terminate this Lease pursuant to its option granted herein, or in the event
that fifty percent (50%) or less of the value of the Complex is damaged or
destroyed by fire or other
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casualty and neither the whole nor any material portion of the Premises is
rendered untenantable, then Lessor shall repair and restore the Premises and
the Complex to as near their condition prior to the fire or other casualty as
is reasonably possible with all due diligence and speed (subject to delays for
causes beyond Lessor's reasonable control) and the rent for the period during
which the Premises are untenantable shall be abated pro rata (based upon the
portion of the Premises which is untenantable). In no event shall Lessor be
obligated to repair or restore any special equipment or improvements installed
by Lessee. Anything herein contained to the contrary notwithstanding, Lessor
shall not be obligated to spend more than the net insurance proceeds available
to Lessor on account of any fire or other casualty in order to repair or
restore the Premises or the Complex following such casualty; provided, however,
Lessor shall notify Lessee promptly after the casualty if Lessor is unwilling
to expend more than available net insurance proceeds.
In the event of a termination of this Lease pursuant to this Article,
rent shall be apportioned on a per diem basis and paid to the date of the fire
or other casualty.
ARTICLE XIII. EMINENT DOMAIN: If the whole of or any substantial part of the
Premises is taken by any public authority under the power of eminent domain, or
taken in any manner for any public or quasi-public use, so as to render the
remaining portion of the Premises unsuitable for the purposes intended
hereunder, then the term of this Lease shall cease as of the day possession
shall be taken by such public authority and Lessor shall make a pro rata refund
of any prepaid rent. All damages awarded for such taking under the power of
eminent domain or any like proceedings shall belong to and be the property of
Lessor, Lessee hereby assigning to Lessor Lessee's interest, if any, in said
award. In the event that fifty percent (50%) or more of the building area or
fifty percent (50%) or more of the value of the Complex is taken by public
authority under the power of eminent domain, then, at Lessor's option, by
written notice to Lessee mailed within sixty (60) days from the date possession
shall be taken by such public authority, Lessor may terminate this Lease
effective upon a date within ninety (90) days from the date of such notice to
Lessee. Further, if the whole of or any material part of the Premises is taken
by public authority under the power of eminent domain, or taken in any manner
for any public or quasi-public use, so as to render the remaining portion of
the Premises unsuitable for the purposes intended hereunder, upon delivery of
possession to the condemning authority pursuant to the proceedings, Lessee may,
at its option, terminate this Lease as to the remainder of the Premises by
written notice to Lessor, such notice to be given to Lessor within thirty (30)
days after Lessee receives notice of the taking. Lessee shall not have the
right to terminate this Lease pursuant to the preceding sentence unless (i) the
business of Lessee conducted in the portion of the Premises taken cannot be
carried on with substantially the same utility and efficiency in the remainder
of the Premises (or any substitute space securable by Lessee pursuant to clause
(ii) hereof); and (ii) Lessee cannot secure substantially similar (in Lessee's
reasonable judgment) alternate space upon the same terms and conditions as set
forth in this Lease (including rental) from Lessor in the Complex. Any notice
of termination shall specify the date no more than sixty (60) days after the
giving of such notice as the date for such termination.
Anything in this Article XIII to the contrary notwithstanding, Lessee
shall have the right to prove in any condemnation proceedings and to receive
any separate award which may be made for damages to or condemnation of Lessee's
movable trade fixtures and equipment and for moving expenses; provided,
however, Lessee shall in no event have any right to receive any award for its
interest in this Lease or for loss of leasehold; and, provided further, Lessee
shall not be entitled to claim any award to the extent the award to
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Lessor would be reduced below the amount which would be allowed to Lessor
absent such claim by Lessee. In the event of a partial condemnation of the
Complex or the Premises and this Lease is not terminated, Lessor shall, at its
sole cost and expense, restore the Premises and Complex to a complete
architectural unit and the Base Rent provided for herein during the period from
and after the date of delivery of possession pursuant to such proceedings to
the termination of this Lease shall be reduced to a sum equal to the product of
the Base Rent provided for herein multiplied by a fraction, the numerator of
which is the fair market rent of the Premises after such taking and after the
same has been restored to a complete architectural unit, and the denominator of
which is the fair market rent of the Premises prior to such taking.
Notwithstanding the foregoing provisions of this Article, Lessor may terminate
this Lease with no further liability to Lessee whatsoever in the event that
following any taking of any part of the Complex by condemnation or right of
eminent domain, or any conveyance in lieu thereof, any party holding a
mortgage, trust deed or similar lien on Lessor's interest in the Complex elects
to require the application of an award or payment for the taking or conveyance
in lieu thereof to reduce the indebtedness secured by such mortgage, trust deed
or similar lien. Lessor's obligation to rebuild, repair or restore under this
Article shall in all events be limited to the extent of the net condemnation
proceeds available to Lessor therefor.
ARTICLE XIV. SURRENDER OF PREMISES: On the last day of the term of this Lease,
or on the sooner termination thereof, Lessee shall peaceably surrender the
Premises in good broom-clean condition and repair consistent with Lessee's duty
to make repairs as herein provided. On or before the last day of the term of
this Lease, or the date of sooner termination thereof, Lessee shall, at its
sole cost and expense, remove all of its property and trade fixtures and
equipment from the Premises, and all property not removed shall be deemed
abandoned. Lessee hereby appoints Lessor its agent to remove all property of
Lessee from the Premises upon termination of this Lease and to cause its
transportation and storage for Lessee's benefit, all at the sole cost and risk
of Lessee, and Lessor shall not be liable for damage, theft, misappropriation
or loss thereof and Lessor shall not be liable in any manner in respect thereto
unless caused by the gross negligence or willful misconduct of Lessor or its
agents or employees. Lessee shall pay all costs and expenses of such removal,
transportation and storage. Lessee shall leave the Premises in good order,
condition and repair, reasonable wear and tear and damage from fire and other
casualty not caused by Lessee excepted. Lessee shall reimburse Lessor upon
demand for any expenses incurred by Lessor with respect to removal,
transportation or storage of abandoned property and with respect to restoring
said Premises to good order, condition and repair. All improvements,
alterations, additions, installations and fixtures, other than Lessee's trade
fixtures and equipment, which have been made or installed by either Lessor or
Lessee upon the Premises shall remain the property of Lessor and shall be
surrendered with the Premises as a part thereof, unless Lessee is required to
remove same pursuant to the provisions of Article VIII hereof. If the Premises
are not surrendered at the end of the term or sooner termination thereof,
Lessee shall indemnify Lessor against loss or liability resulting from delay by
Lessee in so surrendering the Premises, including, without limitation, claims
made by any succeeding tenants founded on such delay and any attorneys' fees
resulting therefrom. Lessee shall promptly surrender all keys for the Premises
to Lessor at the place then fixed for the payment of rent and shall inform
Lessor of the combinations of any vaults, locks and safes left on the Premises.
In the event Lessee remains in possession of the Premises after
expiration of this Lease and without the execution of a new lease, but with
Lessor's written consent, Lessee shall be deemed to be occupying the Premises
as a tenant from month-to-month, subject
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to all the provisions, conditions and obligations of this Lease insofar as the
same can be applicable to a month-to-month tenancy, except that the Base Rent
shall be escalated to one hundred fifty percent (150%) of the Base Rent payable
hereunder immediately prior to the expiration of this Lease. In the event
Lessee remains in possession of the Premises after expiration of this Lease and
without the execution of a new lease and without Lessor's written consent,
Lessee shall be deemed to be occupying the Premises without claim of right and
Lessee shall pay Lessor for all costs arising out of loss or liability
resulting from delay by Lessee in so surrendering the Premises as above
provided and shall pay as a charge for each day of occupancy an amount equal to
two hundred percent (200%) of the Base Rent (on a daily basis) payable
hereunder immediately prior to the expiration of this Lease plus the Additional
Rent (on a daily basis) then currently being charged by Lessor on new leases in
the Complex for space similar to the Premises.
ARTICLE XV. DEFAULT OF LESSEE: The occurrence of any one or more of the
following events (in this Article sometimes called "Event of Default") shall
constitute a default and breach of this Lease by Lessee:
A. If Lessee fails to pay any Base Rent or Additional Rent
payable under this Lease or fails to pay any obligation
required to be paid by Lessee when and as the same shall
become due and payable, and such default continues for a
period of five (5) days after written notice thereof given by
Lessor to Lessee.
B. If Lessee fails to perform any of Lessee's nonmonetary
obligations under this Lease for a period of thirty (30) days
after written notice from Lessor; provided that if more time
is required to complete such performance, Lessee shall not be
in default if Lessee commences such performance within the
thirty-day period and thereafter diligently pursues its
completion. However, Lessor shall not be required to give
such notice if Lessee's failure to perform constitutes a
non-curable breach of this Lease. The notice required by this
subsection is intended to satisfy any and all notice
requirements imposed by law on Lessor and is not in addition
to any such requirement.
C. If Lessee, by operation of law or otherwise, violates the
provisions of Article XI hereof relating to assignment,
sublease, mortgage or other transfer of Lessee's interest in
this Lease or in the Premises or in the income arising
therefrom.
D. Lessee, by operation of law or otherwise, violates the
provisions of Article XVII.R relating to compliance with
environmental laws.
E. If (i) Lessee makes a general assignment or general
arrangement for the benefit of creditors; (ii) a petition for
adjudication of bankruptcy or for reorganization or
rearrangement is filed by or against Lessee and is not
dismissed within thirty (30) days; (iii) if a trustee or
receiver is appointed to take possession of substantially
all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease and possession is not restored to
Lessee within thirty (30) days; or (iv) if substantially all
of Lessee's assets located at the Premises or of Lessee's
interest in this Lease is subjected to attachment, execution
or other judicial or non-judicial seizure which is not
discharged within thirty (30) days. If a court of competent
jurisdiction determines that any of the acts described in
this
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<PAGE> 19
subsection does not constitute an Event of Default and a
trustee is appointed to take possession (or if Lessee remains
a debtor in possession) and such trustee or Lessee transfers
Lessee's interest hereunder, then Lessor shall receive, as
Additional Rent, the difference between the rent (or any
other consideration) paid in connection with such assignment
or sublease and the rent payable by Lessee hereunder. As used
in this subsection, the term "Lessee" shall also mean any
guarantor of Lessee's obligations under this Lease. If any
such Event of Default shall occur, Lessor, at any time during
the continuance of any such Event of Default, may give
written notice to Lessee stating that this Lease shall expire
and terminate on the date specified in such notice, and upon
the date specified in such notice this Lease, and all rights
of Lessee under this Lease, including all rights of renewal
whether exercised or not, shall expire and terminate, or in
the alternative or in addition to the foregoing remedy,
Lessor may assert and have the benefit of any other remedy
allowed herein, at law, or in equity.
Upon the occurrence of an Event of Default by Lessee, and at any time
thereafter, with or without notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor may have, Lessor shall be entitled
to the rights and remedies set forth below:
A. Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall not terminate
unless Lessor gives written notice to Lessee of its intention
to terminate this Lease and Lessee shall immediately
surrender possession of the Premises to Lessor. In such
event, Lessor shall have the immediate right to reenter and
remove all persons and property, and such property may be
removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of Lessee, all without service
of notice or resort to legal process and without being deemed
guilty of trespass, or becoming liable for any loss or damage
which may be occasioned thereby. In the event that Lessor
shall elect to so terminate this Lease, then Lessor shall be
entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default, including:
1. The equivalent of the amount of the Base Rent and
Additional Rent which would be payable under this
Lease by Lessee if this Lease were still in effect,
less
2. The net proceeds of any reletting affected pursuant
to the provisions of this Article XV hereof after
deducting all of Lessor's reasonable expenses in
connection with such reletting, including, without
limitation, all repossession costs, brokerage
commissions, legal expenses, reasonable attorneys'
fees, alteration costs, and expenses of preparation
of the Premises, or any portion thereof, for such
reletting.
Lessee shall pay such current damages in the amount
determined in accordance with the terms of this Article XV as
set forth in a written statement thereof from Lessor to
Lessee (hereinafter called the "Deficiency"), to Lessor in
monthly installments on the days on which the rent would have
been payable under this Lease if this Lease were still in
effect, and Lessor shall be entitled
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<PAGE> 20
to recover from Lessee each monthly installment of the Deficiency as
the same shall arise.
B. At any time after an Event of Default, whether or not Lessor shall
have collected any monthly Deficiency as set forth in this Article
XV, Lessor shall be entitled to recover from Lessee, and Lessee shall
pay to Lessor, on demand, as and for final damages for Lessee's
default, an amount equal to the then present worth of the aggregate
of the Base Rent and Additional Rent and any other charges to be paid
by Lessee hereunder for the unexpired portion of the term of this
Lease (assuming this Lease had not been so terminated). In the
computation of present worth, a discount at the rate of 6% per annum
shall be employed. If the Premises, or any portion thereof, shall be
relet by Lessor for the unexpired term of this Lease, or any part
thereof, before presentation of proof of such damages to any court,
commission or tribunal, the amount of rent received upon such
reletting shall be offset against any monies claimed pursuant to this
subsection. Nothing herein contained or contained in this Article XV
shall limit or prejudice the right of Lessor to prove for and obtain,
as damages, an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount
be greater, equal to or less than the amount of the difference
referred to above.
C. Upon the occurrence of an Event of Default by Lessee, Lessor shall
also have the right, with or without terminating this Lease, to
reenter the Premises to remove all persons and property from the
Premises. Such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Lessee.
If Lessor shall elect to reenter the Premises, Lessor shall not be
liable for damages by reason of such reentry.
D. If Lessor does not elect to terminate this Lease as provided in this
Article XV then Lessor may, from time to time, recover all rent as it
becomes due under this Lease. At any time thereafter, Lessor may
elect to terminate this Lease and to recover damages to which Lessor
is entitled.
E. In the event that Lessor should elect to terminate this Lease and to
relet the Premises, it may execute any new lease in its own name. In
the event that Lessor should not elect to terminate this Lease, it
may re-let the premises to a substitute tenant. Lessee hereunder
shall have no right or authority whatsoever to collect any rent from
such substitute tenant. The proceeds of any such reletting shall be
applied as follows:
1. First, to the payment of any indebtedness other than rent due
hereunder from Lessee to Lessor, including but not limited to
storage charges or brokerage commissions owing from Lessee to
Lessor as the result of such reletting;
2. Second, to the payment of the costs and expenses of reletting the
Premises, including alterations and repairs which Lessor, in its
sole discretion, deems reasonably necessary and advisable and
reasonable attorneys' fees incurred by Lessor in connection with
the retaking of the Premises and such reletting;
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<PAGE> 21
3. Third, to the payment of rent and other charges due and unpaid
hereunder; and
4. Fourth, to the payment of future rent and other damages payable
by Lessee under this Lease.
Lessor shall not be deemed to have terminated this Lease and the Lessee's
right to possession of the leasehold or the liability of Lessee to pay rent
thereafter to accrue or its liability for damages under any of the provisions
hereof, unless Lessor shall have notified Lessee in writing that it has so
elected to terminate this Lease. Lessee covenants that the retaking of
possession by Lessor or the service by Lessor of any notice pursuant to the
applicable unlawful detainer statutes of the state in which the Complex is
located and Lessee's surrender of possession pursuant to such notice shall not
(unless Lessor elects to the contrary at the time of, or at any time subsequent
to the service of, such notice, and such election be evidenced by a written
notice to Lessee) be deemed to be a termination of this Lease or of Lessee's
right to possession thereof.
All rights, options and remedies of Lessor contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be exclusive
of the other, and Lessor shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law whether or
not stated in this Lease. No waiver by Lessor of a breach of any of the terms,
covenants or conditions of this Lease by Lessee shall be construed or held to
be a waiver of any succeeding or preceding breach of the same or any other
term, covenant or condition therein contained. No waiver of any default of
Lessee hereunder shall be implied from any omission by Lessor to take any
action on account of such default if such default persists or is repeated, and
no express waiver shall affect default other than as specified in said waiver.
The consent or approval by Lessor to or of any act by Lessee requiring Lessor's
consent or approval shall not be deemed to waive or render unnecessary Lessor's
consent to or approval of any subsequent similar acts by Lessee.
Lessee shall reimburse Lessor, upon demand, for any reasonable costs or
expenses incurred by Lessor in connection with any Event of Default of Lessee
under this Lease, whether or not suit is commenced or judgment entered. Such
costs shall include, but not be limited to: legal fees and costs incurred for
the negotiation of a settlement, enforcement of rights or otherwise.
Furthermore, if any action for breach of or to enforce the provisions of this
Lease is commenced, the court in such action shall award to the party in whose
favor a judgment is entered a reasonable sum as attorneys' fees and costs. Such
attorneys' fees and costs shall be paid by the losing party in such action.
Lessee shall also indemnify Lessor against and hold Lessor harmless from all
costs, expenses, demands and liability incurred by Lessor if Lessor becomes or
is made a party to any claim or action (a) instituted by Lessee, or by any
third party against Lessee; (b) for foreclosure of any lien for labor or
material furnished to or for Lessee or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Lessee or such other person;
or (d) necessary to protect Lessor's interest under this Lease in a bankruptcy
proceeding or other proceeding under Title 11 of the United States Code, as
amended. Lessee shall defend Lessor against any such claim or action at
Lessee's expense with counsel reasonably acceptable to Lessor or, at Lessor's
election, Lessee shall reimburse Lessor for any legal fees or costs incurred by
Lessor in any such claim or action.
In addition, Lessee shall pay Lessor's reasonable attorneys' fees incurred
in connection with Lessee's request for Lessor's consent in connection with any
act which Lessee proposed to do and which requires Lessor's consent.
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<PAGE> 22
Except to the extent caused by the gross negligence of Lessor or its agents
or employees, Lessee hereby waives all claims by Lessor's reentering and taking
possession of the Premises or removing and storing the property of Lessee as
permitted under this Lease and will save Lessor harmless from all losses, costs
or damages occasioned Lessor thereby. No such reentry shall be considered or
construed to be a forcible entry by Lessor.
ARTICLE XVI. SUBORDINATION: This Lease shall be subject and subordinate to any
mortgage, deed of trust or ground lease now or hereafter placed upon the
Premises, the Complex, the Property or any portion thereof by Lessor or its
successors or assigns, and to amendments, replacements, renewals and extensions
thereof. Lessee agrees at any time hereafter, upon demand to execute and
deliver any instruments, releases or other documents that may be reasonably
required for the purpose of subjecting and subordinating this Lease, as above
provided, to the lien of any such mortgage, deed of trust or ground lease. It
is agreed, nevertheless, that as long as Lessee is not in default in the
payment of Base Rent, Additional Rent, and other charges to be paid by Lessee
under this Lease and the performance of all covenants, agreements and
conditions to be performed by Lessee under this Lease, then neither Lessee's
right to quiet enjoyment under this Lease, nor the right of Lessee to continue
to occupy the Premises and to conduct its business thereon, in accordance with
the terms of this Lease as against any lessor, lessee, mortgagee, trustee or
their successors or assigns shall be interfered with.
The above subordination shall be effective without the necessity of the
execution and delivery of any further instruments on the part of Lessee to
effectuate such subordination. Notwithstanding anything hereinabove contained
in this Article XVI, in the event the holder of any mortgage, deed of trust or
ground lease shall at any time elect to have this Lease constitute a prior and
superior lien to its mortgage, deed of trust or ground lease, then, and in such
event, upon any such holder or landlord notifying Lessee to that effect in
writing, this Lease shall be deemed prior and superior in lien to such
mortgage, deed of trust or ground lease, whether this Lease is dated prior to
or subsequent to the date of such mortgage, deed of trust or ground lease, and
Lessee shall execute such attornment agreement as may be reasonably requested
by said holder.
Lessee agrees, provided the mortgagee, ground lessor or trust deed holder
under any mortgage, ground lease, deed of trust or other security instrument
shall have notified Lessee in writing (by the way of a notice of assignment of
lease or otherwise) of its address, that Lessee shall give such mortgagee,
ground lessor, trust deed holder or other secured party ("Mortgagee"),
simultaneously with delivery of notice to Lessor, by registered or certified
mail, a copy of any such notice of default served upon Lessor. Lessee further
agrees that said Mortgagee shall have the right to cure any alleged default
during the same period that Lessor has to cure such default.
ARTICLE XVII. MICELLANEOUS:
A. Lessee represents that Lessee has dealt directly with and only with
Jackson & Cooksey and Benchmark Realty Advisors, Inc. (Bill Dutton) and Lee &
Associates Arizona Real Estate Services Com. (Alan Lowe, Bill Blake and Bill
Gosnell (the "Brokers"), as brokers, in connection with this Lease and insofar
as Lessee knows, no other broker negotiated or participated in negotiations of
this Lease or submitted or showed the Premises or is entitled to any commission
in connection therewith. Lessor shall be responsible for paying the commission
due the Brokers on account of this Lease pursuant to a separate agreement
between Lessor and the Brokers.
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<PAGE> 23
B. Lessee agrees from time to time, upon not less than ten (10) days prior
written request by Lessor, to deliver to Lessor a statement in writing
certifying (i) this Lease is unmodified and in full force and effect (or if
there have been modifications that the Lease as modified is in full force and
effect and stating the modifications); (ii) the dates to which the rent and
other charges have been paid; (iii) Lessor is not in default in any provision
of this Lease or, if in default, the nature thereof specified in detail; (iv)
the amount of monthly rental currently payable by Lessee; (v) the amount of any
prepaid rent, and (vi) such other matters as may be reasonably requested by
Lessor or any Mortgagee or prospective purchaser of the Complex.
If Lessee does not deliver such statement to Lessor within such ten (10)
day period, Lessor and any prospective purchaser or encumbrances of the
Premises or the Complex may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Lessor; (ii) that this Lease has not been
cancelled or terminated and is in full force and effect, except as otherwise
represented by Lessor; (iii) that the current amounts of the Base Rent and
security deposit are as represented by Lessor and that any charges made against
the security deposit are uncontested and valid; (iv) that there have been no
subleases or assignments of the Lease; (v) that not more than one month's Base
Rent or other charges have been paid in advance; and (vi) that Lessor is not in
default under the Lease. In such event, Lessee shall be estopped from denying
the truth of such facts.
C. All notices, demands and requests shall be in writing, and shall be
effectively served by forwarding such notice, demand or request by certified or
registered mail, postage prepaid, or by commercial overnight courier service
addressed as follows:
(i) If addressed to Lessee:
By forwarding such notice, demand or request by certified or
registered mail, postage prepaid, addressed to Lessee at:
Vanstar Corporation
5964 West Las Positas Boulevard
Pleasanton, California 94588
Attention: Tom Heinrich
Director of Facilities
or at such other address as Lessee may hereafter designate by written
notice to Lessor, in which case said notice shall be effective at the
time of mailing such notice.
(ii) If addressed to Lessor:
By forwarding such notice, demand or request by certified or
registered mail, postage prepaid, addressed to Lessor at:
Opus Southwest Corporation
c/o Normandale Properties Southwest Corporation
4742 North 24th Street, Suite 100
Phoenix, Arizona 85016
After October 1, 1997:
Opus Southwest Corporation
c/o Normandale Properties Southwest Corporation
2415 East Camelback, Suite 850
Phoenix, Arizona 85016
Attention: Thomas W. Roberts
With copy to:
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<PAGE> 24
Opus Southwest Corporation
4742 North 24th Street
Suite 100
Phoenix, Arizona 85016
Attn: Thomas W. Roberts, President
After October 1, 1997:
Opus Southwest Corporation
2415 East Camelback, Suite 800
Phoenix, Arizona 85016
Attention: Thomas W. Roberts
With copy to:
Opus U.S. Corporation
P. O. Box 59110
Minneapolis, Minnesota 55440
Attention: Law Department
or at such other address as Lessor and Lessee may hereafter designate by
written notice. The effective date of all notices shall be the time of mailing
such notice or the date of delivery to a commercial overnight courier service.
D. All rights and remedies of Lessor under this Lease or that may be
provided by law may be executed by Lessor in its own name, individually, or in
the name of its agent, and all legal proceedings for the enforcement of any
such rights or remedies, including those set forth in Article XV, may be
commenced and prosecuted to final judgment and execution by Lessor in its own
name or in the name of its agent.
E. Lessor covenants and agrees that Lessee, upon paying the Base Rent,
Additional Rent and other charges herein provided for and observing and keeping
the covenants, agreements and conditions of this Lease on its part to be kept
and performed, shall lawfully and quietly hold, occupy and enjoy the Premises
during the term of this Lease. Time is of the essence of this Lease and each
and every provision contained herein, and any extension of time granted by
Lessor to Lessee for the performance of any obligation of Lessee under this
Lease shall not be considered an extension of time for the performance of any
subsequent obligation of Lessee under this Lease.
F. The covenants and agreements herein contained shall bind and inure to
the benefit of Lessor and its successors and assigns and Lessee and its
permitted successors and assigns. All obligations of each party constituting
Lessee hereunder shall be the joint and several obligations of each such party.
G. If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision of this Lease shall
be valid and enforced to the fullest extent permitted by law. This Lease shall
be construed and enforced in accordance with the laws of the state in which the
Premises are located.
H. Lessee covenants not to go or suffer any waste or damage or disfigurement
or injury to the Premises or the Complex and Lessee further covenants that it
will not vacate or abandon the Premises during the term of this Lease.
I. The term "Lessor" as used in this Lease so far as covenants or
obligations on the part of Lessor are concerned shall be limited to mean and
include only the owner or owners of the Complex at the time in question, and in
the event of any transfer or transfers or conveyances the then grantor shall be
automatically
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freed and released from all personal liability accruing from and after the date
of such transfer or conveyance as respects the performance of any covenant or
obligation on the part of Lessor contained in this Lease to be performed, it
being intended hereby that the covenants and obligations contained in this
Lease on the part of Lessor shall be binding on the Lessor, its successors and
assigns, only during and in respect to their respective successive periods of
ownership.
In the event of a sale or conveyance by Lessor of the Complex or any part
of the Complex, the same shall operate to release Lessor from any future
liability upon any of the covenants or conditions herein contained and in such
event Lessee agrees to look solely to the responsibility of the successor in
interest of Lessor in and to this Lease. This Lease shall not be affected by
any such sale or conveyance, and Lessee agrees to attorn to the purchaser or
grantee, which purchaser or grantee shall be personally obligated on this Lease
only so long as it is the owner of Lessor's interest in and to this Lease.
J. The marginal or topical headings of the several Articles are for
convenience only and do not define, limit or construe the contents of said
Articles.
K. All preliminary negotiations are merged into and incorporated in this
Lease, except for written collateral agreements executed contemporaneously
herewith.
L. This Lease can only be modified or amended by an agreement in writing
signed by the parties hereto. No receipt of money by Lessor from Lessee or any
other person after termination of this Lease or after the service of any notice
or after the commencement of any suit, or after final judgment for possession
of the Premises shall reinstate, continue or extend the term of this Lease or
affect any such notice, demand or suit, or imply consent for any action for
which Lessor's consent is required, unless specifically agreed to in writing by
Lessor. Any amounts received by Lessor may be allocated to any specific amounts
due from Lessee to Lessor as Lessor determines.
M. Lessor shall have the right to close any portion of the building area or
land area to the extent as may, in Lessor's reasonable opinion, be necessary to
prevent a dedication thereof or the accrual of any rights to any person or the
public therein. Lessor shall at all times have full control, management and
direction of the Complex, subject to the rights of Lessee in the Premises, and
Lessor reserves the right at any time and from time to time to reduce,
increase, enclose or otherwise change the size, number and location of
buildings, layout and nature of the Complex and the other tenancies, premises
and buildings included in the Complex, to construct additional buildings and
additions to any building, and to create additional rentable areas through use
and/or enclosure of common areas, or otherwise, and to place signs on the
Complex, and to change the name, address, number or designation by which the
Complex is commonly known. No implied easements are granted by this Lease.
Lessor shall in no event be liable for any lack of security in respect to the
Complex.
N. Lessee shall permit Lessor (or its designees) to erect, use, maintain,
replace and Repair pipes, cables, conduits, plumbing, vents, and telephone,
electric and other wires or other items, in, to and through the Premises, as
and to the extent that Lessor may now or hereafter deem necessary or
appropriate for the proper operation and maintenance of the Complex.
O. Employees or agents of Lessor have no authority to make or agree to make
a lease or other agreement or undertaking in connection herewith. The
submission of this document for examination does not constitute an offer to
lease, or a reservation of,
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<PAGE> 26
or option for, the Premises. This document becomes effective and binding only
upon the execution and delivery hereof by the proper officers of Lessor and by
Lessee. Lessee confirms that Lessor and its agents have made no representations
or promises with respect to the Premises or the making of or entry into this
Lease except as in this Lease expressly set forth, and Lessee agrees that no
claim or liability shall be asserted by Lessee against Lessor for, and Lessor
shall not be liable by reason of, breach of any representations or promises not
expressly stated in this Lease. This Lease, except for the Complex Rules and
Regulations, in respect to which subparagraph P of this Article shall prevail,
can be modified or altered only by agreement in writing between Lessor and
Lessee, and no act or omission of any employee or agent of Lessor shall alter,
change or modify any of the provisions hereof.
P. Lessee shall perform, observe and comply with the Complex Rules and
Regulations of the Complex as set forth on Exhibit B attached hereto and by
this reference incorporated herein, with respect to the safety, care and
cleanliness of the Premises and the Complex, and the preservation of good order
thereon, and, upon written notice thereof to Lessee, Lessee shall perform,
observe and comply with any changes, amendments or additions thereto as from
time to time shall be established and deemed advisable by Lessor for tenants of
the Complex. Lessor shall not be liable to Lessee for any failure of any other
tenant or tenants of the Complex to comply with such Complex Rules and
Regulations.
Q. Lessee shall not use the Premises or permit anything to be done in or
about the Premises which will, in any way, conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Lessee shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances and governmental
rules and regulations now in force or which may hereafter be in force,
including, without limitation, those pertaining to indoor air quality, and with
the requirements of any fire insurance underwriters or other similar body now
or hereafter constituted relating to or affecting the condition, use or
occupancy of the Premises. Lessee shall use the Premises and comply with any
recorded covenants, conditions, and restrictions affecting the Premises and the
Complex as of the commencement of the Lease or which are recorded during the
lease term. Lessor shall, in conducting its operations in the Complex, comply
with all laws, statutes, ordinances or other governmental rules or regulations
now in force or which may hereafter be enacted or promulgated relating to
Lessor's operation of the Complex.
R. Lessee shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances or materials. Lessee shall not allow the storage or use of
such substances or materials in any manner not sanctioned by law and by the
highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Warehouse Complex any
such materials or substances except to use in the ordinary course of Lessee's
business, and then only after written notice is given to Lessor of the identity
of such substances or materials. Without limitation, hazardous substances and
materials shall include those described in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Sections 9601 et seq., the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 6901 et seq., any applicable state or local laws and the
regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Lessee to Lessor upon demand as additional charges if such
requirement applies to the Premises. In addition, Lessee shall execute
affidavits, representations and the like from time to time at Lessor's request
concerning Lessee's best knowledge
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and belief regarding the presence of hazardous substances or materials on the
Premises. In all events, Lessee shall indemnify Lessor in the manner elsewhere
provided in this Lease from any release of hazardous materials on the Premises
occurring while Lessee is in possession, or elsewhere if caused by Lessee or
persons acting under Lessee. The within covenants shall survive the expiration
or earlier termination of the term of this Lease.
S. All obligations of Lessee hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including, without
limitation, all payment obligations with respect to Operating Expenses and Real
Estate Taxes and all obligations concerning the condition of the Premises.
T. Any claim which Lessee may have against Lessor for default in
performance of any of the obligations herein contained to be kept and performed
by Lessor shall be deemed waived unless such claim is asserted by written
notice thereof to Lessor within ten (10) days of commencement of the alleged
default or of accrual of the cause of action and unless suit be brought thereon
within six (6) months subsequent to the accrual of such cause of action.
Furthermore, Lessee agrees to look solely to Lessor's interest in the Complex
for the recovery of any judgment from Lessor, it being agreed that Lessor, or
if Lessor is a partnership, its partners whether general or limited, or if
Lessor is a corporation, its directors, officers or shareholders, shall never
be personally liable for any such judgment.
U. Lessee shall furnish to Lessor promptly upon demand, a corporate
resolution, proof of due authorization of partners, or other appropriate
documentation reasonably requested by Lessor evidencing the due authorization
of Lessee to enter into this Lease.
V. This Lease shall not be deemed or construed to create or establish any
relationship or partnership or joint venture or similar relationship or
arrangement between Lessor and Lessee hereunder.
W. Lessee in its occupancy shall, in all respects, comply with the
Americans With Disabilities Act of 1990 (42 U.S.C. Sec. 12101 et seq.), as the
same may be amended from time to time (as amended, the "ADA"), and Lessee
agrees to indemnify and save Lessor and its managing agent harmless against and
from any and all claims, loss, damage and expense by or on behalf of any person
or persons, firm or firms, corporation or corporations, arising from any
failure or alleged failure of Lessee to comply with the ADA or arising from any
claim made under the ADA in connection with the Premises, and from and against
all costs, reasonable attorneys' fees, expenses and liabilities incurred in or
about any such claim or action or proceeding brought thereon; in case any
action or proceeding be brought against Lessor or its managing agent by reason
of any such claim, Lessee, upon notice from Lessor, covenants to resist or
defend such action or proceeding by counsel reasonably satisfactory to Lessor.
Lessor agrees to cause the Tenant Improvements (as hereinafter defined) to
be constructed in accordance with the public accommodations provisions of Title
III of the Americans With Disabilities Act of 1990 (42 U.S.C. Sec. 12101 et
seq.), as presently interpreted and enforced by the governmental bodies having
jurisdiction thereof.
X. Lessee shall not place, or permit to be placed or maintained, on any
exterior door, wall or window of the Premises any sign, awning or canopy, or
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door, or that can be seen through the glass, of the Premises except as
specifically
-27-
<PAGE> 28
approved in writing by Lessor. Lessee further agrees to maintain such sign,
awning, canopy, decoration, lettering, advertising matter or thing as may be
approved, in good condition and repair at all times. Lessee agrees at Lessee's
sole cost, that any Lessee sign will be maintained in strict conformance with
Lessors sign criteria, if any, as to design, material, color, location, size,
letter style, and method of installation.
ARTICLE XVIII. MISCELLANEOUS TAXES: Lessee shall pay, prior to delinquency, all
taxes assessed or levied upon its occupancy of the Premises, or upon the trade
fixtures, furnishings, equipment and all other personal property of Lessee
located in the Premises, and when possible, Lessee shall cause such trade
fixtures, furnishings, equipment and other personal property to be assessed and
billed separately from the property of Lessor. In the event any or all of
Lessee's trade fixtures, furnishings, equipment or other personal property, or
Lessee's occupancy of the Premises, shall be assessed and taxed with the
property of Lessor, Lessee shall pay to Lessor its share of such taxes within
ten (10) days after delivery to Lessee by Lessor of a statement in writing
setting forth the amount of such taxes applicable to Lessee's personal
property.
ARTICLE XIX. OTHER PROVISIONS: The following are made a part hereof, with the
same force and effect as if specifically set forth herein:
A. Site Plan - Exhibit A.
B. Complex Rules and Regulations - Exhibit B.
C. Rider to Lease - Exhibit C.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
LESSOR: LESSEE:
OPUS SOUTHWEST CORPORATION, VANSTAR CORPORATION, a Delaware
a Minnesota corporation corporation
By /s/ Thomas Roberts By /s/ Tom Heinrich 8/29/97
------------------------------ ------------------------------
Thomas W. Roberts Its Director Facilities
Its President
-28-
<PAGE> 29
11/21/97
FIRST AMENDMENT TO LEASE ORIGINAL
THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is made and
entered into as of the 19th day of November, 1997, by and between OPUS WEST
CORPORATION, a Minnesota corporation formerly known as Opus Southwest
Corporation, hereinafter referred to as "Lessor", and VANSTAR CORPORATION, a
Delaware corporation, hereinafter referred to as "Lessee".
WITNESSETH:
WHEREAS, Lessor and Lessee entered into that certain Lease dated as of
September 3, 1997 (the "Lease"), for certain demised premises in the office and
warehouse complex located at 7333 South Hardy Road, Tempe, Arizona 85253, known
and described as Tempe Commerce Park; and
WHEREAS, Lessor and Lessee desire to modify the Lease as hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. This First Amendment shall be effective as of the date hereof. All
capitalized terms used in this First Amendment, unless otherwise defined
herein, shall have the same meanings given to them in the Lease.
2. The third paragraph following "WITNESSETH" on page 1 of the Lease
is hereby deleted in its entirety and the following is substituted in its
place:
TO HAVE AND TO HOLD THE SAME PREMISES, without any liability or
obligation on the part of Lessor to make any alterations, improvements or
repairs of any kind on or about the Premises, except as expressly provided
herein, commencing on December 19, 1997 (the "Commencement Date"). The
term of this Lease shall end on the date 10 years following the
Commencement Date unless sooner terminated in the manner provided
hereinafter, to be occupied and used by Lessee for general office and
warehouse purposes and for no other purpose, subject to the covenants and
agreements hereinafter contained.
3. Article I of the Lease is hereby deleted in its entirety and the
following is hereby substituted in its place:
ARTICLE I. BASE RENT: In consideration of the leasing aforesaid, Lessee
agrees to pay to Lessor, at c/o Opus West Management Corporation, 2415
East Camelback, Suite 840, Phoenix, Arizona 85016, Attention: Accounting
Department, or at such other place as Lessor from time to time may
designate in writing, an annual rental as hereinafter set forth, sometimes
hereinafter referred to as the "Base Rent", payable monthly, in advance, in
installments as hereinafter set forth, commencing on the first day of the
term and continuing on the first day of each and every month thereafter for
the next succeeding months during the balance of the term:
<TABLE>
<CAPTION>
APPLICABLE PORTION ANNUAL BASE RENT
OF TERM PER SQUARE FOOT
------------------ ----------------
<C> <C>
December 19, 1997 through the earlier $5.32
of (i) Lessor's delivery of the
substantially completed Premises or
(ii) January 22, 1998
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
January 23, 1998 through Year 5 $10.64
Years 6-10 $11.96
</TABLE>
If the term commences on a date other than the first day of a calendar
month or ends on a date other than the last day of a calendar month, monthly
rent for the first month of the term or the last month of the term, as the case
may be, shall be prorated based upon the ratio that the number of days in the
term within such month bears to the total number of days in such month.
4. Notwithstanding anything to the contrary contained in Article II
of the Lease to the contrary, the parties acknowledge that for the period
commencing on the Commencement Date and ending on January 22, 1998, Lessee
shall only be obligated to pay one-half (1/2) of the actual amount of Lessee's
Pro Rata Share of Real Estate Taxes and one-half (1/2) of the actual amount of
Lessee's Pro Rata Share of Operating Expenses. From and after January 23, 1998,
Lessee shall be obligated to pay Lessee's Pro Rata Share of Real Estate Taxes
and Lessee's Pro Rata Share of Operating Expenses in accordance with the
provisions of Article II of the Lease.
5. Article IV of the Lease is hereby deleted in its entirety
and the following is substituted in its place:
ARTICLE IV. POSSESSION OF PREMISES: If Lessor shall be unable to give
possession of the Premises on the Commencement Date because the
construction of the Complex or the completion of the Premises has not been
sufficiently completed to make the Premises ready for occupancy, or for
any other reason, Lessor shall not be subject to any claims, damages or
liabilities for the failure to give possession on said date, provided that
Lessor shall use commercially reasonable efforts to substantially complete
the Premises as soon as is reasonably possible thereafter. Under said
circumstances, the term of this Lease shall commence on the Commencement
Date and Lessee shall be obligated to accept, in writing, the Premises
within three (3) days following the date upon which the Premises are ready
for occupancy. If Lessee is given and accepts possession of the Premises
on a date earlier than the Commencement Date, the rent reserved herein and
all covenants, agreements and obligations herein and the term of this
Lease shall commence on the date that possession of the Premises is given
to Lessee.
The acceptance of possession by Lessee shall be deemed conclusively
to establish that the Premises and all other improvements of the Complex
required to be constructed by Lessor for use thereof by Lessee hereunder
have been completed at such time to Lessee's satisfaction and in
conformity with the provisions of this Lease in all respects unless Lessee
notifies Lessor in writing within ninety (90) days after commencement of
the term as to any items not completed. Lessee waives any claim as to
matters not listed in said notice. Lessee acknowledges that neither Lessor
nor any agent of Lessor has made any representation or warranty with
respect to the Premises or the Complex or with respect to the suitability
or fitness of either for the conduct of Lessee's business or for any other
purpose.
6. In accordance with the provisions of Article XXIX.A of the Lease,
in the event Lessee desires any Tenant Improvements having a price in excess of
the Tenant Improvement Allowance, Lessee shall pay Lessor in cash for such
excess amount. As of the date of this First Amendment, the parties acknowledge
and agree that Lessor estimates that the price of the Tenant Improvements will
exceed the Tenant Improvement Allowance by approximately Nine Hundred Forty
Thousand and No/100ths Dollars ($940,000.00) (the "Improvement Excess"). Lessor
and Lessee agree that Lessee shall reimburse Lessor for the Improvement Excess
in three payments as
-2-
<PAGE> 31
approved in writing by Lessor. Lessee further agrees to maintain such sign,
awning, canopy, decoration, lettering, advertising matter or thing as may be
approved, in good condition and repair at all times. Lessee agrees at Lessee's
sole cost, that any Lessee sign will be maintained in strict conformance with
Lessor's sign criteria, if any, as to design, material, color, location, size,
letter style, and method of installation.
ARTICLE XVIII. MISCELLANEOUS TAXES: Lessee shall pay, prior to delinquency, all
taxes assessed or levied upon its occupancy of the Premises, or upon the trade
fixtures, furnishings, equipment and all other personal property of Lessee
located in the Premises, and when possible, Lessee shall cause such trade
fixtures, furnishings, equipment and other personal property to be assessed and
billed separately from the property of Lessor. In the event any or all of
Lessee's trade fixtures, furnishings, equipment or other personal property, or
Lessee's occupancy of the Premises, shall be assessed and taxed with the
property of Lessor, Lessee shall pay to Lessor its share of such taxes within
ten (10) days after delivery to Lessee by Lessor of a statement in writing
setting forth the amount of such taxes applicable to Lessee's personal
property.
ARTICLE XIX. OTHER PROVISIONS: The following are made a part hereof, with the
same force and effect as if specifically set forth herein:
A. Site Plan - Exhibit A.
B. Complex Rules and Regulations - Exhibit B.
C. Rider to Lease - Exhibit C.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
LESSOR: LESSEE:
OPUS SOUTHWEST CORPORATION, VANSTAR CORPORATION, a Delaware
a Minnesota corporation corporation
By /s/ Thomas Roberts By /s/ Tom Heinrich 8/29/97
------------------------------ ------------------------------
Thomas W. Roberts Its Director Facilities
Its President
-28-
<PAGE> 32
December l9, 1997
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Vanstar Corporation
5964 West Las Positas Boulevard
Pleasanton, California 94588
Attention: Tom Heinrich
Director of Facilities
Re: VANSTAR CORPORATION, a Delaware corporation; Tempe Commerce
Park -- Building E, Tempe, Arizona
Dear Tenant:
This letter shall constitute notice of the transfer of the above-referenced
premises and assignment of the lease for said premises by Opus West
Corporation, a Minnesota corporation formerly known as Opus Southwest
Corporation ("Former Landlord"), to First Industrial, L.P. ("Successor
Landlord"). The rental shall be paid to the Successor Landlord at:
First Industrial, L.P.
P.O. Box 75631
Chicago, Illinois 60675-5631
or if sent by Federal Express or overnight courier:
The Northern Trust Company
801 South Canal, 4th Floor
Receipt and Dispatch
Chicago, Illinois 60607
Attn: First Industrial, L.P., Lockbox #75631
Your local First Industrial property management office is located at the
following address:
First Industrial Realty Trust, Inc.
7615 Golden Triangle Drive, Suite N
Eden Prairie, Minnesota 55344
Attn: Mr. Michael Stephens
(612) 943-2700
<PAGE> 33
However, all formal notices under the lease should be directed to the Successor
Landlord at:
First Industrial, L.P.
311 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Chief Operating Officer
and: First Industrial Realty Trust, Inc.
7615 Golden Triangle Drive, Suite N
Eden Prairie, Minnesota 55344
Attn: Mr. Duane H. Lund
w/copy to: Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive
27th Floor
Chicago, Illinois 60606
Attn: Suzanne Bessette-Smith
Please do not hesitate to contact your local First Industrial property
management office with any questions. The effective date of this notice is the
date of this letter.
OPUS WEST CORPORATION, a FIRST INDUSTRIAL, L.P., a Delaware
Minnesota corporation limited partnership
By: FIRST INDUSTRIAL REALTY
TRUST, INC., its general
partner
By: /s/ Thomas Roberts
-------------------------
Thomas Roberts
Its President
By: /s/ Todd A. Geller
-------------------------
Todd A. Geller
Its Signing Officer
2
<PAGE> 1
EXHIBIT 10.32
AMENDMENT #9 TO VANSTAR CORPORATION
SECOND AMENDED AND RESTATED FINANCING PROGRAM AGREEMENT
This Amendment to Vanstar Corporation Second Amended and Restated Financing
Program Agreement (this "Amendment") is made as of March 16, 1998 and among
Vanstar Corporation, a Delaware corporation ("Vanstar"), Vanstar Government
Systems, Inc. (f/n/a Vanstar Federal, Inc.), a Delaware corporation and IBM
Credit Corporation, a Delaware Corporation ("IBM Credit").
RECITALS
A. On January 23, 1998, Vanstar Federal, Inc. ("VFI") filed in the
Office of the Secretary of State of Delaware an amendment to change its name to
Vanstar Government Systems, Inc. ("VGS").
B. Vanstar, VSG (individually a "Borrower" and jointly the "Borrower")
and IBM Credit have entered into that certain Vanstar Corporation Second Amended
and Restated Financing Program Agreement dated as of April 30, 1995 (as amended
by Amendment #1 dated as of September 15, 1995, Amendment #2 dated as of October
26, 1995, Amendment #3 dated as of November 10, 1995, Acknowledgement, Waiver
and Amendment dated as of April 17, 1996, Amendment #4 dated as of July 24,
1996, Amendment #5 dated as of September 25, 1996, Amendment #6 dated as of
December 20, 1996, Amendment #7 dated as of October 31, 1997, Amendment #8 dated
as of December 11, 1997, Acknowledgement, Waiver and Amendment dated as of March
10, 1998 and as the same may be further amended, supplemented or as otherwise
modified from time to time, the "Agreement").
C. The parties have agreed to modify the Agreement as more specifically
set forth below, upon and subject to the terms and conditions of the Agreement
as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and IBM Credit hereby agree as follows:
Section 1. All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Agreement.
Section 2. Modification of Agreement
A. The following provisions are incorporated into and supplement the
Agreement as if fully set forth as additional terms therein. In the event of a
conflict between the terms of this Amendment and the terms of the Agreement,
the terms of this Amendment will control in determining the agreement between
IBM Credit and Borrower.
(a) Other Charges.
Borrowers agree to pay IBM Credit a fee in the amount of Two Hundred
Thousand Dollars ($200,000) which shall be due and payable on April 1,
page 1 of 3
<PAGE> 2
1998 in consideration for the temporary credit line increase and extension
pursuant to Section 2 A (b) of this Amendment.
(b) Temporary Credit Line Extension and Increase
IBM Credit agrees to increase the temporary credit line of Five Hundred
Twenty Five Million Dollars ($525,000,000) granted by IBM Credit to Vanstar by
written notice on February 5, 1998 to Five Hundred Fifty Million Dollars
($550,000,000) (the "Temporary Credit Line") effective March 15, 1998 and
expiring on June 30, 1998 (the "Expiration Date"). Effective the day after the
Expiration Date, the Temporary Credit Line increase will be terminated and the
credit line will be the Base Line of Credit Amount of Three Hundred Fifty
Million Dollars ($350,000,000).
B. The Agreement is hereby amended by deleting all references to the
name of "Vanstar Federal, Inc." in their entirety and substituting, in lieu
thereof, the name of "Vanstar Government Systems, Inc.".
C. The Agreement is hereby amended by deleting all references to the
defined name of "VFI" in their entirety and substituting, in lieu thereof, the
defined name of "VGS".
Section 3. Representations and Warranties. Each Borrower makes to IBM Credit
the following representations and warranties all of which are material and are
made to induce IBM Credit to enter into this Amendment.
Section 3.1 Accuracy and Completeness of Warranties and Representations. All
representations made by Borrowers in the Agreement were true and accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Borrowers in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make the representations
not misleading.
Section 3.2 Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause either Borrower not to be in
compliance with the terms of any agreement to which such Borrower is a party.
Section 3.3 Litigation. There is no litigation, proceeding, investigation or
labor dispute pending or threatened against either Borrower, which if adversely
determined, would materially adversely affect the ability of Borrowers to
perform their obligations under the Agreement and the other documents,
instruments and agreements executed in connection therewith or pursuant hereto.
Section 3.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Borrowers and is enforceable against
Borrowers in accordance with its terms.
page 2 of 3
<PAGE> 3
Section 4. Ratification of Agreement. Except as specifically amended hereby,
all of the provisions of the Agreement shall remain unamended and in full force
and effect. Each Borrower hereby ratifies, confirms and agrees that the
Agreement, as amended hereby, represents a valid and enforceable obligation of
Borrowers, and is not subject to any claims, offsets or defense.
Section 5. Governing Law. This Amendment shall be governed by and interpreted
in accordance with the laws of the State of California.
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed by the authorized
officers of the undersigned as of the day and year first above written.
Vanstar Corporation Vanstar Government Systems, Inc.
By: /s/ Kauko Aronaho By: /s/ H. Christopher Covington
---------------------------- -----------------------------------
Name: Kauko Aronaho Name: H. Christopher Covington
-------------------------- ---------------------------------
Title: Sr. VP & CFO Title: Senior Vice President
------------------------- --------------------------------
IBM Credit Corporation
By: /s/ R. J. Bachner
----------------------------
Name: R. J. Bachner
--------------------------
Title: Mgr. Global Strategic
-------------------------
Account Marketing
-------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF VANSTAR CORPORATION
<TABLE>
<CAPTION>
VANSTAR FOREIGN
PLACE OF DOMICILE DOMESTIC SUBSIDIARIES OWNERSHIP OWNERSHIP
----------------- --------------------- --------- ---------
<S> <C> <C> <C>
California ComputerLand International Development, Inc. 100%
Delaware ComputerPort World Trade, Inc. 100%
Georgia Computer Professionals, Inc. (1)
Georgia ComputerXperts, Inc. (1)
North Carolina Contract Data, Inc. (2)
Texas CLand Tex, Inc. 100%
Delaware Vanstar Finance Co. 100%
Delaware Vanstar Financing Trust (3)
Delaware Vanstar International Corporation 100%
Delaware VST West, Inc. 100%
North Carolina VSTNC, Inc. 100%
Illinois VST Illinois, Inc. 100%
<CAPTION>
VANSTAR FOREIGN
PLACE OF DOMICILE FOREIGN SUBSIDIARIES OWNERSHIP OWNERSHIP
----------------- -------------------- --------- ---------
Belgium Vanstar Belgium N.V. (4)
British Columbia, Canada Vanstar International Services (Canada), Inc. (5)
Chile ComputerLand de Chile, SA 100%
Hong Kong Vanstar Asia Pacific Limited 99.9% (6)
Luxembourg Vanstar Europe S.A. 99.9% (6)
Mexico ComputerLand de Mexico, S.A. de C.V. 49% 51% (7)
Singapore ComputerLand Far East Pte. Limited 100%
(being dissolved)
Thailand ComputerLand Corporation (Thailand) Co., Ltd. 100%
United Kingdom Vanstar UK Limited (8)
</TABLE>
- --------------------
(1) 100% owned by Contract Data, Inc.
(2) 100% owned by VSTNC, Inc.
(3) Vanstar Financing Trust, a statutory business trust formed under the laws
of Delaware, is a wholly-owned subsidiary of Vanstar Corporation for
accounting purposes.
(4) 99.96% owned by Vanstar Europe S.A.; .04% owned by William Y. Tauscher.
(5) 100% owned by Vanstar International Corporation.
(6) .1% owned by William Y. Tauscher.
(7) Mexicanos de Datos, a Mexican company.
(8) 100% owned by Vanstar Europe S.A.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-11357) pertaining to the Company's Employee Stock Purchase
Plan; Form S-8 (No. 333-11553) pertaining to the Company's 1988 Stock Option
Plan; Form S-8 (No. 333-11555) pertaining to the Company's 1993 Stock
Option/Stock Issuance Plan; Form S-8 (No. 333-11557) pertaining to the Company's
Stock Option Agreement with an Employee; Form S-8 (No. 333-11559) pertaining to
the Company's Stock Option Agreement with an Employee, and Form S-8 (No.
333-13301) pertaining to the Company's 1996 Stock Option/Stock Issuance Plan of
our report dated June 3, 1998, with respect to the consolidated financial
statements and schedule of Vanstar Corporation included in the Annual Report
(Form 10-K) for the year ended April 30, 1998.
Ernst & Young LLP
Atlanta, Georgia
July 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 9,476
<SECURITIES> 0
<RECEIVABLES> 351,014
<ALLOWANCES> 8,262
<INVENTORY> 470,474
<CURRENT-ASSETS> 854,393
<PP&E> 107,230
<DEPRECIATION> 53,927
<TOTAL-ASSETS> 1,095,764
<CURRENT-LIABILITIES> 689,797
<BONDS> 2,337
194,739
0
<COMMON> 43
<OTHER-SE> 207,905
<TOTAL-LIABILITY-AND-EQUITY> 1,095,764
<SALES> 2,367,004
<TOTAL-REVENUES> 2,838,802
<CGS> 2,136,396
<TOTAL-COSTS> 2,424,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,399
<INCOME-PRETAX> 70,095
<INCOME-TAX> 25,236
<INCOME-CONTINUING> 44,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,947
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS FILED FOR THE PERIODS ENDED JULY 31, 1997 AND OCTOBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1998
<PERIOD-END> JUL-31-1997 OCT-31-1997
<CASH> 10,493 9,943
<SECURITIES> 0 0
<RECEIVABLES> 279,667 285,956
<ALLOWANCES> 8,375 6,739
<INVENTORY> 470,394 461,763
<CURRENT-ASSETS> 777,985 777,227
<PP&E> 92,645 101,635
<DEPRECIATION> 49,913 56,389
<TOTAL-ASSETS> 994,965 998,986
<CURRENT-LIABILITIES> 620,543 615,446
<BONDS> 4,960 3,762
194,603 194,562
0 0
<COMMON> 43 43
<OTHER-SE> 173,395 183,777
<TOTAL-LIABILITY-AND-EQUITY> 994,965 998,986
<SALES> 581,249 1,206,148
<TOTAL-REVENUES> 680,634 1,422,383
<CGS> 524,645 1,090,713
<TOTAL-COSTS> 588,056 1,224,151
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,032 8,209
<INCOME-PRETAX> 13,732 31,744
<INCOME-TAX> 4,944 11,428
<INCOME-CONTINUING> 8,788 15,860
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,560 15,860
<EPS-PRIMARY> 0.15<F1> 0.37<F1>
<EPS-DILUTED> 0.15 0.36
<FN>
<F1> [EPS-PRIMARY] HAS BEEN RESTATED TO REFLECT THE ADOPTION OF FASB #128
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS FILED FOR THE PERIODS ENDED JULY 31, 1996, OCTOBER 31, 1996
AND JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1997 APR-30-1997
<PERIOD-END> JUL-31-1996 OCT-31-1996 JAN-31-1997
<CASH> 13,674 12,090 4,995
<SECURITIES> 0 0 0
<RECEIVABLES> 292,061 302,024 177,735
<ALLOWANCES> 12,532 10,386 9,145
<INVENTORY> 337,021 380,976 317,798
<CURRENT-ASSETS> 664,886 715,534 509,216
<PP&E> 22,883 25,226 92,040
<DEPRECIATION> 50,707 56,377 61,853
<TOTAL-ASSETS> 790,220 843,258 660,214
<CURRENT-LIABILITIES> 414,119 484,176 296,214
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 40 41 43
<OTHER-SE> 136,776 155,308 123,833
<TOTAL-LIABILITY-AND-EQUITY> 790,220 843,258 660,214
<SALES> 490,065 953,122 1,391,709
<TOTAL-REVENUES> 559,090 1,102,823 1,630,365
<CGS> 441,593 858,209 1,253,302
<TOTAL-COSTS> 480,968 943,420 1,394,294
<OTHER-EXPENSES> 56,896 116,237 176,725
<LOSS-PROVISION> (1,779) (2,707) (7,790)
<INTEREST-EXPENSE> 6,611 10,864 13,406
<INCOME-PRETAX> 15,497 34,078 48,871
<INCOME-TAX> 5,734 12,609 17,594
<INCOME-CONTINUING> 9,763 20,840 28,361
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,763 20,840 28,361
<EPS-PRIMARY> 0.24<F1> 0.51<F1> 0.69<F1>
<EPS-DILUTED> 0.23 0.49 0.65
<FN>
<F1>[EPS-PRIMARY] HAS BEEN RESTATED TO REFLECT THE ADOPTION OF FASB #128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FINANCIAL STATEMENTS FILED FOR THE YEARS ENDED APRIL 30, 1996 AND APRIL 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-30-1996 APR-30-1997
<PERIOD-END> APR-30-1996 APR-30-1997
<CASH> 14,498 5,686
<SECURITIES> 0 0
<RECEIVABLES> 298,484 188,835
<ALLOWANCES> 14,812 8,610
<INVENTORY> 350,406 389,592
<CURRENT-ASSETS> 691,570 598,976
<PP&E> 23,183 102,991
<DEPRECIATION> 48,287 63,751
<TOTAL-ASSETS> 803,365 758,643
<CURRENT-LIABILITIES> 375,828 390,547
<BONDS> 0 5,946
0 194,518
0 0
<COMMON> 40 43
<OTHER-SE> 127,013 166,928
<TOTAL-LIABILITY-AND-EQUITY> 803,365 758,643
<SALES> 1,578,298 1,849,365
<TOTAL-REVENUES> 1,804,813 2,178,566
<CGS> 1,430,404 1,665,212
<TOTAL-COSTS> 1,559,886 1,864,602
<OTHER-EXPENSES> 201,880 0
<LOSS-PROVISION> 14,393 (7,780)
<INTEREST-EXPENSE> 35,804 17,061
<INCOME-PRETAX> 12,782 54,903
<INCOME-TAX> 4,729 19,765
<INCOME-CONTINUING> 8,053 35,138
<DISCONTINUED> 9,194 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,247 29,994
<EPS-PRIMARY> 0.53<F1> 0.72<F1>
<EPS-DILUTED> 0.50 0.69
<FN>
<F1>[EPS-PRIMARY] HAS BEEN RESTATED TO REFLECT THE ADOPTION OF FASB #128.
</FN>
</TABLE>
