SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 31, 1997 0-28138
SPANLINK COMMUNICATIONS, INC.
Minnesota 41-1618845
(State of Incorporation) (I.R.S. Employer Identification No.)
7125 Northland Terrace
Minneapolis, Minnesota 55428
(Address of principal executive offices)
Issuer's telephone number: (612) 971-2000
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $6,637,018.
State the aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant based on the closing average price as reported
by The Nasdaq SmallCap Market on March 20, 1998: $8,970,500.*
As of March 20, 1998, 5,080,500 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1997 Annual Report are incorporated by reference into
Items 6 and 7 of Part II. Portions of the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held May 13, 1998 are incorporated
by reference into Items 9, 10, 11 and 12 of Part III.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
- ---------------------------------------------------
*Shares of Common Stock held beneficially by affiliates, i.e., directors,
executive officers and persons known to own beneficially in excess of 5 percent
of the Common Stock have been excluded in calculating this value.
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PART I
Unless the context indicates otherwise, all references to the "Company",
"Registrant' or the "Issuer" in this Annual Report on Form 10-KSB relate to
Spanlink Communications, Inc.
The following United States registered trademarks appear in this Annual Report
on Form 10-KSB and are owned by the Company: Spanlink, ExtraAgent, FastCall, and
PRODiag. WebCall is a registered trademark in the United Kingdom.
ITEM 1. DESCRIPTION OF BUSINESS
General Development
The Company designs, develops and markets interactive computer
telecommunications software and services that effectively and efficiently link
business computer systems, telecommunications systems and the Internet. The
Company has been shifting its focus from developing custom software for
interactive communications systems to developing configurable software packages.
These packages can be configured to meet the needs of particular customers or
markets without modifying the underlying computer programming. The Company's
software employs touch tone, speech recognition, or dial-pulse recognition to
allow consumers to use a telephone, rather than a company sales or service
agent, to bank by phone, place a catalog order, temporarily suspend newspaper
deliveries, obtain up-to-date stock quotes, check on airline arrivals and
departures and provide callers alternatives to waiting on hold. The software
also provides an integration availability between telephone systems and a
company's host computer system that allow a screen full of information to "pop"
up on a customer service agent's computer monitor. In addition, one of the
Company's products can facilitate telephone communication between a user of the
Internet's World Wide Web and a company's sales and service agents.
In December 1997, the Company acquired the FastCall product line, including all
intellectual property and intangible assets, from Aurora Systems, Inc., a
subsidiary of Comdial Corporation. The acquisition will be paid for by royalties
on future product revenues.
Using the Company's products, a business can allow its customers to interact
with its computer system via the telephone, a fax machine or an Internet Web
browser, or talk to a live "call center" agent when required. (A call center is
a group of employees, called agents, dedicated to handling a high volume of
incoming or outgoing calls). Spanlink products also assist the call center agent
in handling the call efficiently. Products include the EXTRAAGENT and FASTCALL
product families as well as SELECTSOLUTIONS which provides custom interactive
computer telecommunications software applications utilizing the Company's core
software modules. In addition, the Company provides professional software
services, including consulting, training, system integration, customization of
its configurable software packages and maintenance.
The Company's strategy is to develop configurable software packages which meet a
significant portion of the needs of a variety of interactive computer
telecommunications markets. The Company plans to use these standard products as
a foundation on which the Company, with a limited amount of additional work, can
build application packages specific to its target markets. The Company's current
target markets are call centers, newspapers and financial institutions. In
addition, these configurable software packages can be modified to meet the
particular needs of an individual customer within that market. For example, the
Company's ExtraAgent product, which streamlines telephone calls into a call
center, is used across a wide variety of industries. In the newspaper market,
the Company has enhanced ExtraAgent to allow customers to report a delivery
problem or temporarily stop their newspaper service.
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Historically, the Company has relied significantly on the marketing and
distribution network of Lucent Technologies, Inc. (Lucent) to deliver its
products and services into the marketplace. In 1997, the Company expanded and
strengthened its own direct sales force to focus on strategic accounts. The
Company has created distribution agreements with telephone and data processing
dealers and alliances with original equipment manufacturers where appropriate.
Over the past five years, the interactive computer telecommunications industry
has begun to emerge as a major component of the communications industry. Based
on information provided by Dataquest, a research organization, the Company
believes that the interactive computer telecommunications markets, not including
the World Wide Web, are over $2.5 billion in size and expected to grow to $5.8
billion in 1999.
The Company has sold over 1,000 of its configurable software packages and has
designed and developed SelectSolutions for more than 180 customers in the United
States, Germany, the United Kingdom, the Netherlands, Spain, Belgium, Mexico and
Canada. The Company's products are installed in numerous government agencies and
corporations such as Cargill, Citibank, Eli Lilly, Knight-Ridder, Minneapolis
Star Tribune, Mobil, Northern States Power Company, Panasonic, Pepsico,
Prudential, Shell Oil, Toro, United Air Lines and USA Today. However, the
Company has no long-term sales agreements with any of these entities, and there
can be no assurance that any future sales will be made to these customers.
The Company began operations and was incorporated under the laws of the state of
Minnesota in August 1988. The Company's principal office is located at 7125
Northland Terrace, Minneapolis, Minnesota 55428, its home page can be located on
the Internet at "http://www.spanlink.com" and its telephone number is (612)
971-2000.
Primary Products
All of the Company's products share an open, modular architecture and the same
system software. This allows the Company to assemble different products into an
interactive computer telecommunications (ICT) system to meet the needs of a
particular customer. The Company's software operates in combination with a
variety of other telephone systems, networks, LANs and host computers to allow
businesses to improve their services and typically lower operational costs.
Although subject to many variations, a call from a consumer to a business using
the Company's ICT server might adhere to the following scenario. When a consumer
places a call, it passes through the public telephone network to the business'
PBX/ACD system. The PBX/ACD directs the call to the ICT server, where the
Company's software collects the caller's telephone number from the public
telephone network and accesses the host computer or LAN servers to obtain
consumer information and determines how to manage the call. If no agents are
currently available, the Company's software will give the consumer an estimate
of how long the consumer will have to wait and a list of options. These options
might include leaving a message for immediate or later call back, choosing the
music on hold or transacting business using a touch tone keypad or by speaking
commands. If the caller chooses to wait or leaves a message, the Company's
software directs the information collected from the telephone network, ACD or
computer system to the personal computer of an available call center agent,
along with the call. Since the agent has the consumer information on the
display, the service to the consumer can be delivered more quickly than if the
call center agent were required to ask the consumer these questions first.
As demonstrated by the example, the Company's interactive computer
telecommunications applications may employ any or all of voice messaging,
interactive voice response (IVR), computer telephone integration (CTI) and
Internet technologies and interface with the public telephone network, telephone
systems and computer systems. The Company has developed a number of applications
that interface with
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a wide variety of PBX/ACD Systems using standard telephony interfaces (Analog,
T-1, PRI) and protocols (TSAPI, TAPI, ASAI, ISDN, Digital Telephone Set
emulation). The Company has developed solutions to work with a variety of
PBX/ACDs, including Lucent Technologies, Nortel, Rockwell, and Siemens Business
Communications. The Company also has developed applications that interface with
various computer systems from manufacturers such as IBM, Digital Equipment,
Hewlett Packard, Sun Microsystems, Unisys, NCR and a variety of network servers.
The Company has experience utilizing various network interfaces (Ethernet, Token
Ring, BISYNC, SDLC, RS-232, X.25) as well as various communication and network
protocols (TCP/IP, IPX/SPX, 3270 and 5250 terminal emulation, SNA, Sockets, RPC,
FTP, Asynch).
The Company believes that its competitors typically focus on one or perhaps two
stand-alone computer technologies like voice messaging, IVR, CTI and the
Internet. These technologies generally operate independently and therefore offer
a limited range of services. Voice messaging vendors are focused on recognizing
the number dialed, answering the call with an appropriate personal greeting and
taking a message. In general, voice messaging does not recognize information
about who is calling or the status of the call center and cannot access a
company computer system to enter and retrieve information or digitally instruct
the PBX where to route a call. IVR applications allow callers to enter or
retrieve information from a business computer system but do not normally
recognize information about who is calling, why they are calling or the status
of the call center. IVR is typically not capable of digitally instructing the
PBX where to route a call and normally has limited or no voice message recording
capabilities. CTI applications derive information from the PBX about the caller
and the status of the call center and from the business computer system to
determine where to route a call. CTI is normally capable of digitally
instructing the PBX where to route a call and the computer system where to route
call related information. It is not usually capable of asking questions of the
caller if more information is required, taking a message or providing an
automated transaction. World Wide Web vendors typically integrate with business
computer systems but have no integration with the PBX or call center. The
Company believes that its ability to utilize all of these technologies and to
integrate them into configurable software packages provides greater customer
service at a reduced cost, resulting in a competitive advantage for the Company.
The Company has three main types of interactive software products: the
ExtraAgent family (which includes ExtraAgent, WebCall, FastPoint applications);
FastCall (which includes the FastCall and FastCall Central applications); and
SelectSolutions. These products can be combined in a single interactive computer
telecommunications system that utilizes voice messaging, IVR, CTI and the
Internet. A typical sale ranges from $30,000 to $100,000, although a large
customer sale could exceed $500,000.
EXTRAAGENT FAMILY
ExtraAgent is a configurable software package which increases productivity and
customer satisfaction in a call center by combining IVR, CTI and voice messaging
technologies to enhance a telephone system's automatic call distribution
capability. The software provides "extra agents" which can handle routine
transactions by allowing callers to use automated features during peak business
hours, resulting in a more even flow of calls for the human agents in a call
center. ExtraAgent has multilingual capabilities and has been sold to customers
in non-English speaking countries.
ExtraAgent software automatically collects the caller's telephone number using
automatic number identification ("ANI") and queries a data base to determine the
best call center agent to handle the call (for example, if the customer account
is in arrears, ExtraAgent could forward the call to a collections agent). Based
on the query, ExtraAgent will evaluate the approximate length of time the caller
may need
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to wait in order to be connected to a call center agent. After providing an
approximate wait time, ExtraAgent can provide tailored options to the caller, so
the caller can select the best option. When the caller is connected with the
appropriate call center agent, ExtraAgent has the capability to send a screen of
information about the caller to the agent, reducing call time by approximately
15-20 seconds.
The Company has sold ExtraAgent to a variety of organizations in its target
markets. For example, media organizations use ExtraAgent to automate some
transactions and handle calls during peak hours or when the call center is not
staffed. In a newspaper environment, subscribers can serve themselves by dialing
ExtraAgent and pressing touch tone keys or speaking commands to suspend delivery
during vacations, register service errors and request replacement papers at any
time. Financial institutions have purchased ExtraAgent to enable their customers
to perform common retail banking transactions by pressing touch tone keys or
speaking commands. For example, at the Stadtsparkasse Hanover Bank in Hanover,
Germany, customers can call the bank at anytime to check on their account
balance and transfer funds by speaking commands.
Other applications in the ExtraAgent family are WebCall and FastPoint. WebCall
integrates the Internet with a call center. Based on the Company's experience in
the telecommunications industry, including participation in industry trade shows
and conferences, the Company believes that WebCall is among the first to
successfully create a link between traditional business telephone systems and a
World Wide Web site. WebCall allows a consumer on the World Wide Web to select a
button (icon) labeled "Talk To A Real Person" and receive a return call from a
call center agent over a standard telephone. The Company believes that WebCall
benefits a variety of applications on the World Wide Web including electronic
commerce, help desk and marketing. Companies that sell products on the Internet
can use WebCall to connect the consumer to a human operator to complete a credit
card transaction and possibly sell other products. Companies that provide on
line help desks can use WebCall to connect a PC user, accessing a home page on
the World Wide Web, with a person at the Company's help desk after the agent has
analyzed the problem through background provided by WebCall. WebCall also
enables companies to better track and assess the results of marketing programs
that utilize the Internet.
FastPoint provides interactive locator services capability, such as (i)
automated attendant, a series of options that instruct the caller to press
certain numbers on a touch tone phone to be connected to various groups within a
business (for example: "to reach sales, press 1; to reach security, press 2");
(ii) phone-fax, the ability to retrieve a fax using touch tone telephone; and
(iii) service locator, which permits a caller to find the location of the
service provider closest to the caller. These applications are common elements
necessary to provide interactive voice response capability. In some cases,
FastPoint will represent the customer's entire application. In other cases it
might work in tandem with, or as a front end to, a custom application developed
around a very specific customer requirement. FastPoint includes a bundle of
common voice products, just as PC software is sold bundled with a single
software product combining many applications. FastPoint provides basic levels of
voice and fax response functionality without the time and expense of custom
programming.
FASTCALL
FastCall is a Windows-based software package that provides a broad range of
Computer Telephone Integration (CTI) functionality at call center agent desktop
personal computers. FastCall uses a patented "middleware" architecture to link
telephony input with both desktop and client server applications. This approach
allows the agent to enable these applications with inbound and outbound CTI
capabilities, without computer code changes within the application itself. These
so-called "screen pops" populate a call center agent's Windows-based application
screen based on the calling number (ANI), called number (DID, DNIS, ACD group,
or other telephone system identifier), or the caller's touch tone input as the
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incoming call is received. These applications could include databases, help desk
packages, sales force automation programs, personal information managers (PIMs),
contact managers, word processors, spreadsheets, customized inquiry systems, or
a combination.
FastCall is designed for small and large call centers, such as help desks,
telemarketing centers, customer service departments, technical support groups,
payroll and benefits hot lines, legal and financial institutions, and consulting
consortiums. These applications, ideal for "telephony-enabling", have been
rapidly migrating from desktop video terminals to the Microsoft Windows
environment. FastCall can cost-effectively enhance call center agent
productivity without extensive hardware and software overhauls or agent
retraining. In addition, FastCall eliminates the traditional barriers to
implementing CTI solutions by providing a configurable, off-the-shelf package.
FastCall Central is a stand-alone routing package based on the FastCall CTI
application. FastCall Central provides intelligent host-based or table-driven
call routing, directing calls to the proper call center groups or agents based
on customer database information. The package uses ODBC technology, an industry
standard used by database software companies.
SELECTSOLUTIONS
The Company develops customized interactive computer telecommunications software
which it refers to as "SelectSolutions." This portion of the Company's business
enables the Company to create direct customer relationships and apply industry
experience to develop additional configurable software packages for specific
industries. SelectSolutions has provided the foundation for many of the
Company's configurable software packages. By retaining ownership of its software
application source code, the Company builds its library of reusable software
modules which can be incorporated into future products, thereby reducing the
cost and time necessary to develop new configurable software packages. The
Company believes that this product line provides a strategic asset to the
Company and its marketing strategy.
CUSTOMER SUPPORT
Once the Company's products are installed, the Company typically provides
ongoing technical assistance for the life of the system. Technical support
representatives provide technical diagnosis, consulting and engineering support
through the Company's 24-hour customer service center. The Company also provides
remote on-line diagnosis. The Company's products are sold with a limited 90 day
software warranty and one year hardware warranty, commencing on the date of
acceptance. Technical assistance after the warranty period must be purchased as
part of a separately priced maintenance contract. To date, warranty claims have
been negligible.
MAINTENANCE
After the expiration of the warranty, customers may purchase a renewable
maintenance contract for either software or hardware or both. These contracts
enable customers to continue to access the Company's customer service center.
Post warranty hardware maintenance is provided on a time and materials basis
through company employees and third party maintenance providers. The Company has
no written agreements with these maintenance providers.
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PROACTIVE DIAGNOSTICS
PROdiag, the Company's proactive diagnostics package, performs on-line
monitoring and alarm notification of the Company's interactive computer
telecommunications server by performing a series of tests to ensure error-free
operation. PROdiag's diagnostics identify trends that indicate a degradation in
application performance. Upon the discovery of a condition that could result in
system failure, an alarm alerts the Company's technical support center for
remote diagnosis and repair in the event of a system failure. In addition,
PROdiag is capable of reporting functions for notification of error conditions,
status, report of tests, actions taken and results. Notification or reporting of
potentially unstable conditions minimizes potential downtime of the system.
CONSULTING AND PROFESSIONAL SERVICES
The Company offers a variety of consulting and professional services, including
project and system management, application and human factors. Application
consultants with technical engineering expertise survey and analyze the computer
and telephone infrastructure of a business and recommend interactive computer
telecommunications solutions. The Company believes that these consulting
services enable the Company to introduce its products to potential customers.
Through human factors consulting, the Company assists a business in the
assessment of the ease with which callers can use a business' interactive
computer telecommunications system. Businesses purchasing project management
services retain the Company to monitor and control complex development projects
and the installation of interactive computer telecommunications solutions.
Customers not only purchase project management services in connection with the
purchase of SelectSolutions, but also in connection with the purchase of the
Company's configurable software packages.
HARDWARE SALES
The Company's products utilize the Intuity Platform, a hardware and base
software system manufactured by Lucent. Although the Intuity Platform is premium
priced, the Company has sold this platform to both large and small customers. In
connection with the sale of its software, the Company also sells the necessary
hardware to those organizations requiring the equipment. Currently, most of the
Company's customers who purchase an initial system through the Company's direct
sales force also purchase hardware. Hardware sales as a percentage of total
revenues increased in 1997 due to the Company's higher level of business from
its direct sales force. Customers that purchase hardware through the Company
receive the equipment manufacturer's warranty which is generally one year. The
Intuity Platform is generally available from a number of different Lucent
distributors. The Company does not anticipate any difficulty in obtaining the
Intuity Platform.
The Company has also introduced its own hardware line, the Gemstone system,
based on components available from Lucent Technologies. This platform provides
the Company a private-labeled offering and serves as an entry point into
non-Lucent accounts.
COMPETITION
The market for interactive computer telecommunications products is intensely
competitive and characterized by rapid, technological change. The Company
believes that competition in this market is likely to persist and to intensify
as a result of increasing demand for interactive computer telecommunications
products. The Company's principal competitors include Brite Voice Systems,
Edify, Intervoice, Periphonics, Syntellect and large diversified companies such
as Lucent Technologies, and IBM for which interactive computer
telecommunications systems are a small portion of their overall
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business. Other competitors focusing on CTI applications, such as AnswerSoft,
Genesys Labs, and Nabnasset also compete with the company's line of interactive
computer telecommunications products. In addition, local competitors include
MicroVoice and Digital DataVoice. Although the Company has an OEM relationship
with Lucent Technologies, Lucent Technologies also markets some software
products not manufactured by the Company which could compete with the Company's
products. Substantially all of the Company's principal competitors have greater
financial, marketing, service, support, technical and other competitive
resources than the Company.
Ongoing research and product development for interactive computer
telecommunications products is widespread, and as a result, the Company does not
know the full extent of its competition or the stage of its competitors' product
development. In the future, the Company also may face competition from these and
other parties that develop interactive computer telecommunications products.
There can be no assurance that the market for interactive computer
telecommunications products will not ultimately be dominated by strategies other
than those employed by the Company.
The Company believes that the principal competitive factors affecting the market
for interactive computer telecommunications products include the ease of
implementation, flexibility, expansion of customer service provided and cost
savings resulting from improved operational efficiency. The Company believes
that the Company's customer base will broaden as a result of the benefits
provided by its packaged products developed for growing telecommunications
markets. However, there can be no assurance that the Company can maintain its
competitive position against current and potential competitors, especially those
with significantly greater resources.
Current and potential competitors have established or may in the future
establish cooperative relationships to increase the ability of their products to
address the interactive computer telecommunications needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, the financial condition or results of operations of the Company could
be materially adversely affected.
MARKETING AND SALES
The Company markets its products in North America through its direct sales force
and pursuant to agreements with Lucent Technologies, Inc. The Company has
identified the following target markets on which it focuses its direct marketing
and sales activities:
* Call centers such as customer service centers, catalog order centers,
ticket reservation centers and businesses such as service bureaus.
* Media markets such as newspapers, cable, television and radio
organizations.
* Healthcare markets such as HMOs, PPOs, dental insurance and other
insurance coverage organizations in the health care field.
* Financial institutions such as banks, credit unions, mortgage banks and
diversified financial service organizations.
* Manufacturers with dealer distribution networks such as lawn and
garden, construction, electronic and other consumer products.
* Human resources, such as the Company's SurveyPower and HireSolution
applications which aid in call center agent hiring, performance
measurement, and retention.
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In addition, the Company plans to continue to sell its products through its
relationships with Lucent and network of telephone and data processing dealers
and original equipment manufacturers, such as business systems hardware and
software manufacturers as well as other PBX manufacturers.
The Company's direct sales employees solicit prospective customers and provide
technical advice and support with respect to the Company's products. During
1997, the Company focused its marketing and sales efforts on building a sales
organization to call directly on system users in its target markets.
The Company's marketing strategy is to target and penetrate specific markets by
selling and marketing broad based configurable software packages in order to
meet the initial needs of a large group of customers quickly and efficiently. In
addition, the Company intends to market and sell industry specific configurable
software packages to each target market to increase penetration and market
share. The Company also plans to utilize SelectSolutions to customize value
added applications for customers in each target market, thereby increasing
penetration and market share.
LUCENT TECHNOLOGIES RELATIONSHIPS
Since 1989, the Company has worked together in a variety of relationships with
various units of AT&T and its successor Lucent Technologies, Inc., to develop
software, distribute interactive computer telecommunications products, transfer
technology and co-market. The Company currently develops its software products
to operate on the Intuity Platform and has an agreement to purchase Lucent
hardware and system software at discounts. The Company utilizes Lucent services
at times to repair and upgrade Lucent products that have been sold by the
Company. As a result of these relationships the Company has been able to broaden
its distribution of products, accelerate the development of products and
generate revenues and profits from the sale of its products. Total revenues from
Lucent were approximately $3,693,000 and $2,550,000 for the years ended December
31, 1997 and 1996, respectively, which represented 56 % and 47% of total
revenues for 1997 and 1996, respectively.
The Company's business relationships with Lucent Technologies fall into three
main categories - Voice Processing Co-Marketer (VPC), Independent Software
Vendor (ISV) and Software Licenser. As a VPC, the Company has access to Lucent
proprietary technology and services, receives volume purchase discounts on
hardware and system software and marketing and selling relationships with Lucent
sales and marketing for purposes of selling Company products. The Company is one
of three companies who have been named "co-marketers with distinction" certified
to handle Lucent's advanced speech technologies such as speech recognition and
ISDN network integration. This relationship is valuable to the Company for
purposes of selling software products to end customers where Lucent PBX products
are installed and where the Intuity Platform is utilized as part of a customer
system. The Company acquires the Intuity Platform at a discount, installs its
software products and resells the hardware and software to the end customer at a
price equal to cost plus a profit margin.
As an Independent Software Vendor (ISV), the Company provides development
services as ordered by Lucent. The Company's right to provide development
services as an ISV is non-exclusive. Lucent may contract with others to procure
the same or comparable services and no minimum amount of work is guaranteed to
the Company. If the Company develops an application for a Lucent customer, which
requires further modification, Lucent has agreed to solicit the Company's
services provided the customer has been satisfied with the Company's services.
The Company has agreed not to contact Lucent's customers directly. This program
provides a method for the Company to distribute its software products and
services through Lucent to end customers. Usage rights for the developed
software are licensed to
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Lucent and the end customer for purposes of support. Rights to the source code,
design and materials remain the property of the Company.
The Company has developed and provides to Lucent for distribution two
configurable call center software packages. The Company provides a license to
Lucent to distribute the software in return for royalty payments to the Company.
The royalty payments will vary based on the number of copies of the software
sold. Lucent is not required to make any minimum royalty payments nor is Lucent
restricted from offering comparable products. The Company also directly
distributes these call center software packages via its direct sales force and
through other dealers.
One current configurable software package offering incorporates the ability to
communicate in 12 languages and can be sold on a global basis. Since 1993, over
1,300 copies of this call center software package have been sold and installed
by Lucent Technologies.
Research and Product Development
The Company spent $1,463,905 in 1997 and $1,016,048 in 1996 on research and
product development. Prior to 1996, the majority of the Company's research and
product development efforts were funded through the design of customized
products for its customers and have been included in cost of revenues. Since
1996 and in the future, the Company intends to fund research and product
development efforts independently through internally generated funds, as well as
through customizing products for its customers. The Company is conducting
research into new products and technologies including voice processing and
computer telephony integration product extensions.
Backlog
The Company fills hardware and packaged software orders as they are received.
Accordingly, the Company periodically has experienced month to month
fluctuations in its net sales due to the receipt or lack of such orders in
particular months. The Company has experienced and may in the future experience
periods in which low unit volume could result in operating losses.
The Company fills orders for custom software, which is designed to the
customer's specification by Company engineers, according to the customer's
schedule, subject to the availability of engineers to work on the project. On
December 31, 1996, the Company had a backlog of approximately $286,462 of custom
software orders which were filled during 1997. On December 31, 1997, the backlog
of custom software orders had increased to $813,572, which the Company expects
to fill during 1998.
Government Regulation
The Company currently is not subject to direct regulation by any government
agency, other than regulations applicable to businesses generally.
Intellectual Property Rights
The Company's policy is to own most software it has developed for its customers.
The Company believes that its success is dependent, in part, upon its
proprietary software and telecommunications technology. The Company relies on
trademark, copyright and trade secret laws, employee and third-party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any
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breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by competitors.
The Company acquired three patents in connection with the acquisition of the
FastCall product line from Aurora Systems, Inc. which relate to aspects of the
FastCall software.
The Company is not aware of any violation of proprietary rights claimed by any
third party relating to the Company or the Company's products. Because the
computer technology market is characterized by frequent and substantial
intellectual property litigation, there can be no assurance that the Company
will not become involved in such litigation in the future to either enforce or
defend its intellectual property rights. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict. There can be no assurance that the Company will have the funds
necessary to defend or pursue such litigation.
Employees
At December 31, 1997, the Company employed 94 employees, of which 72 are full
time. No employee of the Company is represented by a labor union or is subject
to a collective bargaining agreement. The Company believes it maintains good
relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases 26,993 square feet for its office and warehouse
facilities located at 7125 Northland Terrace, Minneapolis, Minnesota under a
lease which will terminate on July 1, 2002. Annual rental costs are
approximately $245,000 over the term of the lease. Rent expense for the years
ended December 31, 1997 and December 31, 1996 was $229,242 and $79,406
respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending or, to its knowledge, threatened
material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock trades on The Nasdaq SmallCap Market under the symbol
SPLK. The following table shows the range of high and low quotations for THE
Company's Common Stock on Nasdaq SmallCap Market for the fiscal quarters
indicated, as reported by Nasdaq. The quotations
<PAGE>
represent prices in The Nasdaq SmallCap Market between dealers in securities,
and do not include retail mark-up, mark-down or commission, and may not
represent actual transactions.
1997 High Low
---- ---- ---
First Quarter 3 5/8 2 3/4
Second Quarter 3 2 1/8
Third Quarter 3 1 3/4
Fourth Quarter 2 7/8 2
1996
----
First Quarter - -
Second Quarter 8 1/8 4 3/4
Third Quarter 5 7/8 3 1/4
Fourth Quarter 4 3/8 3
(b) Approximate Number of Holders of Common Stock
Approximate Number of Record Holders
Title of Class (as of March 20, 1998)
-------------- ----------------------
Common Stock, No par value 39*
* In addition to the record holders, the Company has approximately 1,500 holders
who hold the Company's Common Stock in nominee name and/or street name brokerage
accounts.
(c) Dividends
The Company has not paid any dividends on its Common Stock, and the Board of
Directors intends to retain earnings for the foreseeable future for use in the
expansion of the Company's business.
(d) Use of Proceeds
In connection with the sale of the Company's Common Stock in a public offering
registered with the Securities and Exchange Commission and effective as of April
29, 1996, the Company hereby reports the use of the net proceeds of $7,536,789
as follows:
$1,187,210 Purchase and installation of machinery and
equipment
$ 348,784 Repayment of indebtedness
$1,264,946 Working capital
$2,483,368 Sales and marketing
$1,548,823 Research and development
$ 703,658 Short-term investments
----------
$7,536,789
No payments were made directly or indirectly to affiliates of the Company,
including officers, directors and more than 10 percent holders. All other
information relating to the use of proceeds was previously reported in a Form
SR, as amended.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1997
Annual Report to Shareholders is hereby incorporated by reference, portions of
which are included in Exhibit 13.1 and 13.2 hereto.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements of the Company are incorporated herein by
reference from the Company's 1997 Annual Report, portions of which are included
in Exhibit 13.1 and Exhibit 13.2 of this document:
(i) Report of Independent Accountants dated February 13, 1998
(ii) Balance Sheet as of December 31, 1997 and 1996
(iii) Statement of Operations for the years ended December 31, 1997
and 1996
(iv) Statement of Shareholders' Equity for the years ended December
31, 1997 and 1996
(v) Statement of Cash Flows for the years ended December 31, 1997
and 1996
(vi) Notes to Financial Statements
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained under the headings "Election of Directors," "Executive
Officers of the Company," and "Section 16(a) Reporting" in the Company's
definitive proxy statement for its annual meeting of shareholders to be held May
13, 1998, is hereby incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held May 13, 1998, is hereby incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
for its annual meeting of shareholders to be held May 13, 1998, is hereby
incorporated by reference.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held May 13, 1998, is hereby incorporated by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following portions of Item 13 are submitted as separate sections of this
report:
(1)-List of financial statements
(2)-List of exhibits
(3)-Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997; however, the Company subsequently filed a Form 8-K dated December 31, 1997
to report the acquisition of the FastCall product line.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registration has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPANLINK COMMUNICATIONS, INC.
March 30, 1998 /s/ Brett A. Shockley
---------------------
Brett A. Shockley, Chairman, President,
Chief Executive Officer and Director
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 on the dates indicated.
Signature Title Date
/s/ Brett A. Shockley Chairman, President, Chief March 30, 1998
- --------------------------- Executive Officer and Director
Brett A. Shockley (Principal Executive Officer)
/s/ Timothy E. Briggs Vice President Finance, Chief March 30, 1998
- --------------------------- Financial Officer
Timothy E. Briggs (Principal Financial and
Accounting Officer )
/s/ Loren A. Singer, Jr. Secretary, Director March 30, 1998
- ---------------------------
Loren A. Singer, Jr.
/s/ Bruce E. Humphrey Director March 30, 1998
- ---------------------------
Bruce E. Humphrey
/s/ Thomas F. Madison Director March 30, 1998
- ---------------------------
Thomas F. Madison
/s/ Joseph D. Mooney Director March 30, 1998
- ---------------------------
Joseph D. Mooney
<PAGE>
SPANLINK COMMUNICATIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Exhibit
Number Description
------ -----------
3.1 First Restatement of Articles of Incorporation of small
business issuer (incorporated by reference to Exhibit 3.1 to
the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
3.2 Bylaws of small business issuer (incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form SB-2,
Commission File No. 333-2022-C).
4.1 Specimen of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form
SB-2, Commission File No. 333-2022-C).
4.2 Form of Subscription and Investment Representation Agreement;
Form of Lock-up Agreement (pursuant to Section 7 of the
Subscription and Investment Representation Agreement)
(incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form SB-2, Commission File No. 333-2022-C).
4.3 Form of Bridge Note (incorporated by reference to Exhibit 4.3
to the Registration Statement on Form SB-2, Commission File
No. 333-2022-C).
4.4 Form of Bridge Warrant (incorporated by reference to Exhibit
4.4 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C). 4.5 Promissory Note to Arrow
Electronics, Inc. in the principal amount of $414,427.36 dated
August 2, 1996 (incorporated by reference to Exhibit 4.5 to
the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
10.1 Credit and Security Agreement between Norwest Credit, Inc. and
Spanlink Communications, Inc. dated February 14, 1996 and
Revolving Loan Note in the amount of $600,000; Collateral
Account Agreement dated February 14, 1996; Lockbox Agreement
dated February 14, 1996 (incorporated by reference to Exhibit
10.1 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
10.2 Letter of Credit Agreement between Inacom, Inc. and the
Company dated January 10, 1996; Personal Guaranties of Brett
A. Shockley, Loren A. Singer, Jr., and Todd A. Parenteau dated
January 11, 1997 (incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
<PAGE>
Exhibit
Number Description
------ -----------
10.3 Second Amendment to Loan Agreement and Note Extension
Agreement between First Bank National Association and Spanlink
Communications, Inc. dated February 28, 1994; Renewal
Promissory Note in the principal amount of $250,000 dated
October 29, 1993 (incorporated by reference to Exhibit 10.3 to
the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
10.4 Software Development Agreement between AT&T and Spanlink
Communications, Inc. dated January 28, 1994; Amendment dated
February 15, 1997 (incorporated by reference to Exhibit 10.4
to the Registration Statement on Form SB-2, Commission File
No. 333-2022-C).
10.5 Limited Source Code License Agreement between AT&T and
Spanlink Communications, Inc. dated May 4, 1993 (incorporated
by reference to Exhibit 10.5 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.6 Escrow Agreement between AT&T, All-Data, Inc. and Spanlink
Communications, Inc. dated March 1, 1994 (incorporated by
reference to Exhibit 10.6 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.7 Software Modification Agreement between AT&T and Spanlink
Communications, Inc. dated May 4, 1993 (incorporated by
reference to Exhibit 10.7 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.8 Certification Agreement for Resale of AT&T Voice Processing
Products by Authorized Voice Processing Co-Marketer with
Distinction between the Global Business Communications Systems
unit of AT&T and Spanlink Communications, Inc. dated July 29,
1993; Amendment dated November 30, 1993 (incorporated by
reference to Exhibit 10.8 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.9 Agreement between NCR GmbH and Spanlink Communications, Inc.
dated March 18, 1994 (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
10.10 Maintenance Agreement between State of New York Department of
Labor and Spanlink Communications, Inc. dated May 6, 1993;
Renewal Agreement dated February 13, 1996 (incorporated by
reference to Exhibit 10.10 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.11 Office Lease Agreement between Spanlink Communications, Inc.
and Ryan Companies US, Inc. dated December 6, 1997
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1996).
<PAGE>
Exhibit
Number Description
------ -----------
10.12 Employment Agreement between Spanlink Communications, Inc. and
Patrick P. Irestone dated September 23, 1994; Amendment dated
January 31, 1997 (incorporated by reference to Exhibit 10.12
to the Registration Statement on Form SB-2, Commission File
No. 333-2022-C).*
10.13 Office Lease Agreement between Spanlink Communications, Inc.
and Riverplace Inc. dated August 8, 1994 (incorporated by
reference to Exhibit 10.13 to the Registration Statement on
Form SB-2, Commission File No. 333-2022-C).
10.14 Spanlink Communications, Inc. 1996 Omnibus Stock Plan
(incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form SB-2, Commission File No.
333-2022-C).
10.15 Spanlink Communications, Inc. 1998 Employee Stock Purchase
Plan.*
10.16 Software Acceptance and Distribution Agreement between the
Company and Lucent Technologies, Inc. dated December 31, 1996.
10.17 Software Co-Marketing Agreement between the Company and Lucent
Technologies, Inc. dated December 31, 1996.
10.18 Continuation Agreement between the Company and Lucent
Technologies, Inc., which amends the Software Modification
Agreement between the Company and AT&T dated May 4, 1993.
10.19 FastCall Purchase Agreement between the Company and Aurora
Systems, Inc. dated December 31, 1997.
10.20 Separation Agreement and Release between the Company and
Patrick P. Irestone dated July 15, 1997.
13.1 Audited Financial Statements.
13.2 Portion of the 1997 Annual Report containing Management's
Discussion and Analysis.
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (included in the signature page to the Form
10-KSB).
27.1 Financial Data Schedule; included in electronic filing only.
* Management contract or compensatory arrangement.
SPANLINK COMMUNICATIONS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 ADOPTION BY BOARD OF DIRECTORS. By action of the Board of Directors of
Spanlink Communications, Inc. (the "Corporation") on February 26, 1998
and subject to approval by its shareholders, the Corporation has
adopted an employee stock purchase plan pursuant to which eligible
employees of the Corporation and certain of its Subsidiaries may be
offered the opportunity to purchase shares of Stock of the Corporation.
The terms and conditions of this Plan are set forth in this plan
document, as amended from time to time as provided herein. The
Corporation intends that the Plan shall qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986,
as amended from time to time, (the "Code") and shall be construed in a
manner consistent with the requirements of Code Section 423 and the
regulations thereunder.
1.02 SHAREHOLDER APPROVAL AND TERM. This Plan shall become effective May 1,
1998, and shall terminate on October 31, 2003; provided, however, that
the Plan shall be subject to approval by the shareholders of the
Corporation within twelve (12) months after the Plan was adopted by the
Board or, if earlier, at the next Annual Meeting of the Shareholders,
in the manner provided under Code Section 423 and the regulations
thereunder; and provided, further, that the Board of Directors may
extend the term of the Plan for such period as the Board, in its sole
discretion, deems advisable. In the event that the shareholders fail to
approve the Plan at such annual shareholders' meeting, this Plan shall
not become effective and shall have no force or effect.
ARTICLE II - PURPOSE
2.01 PURPOSE. The primary purpose of the Plan is to provide an opportunity
for Eligible Employees of the Corporation to become shareholders of the
Corporation, thereby providing them with an incentive to remain in the
Corporation's employ, to improve operations, to increase profits and to
contribute more significantly to the Corporation's success.
ARTICLE III - DEFINITIONS
3.01 "ADMINISTRATOR" means the Compensation Committee (the "Committee")
appointed by the Board of Directors. The Administrator may, in its sole
discretion, authorize the officers of the Corporation to carry out the
day-to-day operation of the Plan. In its sole discretion, the Board may
take such actions as may be taken by the Administrator, in addition to
those powers expressly reserved to the Board under this Plan.
<PAGE>
3.02 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
Spanlink Communications, Inc.
3.03 "COMPENSATION" means the Participant's gross cash compensation to be
paid during the Phase, including overtime, commissions and bonuses, but
excluding disability payments, severance pay and other payments
excluded from the definition of "covered compensation" under the
Corporation's qualified retirement plans.
3.04 "CORPORATION" means Spanlink Communications, Inc., a Minnesota
corporation.
3.05 "DISABILITY" means the Participant's inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months, as determined by a physician
acceptable to the Corporation or Subsidiary.
3.06 "ELIGIBLE EMPLOYEE" means any employee who is a full-time or part-time
employee of the Corporation or one of its Subsidiaries and, as of the
date set forth in Section 6.01, has been employed by the Corporation or
Subsidiary for at least thirty (30) days and is customarily employed
for more than twenty (20) hours per week; provided, however, that for
the Phase beginning May 1, 1998, all full-time and part-time employees
of the Corporation who are customarily employed for more than twenty
(20) hours per week shall be eligible.
3.07 "ENROLLMENT PERIOD" means the period determined by the Administrator
for purposes of accepting elections to participate during a Phase from
Eligible Employees.
3.08 "PARTICIPANT" means an Eligible Employee who has been granted an option
and is participating during a Phase through payroll deductions or by
electing to pay a lump sum amount, subject to the limitations set forth
in Section 9.03.
3.09 "PHASE" means the period beginning on the date that the option was
granted, otherwise referred to as the commencement date of the Phase,
and ending on the date that the option is exercised, otherwise referred
to as the termination date of the Phase. Phases shall be numbered
consecutively, beginning with Phase 1.
3.10 "PLAN" means the Spanlink Communications, Inc. 1998 Employee Stock
Purchase Plan.
3.11 "STOCK" means the voting Common Stock of the Corporation.
3.12 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation defined as a
subsidiary of the Corporation in Code Section 424(f), or any successor
provision, as of the
<PAGE>
effective date of the Plan, and such other corporations that qualify as
subsidiaries of the Corporation under Code Section 424(f), or any
successor provision, as the Board approves to participate in this Plan
from time to time.
ARTICLE IV - ADMINISTRATION
4.01 ADMINISTRATION. Except for those matters expressly reserved to the
Board pursuant to any provisions of the Plan, the Administrator shall
have full responsibility for administration of the Plan, which
responsibility shall include, but shall not be limited to, the
following:
(a) The Administrator shall, subject to the provisions of the
Plan, establish, adopt and revise such rules and procedures
for administering the Plan, and shall make all other
determinations as it may deem necessary or advisable for the
administration of the Plan;
(b) The Administrator shall, subject to the provisions of the
Plan, determine all terms and conditions that shall apply to
the grant and exercise of options under this Plan, including,
but not limited to, the number of shares of Stock that may be
granted, the date of grant, the exercise price and the manner
of exercise of an option. The Administrator may, in its
discretion, consider the recommendations of the management of
the Corporation when determining such terms and conditions;
(c) The Administrator shall have the exclusive authority to
interpret the provisions of the Plan, and each such
interpretation or determination shall be conclusive and
binding for all purposes and on all persons, including, but
not limited to, the Corporation and its Subsidiaries, the
shareholders of the Corporation and its Subsidiaries, the
Administrator, the Board, the officers and the employees of
the Corporation and its Subsidiaries, and the Participants and
the respective successors-in-interest of all of the foregoing;
and
(d) The Administrator shall keep minutes of its meetings or other
written records of its decisions regarding the Plan and shall,
upon requests, provide copies to the Board.
<PAGE>
ARTICLE V - PHASES OF THE PLAN
5.01 PHASES. The Plan shall be carried out in one or more Phases of twelve
(12) months each; provided, however, that the first Phase shall
commence May 1, 1998, and shall end on the following October 31, 1998.
Unless otherwise determined by the Administrator, in its discretion,
all other Phases shall commence on November 1 and shall end on the
following October 31 during the term of the Plan. No two Phases shall
run concurrently.
5.02 LIMITATIONS. The Administrator may, in its discretion, limit the number
of shares available for option grants during any Phase as it deems
appropriate. Without limiting the foregoing, in the event all of the
shares of Stock reserved for the grant of options under Section 12.01
is issued pursuant to the terms hereof prior to the commencement of one
or more Phases or the number of shares of Stock remaining is so small,
in the opinion of the Administrator, as to render administration of any
succeeding Phase impracticable, such Phase or Phases may be canceled or
the number of shares of Stock limited as provided herein. In addition,
if, based on the payroll deductions or the lump sum payments elected by
Participants at the beginning of a Phase, the Administrator determines
that the number of shares of Stock which would be purchased at the end
of a Phase exceeds the number of shares of Stock remaining reserved
under Section 12.01 hereof for issuance under the Plan, or if the
number of shares of Stock for which options are to be granted exceeds
the number of shares designated for option grants by the Administrator
for such Phase, then the Administrator shall make a pro rata allocation
of the shares of Stock remaining available in as nearly uniform and
equitable a manner as the Administrator shall consider practicable as
of the commencement date of the Phase or, if the Administrator so
elects, as of the termination date of the Phase. In the event such
allocation is made as of the commencement date of a Phase, the payroll
deductions or lump sum payments which otherwise would have been made by
or on behalf of Participants shall be reduced accordingly.
ARTICLE VI - ELIGIBILITY
6.01 ELIGIBILITY. Subject to the limitations of Section 9.03, each employee
who is an Eligible Employee on the October 1 immediately prior to the
commencement of a Phase shall be eligible to participate in such Phase.
If, in the discretion of the Administrator, any Phase commences on a
date other than November 1, whether an employee is an Eligible Employee
shall be determined on a date selected by the Administrator, which date
shall be at least thirty (30) days prior to the commencement date of
the Phase.
<PAGE>
ARTICLE VII - PARTICIPATION
7.01 PARTICIPATION. Participation in the Plan is voluntary. An Eligible
Employee who desires to participate in any Phase of the Plan must
complete the Plan enrollment form provided by the Administrator and
deliver such form to the Administrator or its designated representative
during the Enrollment Period established by the Administrator prior to
the commencement date of the Phase. The Administrator may, in its
discretion and subject to rules of uniform application, provide that an
Eligible Employee's election to participate in a Phase shall apply to
all subsequent Phases of the Plan.
ARTICLE VIII - PAYMENT
8.01 ENROLLMENT. Each Participant shall designate on the Plan enrollment
form a percentage of such Participant's Compensation to be paid on an
after-tax basis during the Phase. Such percentage shall be at least one
percent (1%) but not more than ten percent (10%) of such Participant's
Compensation to be paid during such Phase, or such other maximum
percentage as the Administrator may establish from time to time, and
must be designated in whole percentages. In order to be effective, such
Plan enrollment form must be properly completed and received by the
Administrator by the due date indicated on such form, or by such other
date established by the Administrator.
Each Participant shall also indicate on the Plan enrollment forms
whether the percentage of Compensation elected by such Participant
shall be paid by payroll deductions during the Phase or in a lump sum
payment prior to the termination of the Phase. Participants must elect
either payroll deductions or a lump sum payment and not a combination
of both payment methods. Participants cannot change the payment method
after the due date for submitting the Plan enrollment form established
by the Administrator.
8.02 PAYROLL DEDUCTIONS. Payroll deductions for a Participant shall commence
on the first paycheck issued for the payroll period which begins on or
immediately after the commencement date of the Phase and shall
terminate on the last paycheck issued for the payroll period which
begins on or immediately prior to the termination date of that Phase,
unless the Participant elects to discontinue payroll deductions or
exercises his or her right to withdraw all accumulated payroll
deductions previously withheld during the Phase as provided in Article
10 hereof. The authorized payroll deductions shall be made over the pay
periods of such Phase by deducting from the Participant's Compensation
for each such pay period that percentage specified by the Participant
in the Plan enrollment form.
<PAGE>
8.03 LUMP SUM PAYMENTS. Unless otherwise determined by the Administrator,
lump sum payments must be received by the Corporation on a date prior
to the termination of the Phase as established by the Administrator,
and must be in such form as approved by the Administrator. If payment
is not made by such due date or is made in an unauthorized form, the
option granted pursuant to Article IX shall lapse in its entirety, and
any amounts paid to the Corporation shall be returned to the
Participant, without interest, as soon as administratively feasible.
During the last month of the Phase, a Participant may decrease the
percentage of his or her Compensation designated to be paid in a lump
sum payment by completing and filing such forms as the Administrator
may require.
8.04 DECREASES DURING A PHASE. In addition to the right to discontinue or
withdraw payroll deductions during a Phase as provided in Article X, a
Participant may decrease the percentage of Compensation designated to
be deducted as payroll deductions during a Phase by completing and
filing such forms as the Administrator may require. Such decrease shall
be effective with the next payroll period beginning after the date that
the Administrator receives such forms and shall apply to all remaining
Compensation paid during the Phase. The Participant may exercise the
right to decrease his or her payroll deductions only once during each
Phase.
8.05 CHANGE IN COMPENSATION DURING A PHASE. In the event that the
Participant elects to make payroll deductions during a Phase and such
Participant's Compensation is discontinued or reduced during the Phase
for any reason, such that the amount actually withheld on behalf of the
Participant as of the termination date of the Phase is less than the
amount anticipated to be withheld as determined on the commencement
date of the Phase, then the extent to which the Participant may
exercise his or her option shall be based on the amounts actually
withheld on his or her behalf. In the event of a change in the pay
period of any Participant, such as from biweekly to monthly, an
appropriate adjustment shall be made to the deduction in each new pay
period so as to insure the deduction of the proper amount authorized by
the Participant.
ARTICLE IX - OPTIONS
9.01 GRANT OF OPTION. Subject to Article X, a Participant who has elected to
participate in the manner described in Article VIII and who is employed
by the Corporation or a Subsidiary as of the commencement date of a
Phase shall be granted an option as of such date to purchase that
number of whole shares of Stock determined by dividing the total amount
to be credited to the Participant's account by the option price per
share set forth in Section 9.02(a) below. The option price per share
for such Stock shall be determined under Section 9.02 hereof, and the
number of shares exercisable shall be determined under Section 9.03
hereof.
<PAGE>
9.02 OPTION PRICE. Subject to the limitations hereinbelow, the option price
for such Stock shall be the lower of the amounts determined under
paragraphs (a) and (b) below:
(a) Eighty-five percent (85%) of the closing price for a share of
the Corporation's Stock as reported on the Nasdaq National
Market, Nasdaq SmallCap Market or on an established securities
exchange as of the commencement date of the Phase; or
(b) Eighty-five percent (85%) of the closing price for a share of
the Corporation's Stock as reported on the Nasdaq National
Market, Nasdaq SmallCap Market or on an established securities
exchange as of the termination date of the Phase.
In the event that the commencement or termination date of a Phase is a
Saturday, Sunday or holiday, or in the event there was no trade of the
Corporation's Stock on such applicable date, the amounts determined
under the foregoing subsections shall be determined using the price as
of the last preceding trading day.
If the Corporation's Stock is not listed on the Nasdaq National Market,
Nasdaq SmallCap Market or on an established securities exchange, then
the option price shall equal the lesser of (i) eighty-five percent
(85%) of the fair market value of a share of the Corporation's Stock as
of the commencement date of the Phase; or (ii) eighty-five percent
(85%) of the fair market value of such stock as of the termination date
of the Phase. Such "fair market value" shall be determined by the
Board.
9.03 LIMITATIONS. No employee shall be granted an option hereunder:
(a) Which permits his or her rights to purchase Stock under all
employee stock purchase plans of the Corporation or its
Subsidiaries to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) of fair market value of such Stock
(determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time;
(b) If such employee would own and/or hold, immediately after the
grant of the option, Stock possessing five percent (5%) or
more of the total combined voting power or value of all
classes of stock of the Corporation or of any Subsidiary. For
purposes of determining stock ownership under this paragraph,
the rules of Section 424(d), or any successor provision, of
the Code shall apply.
(c) Which, if exercised, would cause the limits established by the
Administrator under Section 5.02 to be exceeded.
<PAGE>
9.04 EXERCISE OF OPTION. In addition to a Participant's right of withdrawal
provided in Section 10.01, a Participant may, by written notice to the
Corporation at any time during the last month of the Phase, elect,
effective as of such termination date, not to exercise the option for
any or all of the shares Stock subject to the option or may elect to
reduce the amount of Compensation used to exercise the option, in which
event such option shall be exercised or shall lapse in whole or in part
in accordance with the Participant's election.
If a Participant fails to give such written notice to the Corporation,
such Participant's option for the purchase of the shares of Stock will
be exercised automatically on the termination date of that Phase,
subject to the timely and appropriate receipt of any lump sum payment
elected by such Participant. Except as otherwise provided for lump sum
payments in Section 9.05, in no event shall a Participant be allowed to
exercise an option for more shares of Stock than can be purchased with
the payroll deductions accumulated or lump sum payment made by the
Participant during such Phase, whether or not such amounts are less
than the full percentage amount that such Participant elected to
contribute at the beginning of such Phase.
9.05 DELIVERY OF SHARES. As promptly as practicable after the termination of
any Phase, the Corporation's transfer agent or other authorized
representative shall deliver to each Participant herein certificates
for that number of whole shares of Stock purchased upon the exercise of
the Participant's option. The Corporation may, in its sole discretion,
arrange with the Corporation's transfer agent or other authorized
representative to establish, at the direction of the Participant,
individual securities accounts to which will be credited that number of
whole shares of Stock that are purchased upon such exercise, such
securities account to be subject to such terms and conditions as may be
imposed by the transfer agent or authorized representative.
The shares of the Corporation's common stock to be delivered to a
Participant pursuant to the exercise of an option under Section 9.04 of
the Plan will be registered in the name of the Participant or, if the
Participant so directs by written notice to the Administrator prior to
the termination date of the Phase, in the names of the Participant and
one other person the Participant may designate as his joint tenant with
rights of survivorship, to the extent permitted by law.
Any accumulated payroll deductions or portion of a lump sum payment
remaining after the exercise of the Participant's option shall be
returned to the Participant, without interest, on the first paycheck
issued for the payroll period which begins on or immediately after the
commencement date of next Phase; provided, however, that the
Corporation may, under rules of uniform application, retain such
remaining amount in the Participant's bookkeeping account and apply it
toward the purchase
<PAGE>
of shares of Stock in the next succeeding Phase, unless the Participant
requests a withdrawal of such amount pursuant to Section 10.01.
If the Participant elected to make a lump sum payment and the final
amount of such lump sum payment cannot be determined by the end of the
Phase, the Corporation shall have the right to deduct from the first
paycheck issued for the payroll period which begins on or immediately
after the commencement date of the next Phase any amount that may
remain due and payable for the shares of Stock purchased upon the
exercise of the Participant's option.
ARTICLE X - WITHDRAWAL OR DISCONTINUATION
10.01 WITHDRAWAL. At any time during a Phase, a Participant may request a
withdrawal of all accumulated payroll deductions, or during the last
month of the Phase may request a withdrawal of all lump sum payments,
then credited to the Participant's bookkeeping account by completing
such forms as the Administrator may require and returning such forms to
the Administrator on or before the date established by the
Administrator. As soon as administratively feasible after the
Administrator's receipt of such forms, all payroll deductions or lump
sum payments credited to the bookkeeping account for the Participant
during that Phase will be paid to such Participant, without interest.
No further lump sum payments or payroll deductions will be made by or
on behalf of the Participant in any Phase until the Participant
completes a new Plan enrollment form as provided in Section 8.01 above.
If, during a Phase, the Participant requests a withdrawal, the option
granted to the Participant under that Phase of the Plan shall
immediately lapse and shall not be exercisable. Partial withdrawals are
not permitted, except as permitted in Section 9.04.
10.02 DISCONTINUATION. A Participant may also request that the Administrator
discontinue any further payroll deductions that would otherwise be made
during the remainder of the Phase by completing such forms as the
Administrator may require and by returning such forms to the
Administrator on or before the date established by the Administrator.
The Participant's request shall be effective as of the beginning of the
next payroll period immediately following the date that the
Administrator receives such forms. Upon the effective date of the
Participant's request, the Corporation will discontinue making payroll
deductions for such Participant for that Phase.
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01 TERMINATION. If a Participant's employment terminates with the
Corporation for any reason, voluntarily or involuntarily, including by
reason of death, before the termination date of a Phase, the payroll
deductions or lump sum payments credited to such Participant's
bookkeeping account for such Phase, if any, will be returned to
<PAGE>
the Participant (or, in the case of death, to the Participant's
estate), without interest. If the Participant elected to make a lump
sum payment at the end of the Phase and has not made such payment prior
to termination of employment, such election shall terminate and shall
be of no further force and effect. Any option granted to such
Participant under the Plan shall immediately lapse and shall not be
exercisable. The return of such payroll deductions or lump sum payments
shall be made to the Participant (or to the Participant's estate) as
soon as administratively practicable. In the event that such
termination occurs near the end of a Phase and the Corporation is
unable to discontinue payroll deductions for such Participant for his
or her final paycheck(s), such deductions shall still be made but shall
be returned to the Participant (or his or her estate) as provided
herein. In no event shall the accumulated payroll deductions be used to
purchase any shares of Stock.
If the option lapses as a result of the Participant's death, any
accumulated payroll deductions or lump sum payments credited to the
Participant's bookkeeping account will be paid to the Participant's
estate, without interest. In the event a Participant dies after
exercise of the Participant's option but prior to delivery of the Stock
to be transferred pursuant to the exercise of the option under Section
9.04 above, any such Stock and/or accumulated payroll deductions or
portions of lump sum payments remaining after such exercise shall be
paid by the Corporation to the Participant's estate.
The Corporation will not be responsible for or be required to give
effect to the disposition of any cash or Stock or the exercise of any
option in accordance with any will or other testamentary disposition
made by such Participant or in accordance with the provisions of any
law concerning intestacy, or otherwise. No person shall, prior to the
death of a Participant, acquire any interest in any Stock, in any
option or in the cash credited to the Participant's bookkeeping account
during any Phase of the Plan.
11.02 CHANGE IN SUBSIDIARIES. In the event that any Subsidiary ceases to be a
Subsidiary of the Corporation, the employees of such Subsidiary shall
be considered to have terminated their employment for purposes of
Section 11.01 hereof as of the date the Subsidiary ceased to be a
Subsidiary of the Corporation.
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01 SHARES RESERVED. Two Hundred Thousand (200,000) shares of Stock, which
may be authorized but unissued shares of the Corporation (or the number
and kind of securities to which said 200,000 shares may be adjusted in
accordance with Section 14.01 hereof) are reserved for issuance upon
the exercise of options to be granted under the Plan. Shares subject to
the unexercised portion of any lapsed or expired option may again be
subject to option under the Plan.
<PAGE>
12.02 NO RIGHTS AS SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to the
Participant's option until the date of the issuance of a stock
certificate evidencing such shares as provided in Section 9.05. No
adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property), distributions or other
rights for which the record date is prior to the date such stock
certificate is actually issued, except as otherwise provided in Section
14.01 hereof.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01 BOOKKEEPING ACCOUNT. Payroll deductions and lump sum payments made by
Participants shall be credited to bookkeeping accounts established by
the Corporation for each such Participant under the Plan. A Participant
may not make any other cash payments into such account. Such account
shall be solely for bookkeeping purposes and shall not require the
Corporation to establish any separate fund or trust hereunder. All
funds from payroll deductions and lump sum payments received or held by
the Corporation under the Plan may be used, without limitation, for any
corporate purpose by the Corporation, which shall not be obligated to
segregate such funds from its other funds. In no event shall
Participants be entitled to interest on the amounts credited to such
bookkeeping accounts.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01 ADJUSTMENT OF SHARES FOR CERTAIN EVENTS. Subject to any required action
by the shareholders of the Corporation, in the event of an increase or
decrease in the number of outstanding shares of Stock or in the event
the Stock is changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or another
corporation by reason of a reorganization, merger, consolidation,
divestiture (including a spin-off), liquidation, recapitalization,
reclassification, stock dividend, stock split, combination of shares,
rights offering or any other change in the corporate structure or
shares of the Corporation, the Board (or, if the Corporation is not the
surviving corporation in any such transaction, the board of directors
of the surviving corporation), in its sole discretion, shall adjust the
number and kind of securities subject to and reserved under the Plan
and, to prevent the dilution or enlargement of rights of those Eligible
Employees to whom options have been granted, shall adjust the number
and kind of securities subject to such outstanding options and, where
applicable, the exercise price per share for such securities.
In the event of the sale by the Corporation of substantially all of its
assets and the consequent discontinuance of its business, or in the
event of a merger, exchange,
<PAGE>
consolidation, reorganization, divestiture (including a spin-off),
liquidation, reclassification or extraordinary dividend (collectively
referred to as a "transaction"), after which the Corporation is not the
surviving corporation, the Board may, in its sole discretion, provide
for one or more of the following:
(a) The acceleration of the exercisability of outstanding options
granted at the commencement of the Phase then in effect, to
the extent of the accumulated payroll deductions made as of
the date of such acceleration pursuant to Article 8 hereof,
and, with respect to those Participants who elected to make
lump sum payments, the opportunity to make all or a portion of
such payments for the exercise of their options;
(b) The complete termination of this Plan and a refund of amounts
credited to the Participants' bookkeeping accounts hereunder;
or
(c) The continuance of the Plan only with respect to completion of
the then current Phase and the exercise of options thereunder.
In the event of such continuance, Participants shall have the
right to exercise their options as to an equivalent number of
shares of stock of the corporation succeeding the Corporation
by reason of such transaction.
In the event of a transaction where the Corporation survives, then the
Plan shall continue in effect, unless the Board takes one or more of
the actions set forth above. The grant of an option pursuant to the
Plan shall not limit in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or changes in
its capital or business structure or to merge, exchange or consolidate
or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE XV - NONTRANSFERABILITY OF OPTIONS
15.01 NONTRANSFERABLE. Options granted under any Phase of the Plan shall not
be transferable and shall be exercisable only by the Participant during
the Participant's lifetime. After the Participant's death, the option
shall be exercisable only by the Participant's validly designated
beneficiary or the representative of the Participant's estate as
provided in Article XI.
15.02 ASSIGNMENT OF ACCOUNT PROHIBITED. Neither payroll deductions granted to
a Participant's account, nor any rights with regard to the exercise of
an option or to receive Stock under any Phase of the Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by
the Participant. Any such attempted assignment, transfer, pledge or
other disposition shall be null and void and without effect, except
that the Corporation may, at its option, treat such act as an election
to withdraw in accordance with Section 10.01.
<PAGE>
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01 GENERAL. The Plan may be terminated at any time by the Board of
Directors, provided that, except as permitted in Section 14.01 hereof,
no such termination shall take effect with respect to any options then
outstanding. The Board may, from time to time, amend the Plan as it may
deem proper and in the best interests of the Corporation or as may be
necessary to comply with Code Section 423, or any successor provision,
or other applicable laws or regulations; provided, however, no such
amendment shall, without the consent of a Participant, materially
adversely affect or impair the right of a Participant with respect to
any outstanding option; and provided, further, that no such amendment
shall, unless the shareholders of the Corporation have approved the
same, directly or indirectly:
(a) increase the total number of shares for which options may be
granted under the Plan (except as provided in Section 14.01
herein);
(b) modify the group of Subsidiaries whose employees may be
eligible to participate in the Plan or materially modify any
other requirements as to eligibility for participation in the
Plan; or
(c) materially increase the benefits accruing to Participants
under the Plan.
ARTICLE XVII - NOTICES
17.01 GENERAL. All notices, forms, elections or other communications in
connection with the Plan or any Phase thereof shall be in such form as
specified by the Corporation from time to time, and shall be deemed to
have been duly given when received by the Participant or his or her
personal representative or by the Corporation or its designated
representative, as the case may be.
SOFTWARE ACCEPTANCE AND DISTRIBUTION AGREEMENT
This Agreement is entered into by and between Lucent Technologies Inc., with a
place of business at 211 Mt. Airy Rd., Basking Ridge, New Jersey 07920
(hereinafter called LUCENT) and Spanlink Communications, Inc. with a place of
business at One Main Street SE, Minneapolis, Minnesota 55414 (hereinafter called
SPANLINK).
The effective date of this Agreement shall be the later of the dates this
Agreement has been executed by the respective parties.
ARTICLE 1 - RECITALS
WHEREAS, SPANLINK has the right to license PRODUCT specified in Exhibit A; and
WHEREAS, LUCENT desires to obtain rights to PRODUCT described hereinafter; and
WHEREAS, SPANLINK desires to provide LUCENT with such rights upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and
conditions set forth in this Agreement, the parties agree as follows:
ARTICLE 2 - LICENSE GRANT
A. SPANLINK grants LUCENT, subject to payment terms set forth in Exhibit
B, a nonexclusive, worldwide right and license to use, demonstrate,
market, sub-license, and distribute copies of PRODUCT supplied to
LUCENT by SPANLINK in object code form. SPANLINK also grants to LUCENT
a non-exclusive, royalty-free license to (i) use and reproduce the
PRODUCT for purposes of evaluation by LUCENT and internal LUCENT
acceptance and (ii) reproduce demonstration copies of each PRODUCT
supplied to LUCENT by SPANLINK solely for the purpose of marketing and
promoting the PRODUCT and training customers in its use. For purposes
of this paragraph "demonstration copies" means the version of the
PRODUCT contained in demonstration kits, a master copy of which shall
be supplied to LUCENT at a cost equal to the out of pocket costs paid
by SPANLINK to third parties for the actual development of the master
demonstration copy. All demonstration copies shall be tracked by LUCENT
and shall not be used for resale.
B. The license grants to LUCENT in this Agreement shall extend to any
present or future LUCENT subsidiary or associated company thereof
("LUCENT AFFILIATE"). LUCENT shall use its best efforts to provide
SPANLINK with an up to date list of all LUCENT AFFILIATES selling the
PRODUCT on behalf of LUCENT.
<PAGE>
ARTICLE 3 - REPORTS
LUCENT shall render monthly reports within thirty (30) days from the end of each
calendar month specifying the number of demonstration copies produced and
delivered to potential customers, the number of copies of the PRODUCT and the
number of copies of the documentation delivered to LUCENT's customers during the
previous month.
ARTICLE 4 - AUDIT
SPANLINK shall have the right to engage an independent accounting firm (or with
the consent of LUCENT, SPANLINK may use properly trained SPANLINK employees) to
audit LUCENT's sales information, reporting systems and warranty records
(including those of LUCENT AFFILIATES) to establish the accuracy and timeliness
of reports made to SPANLINK by LUCENT. The information provided to SPANLINK by
the accounting firm shall be limited to the firm's opinion on the accuracy and
timeliness of reports made by LUCENT; in all other cases, the accounting firm
shall be required to hold all information strictly confidential. The audit may
be conducted not more than once a year, and LUCENT shall not unreasonably
withhold its consent to the time of the audit and SPANLINK's choice of
accounting firm. The accounting firm shall be bound by a non-disclosure
agreement in the form to be provided by LUCENT to ensure compliance with this
paragraph and shall provide LUCENT with a copy of its audit report. If the audit
discloses a discrepancy, SPANLINK shall immediately pay LUCENT the amount of any
overpayment made by LUCENT and LUCENT shall immediately pay SPANLINK the amount
of any underpayment.
ARTICLE 5 - RIGHTS TO PRODUCT
Except as specifically set forth in this Agreement and in the Exhibits, all
rights to and interest in the PRODUCT remain the exclusive property of SPANLINK.
No interest in any software, products or materials developed by LUCENT shall
pass to SPANLINK under this Agreement, even though such software, products or
materials may interact with the PRODUCT or be embedded therein, or be
functionally similar to the PRODUCT as long as it does not infringe on any
intellectual property owned by SPANLINK.
ARTICLE 6 - DELIVERABLES
A. SPANLINK agrees to deliver to LUCENT a Golden Master of the PRODUCT
software and product documentation, and the other deliverable items set
forth in Exhibit A. The Source Code for the PRODUCT is subject to the
Escrow Agreement attached hereto as Exhibit E.
B. In addition, SPANLINK shall promptly deliver to LUCENT all PRODUCT
enhancements, improvements, system modifications, updates and new
releases ("enhancements") made available by SPANLINK to any of its
customers at charges mutually agreed upon between the parties. Error
updates and "bug fixes" will be
<PAGE>
delivered at no additional charge. Such Enhancements shall be
considered PRODUCT subject to all terms and conditions of this
Agreement and the Parties agree to amend Exhibit B appropriately to
provide for payment terms for such enhancements.
C. Deliveries by SPANLINK under this Agreement shall be to the LUCENT
facility or to such other address, as may be specified by LUCENT.
ARTICLE 7 - TAXES
If applicable SPANLINK shall pay all taxes, customs duties, levies, and other
similar charges (including any related interest and penalties), however
designated, imposed by any jurisdiction upon the existence or operation of this
Agreement; provided, however, that LUCENT shall reimburse SPANLINK for
applicable U.S., state and local sales and use taxes which are billed as a
separate item, unless LUCENT provides SPANLINK with a valid exemption
certificate. LUCENT shall have the right to have SPANLINK contest with the
imposing jurisdiction, at LUCENT expense, any such taxes that LUCENT deems as
improperly imposed. Notwithstanding anything to the contrary contained herein,
foreign withholding taxes shall not be paid by SPANLINK nor deducted from sales
reported by LUCENT.
ARTICLE 8 - PAYMENTS
A. LUCENT shall provide SPANLINK with reports in accordance with the
provisions of ARTICLE 3 - REPORTS. All payments due to SPANLINK under
this Agreement shall be made on a quarterly basis within thirty (30)
days from the date of the end of the quarter in which the PRODUCT was
sold by LUCENT or a LUCENT AFFILIATE.
B. If LUCENT reproduces copies of demonstration kits pursuant to paragraph
A of ARTICLE 2 - LICENSE GRANT, no payment of any kind shall be due to
SPANLINK for the distribution of such reproduced copies provided such
copies are tracked by LUCENT reported pursuant to ARTICLE 3 - REPORTS
and not used for resale.
ARTICLE 9 - MISCELLANEOUS EXPENSES
LUCENT and SPANLINK shall each pay all travel expenses of its respective
employees, except where reimbursement of travel expenses is specifically agreed
to between the parties in advance. In the latter case, reimbursement shall be
made for reasonable and auditable travel and living expenses for specified
personnel up to a maximum amount to be negotiated between the parties.
ARTICLE 10 - ACCEPTANCE
A. LUCENT shall evaluate the PRODUCT delivered under this Agreement for
compliance with the criteria set forth in Exhibit A, and shall submit a
written acceptance or rejection to SPANLINK within thirty (30) days
after the receipt by LUCENT of the PRODUCT specifying the errors or
defects leading to such rejection if rejected. Such written acceptance
or rejection shall be transmitted to SPANLINK only by LUCENT, Shipment
<PAGE>
to and use of the PRODUCT by a customer shall not be deemed acceptance,
however, payment pursuant to Exhibit B shall be due to SPANLINK for all
PRODUCT shipped to customers whether or not the PRODUCT has been
formally accepted. LUCENT shall have the right to accept portions of
the PRODUCT. If LUCENT does not notify SPANLINK within such 30-day
period of LUCENT'S acceptance or rejection, PRODUCT shall be assumed to
have been accepted.
B. If a PRODUCT evaluated pursuant to paragraph A of this Article is
rejected, SPANLINK agrees to use its best efforts to correct each error
leading to such rejection and the corrected PRODUCT shall be
resubmitted for acceptance testing within thirty (30) days following
receipt of notice from LUCENT of such errors. LUCENT shall have thirty
(30) days after the resubmissions of such corrected PRODUCT to accept
or reject such PRODUCT. If the corrected PRODUCT passes the acceptance
tests, SPANLINK agrees to incorporate the corrections in all future
copies of the PRODUCT provided to LUCENT by SPANLINK. SPANLINK further
agrees to promptly replace any uncorrected PRODUCT previously supplied
to LUCENT under ARTICLE 6 -DELIVERABLES with corrected PRODUCT at no
charge to LUCENT.
C. If the errors in a rejected PRODUCT cannot be corrected within the
period specified in paragraph B of this Article or if a resubmitted
PRODUCT retested by LUCENT during the re-evaluation period is again
rejected, then LUCENT shall, at its option (1) accept the PRODUCT at an
equitable adjustment in price as may be agreed by the parties, in which
case the PRODUCT shall be deemed accepted; (2) afford SPANLINK one or
more extensions to correct the PRODUCT for a period or periods to be
specified by LUCENT without prejudice to LUCENT rights to thereafter
exercise its option under either clause (1) or (3) of this paragraph
without further notice to SPANLINK, if the errors have not been
corrected; or (3) be entitled to a prompt and full refund of all monies
previously paid under this Agreement with respect to such PRODUCT to
the extent that such payments relate to a LUCENT customer who has
returned such PRODUCT for a refund from LUCENT. If option (3) is
exercised, LUCENT may (i) cancel, without charge or obligation, any
pending ORDERS for such PRODUCT, (ii) shall have no further obligation
to SPANLINK under this Agreement as to such PRODUCT (provided, however,
in all events SPANLINK will be entitled to receive and retain all
payments under this Agreement for all such PRODUCT actually delivered
to and retained by LUCENT customers); (iii) and may elect to terminate
this Agreement by written notice to SPANLINK.
ARTICLE 11 - CONTINUING PRODUCT AVAILABILITY
SPANLINK will notify LUCENT, in writing, of any decision to discontinue
production, marketing, licensing or other distribution of PRODUCT for any reason
including, without limitation, the availability of any upgraded, improved, or
changed PRODUCT within thirty (30) days of said decision.
<PAGE>
ARTICLE 12 - MARKETING
LUCENT shall have complete authority to market or not market any of all of the
PRODUCT as it sees fit so long as LUCENT meets the payment obligations set forth
in this Agreement and does not otherwise violate SPANLINK's rights in the
PRODUCT. Nothing in this Agreement shall be construed to obligate LUCENT to in
any way market, distribute, ship or otherwise utilize any PRODUCT or any portion
thereof. Furthermore, should SPANLINK introduce a new version or release of the
PRODUCT, LUCENT may, at its sole option, elect not to distribute the new version
or release any may continue to distribute any or all earlier versions or
releases, including versions obsoleted by SPANLINK. Nothing in this ARTICLE 12 -
MARKETING shall be deemed or construed to obligate SPANLINK to provide
maintenance support beyond that which is otherwise required by this Agreement.
ARTICLE 13 - WARRANTY
SPANLINK warrants to LUCENT and its customers all of the following:
1. The PRODUCT will be free from significant errors, will conform to
and. perform in accordance with the Documentation and will function
properly. The Gold Master Media conveying the PRODUCT will be free from
defects in material and workmanship. The PRODUCT will be compatible
with and may be used in conjunction with other Software as described in
the Documentation. The foregoing warranties extend to the future
performance of the PRODUCT and shall continue for ninety (90) days
after the PRODUCT is installed at LUCENT's customer site.
2. Services will be performed in a first-class, workmanlike manner.
Services mean (1) Maintenance Services and other services in support of
PRODUCT and (2) the subject matter called for by this Agreement and any
specifications, drawings, and samples.
3. Except as disclosed to LUCENT (and for which security codes to
"unlock" have been provided), there are no copy protection or similar
mechanisms within the PRODUCT which will, either now or in the future,
interfere with the grants made in this Agreement.
4. LUCENT and its customers shall have quiet enjoyment of the PRODUCT.
5. As to PRODUCT for which SPANLINK does not solely own all
intellectual property rights, SPANLINK has full right, power and
authority to license the PRODUCT to LUCENT and its customers as
provided in this Agreement.
6. If the PRODUCT, or any portion thereof, is or becomes unusable,
totally, or in any respect during the applicable warranty period, or if
the Services fail to meet the warranties, SPANLINK will re-perform
Services, correct errors, defects and nonconformities and restore the
PRODUCT to conforming condition free of significant
<PAGE>
errors at no cost to LUCENT or its customers. Corrected PRODUCT shall
be warranted as set forth in this ARTICLE 13 - WARRANTY.
7. The PRODUCT does not contain any malicious code, program, or other
internal component (e.g. computer virus, computer worm, computer time
bomb, or similar component), which could damage, destroy, or alter
PRODUCT, firmware, or hardware or which could, in any manner, reveal,
damage, destroy, or alter any data or other information accessed
through or processed by the PRODUCT in any manner. SPANLINK shall
immediately advise LUCENT, in writing, upon reasonable suspicion or
actual knowledge that the PRODUCT provided under this Agreement may
result in the harm described above. SPANLINK's liability to LUCENT and
its customers for any damage resulting from the harm described above
shall be limited to restoring the PRODUCT as set forth in subparagraph
6 above and SPANLINK shall not be liable for any consequential damages
arising therefrom.
8. SPANLINK warrants that PRODUCT will record, store, process and
present calendar dates falling on or after January 1, 2000, in the same
manner and with the same functionality as it performed before January
1, 2000. This maintenance will be considered part of and covered under
the maintenance provisions of this Agreement at no additional charge to
LUCENT.
9. If LUCENT reports a suspected software "bug", SPANLINK will use its
best efforts to resolve the issue. If it is discovered that the "bug"
is not SPANLINK's responsibility, SPANLINK shall be paid for its
efforts at the rates specified in Exhibit D for Post Warranty Tier 4
support.
10. All warranties shall survive inspection, acceptance and payment.
ARTICLE 14 - TRAINING
A. SPANLINK shall make available to LUCENT those training services defined
in Exhibit C of this Agreement on the terms set forth in Exhibit C.
B. LUCENT shall have the right to obtain and distribute course or training
materials described in Exhibit C of this Agreement on the terms set
forth in Exhibit C.
C. LUCENT shall also have a royalty-free license to use, reproduce and
distribute fact sheets, brochures and other promotional literature for
PRODUCT, provided that all of SPANLINK's trademarks and other
proprietary information is adequately designated and protected.
D. LUCENT will be allowed to purchase from SPANLINK all other training
services and training materials developed by SPANLINK relating to the
PRODUCT at a price to be agreed upon between LUCENT and SPANLINK plus
any out of pocket costs incurred by
<PAGE>
SPANLINK to customize such services or materials to be specific to the
PRODUCT or to LUCENT'S needs.
ARTICLE 15 - CUSTOMER LICENSES AND SUPPORT
A. LUCENT is SPANLINK's non-exclusive distributor of the PRODUCT and as
such will pass through to LUCENT customers SPANLINK's end user license
and warranty and shall provide an end user license and warranty
agreement to the customer. All customer licenses for the PRODUCT
resulting from LUCENT marketing activities shall extend directly from
SPANLINK to the customer in question and shall be perpetual for each
such customer.
B. SPANLINK shall not make any representations or warranties which in any
way purport to be binding on LUCENT or any LUCENT AFFILIATE. Any
warranty that SPANLINK extends in its end user agreement in connection
with any PRODUCT furnished or distributed under this Agreement shall
specifically exclude SPANLINK's distributors, including specifically
LUCENT or any LUCENT AFFILIATE, from any liabilities related to such
warranty, and SPANLINK shall further specifically state, in connection
with such warranty, that such distributors assume no responsibility and
make no representation or warranty whatever with regard to the PRODUCT
distributed to such customer.
C. SPANLINK and LUCENT agree that warranty and post-warranty support will
be in accordance with Exhibit D.
D. SPANLINK shall provide Tier 4 Warranty support services for PRODUCT to
LUCENT and its customers, at no charge upon certification by LUCENT
that the PRODUCT is within the ninety (90) day warranty period provided
in ARTICLE 13 - WARRANTY. Such services shall include telephone hot
line and replacement of defective media as set forth in Exhibit D. Post
Warranty Tier 4 support shall be provided by SPANLINK at the rates
specified in Exhibit B and shall be billed by SPANLINK to the
requesting LUCENT organization. All Warranty support will be in U.S.
English language only.
ARTICLE 16 - TERM, TERMINATION AND DEFAULT
A. The term of this Agreement shall be three (3) years from its effective
date unless earlier terminated pursuant to this Agreement. LUCENT and
SPANLINK may mutually agree in writing to extend such term for
successive one (1) year periods. Additionally, either party may
terminate this Agreement if the other party is in default. A party to
this Agreement will be in default if it commits a material breach or if
it ceases normal operations or becomes insolvent.
B. In no event shall either party terminate by reason of any such default
unless written notice detailing such default is given to the other
party. The other party shall thereafter have thirty (30) days after
such written notice to correct such default; or, if said default cannot
<PAGE>
reasonably be corrected within said thirty (30) days, the other party
shall begin substantial corrective action within said thirty (30) days
and shall proceed promptly to correct said default. If such corrective
action is not completed within sixty (60) days after such written
notice, the party not in default i-nay at its option terminate this
Agreement.
C. Upon expiration or termination of this Agreement for any reason, each
party shall return and make no further use of property, materials and
other items (and all copies thereof) belonging to the other party and
relating to this Agreement, unless otherwise mutually agreed to.
D. If this Agreement expires or is terminated for any reason other than
default by SPANLINK, the licenses granted under this Agreement are
terminated, except that:
(i) LUCENT may continue to utilize such licenses to the extent
necessary for LUCENT to fulfill its support and maintenance
obligations, if any, to its existing customers; and
(ii) licenses granted by LUCENT prior to termination of this
Agreement, and LUCENT payment obligations, if any, with
respect to PRODUCT ordered by LUCENT's customers prior to
expiration or termination, shall survive.
LUCENT shall have no obligation for any payments accruing under this
Agreement after such expiration or termination unless LUCENT continues
to market the PRODUCT.
E. Upon termination of this Agreement for reason of default by SPANLINK,
all the licenses granted to LUCENT under this Agreement shall continue
until the end of the term or extension, as the case may be, that would
have been in effect pursuant to paragraph A of this Article in the
absence of such termination for default. Upon the conclusion of such
term or extension, LUCENT rights and obligations with respect to such
licenses shall terminate, except for the surviving items specified in
clauses (i) and (ii) in paragraph D of this Article.
ARTICLE 17 - INDEMNIFICATION
SPANLINK represents and warrants that it now has and will retain the sufficient
right, title and interest in the PRODUCT to make this Agreement. SPANLINK shall
indemnify LUCENT for any loss, damage, expense or liability resulting from, and
agrees to defend at its expense any suit against LUCENT or its customers based
upon, a claim that SPANLINK does not have sufficient right, title, and interest
in any of the PRODUCT to make this Agreement, or that any of the PRODUCT
violates a trade secret or infringes a patent, a copyright or a tradename. Such
indemnity includes, but is not limited to, the amount of any settlement or the
damages and costs (including attorneys' fees, if any) awarded in any such suit.
LUCENT shall promptly notify SPANLINK in writing of any notice of claim or of
threatened or actual suit, and at SPANLINK's request and expense, shall afford
SPANLINK cooperation for the defense or settlement of the same; provided,
however, that SPANLINK shall not make any statement on LUCENT's behalf
<PAGE>
that would constitute an admission against interest by LUCENT, nor enter into
any settlement adversely affecting LUCENT's rights, without the prior written
consent of LUCENT. Upon such settlement, or in the event of an award adverse to
LUCENT in any such action, SPANLINK shall post bond or the security acceptable
to LUCENT in an amount sufficient to assure payment in full of such settlement
or such damages and costs, as the case may be.
In the event an injunction is entered against LUCENT in such suit wherein LUCENT
is enjoined from-using such PRODUCT, SPANLINK shall use its best efforts to
procure for LUCENT the right to continue to use the PRODUCT or replace or modify
such PRODUCT to make them non-infringing. Any such replacement or modification
shall meet substantially the specifications set out in Exhibit A. The provision
of such replacement or modification shall not relieve SPANLINK of the
obligations set forth in the preceding paragraph. The replacement or
modification shall be considered a PRODUCT subject to all terms and conditions
(including acceptance) under this Agreement.
SPANLINK agrees to notify LUCENT immediately if any U.S. or foreign patent is
cited against the PRODUCT or if any legal action of the type contemplated in
this Article is commenced or threatened.
ARTICLE 18 - COPYRIGHT NOTICE
LUCENT will not alter or delete any SPANLINK copyright notice appearing on the
container or a labels of the PRODUCT in object form.
ARTICLE 19 - ASSIGNMENT
SPANLINK shall not assign any right or interest under this Agreement (excepting
monies due or to become due) nor delegate any work or other obligation to be
performed by or owed under this Agreement without the prior written consent of
LUCENT. Any attempted assignment or delegation in contravention of the above
provisions shall be void and ineffective. Any assignment of monies shall be void
and ineffective to the extent that (1) SPANLINK shall not have given LUCENT at
least thirty (30) days prior written notice of such assignment and (2) such
assignment attempts to impose upon LUCENT obligations to the assignee additional
to the payment of such monies, or to preclude LUCENT from dealing solely and
directly with SPANLINK in all matters pertaining to this Agreement including the
negotiation of amendments or settlements of charges due.
ARTICLE 20 - USE OF SPANLINK'S TRADENAME
LUCENT may use SPANLINK's trademarks.. tradenames, and tradedress (hereafter
tradename) in marketing the PRODUCT under the following conditions:
1. In order to enable SPANLINK to maintain control of the use of its
tradename, LUCENT agrees to submit samples of the usage of said
tradename to SPANLINK for its review and approval which approval will
not be unreasonably withheld. PRODUCT and
<PAGE>
materials generated and released by LUCENT will be consistent with the
samples reviewed by SPANLINK.
2. The rights of LUCENT to use any tradename of SPANLINK will cease at
the termination of this Agreement.
3. Use of SPANLINK tradenames by LUCENT will bear no royalty.
4. All rights and goodwill in any SPANLINK tradename will remain with
SPANLINK (except the rights specifically licensed in this Agreement)
and any use by LUCENT of any such tradename will inure to the benefit
of SPANLINK.
SPANLINK shall supply to LUCENT a list of the countries where
SPANLINK's rights to use a tradename have been established by
registration or other appropriate official procedures and will update
such list as appropriate during the term of this Agreement; and if no
registration has been made in any country, SPANLINK shall so state.
LUCENT shall have the option, at its own expense, to seek such
registration in any country on behalf of SPANLINK.
ARTICLE 21 - CONFIDENTIALITY OF THE AGREEMENT
The terms and conditions of this Agreement are confidential and shall not be
disclosed to third parties, without the written agreement of both parties
hereto, except to the extent required by a court or regulatory agency of
competent jurisdiction. LUCENT is allowed to mention in its promotional
literature and advertising that the licensed PRODUCT has been provided to LUCENT
by SPANLINK only after SPANLINK's prior written approval, which shall not be
unreasonably withheld. SPANLINK shall not issue or release for publication any
articles or advertising or publicity matter relating to work under this
Agreement or mentioning or implying the name or identification of LUCENT, any
LUCENT AFFILIATES or any of their respective personnel, unless prior written
approval (which shall not be unreasonably withheld) is granted by LUCENT. The
term "identification" includes any tradename, trademark, service mark, insignia,
symbol or any simulation thereof.
ARTICLE 22 - EXPORT
LUCENT shall not export the PRODUCT, or any other information supplied to LUCENT
by SPANLINK under this Agreement, contrary to the laws of the United States.
SPANLINK shall not export any LUCENT Information, or any other items supplied to
SPANLINK under this Agreement by LUCENT, contrary to the laws of the United
States.
ARTICLE 23 - LUCENT RIGHT TO COMPARABLE PRODUCT
This Agreement does not grant to SPANLINK any exclusive privileges or rights
related to supplying to LUCENT any products or services comparable to the
PRODUCT, and LUCENT may contract with other manufacturers and suppliers for the
development or procurement of such
<PAGE>
comparable products and services so long as LUCENT uses its best efforts to
avoid confusion of SPANLINK's PRODUCT with the products of other manufacturers
and suppliers.
ARTICLE 24 - NOTICES AND REQUESTS
Any notice or request which, under the terms of this Agreement or under any
statute, must or may be given or made by SPANLINK or LUCENT shall be in writing
and shall be given or made by telegram, facsimile or similar communication or by
certified or registered mail addressed to the respective parties as follows:
To: Lucent Technologies Inc.
Global Procurement Organization
211 Mt. Airy Rd.
Basking Ridge, New Jersey 07920
Attn.: Procurement Manager
Copy To: BCS Sourcing Manager
To: Spanlink Communications, Inc.
One Main Street SE
Minneapolis, Minnesota 55414
Attn.: Chief Financial Officer
Such notice or demand shall be deemed to have been given or made when sent by
telegram, facsimile or other communication or when deposited, postage prepaid in
the U.S. mail.
The above addressees may be changed at any time by giving prior written notice
as above provided.
ARTICLE 25 - CONTROLLING LAW
The construction, interpretation and performance of this Agreement and all
transactions under it shall be governed by the laws of the State of New Jersey,
excluding its choice of law rules.
ARTICLE 26 - DISPUTES
A. Any controversy or claim, whether based on contract, tort, strict
liability, fraud, misrepresentation, or any other legal theory, related
directly or indirectly to this Agreement (the "Dispute") shall be
resolved solely in accordance with the terms of this Section.
B. If the Dispute cannot be settled by good faith negotiation between the
parties, LUCENT and SPANLINK will submit the Dispute to non-binding
mediation. If complete
<PAGE>
agreement cannot be reached within thirty (30) days of submission to
mediation, any remaining issues will be resolved by binding arbitration
in accordance with Sections C and D of this Article 26. The Federal
Arbitration Act, 9 U.S.C. Sections I to 15, not state law, will govern
the arbitrability of all Disputes.
C. A single arbitrator who is knowledgeable in the telecommunications
field or in commercial matters will conduct the arbitration. The
arbitrator's decision and award will be final and binding and may be
entered in any court with jurisdiction. The arbitrator will not have
authority to modify or expand any of the provisions of this Agreement.
D. Any mediation or arbitration commenced pursuant to this Agreement will
be conducted under the then current rules of the alternate dispute
resolution (ADR) firm selected by the parties. If the parties are
unable to agree on an ADR firm, the parties will conduct the mediation
and, if necessary, the arbitration under the then current rules and
supervision of the American Arbitration Association (AAA). LUCENT and
SPANLINK will bear its own Attorneys' fees associated with the
mediation and, if necessary, the arbitration. LUCENT and SPANLINK will
pay all other costs and expenses of the mediation/arbitration as the
rules of the selected ADR firm provide.
E. Any Dispute either party has against the other with respect to this
Agreement must be brought in accordance with this Section and must be
brought within two (2) years after the cause of action arises.
ARTICLE 27 - GENERAL
If any of the provisions of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate or render unenforceable
the entire Agreement, but rather the entire Agreement shall be construed as if
not containing the particular invalid or unenforceable provision or provisions,
and the rights and obligations of SPANLINK and LUCENT shall be construed and
enforced accordingly.
Subject to limitations set forth in this Agreement, this Agreement will inure to
the benefit of and be binding upon the parties, their successors,
administrators, heirs and assigns.
ARTICLE 28 - FORCE MAJEURE
The obligations of LUCENT and SPANLINK under this Agreement shall be temporarily
suspended in the event of strikes, riots, war, invasion, fire, explosion,
accident, delays in carriers, acts of God and all other delays beyond the
obligated party's reasonable control, and any failure to perform by that party
as a result of any such interference or interruption shall not be deemed a
default. Performance may be suspended for the period of any such delay. The
party whose performance is suspended shall notify in writing the other party
within fifteen (15) days of such suspension. In the event that the performance
by one party is delayed by at least sixty (60) days for any reason contemplated
in this Article, the other party may elect to terminate this Agreement, or an
ORDER, on written notice.
<PAGE>
ARTICLE 29 - USE OF INFORMATION
Any specifications, drawings, sketches, models, samples, tools, computer or
other apparatus programs, technical or business information or data, written,
oral or otherwise, owned or controlled by LUCENT (Information) furnished to or
acquired by SPANLINK under this Agreement , or in contemplation of this
Agreement, shall remain LUCENT property unless otherwise agreed upon between the
parties. All copies of such Information in written, graphic or other tangible
form shall be returned to LUCENT at its request. Unless such Information was
previously known to SPANLINK free of any obligation to keep it confidential, or
has been or is subsequently made public by LUCENT or a third party, it shall be
kept confidential by SPANLINK, shall be used only in performing under this
Agreement, and may not be used for other- purposes except upon such terms as may
be agreed upon between SPANLINK and LUCENT in writing. Provided, however, LUCENT
specifically agrees that SPANLINK may offer and distribute the U.S. English and
Spanish versions of LUCENT provided basic speech and custom speech prompts
through SPANLINK's other sales and distribution channels.
ARTICLE 30 - CREDITS AND REFUNDS
All credits and refunds to LUCENT from SPANLINK under this Agreement shall,
unless otherwise specified in this Agreement, be made within thirty (30) days of
LUCENT return of PRODUCT to SPANLINK.
ARTICLE 31 - EXCLUSION OF LICENSES
No licenses, express or implied, under any patents or copyrights are granted by
LUCENT to SPANLINK under this Agreement.
ARTICLE 32 - SPANLINK'S INFORMATION
No specifications drawings, sketches, models, samples, tools, computer or other
apparatus programs, technical or business information or data, written oral or
otherwise, furnished by SPANLINK to LUCENT under this Agreement, or in
contemplation of this Agreement shall be considered by SPANLINK and LUCENT to be
confidential or proprietary unless otherwise marked as confidential or
proprietary.
ARTICLE 33 - NON-WAIVER
No course of dealing or failure of either party to strictly enforce any term,
right or condition of this Agreement shall be construed as a waiver of such
term, right or condition.
ARTICLE 34 - INSURANCE AND LIABILITY
SPANLINK shall maintain and cause SPANLINK's subcontractors to maintain during
the term of this Agreement: (1) Workers' Compensation insurance as prescribed by
the law of the state or
<PAGE>
nation in which the work is performed, (2) employer's liability insurance with
limits of at least $300,000 each occurrence, and (3) comprehensive automobile
liability insurance if the use of motor vehicles is required, with limits of at
least $1,000,000 for bodily injury and property damage for each occurrence and
(4) Comprehensive General Liability (CGL) insurance, including Blanket
Contractual Liability, and Broad Form Property damage, with limits of at least
S1,000,000 combined single limit for personal injury and property damage for
each occurrence, and (5) if the furnishing to LUCENT (by sale or otherwise) of
products or material is involved, CGL insurance endorsed to include products
liability and completed operations coverage in the amount of $3,000,000 for each
occurrence. All CGL insurance shall designate LUCENT as an additional insured.
All such insurance must be primary and required to respond and pay prior to any
other available coverage.
SPANLINK agrees that SPANLINK, SPANLINK's insurer(s) and anyone claiming by,
through, under- or in SPANLINK's behalf shall have no claim, right of action or
right of subrogation against LUCENT and its customers based on any loss or
liability insured against under the foregoing insurance. SPANLINK and SPANLINK's
subcontractors shall furnish prior to the start of work certificates or adequate
proof of the foregoing insurance, including copies of the endorsements and
insurance policies. Such insurance policies or endorsements shall provide that
LUCENT be notified in writing at least thirty (30) days prior to cancellation of
or any change in the policy.
All persons furnished by SPANLINK shall be considered solely SPANLINK's
employees or agents, and SPANLINK shall be responsible for payment of all
unemployment, social security and other payroll taxes, including contributions
from them when required by law. SPANLINK agrees to indemnify and save harmless
LUCENT, its affiliates and its customers and their officers, directors,
employees, successors and assigns (all hereinafter referred to as LUCENT) from
and against any losses, damages, claims, demands, suits, liabilities and
expenses (including reasonable attorney's fees) that arise out of or result
from: (1) injuries or death to persons or damage to property, including theft,
in any way arising out of or occasioned by, caused or alleged to have been
caused by or on account of the performance of the work or services performed by
SPANLINK or person furnished by SPANLINK, (2) assertions under Worker's
Compensation or similar acts made by persons furnished by SPANLINK or by a
subcontractor, or by reason of any injuries to such persons for which LUCENT
would be responsible under Worker's Compensation or similar acts if the persons
were employed by LUCENT, or (3) any failure by SPANLINK to perform SPANLINK's
obligations under this Article. SPANLINK agrees to defend LUCENT at LUCENT
request, against any such claim, demand or suit. LUCENT agrees to notify
SPANLINK within a reasonable time of any written claims or demands against
SPANLINK for which SPANLINK is responsible under this Article.
ARTICLE 35 - PLANT RULES AND GOVERNMENT CLEARANCE
All persons furnished by either party shall, while on the premises of the other
party and its customers, comply with all rules and regulations specified by that
party.
<PAGE>
ARTICLE 36 - SURVIVAL OF OBLIGATIONS
SPANLINK's obligations under Articles DELIVERABLES, USE OF INFORMATION,
WARRANTY, INDEMNIFICATION, COMPLIANCE WITH LAWS, and INSURANCE AND LIABILITY,
and both parties' obligations under Articles CONTROLLING LAW, GENERAL, and
RELEASES VOID shall survive expiration or termination of this Agreement.
ARTICLE 37 - EXHIBITS INCORPORATED
Exhibits A through E are included herein and made a part hereof.
ARTICLE 38 - ENTIRE AGREEMENT
This-Agreement shall incorporate the typed or written provisions on LUCENT's
ORDERS issued pursuant to this Agreement, and this Agreement as supplemented by
such provisions shall constitute the entire agreement between the parties with
respect to the subject matter of this Agreement and shall not be modified or
rescinded, except by a writing signed by SPANLINK and LUCENT. Printed provisions
on the reverse side of LUCENT ORDERS and all provisions on SPANLINK's forms
shall be deemed deleted. Additional or different terms inserted in this
Agreement by SPANLINK, or deletions thereto, whether by alternations, addenda,
or otherwise, shall be of no force and effect, unless expressly consented to by
LUCENT in writing. Estimates or forecasts furnished by LUCENT shall not
constitute commitments. SPANLINK has entered into this agreement on their own
business judgment and not in reliance upon any forecasts or estimates provided
by LUCENT THE PROVISIONS OF THIS AGREEMENT SUPERSEDE ALL PRIOR ORAL AND WRITTEN
QUOTATIONS, COMMUNICATIONS, AGREEMENTS AND UNDERSTANDINGS OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement. All signed copies
of this Agreement shall be deemed originals.
SPANLINK COMMUNICATIONS, INC. LUCENT TECHNOLOGIES, INC.
By: /s/ Patrick P. Irestone By: /s/ Jirina Svenkova
Name (Print): Patrick P. Irestone Name (Print): Jirina Svenkova
Title: President and COO Title: Sr. Procurement Specialist
Date: 12/31/96 Date: 12/23/96
SOFTWARE CO-MARKETING AGREEMENT
This Agreement is entered into by and between Lucent Technologies, Inc., with a
place of business at 211 Mt. Airy Rd., Basking Ridge NJ 07920 (hereinafter
called LUCENT) and Spanlink Communications, Inc. with a place of business at One
Main Street SE, Minneapolis, MN 55414 (hereinafter called SPANLINK).
The effective date of this Agreement shall be the later of the dates this
Agreement has been executed by the respective parties.
ARTICLE 1 - RECITALS
WHEREAS, SPANLINK and LUCENT have agreed to the contractual terms regarding
PRODUCT in the "Software Acceptance and Distribution Agreement" dated 12/31/96
and all accompanying Exhibits; and
WHEREAS, SPANLINK and LUCENT have agreed to addition business terms and
co-marketing arrangements regarding said PRODUCT that do not appear in said
Agreement; and
WHEREAS, SPANLINK and LUCENT wish to formalize these business commitments
between said two parties;
NOW, THEREFORE, in considerations of the foregoing recitals and the covenants
and conditions set forth in this Agreement, the parties agree as follows:
ARTICLE 2 - SALES REPORTING
LUCENT shall use its best efforts to provide SPANLINK with marketing demographic
information and general sales information for the purposes of improving the
overall PRODUCT. The information most specifically relevant includes:
* the most recent CONVERSANT Solutions for Definity Call Centers
customer list geographically broken only by customer company
name, city, state and/or country;
* the most recent Customer Assist Care Center CI installation
list geographically broken only by customer company, name,
city, state and/or country;
* quarterly Customer Assist Care Center customer list
geographically broken only by customer company name, city,
state and/or country;
* quarterly analysis of buyer demographics (i.e. type of call
centre, number of employees, size of company, etc.) both
domestically and internationally to the best of LUCENT'S
ability;
* quarterly updated list of LUCENT sales source identities
(direct sales representatives, LUCENT affiliates, LUCENT
distributors, etc.) both domestically as well as
internationally.
<PAGE>
This information shall not be used inappropriately by SPANLINK in any way to
solicit unapproved or unPEC-coded products to these customers. LUCENT will
provide this general information on a quarterly basis and should contain both
domestic as well as international information. Use of this information by
SPANLINK shall be done so in accordance with the rules listed in Article 29 of
the "Software Acceptance and Distribution Agreement" between LUCENT and
SPANLINK.
ARTICLE 3 - QUARTERLY BUSINESS REVIEWS
LUCENT and SPANLINK will conduct quarterly business reviews to discuss sales,
product development, feedback from existing users and strategies and plans for
future marketing and sales as well as other matters relating to this Agreement
and the PRODUCT.
ARTICLE 4 - MARKET RESEARCH
LUCENT will distribute product surveys, written by SPANLINK, to LUCENT's
existing customer base two (2) times per year to assist SPANLINK in conducting
market research on the Customer Assist Care Center product. This research will
assist LUCENT and SPANLINK in determining future needs, requirements and new
features for the Customer Assist Care Center product.
ARTICLE 5 - SALES GENERATION PROGRAMS AND TOOLS
A. LUCENT will conduct two (2) market stimulation programs per year to
sell new Customer Assist Care Center packages or port upgrades.
B. LUCENT will provide a list every six (6) months showing the trade shows
that they will be attending so SPANLINK can prepare for potential
involvement either remotely or in person.
C. SPANLINK will create and LUCENT distribute to all of its sales branches
and account executives a quarterly and/or monthly electronic newsletter
about Customer Assist Care Center.
D. SPANLINK will provide multimedia presentations for sales and trade show
purposes about Customer Assist Care Center.
E. SPANLINK's dial-in Customer Assist Care Center demo will be provided to
LUCENT for sales and trade show purposes.
F. LUCENT will not alter or delete any SPANLINK copyright notice appearing
on the container or on labels of or in any sales tool provided to
LUCENT by SPANLINK.
G. Use of SPANLINK's Tradename in Sales Generation Programs or in Sales
Tools shall be done in consideration of requirements listed in Article
20 of the "Software Acceptance and Distribution Agreement" between
LUCENT and SPANLINK.
ARTICLE 6 - FUTURE PEC-CODED ENHANCEMENT PRODUCT
LUCENT intends to all additional PEC-coded products from SPANLINK to enhance the
Customer Assist Care Center product. The contents of said product could contain
enhancements
<PAGE>
to the different product modules such as the Platform Management Module,
Callback Messaging, or Custom Call Routing or any potential new utilities to the
product such as clock synchronization tools, or Windows 95 interfaces.
ARTICLE 7 - FUTURE PEC-CODED PRODUCTS
LUCENT agrees to give SPANLINK the opportunity to compete for developer rights
to future PEC-coded products within LUCENT such as using our FastPoint Dealer
Locator product within the LUCENT Enterprise Assist family, or using our
PhoneFax product within the LUCENT Customer Assist family, or using our WebCall
product within the Customer Assist family, or using Customer Assist Care Center
for the Merlin Legend call centre, etc. This Article does not guarantee that
SPANLINK's products will be accepted and PEC-coded by LUCENT. Instead, this
Article only guarantee's that SPANLINK will have the opportunity to showcase,
display, and present our products to LUCENT when they are considering a new
PEC-coded product.
ARTICLE 8 - TERM, TERMINATION AND DEFAULT
A. The term of this Agreement shall be in effect as long as the "Software
Acceptance and Distribution Agreement" between LUCENT and SPANLINK is
still active, valid and legally binding. If the "Software Acceptance
and Distribution Agreement" between LUCENT and SPANLINK is terminated
earlier than the scheduled term in that contract, then this Agreement
will also be considered terminated. If the "Software Acceptance and
Distribution Agreement" between LUCENT and SPANLINK is extended for any
period, then this Agreement will also be considered extended.
B. Upon expiration or termination of this Agreement for any reason, each
party shall return and make no further use of property, materials and
other items (and all copies thereof) belonging to the other party and
relating to this Agreement, unless otherwise mutually agreed to.
C. Disputes arising from this Agreement shall be handled in the same
manner as described in Article 26 in the "Software Acceptance and
Distribution Agreement" between LUCENT and SPANLINK.
ARTICLE 9 - ENTIRE AGREEMENT
This Agreement shall constitute the entire agreement between the parties with
respect to the subject matter of this Agreement and shall not be modified or
rescinded, except by a writing signed by LUCENT and SPANLINK. Additional or
different terms inserted in this Agreement by SPANLINK or LUCENT, or deletions
thereto, whether by alterations, addenda, or otherwise, shall be of no force and
effect, unless expressly consented to by LUCENT or SPANLINK in writing. The
provisions of this Agreement supersede all prior oral and written
communications, agreements and understandings of the parties with respect to the
subject matter of this agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement. All signed copies
of this Agreement shall be deemed originals.
SPANLINK COMMUNICATIONS, INC. LUCENT TECHNOLOGIES, INC.
By: /s/ Patrick P. Irestone By /s/ Steven Feldman
Name (Print): Patrick P. Irestone Name (Print): Steven Feldman
Title: President and COO Title: Call Center Offer Manager
Date: 12/31/96 Date: 12/23/96
CONTINUATION AGREEMENT
THIS CONTINUATION AGREEMENT is entered into by and between Lucent
Technologies, Inc., with a place of business at 211 Mt. Airy Rd., basking Ridge,
NJ 07920 (hereinafter called "LUCENT") and Spanlink Communications, Inc., with a
place of business at One Main Street SE, Minneapolis, MN 55414 (hereinafter
called "SPANLINK").
WHEREAS, LUCENT has succeeded to the interest of American Telephone and
Telegraph Company ("AT&T") in and to that certain Software Modification
Agreement by and between AT&T and SPANLINK executed by both companies on May 4,
1993 and sometimes referred to as "Agreement No. SP1" (herein referred to as the
"1993 Agreement").
WHEREAS, LUCENT and SPANLINK have entered into other agreements and
have other continuing business relationships subsequent to the 1993 Agreement
and desire to clarify and modify the terms on which the 1993 Agreement and
subsequent agreements and business arrangements between SPANLINK and LUCENT.
NOW, THEREFORE, in consideration of the foregoing and the agreements
hereinafter contained, the parties hereto agree as follows:
1. The 1993 Agreement shall remain in full force and effect with
respect to Existing Products and Modified Products as described therein except
as set forth in Paragraph 2 hereof.
2. Exhibit B to the 1993 Agreement shall be modified by deleting
therefrom the section entitled "POST WARRANTY FEE". In lieu thereof, LUCENT and
SPANLINK agree that all post warranty support provided with respect to Existing
Products or Modified Products distributed pursuant to the 1993 Agreement shall
be on a time and materials basis at current rates and prices.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
LUCENT TECHNOLOGIES, INC.
By
--------------------------
Its
----------------------
SPANLINK COMMUNICATIONS, INC.
By /s/ Patrick P. Irestone
Its President and COO
FASTCALL PURCHASE AGREEMENT
DECEMBER 31, 1997
SPANLINK COMMUNICATIONS, INC.
BUYER
AND
AURORA SYSTEMS, INC.
SELLER
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. PURCHASE OF FASTCALL: ASSUMPTION OF LIABILITIES...................
1.1 Purchase of Assets from Seller..........................................1
1.2 Royalty-Free License....................................................2
1.3 Sales, Use and Deed Taxes...............................................2
1.4 Assumption of Liabilities...............................................3
1.5 Warranty Obligations....................................................3
ARTICLE 2. PURCHASE PRICE AND- PAYMENT........................................3
2.1 Purchase Price..........................................................3
2.2 Payment of Purchase Price...............................................4
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLER...........................5
3.1 Organization............................................................5
3.2 Qualification...........................................................5
3.3 Financial Information...................................................5
3.4 Tax Reports, Returns and Payment........................................6
3.5 Title and Sufficiency of Assets.........................................6
3.6 Trademarks..............................................................6
3.7 Patents.................................................................6
3.8 Licenses and Permits....................................................6
3.9 Agreements, Contracts and Commitments..................................6
3.10 Change In Customers....................................................7
3.11 Product Warranty Claims................................................7
3.12 Litigation, Adverse Claims and Related Matters.........................7
3.13 Laws and Regulations...................................................7
3.14 Breaches of Contracts; Required Consents...............................7
3.15 Binding Obligation.....................................................7
3.16 Commissions or Finder's Fees...........................................8
3.17 Employee Agreements....................................................8
3.18 Completeness of Disclosure.............................................8
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER............................8
4.1 Organization............................................................8
4.2 Qualification...........................................................9
4.3 Corporate Authority.....................................................9
4.4 Financial Information...................................................9
4.5 Licenses and Permits....................................................9
4.6 Litigation, Adverse Claims and Related Matters..........................9
4.7 FastCall Resources......................................................9
4.8 Breaches of Contracts: Required Consents................................9
4.9 Binding Obligation.....................................................10
4.10 Commissions or Finder's Fees..........................................10
4.11 Completeness of Disclosure............................................10
ARTICLE 5. CONDUCT OF BUSINESS AND TRANSACTIONS PRIOR TO CLOSING.............10
5.1 Access to Information..................................................10
5.2 Restrictions in Operation of the Business..............................10
<PAGE>
5.3 No Solicitation of Other Offers........................................11
5.4 Confidentiality Agreement..............................................11
5.5 Offer of Employment....................................................13
5.6 Cash Payment...........................................................13
ARTICLE 6. CONDITIONS OF CLOSING; ABANDONMENT OF TRANSACTION.................13
6.1 Conditions to Obligations of Buyer to Proceed on the Closing Date......13
6.2 Conditions to Obligation of Seller to Proceed on the Closing Date......15
6.3 Termination of Agreement...............................................16
6.4 Consequences of Termination............................................16
ARTICLE 7. CLOSING...........................................................17
7.1 Closing................................................................17
7.2 Documents to be -Delivered by Seller...................................17
7.3 Documents Delivered by Buyer...........................................17
ARTICLE 8. POST CLOSING OBLIGATIONS..........................................18
8.1 Covenant Not to Compete................................................18
8.2 Further Documents and Assurances.......................................18
8.3 Consulting.............................................................19
8.4 Accounts Receivable....................................................19
8.5 Un-Invoiced Sales......................................................19
8.6 Fleet Capital Corporation Releases.....................................19
ARTICLE 9. INDEMNIFICATION...................................................19
9.1 Indemnification by Seller..............................................20
9.2 Seller's Limitation of Liability.......................................20
9.3 Indemnification by Buyer...............................................20
9.4 Buyer's Limitation of Liability........................................20
9.5 Limitations on Indemnification.........................................21
9.6 Third Party Claims.....................................................21
ARTICLE 10. GENERAL..........................................................21
10.1 Assignment............................................................22
10.2 Counterparts..........................................................22
10.3 Exhibits..............................................................22
10.4 Notices...............................................................22
10.5 Successors and Assigns................................................22
10.6 Expenses..............................................................22
10.7 Entire Agreement......................................................22
10.8 Modification and Waiver...............................................23
10.9 Publicity.............................................................23
10.10 Governing Law........................................................23
10.11 Knowledge............................................................23
10.12 Benefit..............................................................23
10.13 Comdial Corporation..................................................23
<PAGE>
LIST OF EXHIBITS
Exhibit 1.1(a) List of Names, Assumed Names, Tradenames and Trademarks of Seller
Exhibit 1.1(b) List of Patents
Exhibit 1.1(d) Accounts Receivable
Exhibit 1.1(c) Computer Programs and Software
Exhibit 1.1(f) FastCall Licenses and Permits
Exhibit 1.1(g) FastCall Contracts and Customers
Exhibit 3.3 Seller Financial Information
Exhibit 3.4 Tax Reports, Returns and Payments
Exhibit 3.5 Seller Encumbrances on Assets
Exhibit 3.8 Consents Required to Assign Licenses
Exhibit 3.14 Other Required Consents
Exhibit 4.4 Buyer Financial Information
Exhibit 5.5 Seller Assisted Signing Bonus
<PAGE>
FASTCALL PURCHASE AGREEMENT
DATE: December 31, 1997
PARTIES: Spanlink Communications, Inc.
7125 Northland Terrace
Brooklyn Park, MN 55428 ("Buyer")
Aurora Systems, Inc.
33 Nagog Park
Acton, MA 01729 ("Seller")
RECITALS:
A. Seller has developed and is distributing and selling a computer
telephone integration product known as FastCall ("FastCall") which provides a
personal computer with Windows desktopbased screen pops, and an NT server-based
version of FastCall which provides call functionality, known as FastCall Central
("FastCall Central"). FastCall and FastCall Central are sometimes referred to
collectively as the "FastCall Products."
B. The parties mutually desire that Seller shall sell to Buyer and the
Buyer shall purchase from the Seller the FastCall Products and related business
assets, upon the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT:
In consideration of the mutual provisions, representations, warranties,
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1.
PURCHASE OF FASTCALL; ASSUMPTION OF LIABILITIES
1.1 Purchase of Assets from Seller. Subject to the terms and conditions
hereof, Seller agrees on the Closing Date (as hereinafter defined) to assign,
sell, transfer, convey and deliver or license to Buyer, and Buyer agrees on the
Closing Date to purchase or otherwise acquire from Seller, the FastCall Products
and all of the intangible personal property, business records, customer lists,
contract rights and goodwill of Seller related to the FastCall Products,
wherever the same may be located (collectively referred to as the "Purchased
Assets"), including, without limitation, the following:
(a) All names and assumed names under which Seller develops,
markets and sells the FastCall Products, all tradenames, trademark or
service mark registrations and
<PAGE>
applications, common law trademarks, including but not limited to those
identified on Exhibit 1.1(a) hereto, and all goodwill associated
therewith (the "FastCall Trademarks");
(b) Subject to the provisions of Section 1.2 hereof, all
domestic and foreign letters patent, patent applications, and patent
and know-how licenses, including but not limited to those identified on
Exhibit 1.1(b) hereto but excluding the license agreement between
Seller and Syntellect Technology Corp. effective as of February 12,
1996 (the "Syntellect License") ("Patents"), together with copies of
Seller's legal files and other background information relating to any
such Patents;
(c) All technology, know-how, trade secrets, designs, computer
source code, copyrights (including all registrations and applications
therefor), related to the FastCall Products, including all documentary
evidence thereof, and the computer programs and software (the "Computer
Programs") listed on Exhibit 1.1(c) (the "FastCall Technology");
(d) All rights to accounts receivable from sales of the
FastCall Products invoiced in the calendar quarter commencing October
1, 1997 and ending December 31, 1997 (the "Fourth Quarter,), which are
in excess of One Hundred Ninety Thousand Two Hundred Fifty Three
Dollars and Fifty Cents ($190,253.50) (the "Excess Accounts
Receivable"), but no rights to the other accounts receivable of Seller
whether or not invoiced in the Fourth Quarter.
(e) All rights to payment for sales of the FastCall Products
in the Fourth Quarter which have not been invoiced to customers as of
the Closing (the "Un-Invoiced Sales"), including the un-invoiced sale
to Lucent Technologies (NJ) identified on Exhibit 1.1(d).
(f) All permits, licensing approvals and notifications,
governmental or otherwise, relating to the FastCall Products (the
"FastCall Licenses and Permits"), including those listed on Exhibit
1.1(f); and
(g) All contract rights (except any real estate leases and
personal property leases) relating to the FastCall Products (the
"FastCall Contracts"), including those rights pursuant to the contracts
described in Exhibit 1.1(g).
1.2 Royalty-Free License. At the Closing, Buyer shall grant to Seller
and Comdial Corporation a royalty-free non-exclusive license to use the Patents
for any purposes that do not conflict with the express provisions of this
Agreement.
1.3 Sales, Use and Deed Taxes. Seller shall be responsible for payment
of any sales, use or deed taxes assessable with respect to the transfer of the
Purchased Assets contemplated herein.
<PAGE>
1.4 Assumption of Liabilities. Buyer agrees to assume the obligations
of Seller which arise from and after the Closing under the FastCall Licenses and
Permits, including those listed on Exhibit 1.1(f), and under the FastCall
Contracts, including those listed on Exhibit 1.1(g).
1.5 Warranty Obligations. Buyer agrees to assume the remainder of the
Seller's existing warranty obligations arising in the normal course of Seller's
business with respect to the FastCall Products sold by it prior to the Closing.
ARTICLE 2.
PURCHASE PRICE AND- PAYMENT
2.1 Purchase Price. The purchase price for the Purchased Assets
("Purchase Price") shall be paid as royalties computed with reference to sales
revenue invoiced by Buyer from the sale, distribution or licensing of the
FastCall Products and all enhancements, upgrades, modifications and improvements
thereto or derivatives thereof and including replacement products developed by
Buyer (collectively the "Royalty Products"), and shall be determined as follows:
(a) Calculation of Purchase Price. Buyer shall pay to Seller
as and for the actual Purchase Price an amount of royalties
("Royalties") based on sales revenue invoiced by Buyer from sales of
the Royalty Products ("FastCall Revenues"). The Purchase Price shall
be equal to twenty-five percent (25%) of all FastCall Revenues (i)
invoiced by Buyer during the period commencing on the Closing Date
and ending December 31, 2000, and (ii) invoiced or received by Buyer
from Excess Accounts Receivable pursuant to Section 1.1(d) and from
Un-Invoiced Sales pursuant to Section 1.1(f), plus fifteen percent
(15%) of all FastCall Revenues invoiced by Buyer during the period
commencing on January 1, 2001 and ending December 31, 2002.
(b) Minimum and Maximum Limits of Purchase Price. The total
Purchase Price shall be no less than Six Hundred Thousand Dollars
($600,000) (the "Minimum Purchase Price") and no greater than One
Million One Hundred Thousand Dollars ($1,100,000) (the "Maximum
Purchase Price").
(c) Allocation of Sales Revenue. The parties acknowledge and
agree that the FastCall Products may be integrated with other
products ("Replacement Products") sold by Buyer in the generation of
FastCall Revenues. In such event Buyer shall determine the portion of
the total sales revenue from each Replacement Product that is
properly allocable to the FastCall Products and shall provide Seller
with information regarding the amount and method of such allocation.
(i) Except in the case set forth in clause (ii)
below, the revenue from each such Replacement Product
allocated to the FastCall Products (the "Allocated Revenue")
shall be at least eighty percent (80%) of the lowest price at
which
<PAGE>
Buyer invoiced sales of the FastCall Products on a stand alone
basis during the twelve (12) month period (the "Look Back
Period") preceding the sale of each such Replacement Product.
In the event there are no sales of the FastCall Products
during the relevant Look Back Period, the Allocated Revenue
for the sale of Replacement Products shall be deemed to be an
amount equal to the last calculated Allocated Revenue
immediately preceding the Look Back Period.
(ii) In case the value of the FastCall Products
integrated into a Replacement Product is less than forty
percent (40%) of the value of the Replacement Product, the
Allocated Revenue with respect to such Replacement Product
shall be at least forty percent (40%) of the lowest price at
which Buyer invoiced sales of the FastCall Products on a stand
alone basis during the Look Back Period. In the event there
are no sales of the FastCall Products during the relevant Look
Back Period, the Allocated Revenue for the sale of Replacement
Products shall be deemed to be an amount equal to the last
calculated Allocated Revenue immediately preceding the Look
Back Period.
(iii) Nothing herein shall give Seller any right,
express or implied, to set sales prices or royalty rates with
respect to the Royalty Products, all of such rights being
reserved to Buyer, in Buyer's sole discretion.
(d) In determining the FastCall Revenue during each calendar
quarter, Buyer shall be entitled to reduce such revenue by returns
and sales allowances that are recorded on Buyer's books or records as
a reduction of sales during such calendar quarter in the ordinary
course of business and in accordance with generally accepted
accounting principles, but only to the extent previously included in
FastCall Revenues on which Royalties have been paid to the Seller.
2.2 Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(a) Cash Payment. Buyer shall deliver to Seller at the Closing
an advance payment to be applied to the Purchase Price of One Hundred
Thousand Dollars ($100,000), less the amount of any payments or
credits due to Buyer from Seller at the Closing, by wire transfer to
a bank account designated by Seller.
(b) Payment of Balance of the Purchase Price. The balance of
the Purchase Price remaining after the credit of One Hundred Thousand
Dollars ($100,000) arising out of the cash payment made pursuant to
Section 2.2(a) shall be paid in quarterly installments, paid within
thirty (30) days after the end of each calendar quarter in which
FastCall Revenues were invoiced, in accordance with the following:
(i) The first of such payments shall be made with
respect to the calendar quarter ending March 31, 1998 and the
last of such payments shall be made with respect to the
calendar quarter ending December 31, 2002 (the "Payment
Period").
<PAGE>
(ii) Each quarterly payment shall be in the amount of
the specified percentage of the aggregate FastCall Revenues
invoiced in such calendar quarter, except that the credit of
One Hundred Thousand Dollars ($100,000) arising out of the
cash payment made pursuant to Section 2.2(a) shall be applied
to the payment of that portion of the Purchase Price between
Five Hundred Thousand Dollars ($500,000) and Six Hundred
Thousand Dollars ($600,000).
(iii) In the event the aggregate amount of the
payments made towards the Purchase Price during the Payment
Period (the "Total Payment Amount") is less than the Minimum
Purchase Price, the Buyer will pay to Seller promptly at the
end of the Payment Period an amount equal to the difference
between the Minimum Purchase Price and the Total Payment
Amount.
(iv) The Payment Period shall terminate upon full
payment of the Maximum Purchase Price.
(c) Records Inspection. Seller shall have the right, at
reasonable times and upon reasonable notice, for its employees or
agents to inspect the records of the Buyer with respect to the
Royalty Products, for the purpose of verifying any allocations of
sales revenue made by the Buyer and the determinations of FastCall
Revenues and Royalties.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller makes the following representations and warranties to Buyer with
the intention that Buyer may rely upon the same and acknowledges that the same
shall be true on the date hereof and as of the Closing Date (as if made at the
Closing) and shall survive the Closing of this transaction for a period of
twelve (12) months after the Closing Date.
3.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has all
requisite power and authority, corporate and otherwise, to own its properties
and assets and to conduct its business as it is now conducted.
3.2 Qualification. Seller is qualified to do business and is in good
standing as a foreign corporation in all states in which qualification is
required by the nature of its business and in which the failure to so qualify
and be in good standing would have a material adverse effect on the Purchased
Assets.
3.3 Financial Information. To the best knowledge of Seller, Seller has
furnished Buyer with the financial information attached hereto as Exhibit 3.3,
which is true and complete. In addition, Seller agrees to furnish to Buyer
within sixty (60) days of Closing audited financial statements of Aurora
Systems, Inc. for periods required by the rules and regulations of the
<PAGE>
Securities and Exchange Commission (the "SEC") or as reasonably required by
Buyer's independent certified public accountants based on their interpretation
of the SEC requirements. The cost to provide such audited financial statements
or other financial information will be divided equally between Buyer and Seller.
3.4 Tax Reports, Returns and Payment. To the best knowledge of Seller,
Seller (or Comdial Corporation on behalf of Seller, through consolidated tax
returns) has accurately prepared and timely filed all federal and applicable
state, local, and foreign tax or assessment reports and returns of every kind
required to be filed by Seller with relation to its business, including, without
limitation, income tax, sales and use tax, real estate tax, personal property
tax and unemployment tax, and has duly paid all taxes and other charges
(including interest and penalties) due to or claimed to be due by any taxing
authorities, except as disclosed in Exhibit 3.4 attached hereto. Where required,
timely estimated payments or installment payments of tax liabilities have been
made to all governmental agencies in amounts sufficient to avoid underpayment
penalties or late payment penalties applicable thereto.
3.5 Title and Sufficiency of Assets. Seller holds title to the
Purchased Assets free and clear of all liens, encumbrances, licenses or leases,
except for the liens and security interests (the "Fleet Liens") disclosed in
Exhibit 3.5. The Purchased Assets are sufficient for Buyer to market, sell,
service and support the FastCall Products as marketed and sold at the Closing,
except to the extent, if any, the Syntellect License is required or necessary to
make this representation true and correct.
3.6 Trademarks. Seller has good title to the assumed names and the
FastCall Trademarks listed on Exhibit 1.1(a), free and clear of all liens and
encumbrances, except as disclosed in Exhibit 3.5. Such FastCall Trademarks are
not licensed to or licensed from any other person or entity.
3.7 Patents. Seller has good title to the Patents listed on Exhibit
1.1(b) hereto, free and clear of all liens and encumbrances except as set forth
on Exhibit 3.5.
3.8 Licenses and Permits. Seller possesses all permits, licenses,
approvals and notifications, governmental or otherwise, the absence of which
would have a material adverse effect on the Purchased Assets. Buyer acknowledges
that it is not taking an assignment of the Syntellect License, which is one of
the licenses that Seller possesses. Seller makes no representation as to whether
the absence of the Syntellect License would have a material adverse effect on
the Purchased Assets. Except as disclosed on Exhibit 3.8, all of such licenses
and permits are freely assignable and transferable to Buyer at the Closing and
will continue to be in full force and effect after such transfer.
3.9 Agreements, Contracts and Commitments. Except as disclosed on
Exhibit 3.5 or on other Exhibits attached hereto, Seller is not a party to or
bound by any written agreement relating to the Purchased Assets, nor does Seller
have any knowledge of any claims made by parties to the FastCall Contracts.
<PAGE>
3.10 Change In Customers. To Seller's best knowledge, no significant
customer, including but not limited to those customers listed in Exhibit 1.1(g),
intends to cease doing business with Seller or materially alter the amount of
business with Seller.
3.11 Product Warranty Claims. The FastCall Products have been
merchantable and free from material defects in material or workmanship for the
term and under the conditions set forth in Seller's standard written limited
product warranty for its FastCall Products. Except for product warranty claims
in the ordinary course of business, during the last three (3) years Seller has
not received any claims based upon an alleged breach of product warranty arising
from Seller's sale of its FastCall Products (hereafter collectively referred to
as "Product Warranty Claims"). Seller has no reasonable grounds to believe that
future Product Warranty Claims with respect its FastCall Products prior to the
Closing Date will be different from Seller's past experience with respect
thereto as set forth herein.
3.12 Litigation, Adverse Claims and Related Matters. There is no
pending litigation (nor, to Seller's knowledge, any threatened litigation or any
claim which may lead to a threat of litigation), proceeding, or investigation
(including any environmental, building or safety investigation) relating to any
material aspect of the Purchased Assets, nor is Seller subject to any existing
judgment, order or decree which would prevent, impede, or make illegal the
consummation of the transactions contemplated in this Agreement or which would
have a material adverse effect on the Purchased Assets.
3.13 Laws and Regulations. Seller has complied, and is in compliance on
the Closing Date, with all applicable laws, statutes, orders, rules, regulations
and requirements promulgated by governmental or other authorities relating to
the Purchased Assets, the failure of which would have a material adverse effect
on the Purchased Assets. Seller has not received any notice of any sort of
alleged violation of any such statute, order, rule, regulation or requirement.
3.14 Breaches of Contracts; Required Consents. Neither the execution
and delivery of this Agreement by Seller, nor compliance by Seller with the
terms and provisions of this Agreement will, except as otherwise disclosed
herein or in any Exhibit attached hereto:
(a) Conflict with or result in a breach of (i) any of the
terms, conditions or provisions of the Certificate of Incorporation,
Bylaws or other governing instruments of Seller, (ii) any judgment,
order, decree or ruling to which Seller is a party, (iii) any
injunction of any court or governmental authority to which Seller is
subject, or (iv) any agreement, contract or commitment which is
material to the Purchased Assets; or
(b) Except as disclosed in Exhibit 3.14 hereto, require the
affirmative consent or approval of any third party, the absence of
which would have a material adverse effect on the Purchased Assets.
3.15 Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of Seller in accordance with the terms hereof. Seller has
all requisite corporate power and authority, including the approval of its
Shareholders and Board of Directors, to execute
<PAGE>
perform, carry out the provisions of and consummate the transactions
contemplated in this Agreement.
3.16 Commissions or Finder's Fees. Seller has not engaged any broker or
finder in connection with the transaction contemplated herein.
3.17 Employee Agreements. Seller has no knowledge that any current or
former employee of Seller has violated any confidentiality agreements.
3.18 Completeness of Disclosure. To Seller's knowledge, no
representation in this Article contains any untrue statement of a material fact
or omits to state any material fact the omission of which would be misleading.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller,
with the intention that Seller may rely upon the same, and acknowledges that the
same shall be true as of the Closing Date (as if made at the Closing) and shall
survive the Closing of this transaction for a period of twelve (12) months after
the Closing Date..
4.1 Organization. Buyer is a corporation, duly organized, validly
existing in good standing under the laws of the State of Minnesota, and has all
requisite power and authority, corporate and otherwise, to own its properties
and assets and conduct its business as it is now conducted.
4.2 Qualification. Buyer is qualified to do business and is good
standing as a foreign corporation in all states in which qualification is
required by the nature of its business and in which the failure to so qualify
and be in good in standing would have a material adverse effect on its business.
4.3 Corporate Authority. Buyer has all requisite power and authority,
including the approval of its Board of Directors, to execute, perform, carry out
the provisions in this Agreement.
4.4 Financial Information. Buyer has furnished Seller with the
financial information attached hereto as Exhibit 4.4, true and complete.
4.5 Licenses and Permits. Buyer possesses, or from and after the
Closing Date will possess, all permits, licenses, approvals and notifications,
governmental or otherwise, the absence of which would have a material adverse
effect on its business after consummation of the transactions contemplated in
this Agreement.
<PAGE>
4.6 Litigation, Adverse Claims and Related Matters. There is no pending
litigation (nor, to Buyer's knowledge, any threatened litigation or any claim
which may lead to a threat of litigation), proceeding, or investigation
(including any environmental, building or safety investigation) relating to any
material aspect of Buyer's business, nor is Buyer subject to any existing
judgement, order or decree which would prevent, impede, or make illegal the
consummation of the transactions contemplated in this Agreement or which would
have a material adverse effect on Buyer's business.
4.7 FastCall Resources. Buyer has sufficient resources to market and
sell the Royalty Products, and will use all reasonable efforts in light of
market conditions generally prevailing from time to time to generate revenues
from the sale, distribution or licensing of Royalty Products.
4.8 Breaches of Contracts: Required Consents. Neither the execution and
delivery of this Agreement by Buyer, nor compliance by Buyer with the terms and
provisions of this Agreement, will:
(a) Conflict with or result in a breach of. (i) any of the
terms, conditions or provisions of the Articles of Incorporation,
Bylaws or other governing instruments of Buyer, (ii) any judgment,
order, decree or ruling to which Buyer is a party, (iii) any injunction
of any court or governmental authority to which it is subject, or (iv)
any agreement, contract or commitment which is material to the
financial condition of Buyer; or
(b) Require the affirmative consent or approval of any third
party.
4.9 Binding Obligation. This Agreement constitutes the legal, valid and
binding obligation of Buyer in accordance with the terms hereof. Buyer is not
subject to any charter, mortgage, lien, lease, agreement, contract, instrument,
law, rule, regulation, order, judgment or decree, or any other restriction of
any kind or character, which would prevent the consummation of the transactions
contemplated in this Agreement.
4.10 Commissions or Finder's Fees. Buyer has not engaged any broker or
finder in connection with the transactions contemplated herein.
4.11 Completeness of Disclosure. No representation in this Article
contains any untrue statement of a material fact or omits to state any material
fact the omission of which would be misleading.
<PAGE>
ARTICLE 5.
CONDUCT OF BUSINESS AND TRANSACTIONS PRIOR TO CLOSING
5.1 Access to Information. During the period prior to the Closing,
Seller shall give to Buyer and its attorneys, accountants or other authorized
representatives, full access to all of the property, books, contracts,
commitments and records relating to the Purchased Assets and shall furnish to
Buyer during such period all such information concerning the Purchased Assets as
Buyer reasonably may request. Buyer shall have the right to contact Seller's
employees regarding the Purchased Assets for the purposes of gathering
information about the Purchased Assets and of discussing employment
opportunities with Buyer.
5.2 Restrictions in Operation of the Business. Seller represents and
covenants that during the period from the date of this Agreement to the Closing
(except as Buyer otherwise has consented or may consent in writing):
(a) The Seller's business will be conducted only in the usual
and ordinary manner insofar as it relates to the Purchased Assets.
(b) Seller will not sell, dispose, transfer, assign or
otherwise remove any of the Purchased Assets except inventory in the
ordinary course of business and at regular prices.
(c) Seller will timely pay and discharge all bills and
monetary obligations and timely and properly perform all of its
obligations and commitments under all existing contracts and agreements
pertaining to the Purchased Assets, except as to amounts or obligations
which Seller contests in good faith.
(d) Seller shall use its best efforts to preserve its business
organization and the Purchased Assets and to keep available to Buyer
the services of Seller's present employees, and not to impair
relationships with suppliers, customers and others having business
relations with the Purchased Assets.
5.3 No Solicitation of Other Offers. Seller agrees that, prior to the
Closing Date or the termination of this Agreement pursuant to Section 6.3,
neither Seller nor any of Seller's representatives will enter into any
negotiations with or solicit any offer, inquiry or proposal from any other
person with respect to the sale or other acquisition of the Purchased Assets.
5.4 Confidentiality Agreement.
(a) Definition of Confidential Information. For purposes of
this Section, "Confidential Information" means any information or
compilation of information not generally known, which is proprietary to
a business, and includes, without limitation, trade secrets,
inventions, and information pertaining to development, marketing,
sales, accounting and licensing of the business' products and services,
customer information,
<PAGE>
customer lists, and any customer information contained in customer
records, working papers or correspondence files and all financial
information, including financial statements, notes thereto and
information contained in federal and state tax returns. Information
shall be treated as Confidential Information irrespective of its source
and all information which is identified as being "confidential", "trade
secret", or is identified or marked with any similar reference shall be
presumed to be Confidential Information.
(b) Covenants by Parties. Buyer, on the one hand, and Seller,
on the other, each agree and covenant with respect to all Confidential
Information of the other received or learned by either of them as
follows:
(i) It will treat as confidential all Confidential
Information made available to it or any of its employees,
agents or representatives;
(ii) It will maintain the same in a secure place and
limit access to the Confidential Information to those
employees, agents and representatives to whom it is necessary
to disclose the Confidential Information in furtherance of the
transactions contemplated by this Agreement;
(iii) It and its employees, agents and
representatives will not copy any Confidential Information,
disclose any Confidential Information to any unauthorized
party, or use any Confidential Information for any purpose
including competition with the other party or solicitation of
the other party's customers; and
(iv) It will take reasonable steps to insure that its
employees, agents or representatives who have access to
Confidential Information will maintain the confidentiality of
such information.
(c) Applicability; Limitations.
(i) The obligations imposed by this Section shall
apply (x) to Buyer forever with respect to any Confidential
Information relating to the business or operations of Seller
other than the Purchased Assets, and until the Closing with
respect to the Purchased Assets or, if such Closing does not
occur, forever with respect to the Purchased Assets, and (y)
to Seller forever with respect to the operations of Buyer and
forever with respect to the Purchased Assets after the Closing
except in connection with actions expressly provided or
permitted to Seller herein; provided, however, that the
obligations imposed by this Section 5.4 shall not apply to any
Confidential Information:
(aa) which was known to the receiving party
prior to receipt from the disclosing party;
(bb) which was publicly divulged prior to
receipt from the disclosing party;
<PAGE>
(cc) which, through no act on the part of
the receiving party, thereafter becomes publicly
divulged;
(dd) which was received in good faith by the
receiving party from any third party without breach
of any obligations of confidentiality; or
(ee) which was independently developed
(without access to or use of any Confidential
Information of the other party) by an employee or
agent of the receiving party subsequent to receipt of
the Confidential Information under this Agreement.
(ii) The obligations imposed by this Section 5.4 on
Seller shall not apply to the Comdial Corporation "Quick Q"
call center product, including enhancements, upgrades,
modifications and improvements thereto or derivatives thereof,
and including replacement products developed by Comdial
Corporation.
(d) Injunctive Relief. The parties agree that the
non-breaching party would not have an adequate remedy at law for any
breach or nonperformance of the terms of this Section 5.4 by the other
party or any of its employees, agents and representatives and that this
Agreement, therefore, may be enforced in equity by specific
performance, temporary restraining order and/or injunction. The
non-breaching party's right to such equitable remedies shall be in
addition to all other rights and remedies which the non-breaching party
may have hereunder or under applicable law, including a right to
damages.
(e) Unconditional Obligation. The obligations set forth in
this Section 5.4 to maintain the confidentiality of and not wrongfully
use the Confidential Information are unconditional and shall not be
excused by any conduct on the part of a party except as specifically
set forth in Section 5.4(c).
5.5 Offer of Employment. During the period prior to the Closing, Buyer
may negotiate with and offer employment to current employees of Seller. In the
event that any current employee of Seller accepts employment with Buyer on terms
reasonably satisfactory to Buyer, then and in that event Seller will pay Buyer
at Closing the amount of Seller Assisted Signing Bonus designated for such
employee on Exhibit 5.5. In the event an employee who receives payment of a
Seller Assisted Signing Bonus terminates employment with Buyer within four (4)
months after the Closing Date, Buyer will promptly reimburse Seller a pro rata
portion of that employee's Seller Assisted Signing Bonus, determined by
multiplying the amount thereof by a fraction, the numerator of which is the
number of whole and partial months remaining to a date four (4) months after the
Closing Date, and the denominator of which is four (4). Seller will terminate
the employment of any employee hired by Buyer and the employment of such
employee by Buyer shall be a new employment relationship. Notwithstanding the
foregoing or any other provision of this Agreement, Seller acknowledges and
agrees that Buyer has no obligation to employ any current employees of Seller
and that Seller will be solely responsible
<PAGE>
for any vacation pay and any other obligations to such employees arising out of
their employment with Seller.
5.6 Cash Payment. Seller will pay to Buyer at the Closing Twenty
Thousand Dollars ($20,000) to assist the Buyer in effecting a transfer of the
FastCall Products from Seller to Buyer.
ARTICLE 6.
CONDITIONS OF CLOSING; ABANDONMENT OF TRANSACTION
6.1 Conditions to Obligations of Buyer to Proceed on the Closing Date.
The obligations of Buyer to proceed on the Closing Date shall be subject (at its
discretion) to the satisfaction, on or prior to the Closing, of all of the
following conditions:
(a) Truth of Representations and Warranties and Compliance
with Obligations. The representations and warranties of Seller herein
shall be true in all material respects on the Closing Date with the
same effect as though made at such time. Seller shall have performed
all material obligations and complied with all material covenants and
conditions prior to or as of the Closing Date.
(b) Opinion of Counsel. Buyer shall have received a duly
executed opinion letter from Seller's legal counsel dated as of the
Closing Date, in form and substance reasonably satisfactory to Buyer
and its counsel, to the effect that:
(i) Seller is a corporation duly organized and
validly existing and in good standing in the State of
Delaware; has all necessary corporate power to own its
properties and assets and to conduct its business as it is now
conducted; and is qualified to do business in all states in
which qualification is required by the nature of the its
business and where the failure to so qualify would have a
material adverse effect on the Purchased Assets;
(ii) This Agreement and all collateral documents have
been duly and validly authorized, executed and delivered by
Seller, constitute the valid and binding obligations of Seller
and are enforceable in accordance with their terms, except as
limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally;
(iii) To the best of such counsel's knowledge, after
reasonable inquiry, no suit, action, arbitration, legal or
administrative proceeding is pending against the Purchased
Assets; and
(iv) Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions
contemplated in this Agreement, will constitute a violation of
Seller's Certificate of Incorporation or Bylaws, or, to the
best of
<PAGE>
such counsel's knowledge, a default under, or violation or
breach of, any material agreement listed on an Exhibit to this
Agreement.
In giving such opinion, such counsel may rely, as to matters
of fact, upon certificates of officers of Seller or public officials,
and as to matters of law solely upon the laws of the State of Delaware.
(c) Required Consents. All required consents shall have been
received from governmental agencies whose approval is required to
consummate the transaction contemplated herein and from each person or
entity listed on Exhibit 3.14.
(d) Delivery of Documents. Seller shall have executed and
delivered to Buyer documents assigning all of its right, title and
interest in and to the Purchased Assets; and Seller shall have
delivered all documents required to be delivered at Closing pursuant to
Section 7.2 hereof.
(e) Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated by this Agreement, and no
investigation that may result in any such suit, action or other
proceeding shall be pending or threatened.
(f) Legislation. No statute, rule, regulation or order shall
have been enacted, entered or deemed applicable by any domestic or
foreign government or governmental or administrative agency or court
which would make the transaction contemplated by this Agreement illegal
or otherwise materially adversely affect the Purchased Assets or their
use and operation in the hands of Buyer.
(g) Review of Records of the Business. Buyer shall have had
the opportunity prior to the Closing Date to review the business
records of the Seller relating to the Purchased Assets and to take such
other actions as specified in Section 5.1. Buyer shall not have
discovered during such review any substantial liabilities relating to
the Purchased Assets which were not previously disclosed to Buyer in
the this Agreement (including its Exhibits) or otherwise by Seller.
6.2 Conditions to Obligation of Seller to Proceed on the Closing Date.
The obligation of Seller to proceed on the Closing Date shall be subject (at its
discretion) to the satisfaction, on or before the Closing, of the following
conditions:
(a) Truth of Representations and Warranties and Compliance
with Obligations. The representations and warranties of Buyer herein
contained shall be true in all material respects on the Closing Date
with the same effect as though made at such time. Buyer shall have
performed all material obligations and complied with all material
covenants and conditions prior to or as of the Closing Date.
<PAGE>
(b) Opinion of Counsel. Seller shall have received a duly
executed opinion letter from Buyer's legal counsel dated as of the
Closing Date, in form and substance reasonably satisfactory to Seller
and its counsel, to the effect that:
(i) Buyer is a corporation duly organized and validly
existing and in good standing in the State of Minnesota and
has all necessary corporate power to own its properties and
assets and to conduct its business as it is now conducted;
(ii) This Agreement and all collateral documents have
been duly and validly authorized, executed and delivered by
Buyer, constitute the valid and binding obligations of Buyer,
and are enforceable in accordance with their terms, except as
limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally;
(iii) To the best of such counsel's knowledge, after
reasonable inquiry, no suit, action, arbitration, legal or
administrative proceeding, or any governmental investigation,
is pending or threatened against Buyer, or any of their
businesses or properties; and
(iv) Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions
contemplated in this Agreement, will constitute a violation of
the Articles of Incorporation or Bylaws of Buyer, or, to the
best of such counsel's knowledge, after reasonable inquiry, a
default under, or violation or breach of, any indenture,
license, lease, mortgage, instrument, or other agreement to
which Buyer is a party, or by which its properties may be
bound.
In giving such opinion, such counsel may rely, as to matters of fact,
upon certificates of officers of Buyer or public officials.
(c) Delivery of Documents. Buyer shall have delivered all
documents required to be delivered at Closing pursuant to Section 7.3
hereof.
(d) Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated by this Agreement, and no
investigation that might eventuate in any such suit, action or other
proceeding shall be pending or threatened.
(e) Legislation. No statute, rule, regulation or other shall
have been enacted, entered or deemed applicable by any domestic or
foreign government or governmental or administrative agency or court
which would make the transaction contemplated by this Agreement
illegal.
<PAGE>
6.3 Termination of Agreement. This Agreement and the transactions
contemplated herein may be terminated at or prior to the Closing Date as
follows:
(a) By mutual written consent of all parties.
(b) By Buyer pursuant to written notice delivered at or prior
to the Closing if Seller has failed in any material respect to satisfy
all of the conditions to Closing set forth in Section 6. 1.
(c) By Seller pursuant to written notice delivered at or prior
to the Closing if Buyer has failed in any material respect to satisfy
the conditions set forth in Section 6.2.
6.4 Consequences of Termination. In the event of termination of this
Agreement, each party will return to the other all documents and materials
obtained from the other in connection with the transaction contemplated by this
Agreement and will not use and will keep confidential all Confidential
Information about the other party obtained pursuant to this Agreement pursuant
to the terms of Section 5.4 hereof.
ARTICLE 7.
CLOSING
7.1 Closing. The closing of the transaction contemplated by this
Agreement ("Closing") shall be held at [the offices of Buyer] on December 31,
1997, at 1:00 p.m., or at such other date or time as the parties may mutually
agree upon in writing. Such date of Closing is referred to herein as the Closing
Date.
7.2 Documents to be Delivered by Seller. Seller agrees to deliver the
following documents, duly executed as appropriate, to Buyer at the Closing:
(a) Certified copies of corporate resolutions of Seller
authorizing it to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) A Bill of Sale for the assignment and transfer of the
Purchased Assets.
(c) Appropriate assignment documents assigning Seller's title
and interest in and to the Purchased Assets.
(d) Opinion of Seller's Counsel as required under Section
6.1(b).
(e) Documentation of receipt of consents from all persons
listed on Exhibit 3.14, except as waived by Buyer.
<PAGE>
(f) Copies in hardcopy and machine readable code of all
software comprising the FastCall Products, and the Computer Programs.
(g) Such other documents as Buyer may reasonably request for
the purpose of assigning, transferring, granting, conveying, and
confirming to Buyer or reducing to its possession all of the Purchased
Assets.
7.3 Documents Delivered by Buyer. Buyer agrees to deliver the following
documents, duly executed as appropriate, to Seller at the Closing:
(a) Certified copies of corporate resolutions of Buyer
authorizing it to enter into this Agreement and to consummate the
transactions contemplated herein.
(b) Wire transfer of the net amount of funds described in
Section 2.2(a).
(c) Royalty-free non-exclusive License for Seller to use the
Patents.
(d) Opinion of Buyer's counsel as required under Section
6.2(b).
(e) An assumption of the obligations identified in Exhibit
1.1(f) and 1.1(g).
(f) Such other documents as Seller reasonably may request to
carry out the transactions contemplated under this Agreement.
ARTICLE 8.
POST CLOSING OBLIGATIONS
8.1 Covenant Not to Compete. Seller and Comdial Corporation ("Comdial")
covenant and agree (the "Covenant Not to Compete") that from and after the
Closing, without the prior written consent of Buyer, neither Seller nor Comdial
(for itself and its controlled subsidiaries) will develop, market or sell
desktop-based screen pop products in competition with the Royalty Products sold
for use as middleware in connection with telephone systems including key
systems, private branch exchanges (PBX's) and automatic call distribution
(ACD's) ("Protected Products") by the Buyer, in accordance with and subject to
the following provisions:
(a) The term "Protected Products" shall not include products
used in connection with telephone systems including key systems, PBX's
and ACD's sold by Comdial or its subsidiaries, or marketed under the
Comdial' name.
(b) The term "Protected Products" shall not include visual
call products developed, marketed or sold by Key Voice Technologies,
Inc., a subsidiary of Comdial, or by any other subsidiary of Comdial,
such as the Key Voice Visual Call management products and their
derivatives or replacements.
<PAGE>
(c) The Covenant Not to Compete shall expire five (5) years
after the Closing Date.
8.2 Further Documents and Assurances. At any time and from time to time
after the Closing Date, each party shall, upon request of another party,
execute, acknowledge and deliver all such further and other assurances and
documents, and will take such action consistent with the terms of this
Agreement, as may be reasonably requested to carry out the transactions
contemplated herein and to permit each party to enjoy its rights and benefits
hereunder. If requested by Buyer, each of Seller and Comdial further agree to
prosecute or otherwise enforce in its own name for the benefit of Buyer any
claim, right or benefit transferred by this Agreement that may require
prosecution or enforcement in Seller's or Comdial's name. Any prosecution or
enforcement of claims, rights, or benefits under this provision shall be solely
at Buyer's expense, unless the prosecution or enforcement is made necessary by a
breach of this Agreement on the part of Seller or Comdial.
8.3 Consulting. For a period of ninety (90) days after the Closing Date
Seller or Comdial will make available to Buyer up to fifty (50) hours of
consulting services each from Paul M. Gasparro and, to the extent she does not
become an employee of Buyer, Sandra Scheer. Such consulting services shall be at
no cost to Buyer, except that Buyer will be responsible for any necessary travel
expenses incurred at Buyer's request. Notwithstanding the foregoing, the
obligation of Seller and Comdial to provide consulting services from Paul M.
Gasparro and Sandra Scheer shall be contingent upon their continued employment,
respectively, with Seller or Comdial.
8.4 Accounts Receivable. Seller shall use its normal business efforts
to collect tie Ss Accounts Receivable for the benefit of Buyer, and remit to
Buyer all payments received thereon as and when collected. The Seller shall not
be obligated to institute legal proceedings to collect the Excess Accounts
Receivable. At any time at the written request of Buyer, and on March 31, 1998
in any event, Seller will assign the uncollected Excess Accounts Receivable to
Buyer and Seller shall have no further obligation to Buyer with respect thereto.
8.5 Un-Invoiced Sales. Buyer may invoice customers for amounts owing to
Seller on account of the Un-Invoiced Sales and may collect the same. Seller
shall have no obligation to Buyer with respect thereto.
8.6 Fleet Capital Corporation Releases. Within 20 days after the
Closing Date, Seller and its parent company, Comdial Corporation, agree to
obtain releases of the Fleet Liens against the Purchased Assets as set forth on
Exhibit 3.5 hereto, including, but not limited to, partial releases for the
original financing statements filed by Fleet Capital Corporation against Seller
in Massachusetts and Virginia as well as a partial release of the Security
Agreement-Intellectual Property to release the patents, trademarks and
copyrights identified on Exhibits 1.1(a) and 1.1(b) of this Agreement. Such
releases shall be in recordable form and otherwise reasonably acceptable to
Purchaser.
<PAGE>
ARTICLE 9.
INDEMNIFICATION
9.1 Indemnification by Seller. Subject to the limitations set forth in
Section 9.2, Seller and Comdial shall indemnify and hold Buyer harmless at all
times from and after the date of this Agreement against and in respect of all
damages, losses, costs and expenses (including reasonable attorneys' fees) which
Buyer may suffer or incur in connection with any of the following matters:
(a) Any claim, demand, action or proceeding asserted by a
creditor of Seller under the provisions of any applicable Bulk Transfer
Act or asserted by any other person respecting any liabilities of
Seller which are not expressly assumed by Buyer under this Agreement.
(b) A material breach by Seller of any of its representations,
warranties or covenants in this Agreement.
9.2 Seller's Limitation of Liability.
(a) Buyer shall assert any claim under Section 9.1(b) within
twelve (12) months from the Closing Date or be forever barred from
asserting such claim.
(b) The rights of Buyer with respect to any claims arising
under Section 9.1 shall be limited to recovery of actual losses, costs
and expenses (including reasonable attorneys' fees). Buyer hereby
waives any remedy or right of rescission arising on the basis of such
claims.
9.3 Indemnification by Buyer. Buyer shall indemnify and hold Seller and
Comdial harmless at all times from and after the date of this Agreement, against
and in respect of all losses, damages, costs and expenses (including reasonable
attorneys' fees) which Seller or Comdial may suffer or incur in connection with
any of the following matters:
(a) A material breach by Buyer of any representations,
warranties or covenants in this Agreement.
(b) Any claim, demand, action or proceeding asserted by any
person against Seller or Comdial or any of its subsidiaries relating to
any obligation or liability imposed on or assumed by Buyer hereunder or
to any obligation or liability relating to the Royalty Products
incurred after the Closing.
<PAGE>
9.4 Buyer's Limitation of Liability.
(a) Seller or Comdial shall assert any such claim under
Section 9.2(a) within twelve (12) months of the Closing Date or be
forever barred from asserting such claim.
(b) The rights of Seller or Comdial with respect to any claims
arising under Section 9.3 shall be limited to recovery of actual
losses, costs and expenses (including reasonable attorney's fees).
Seller and Comdial hereby waive any remedy or right of recision arising
on the basis of such claims.
9.5 Limitations on Indemnification. Notwithstanding the foregoing
provisions of this Article, neither Seller nor Comdial shall be liable to Buyer
under Section 9.1 unless and until the aggregate amount of liability under such
Section exceeds [$17,5001], and thereafter Buyer shall be entitled to
indemnification thereunder only for the aggregate amount of such liability in
excess of [$17,500]. Buyer shall not be liable to Seller or Comdial under
Section 9.3 unless and until the aggregate amount of liability under such
Section exceeds [$17,500], and thereafter Seller and Comdial shall be entitled
to indemnification thereunder only for the aggregate amount of such liability in
excess of [$17,500]. In no event shall either Buyer's liability or Seller's or
Comdial's liability under Sections 9.1 and 9.3 exceed the Purchase Price.
9.6 Third Party Claims. If a claim by a third party is made against any
of the indemnified parties, and if any of the indemnified parties intends to
seek indemnity with respect to such claim under this Article, such indemnified
party shall promptly notify the indemnifying party of such claim. The
indemnifying party shall have thirty (30) days after receipt of the
above-mentioned notice to undertake, conduct and control, through counsel of
such party's own choosing (subject to the consent of the indemnified party, such
consent not to be unreasonably withheld) and at such party's expense, the
settlement or defense of it, and the indemnified party shall cooperate with the
indemnifying party in connection with such efforts; provided that: (i) tie
indemnifying party shall not by this Agreement permit to exist any lien,
encumbrance or other adverse charge upon any asset of any indemnified party,
(ii) the indemnifying party shall permit the indemnified party to participate in
such settlement or defense through counsel chosen by the indemnified party,
provided that the fees and expenses of such counsel shall be borne by the
indemnified party, and (iii) the indemnifying party shall agree promptly to
reimburse the indemnified party for the full amount of any loss resulting from
such claim and all related expense incurred by the indemnified party pursuant to
this Article. So long as the indemnifying party is reasonably contesting any
such claim in good faith, the indemnified party shall not pay or settle any such
claim. If the indemnifying party does not notify the indemnified party within
thirty (30) days after receipt of the indemnified party's notice of a claim of
indemnity under this Article that such party elects to undertake the defense of
such claim, the indemnified party shall have the right to contest, settle or
compromise the claim in the exercise of the indemnified party's exclusive
discretion at the expense of the indemnifying party.
<PAGE>
ARTICLE 10.
GENERAL
10.1 Assignment. This Agreement may be assigned by the Buyer, and the
Royalty Products sold or transferred by the Buyer, without the prior written
consent of Seller only on the following terms:
(a) The Buyer shall pay to Seller the amount, if any, by which
the Minimum Purchase Price exceeds the Total Payment Amount as of the
date of such assignment, sale or transfer; and
(b) The assignee of or purchaser from the Buyer agrees in
writing and for the benefit of Seller to be bound by the terms of this
Agreement to the same extent as the Buyer, and Buyer furnishes Seller
with an appropriate written agreement to this effect duly signed and
delivered by such assignee or purchaser.
10.2 Counterparts. This Agreement may be executed in counterparts and
by different parties on different counterparts with the same effect as if the
signatures thereto were on the same instrument. This Agreement shall be
effective and binding upon all parties hereto as of when all parties have
executed a counterpart of this Agreement.
10.3 Exhibits. Each Exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement.
10.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given, when
received, if delivered by hand, telegram, telex or telecopy, and, when
deposited, if placed in the mails for delivery by air mail, postage prepaid,
addressed to the appropriate party as specified on the first page of this
Agreement. Addresses may be changed by written notice given pursuant to this
section, provided that any such notice shall not be effective, if mailed, until
three (3) working days after depositing in the mails or when actually received,
whichever occurs first.
10.5 Successors and Assigns. Neither Seller nor Buyer shall assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the other party which consent shall not be unreasonably withheld.
10.6 Expenses. Except as otherwise provided herein, each party hereto
shall bear and pay for its own costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereby, including,
without limitation, all fees and disbursements of attorneys, accountants and
financial consultants incurred through the Closing Date.
10.7 Entire Agreement. This Agreement, together with the Exhibits and
the related written agreements specifically referred to herein, represents the
only agreement among the
<PAGE>
parties concerning the subject matter hereof and supersedes all prior agreements
whether written or oral, relating thereto.
10.8 Modification and Waiver. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a written
document signed by all parties (in the case of amendments or modifications) or
by the party to be charged thereby (in the case of waivers). Any waiver shall be
limited to the circumstance or event specifically referenced in the written
waiver document and shall not be deemed a waiver of any other term hereof or of
the same circumstance or event upon any recurrence thereof.
10.9 Publicity. Seller and Buyer each represent and warrant that it
will make no announcement to public officials or the press `in any way relating
to the transaction described herein without the prior written consent of all
parties.
10.10 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Minnesota.
10.11 Knowledge. Knowledge, as used in this Agreement or the
instruments, certificates or other documents required under this Agreement,
means actual knowledge of a fact or constructive knowledge if a reasonably
prudent person in a like position would have known, or should have known, the
fact.
10.12 Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their permitted successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.13 Comdial Corporation. Comdial executes this Agreement for the sole
purposes of (a) evidencing its obligations expressly set forth in Articles 8 and
9 hereof, (b) confirming that the financial information attached hereto as
Exhibit 3.3 is true and correct, and (c) confirming that it has accurately
prepared and timely filed the tax returns described in Section 3.4, and has paid
the taxes due thereon except as disclosed in Exhibit 3.4.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this FastCall
Purchase Agreement to be executed in the manner appropriate to each, to be
effective as of the day and year first above written.
SPANLINK COMMUNICATIONS, INC. ("BUYER")
By /s/ T. R. Briggs
Its Chief Financial Officer
AURORA SYSTEMS, INC. ("Seller")
By /s/ Linda P. Falconer
Its Assistant Secretary
COMDIAL CORPORATION
By /s/ Linda P. Falconer
Its Assistant Secretary
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (hereafter "Agreement") is made
and entered into between Patrick P. Irestone (hereafter "Irestone") and Spanlink
Communications Company, Inc., a Minnesota corporation (hereafter "Spanlink").
I. RECITALS
1. Irestone is to be employed by Spanlink between September 23, 1994,
and July 15, 1997, pursuant to the terms of an Employment Agreement dated as of
September 23, 1994, as amended by the First Amendment to Employment Agreement,
dated as of January 31, 1996, and the Second Amendment to Employment Agreement
dated as of April 18, 1996 (collectively, the "Employment Agreement").
2. The purpose of this Separation Agreement and Release is to set forth
the terms and conditions under which Irestone and Spanlink will terminate their
employment relationship.
II. AGREEMENT
In consideration of the mutual agreements and promises made below, the
parties agree as follows:
1. Resignation. Subject to the following terms and conditions, Irestone
hereby voluntarily resigns from, and terminates his employment with Spanlink and
his status as an officer and director of Spanlink, and Spanlink hereby accepts
such resignation and termination, effective July 15, 1997.
2. Final Wages/Commissions/etc. Irestone agrees and understands that,
other than what he is to be paid under paragraph 3 of this Agreement, he has
been fully compensated, and hereby waives, any and all claims which he ever had,
now has, or may in the future have, against Spanlink or any of Spanlink's
Releasees, as defined in paragraph 5 below, for salary, bonuses, commissions, or
wage payments; accrued or unused vacation and/or sick pay; short term or long
term disability benefits; payments for any other type of leave of absence or
time off of work; and contributions by Spanlink to Spanlink's employee benefit
plans.
3. Additional Payment Obligations and Other Consideration.
a. Upon the expiration of the 15 day rescission clause as
allowed by paragraph 11 below, Spanlink shall pay Irestone at his current salary
of $8,333.33 per month, three month's gross pay, less all standard and usual
federal, state and FICA payroll tax withholdings and other standard employee
deductions. Irestone and Spanlink agree that this payment by Spanlink will
constitute compensation to Irestone and is therefore fully taxable. Spanlink
will issue appropriate W-2 forms to Irestone and to the government to report
this payment. Irestone will report this payment as wages on his 1997 individual
income tax returns, and will pay all associated income, social security,
Medicare, or other taxes owing, if additional
<PAGE>
taxes are owing beyond the amounts withheld. Irestone agrees that he will
defend, indemnify and hold harmless Spanlink, and all of Spanlink's "Releasees"
as defined in paragraph 5 below, from any and all claims, demands, actions and
causes of action, losses, costs, attorney's fees, interests, penalties, expenses
and taxes of any sort relating to this payment and his obligation to pay taxes
thereon.
b. Spanlink hereby transfers its rights in the portable
personal computer and associated software heretofore used by Irestone.
c. Spanlink shall permit Irestone to have reasonable access to
Spanlink's voice mail, e-mail, paper and cellular phone service for purposes not
inconsistent with his obligations hereunder until October 15, 1997.
d. Irestone shall maintain his rights under all stock options
heretofore granted to him in accordance with the terms of such grants, and the
obligations under all previous notes and security or pledge agreements
heretofore executed by him in favor of Spanlink shall continue in accordance
with the terms thereof; provided that, Spanlink shall renew the tax loans
previously made to Irestone on an annual basis as they come due through April
14, 2002, according to the cur-rent terms of the loans. The stock certificate
needs to be provided to the Spanlink per the original loan agreement.
e. At Spanlink's request Irestone may provide consulting
services through October 15, 1997, at $100.00 per hour, for a mutually agreed
upon number of hours.
f. If Irestone rescinds this Agreement pursuant to paragraph
11 below, it is understood that neither Spanlink nor Irestone will be obligated
to make the payment set forth above or perform any other of their respective
obligations in this Agreement, unless expressly stated otherwise.
g. The above payment and all other agreements which Spanlink
is making in this Agreement are being made to Irestone in exchange for the
various agreements which he is making in this Agreement, and to obtain a release
of any claims which Irestone might have relating to Irestone's employment at and
termination of employment from Spanlink. Irestone intends to completely and
finally release any and all claims, actions, causes of action or costs,
including attorney's fees and costs, which Irestone may have or claim to have
against Spanlink and the other persons and entities released herein, except for
claims being expressly excluded from his release in paragraph 6 below.
4. Confidentiality and Noncompetition Agreement/Return of Property.
Irestone acknowledges that he continues to be bound by the invention,
confidentiality and non-competition provisions of the Employment Agreement, and
that this Agreement is not intended in any way to relieve him of any of his
obligations thereunder.
Irestone specifically represents to Spanlink that; other than as
specifically provided herein, he has returned all of Spanlink's property,
including work in progress, originals and
<PAGE>
copies of business forms, computer files, diskettes, source codes, manuals,
training materials, catalogs, customer lists, financial information, computer
equipment, office equipment, and all other material in his possession or control
which belongs to Spanlink or contains information subject to those provisions.
He also represents that he has returned all other Spanlink property, such as
office keys, parking cards, office equipment, files, or other documents of any
sort. Irestone acknowledges that this obligation is continuing and agrees to
promptly return to Spanlink any discovered property or confidential information
as described above.
5. General Release of Claims.
a. Spanlink and Irestone agree that, in exchange for the
payments and other considerations set forth in this Agreement, on behalf of
their respective agents, representatives, attorneys, designees, heirs,
successors, assigns, executors, administrators, and anyone else, acting, or
claiming to act, on their behalf, hereby releases and forever discharges
Spanlink and Irestone and all of its past and present employees, agents,
insurers, officers, board members, divisions, parents, joint venturers,
subsidiaries, successors, assigns, and all affiliated companies, partnerships,
corporations, and other associated entities (hereinafter "Releasees") from any
and all charges, claims, liabilities, obligations, agreements, losses, demands,
damages, costs, debts and expenses (including attorney's fees and costs),
actions or causes of action, both known and unknown, asserted and unasserted,
direct and indirect, and of any kind, nature, or description whatsoever, under
any state or federal law or laws, or the common law, from the beginning of time
to the date hereof, which Irestone or Spanlink ever had, may now have, or ever
can, shall, or may have or claim to have, against Spanlink or Irestone, or any
of the other Releasees, for, upon, or by reason of any matter, act, or thing
occurring on or prior to the date they sign this Agreement.
b. Without limiting the generality of the foregoing, this
General Release of Claims specifically includes, but is not limited to, all
charges, claims, liabilities, obligations, agreements, losses, demands, damages,
costs, debts and expenses (including attorney's fees and costs), actions, or
causes of action of any type arising, or which may have arisen, out of, or in
connection with, Irestone's work and employment with, or termination of
employment from, Spanlink or out of the provision of information about Irestone
to any person or entity, under any and all of the following legal theories: (1)
any and all claims arising under Title VII of the Civil Rights Act, as amended,
the Minnesota Human Rights Act, as amended, the National Labor Relations Act, as
amended, the Age Discrimination in Employment Act of 1967, as amended, the Older
Workers Benefits Protection Act of 1990, as amended, the Equal Pay Act of 1963,
as amended, the Age 70 Retirement Act, as amended, any "Whistleblower" statutes,
as amended, the Americans with Disabilities Act of 1990, as amended, the Civil
Rights Acts of 1964 and 1991, as amended, any and all wage and hour statutes,
any and all laws or statutes relating to termination of sales representatives,
any statutes regarding retaliatory treatment, and any other federal, state or
local statute or ordinance, regulation, order, or the common law of any state
regarding wages, commissions, bonuses or other earnings, employment, termination
of employment, or discrimination in employment; (2) any and all statutory or
common law claims for defamation, libel, or slander (including any future
statements by Irestone regarding Irestone's employment with and termination of
employment from Spanlink), (3) any and all statutory or
<PAGE>
common law claims for assault, battery, reprisal, retaliation, negligent or
intentional infliction of emotional distress, negligent hiring or retention,
misrepresentation, breach of contract, promissory estoppel, fraud, wrongful
discharge, tortious interference with contract, breach of covenant of good faith
and fair dealing, or any other theory, whether legal or equitable; and (4) any
and all other contract, tort, or employment related claims which Irestone had or
has against Spanlink or any of the other Releasees herein. Irestone agrees that
he will not in the future commence any type of legal action based upon any of
the foregoing.
c. Irestone expressly agrees and understands that, as a
further consideration and inducement for this Agreement, he has fully and
finally released all past and present claims. He expressly understands and
agrees that this General Release of Claims applies to all claims that Irestone
does not know of or expect to exist in his favor at the time he signs this
General Release of Claims and that this General Release of Claims contemplates
the extinguishment of any such claim or claims except as expressly provided
below.
6. Exclusions From Release. The parties agree and understand that
Irestone's General Release of Claims, as set forth in paragraph 5, does not
apply to and shall not affect the parties' rights to enforce the terms of this
Agreement, or to seek remedies for the breach thereof, and shall not prohibit
claims for events occurring after this Agreement becomes effective, except for
Irestone's statements to anyone regarding his employment with or termination of
employment from Spanlink. (It is understood that, in the event Irestone at some
point in the future "self-publishes" information which he claims to be
defamatory, then such "self-publication" is not considered a "future event"
under this provision; Irestone is releasing any and all defamation, libel or
slander claims based on any future "self-publication".) Further, the General
Release of Claims does not include the release of any claims which Irestone has
for Irestone's post-termination benefits under "COBRA" or to post-termination
benefits, if any, under any applicable employee benefit plan including, but not
limited to, Spanlink stock options granted to Irestone. Irestone's rights for
post termination benefits under COBRA and Spanlink's employee benefit plans are
not intended to be increased or decreased as a result of this Agreement, except
as specifically stated. Spanlink agrees to continue to pay the regular
employer's portion of the cost of the health benefits through December 31, 1997,
and Irestone's portion will be due to Spanlink on the first of each month.
Further, the General Release of Claims is not intended to waive Irestone's
rights, if any, to file a claim for unemployment compensation benefits, subject
to all qualification requirements.
7. a. No Interference/No Disparaging Remarks. Irestone agrees not to
interfere in any way with the employment or business relationship which Spanlink
or any of the other Releasees herein have with any past, current or future
employees, board members, customers, vendors, competitors, or any other person
or entity. Among other things, Irestone agrees not to make any disparaging
remarks of any sort or otherwise communicate any disparaging comments about
Spanlink or any of the other Releasees herein, to any of their employees, board
members, customers, vendors, competitors or to any other person or entity.
b. Spanlink agrees that, other than as needed to enforce the terms
of this Agreement (e.g. Sections 2, 5, 9, etc.), its shareholders, directors,
officers and management
<PAGE>
employees will not interfere in any way with the employment or business
relationships which Irestone has with any current or potential future employers,
co-employees, customers, vendors, competitors or any other person or entity.
Among other things, Spanlink agrees that, other than as needed to enforce the
terms of this Agreement (e.g. Sections 2, 5, 9, etc.), its shareholders,
Directors, officers and management employees will not make any disparaging
remarks of any sort or otherwise communicate any disparaging comments about
Irestone to any of his current or future employers, co-employees, customers,
vendors, competitors, or to any other people or entities with whom he has
business or employment relationships.
8. Future Claims Against Spanlink. Irestone agrees that, at Spanlink's
request, and upon payment by Spanlink of reasonable consideration, Irestone will
cooperate with Spanlink in any claims or lawsuits by or against Spanlink where
Irestone has knowledge of the facts involved in the claim or lawsuit. Irestone
further agrees that he will not voluntarily aid, assist, or cooperate with
anyone who is involved in claims against Spanlink or with their attorneys or
agents in any claims or lawsuits. However, nothing in this Agreement prevents
Irestone from testifying at an administrative hearing, arbitration, deposition,
or in court, in response to a lawful and properly served subpoena in a
proceeding involving Spanlink.
9. Confidentiality Regarding Settlement Terms.
a. Spanlink has issued a press release on July 3, 1997
announcing Irestone's resignation as specified in paragraph 1.
b. Irestone agrees to keep the detailed terms of this
Agreement in strict confidence, except that he may confidentially disclose to
his legal advisors, immediate family members, accountants, federal, state or
local tax authorities, or as otherwise required by law, with the agreement of
those people or entities that they will maintain the confidentiality, and not
disclose the information to anyone else. With these exceptions, Irestone agrees
not to ever make any comment to any person or entity regarding the details of
any term of this document or this settlement.
c. Without limiting the generality of the foregoing, Irestone
agrees that he will not disclose any information regarding this Agreement to any
current or former employee, officer, board member, vendor or competitor of
Spanlink or any other Releasee, except as required by law.
d. Irestone acknowledges and agrees that this confidentiality
provision is a material provision of this Agreement. Irestone hereby agrees that
any material breach by him of this confidentiality provision shall constitute
and be treated as a breach of this Agreement, and shall relieve Spanlink of all
payment and other obligations to Irestone under this Agreement.
10. No Wrong Doing. Irestone agrees and acknowledges as follows: the
consideration being paid herein does not constitute, and shall not be construed
as, an admission of liability or wrong doing on the part of Spanlink, or any of
the other Releasees herein; this
<PAGE>
Agreement does not constitute a precedent with respect to any other claims; and
Spanlink denies and will always deny that Irestone was in any way treated
illegally.
11. Consideration and Rescission Rights.
a. Irestone acknowledges that he has been advised, in writing,
by Spanlink to seek the advice of legal counsel in determining whether to accept
the terms of this Separation Agreement and Release. Irestone further understands
that he has a statutory right to have twenty-one (21) days from the date he
received this Separation Agreement and Release in which to decide to accept its
terms. If Irestone decides to sign this Separation Agreement and Release sooner
than twenty-one (21) days, he hereby agrees and represents that he is doing so
voluntarily and based on a complete discussion with his own attorney.
b. Irestone further understands that he has a statutory right
to nullify and rescind this Agreement at any time within fifteen (15) days from
the date of his signature below by indicating his desire to do so in writing and
delivering that writing to Brett Shockley, Spanlink Communications, 7125
Northland Terrace, Minneapolis, Minnesota 55428. It is understood that Spanlink
will not make the payments required by this Agreement until Irestone signs and
delivers this Agreement to Spanlink, fulfills all of his other obligations
required by this Agreement, and does not revoke within fifteen (15) days of
signing this Agreement.
12. Minnesota Law Applies. This Separation Agreement and Release shall
be governed by, and construed and enforced, in accordance with Minnesota Law.
13. Invalidity. If any one or more of the terms of this Separation
Agreement and Release are deemed to be invalid or unenforceable by a court of
law, the validity, enforceability, and legality of the remaining provisions of
this release will not, in any way, be affected or impaired thereby.
14. No Claims Filed. Irestone represents as follows: He has not filed
any complaints, charges, or claims against Spanlink, or any of the other of the
Releasees herein, with any local, state or federal agency, court, or insurer
regarding his claims herein; he will not commence any lawsuits or administrative
charges at any time hereafter for anything that has occurred up to this point;
and if any such agency, court, or insurer assumes jurisdiction of any complaint,
charge, or claim against Spanlink, or any of the other Releasees herein,
Irestone will request such agency, court, or insurer, to withdraw from the
matter. Irestone further represents and warrants that no other person other than
himself is entitled to assert any claim based on the events giving rise to his
claims.
15. Capacity Advice and Consultation with Counsel. Irestone represents
that he is of legal age, under no legal disability, and has full legal authority
to release any and all claims specified herein and to undertake all other
obligations specified herein. Irestone further warrants that no promise or
inducement has been offered to him except as set forth herein; and that this
Separation Agreement and Release is executed without reliance upon any statement
or representation by Spanlink or any of the other Releasees, or their
representatives, employees,
<PAGE>
officers, agents, board members, or attorneys concerning the nature and extent
of his claims, damages, or legal liability therefore. Irestone further
represents and agrees that he has had an opportunity to consult with an attorney
of his choice regarding the effect of this Separation Agreement and Release and
that he understands it and its effect.
16. Merger. This document supersedes all prior oral or written
agreements and communications between Irestone and Spanlink, except as otherwise
stated herein. Irestone agrees that (except as expressly stated otherwise in
this Agreement) any and all claims which he might have against Spanlink are
being fully released and discharged by this document. Irestone expressly agrees
that he continues to be bound to all of his obligations under the invention,
confidentiality and non-competition provisions of the Employment Agreement and
the tax loan and security agreement documentation.
17. Modification. This Separation Agreement and Release shall not be
modified, amended or terminated unless such modification, amendment or
termination is executed in writing by Irestone and Spanlink.
18. No Assignment. Irestone's obligations under this Agreement shall be
binding upon Irestone and Irestone's heirs, administrators, representatives or
executors. No assignment of Irestone's rights under this Agreement shall be made
by Irestone and such purported assignment shall be null and void.
<PAGE>
19. Voluntary and Knowing Action. Irestone represents as follows: He
has carefully read and fully understands this Separation Agreement and Release,
and its final and binding effect; he has been afforded sufficient time and
opportunity to review this Separation Agreement and Release; he is fully
competent to manage his own business affairs and enter into or sign this
Separation Agreement and Release; that the only promises made to induce him to
sign this Separation Agreement and Release are those stated herein and that he
has signed this Separation Agreement and Release knowingly, freely and
voluntarily.
Dated: 7/15/97 /s/ Patrick P. Irestone
Patrick P. Irestone
Leah Stuart /s/ Leah Stuart
Witnessed (Printed Name) Witnessed (Signature)
SPANLINK COMMUNICATIONS, INC.
Dated: 7/15/97 By:/s/ Brett A. Shockley
Brett A. Shockley
Chairman and Chief Executive Officer
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 703,658 $ 2,284,952
Marketable securities -- 2,092,553
Accounts receivable, less allowance for doubtful accounts of
$218,000 and $56,000 2,113,271 1,993,667
Inventory 345,775 71,341
Costs and estimated earnings in excess of billings 554,572 18,657
Other current assets 261,572 293,058
- --------------------------------------------------------------------------------------------
Total current assets 3,978,848 6,754,228
Property and equipment 1,264,160 837,488
Intangible assets 611,619 --
- --------------------------------------------------------------------------------------------
Total assets $ 5,854,627 $ 7,591,716
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 631,263 $ 924,590
Accrued expenses 560,933 802,421
Current portion of long-term obligations 300,570 --
Deferred maintenance revenue 432,809 497,088
Other current liabilities 452,466 190,584
- --------------------------------------------------------------------------------------------
Total current liabilities 2,378,041 2,414,683
============================================================================================
Long-term obligations 445,083 --
- --------------------------------------------------------------------------------------------
Total liabilities 2,823,124 2,414,683
Shareholders' equity:
Preferred stock; undesignated par value;
5,000,000 shares authorized; none issued or outstanding
Common stock; no par value; 25,000,000 shares authorized and
5,080,500 shares issued and outstanding 8,193,663 8,193,663
Accumulated deficit (5,162,160) (3,016,630)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 3,031,503 5,177,033
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 5,854,627 $ 7,591,716
============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
SPANLINK Communications, Inc.
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 6,637,018 $ 5,422,929
Cost of revenues 2,842,424 2,175,018
- -------------------------------------------------------------------------------------
Gross profit 3,794,594 3,247,911
- -------------------------------------------------------------------------------------
Operating expenses:
Sales, general and administrative 4,562,239 5,210,783
Research and product development 1,463,905 1,016,048
- -------------------------------------------------------------------------------------
Total operating expenses 6,026,144 6,226,831
- -------------------------------------------------------------------------------------
Loss from operations (2,231,550) (2,978,920)
Interest income, net 86,020 144,272
- -------------------------------------------------------------------------------------
Net loss $(2,145,530) $(2,834,648)
=====================================================================================
Net loss per share -- basic and diluted $ (.42) $ (.66)
=====================================================================================
Weighted average shares outstanding -- basic and diluted 5,080,500 4,301,213
=====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
SPANLINK Communications, Inc.
<PAGE>
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- TOTAL
NUMBER ACCUMULATED SHAREHOLDERS'
OF SHARES AMOUNT DEFICIT EQUITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 2,700,000 $ 3,000 $ (181,982) $ (178,982)
Common stock grants 70,500 246,750 -- 246,750
Bridge loan stock warrants -- 64,000 -- 64,000
Conversion of bridge loan to common stock 125,000 342,273 -- 342,273
Initial public offering, net of issuance costs 2,185,000 7,537,640 -- 7,537,640
Net loss -- -- (2,834,648) (2,834,648)
- -------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 5,080,500 8,193,663 (3,016,630) 5,177,033
Net loss -- -- (2,145,530) (2,145,530)
- -------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 5,080,500 $ 8,193,663 $(5,162,160) $ 3,031,503
=======================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
SPANLINK Communications, Inc.
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,145,530) $(2,834,648)
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization 181,250 219,310
Provision for doubtful accounts 215,000 34,000
Deferred income taxes -- 66,513
Common stock grant recognized as compensation expense -- 246,750
Changes in current assets and liabilities:
Accounts receivable (334,604) (1,275,554)
Costs and estimated earnings in excess of billings (535,915) 75,714
Other current assets (242,948) (289,808)
Accounts payable (293,327) 716,413
Accrued expenses (241,488) 432,811
Other current liabilities 197,603 142,612
- ----------------------------------------------------------------------------------------------------
Net cash used by operating activities (3,199,959) (2,465,887)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (5,092,553)
Maturities of marketable securities 2,092,553 3,000,000
Purchase of product line (116,819) --
Additions to property and equipment (302,322) (773,455)
- ----------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 1,673,412 (2,866,008)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends accrued in prior years -- (39,000)
Repayments on note payable -- bank -- (230,531)
Principal payments on capital lease (54,747) --
Principal payments on other notes payable -- (343,683)
Proceeds from issuance of notes payable -- 347,732
Proceeds from sale of common stock -- 7,537,640
- ----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (54,747) 7,272,158
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,581,294) 1,940,263
Cash and cash equivalents at beginning of year 2,284,952 344,689
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 703,658 $ 2,284,952
====================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 32,887 $ 23,465
====================================================================================================
NONCASH OPERATING AND FINANCING ACTIVITIES:
Capital lease obligations incurred $ 300,400 --
====================================================================================================
Conversion of notes payable to common stock -- $ 342,273
====================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
SPANLINK Communications, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS ACTIVITIES
-------------------------------------------------------------------------
Spanlink Communications, Inc. (the Company) was incorporated in 1988 and
designs, develops and markets interactive computer telecommunications software
and services that link business computer systems, telephone systems and the
Internet. The Company markets its specialized software systems through its sales
organization and licensed sales representatives throughout North America.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------
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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash equivalents consist of
highly liquid investments with original maturities of three months or less which
are readily convertible to cash. Cash and cash equivalents at December 31, 1997
include $150,200 of restricted cash.
Marketable securities are carried at amortized cost and unrealized
holding gains and losses have not been significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, cash equivalents and marketable
securities are valued at their carrying amounts which are reasonable estimates
of fair value. The fair value of all other financial instruments approximates
cost as stated.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially
subject the Company to credit risk consist primarily of accounts receivable. The
Company grants credit to customers in the ordinary course of business and
generally requires a customer deposit upon the signing of any system
installation contracts. No single region or industry represents a significant
concentration of credit risk. See Note 10 for discussion of major customer and
economic relationships.
REVENUE RECOGNITION Revenues derived from system installation contracts
are recognized over the period the Company satisfies its obligations using the
percentage-of-completion method. Progress on the contracts is measured by the
percentage of cost incurred to-date to the total estimated cost for each
contract. Management considers cost to be the best available measure of progress
on these contracts. Changes in conditions may result in revisions of estimated
costs and earnings during the course of the contract and are reflected in the
accounting period in which the facts which require the revision become known. In
the normal course of business, the Company also may be subject to a risk of loss
by incurring costs to complete a contract in excess of the fixed bid price.
Revenues derived from software license fees are recognized upon shipment
of the software if there are no significant post-delivery obligations. The
Company provides a 90-day warranty on sales of Company software products.
Estimated warranty costs are accrued at the time of product shipment.
Revenues derived from maintenance contracts are deferred and recognized
ratably over the contract period.
INVENTORY Inventory consists primarily of computer hardware components
for voice messaging systems and is stated at the lower of cost or market, with
cost being determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT The Company's property and equipment is stated at
cost. Depreciation is calculated using straight-line and accelerated methods
over the shorter of the estimated lives of the assets or the lease term.
Estimated useful lives generally range from three to seven years. Significant
additions or improvements extending asset lives are capitalized, while repairs
and maintenance are charged to expense as incurred. Property and equipment
includes assets under a capital lease of $300,400 at December 31, 1997.
INTANGIBLE ASSETS Intangible assets relate to the purchase of the
FastCall product line (Note 11) and are being amortized over a five-year life.
Accumulated amortization at December 31, 1997 was $5,200.
RESEARCH AND PRODUCT DEVELOPMENT Expenditures for research and software
development costs are expensed as incurred. Such costs are required to be
expensed until the point that technological feasibility and proven marketability
of the product are established. Costs otherwise capitalizable after
technological feasibility is achieved also have been expensed because they have
not been significant.
SPANLINK Communications, Inc.
<PAGE>
INCOME TAXES Income taxes are accounted for on the liability method under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
NET LOSS PER SHARE The Company has adopted SFAS No. 128, "Earnings Per
Share" for the quarter ended December 31, 1997 and all net earnings per share
data presented has been restated and complies with this Statement. Under the
Statement, the presentation of primary earnings per share is replaced with a
dual presentation of basic and diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net earnings available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the Company. There is no
difference between basic and diluted loss per share as presented by the Company
as the impact from stock options and warrants is anti-dilutive and therefore
excluded.
RECENTLY ISSUED ACCOUNTING STANDARD The American Institute of Certified
Public Accountants has approved a new Statement of Position (SOP), SOP 97-2
which supersedes Statement of Position 91-1, "Software Revenue Recognition."
This statement is effective for the Company beginning in fiscal 1998. Management
has assessed this new statement and believes that its adoption will not have a
material effect on the Company's software revenue recognition policies.
NOTE 3 CONTRACTS IN PROGRESS
-------------------------------------------------------------------------
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 2,239,395 $ 434,377
Estimated earnings 1,839,011 491,288
- --------------------------------------------------------------------------------
4,078,406 925,665
Billings to-date (3,961,262) (912,294)
================================================================================
$ 117,144 $ 13,371
================================================================================
This activity is included in the accompanying balance sheet under the
following captions:
DECEMBER 31,
1997 1996
- ---------------------------------------------------------------
Costs and estimated earnings in
excess of billings $ 554,572 $ 18,657
Billings in excess of costs and
estimated earnings (437,428) (5,286)
===============================================================
$ 117,144 $ 13,371
===============================================================
These amounts are included in current assets and other current
liabilities as all contracts in progress are expected to be completed within one
year.
NOTE 4 PROPERTY AND EQUIPMENT
-------------------------------------------------------------------------
Property and equipment consists of:
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------
Equipment $1,337,482 $1,148,031
Office furniture and fixtures 394,266 92,405
Leasehold improvements 152,611 41,202
- -----------------------------------------------------------------
1,884,359 1,281,638
Less: Accumulated depreciation
and amortization (620,199) (444,150)
- -----------------------------------------------------------------
Total property and equipment $1,264,160 $ 837,488
=================================================================
NOTE 5 LONG-TERM OBLIGATIONS
-------------------------------------------------------------------------
At December 31, 1997, long-term obligations are comprised as follows:
Remaining minimum obligation
in connection with acquisition
of product line (Note 11) $500,000
Obligations under capital lease (Note 7) 245,653
- ----------------------------------------------------
745,653
Less current portion (300,570)
- ----------------------------------------------------
$445,083
====================================================
NOTE 6 INCOME TAXES
-------------------------------------------------------------------------
The Company has available net operating loss carryforwards for income tax
purposes of approximately $4,600,000 at December 31, 1997 which begin to expire
in the year 2011. A valuation allowance exists for the entire net tax benefit
associated with the tax loss carryforwards and temporary differences at December
31, 1997 and 1996, as their realization presently is not assured.
Deferred tax assets consist of the following:
DECEMBER 31,
1997 1996
- ------------------------------------------------------------------
Loss carryforward $ 1,727,000 $ 860,000
Allowance for doubtful accounts 81,549 20,797
Vacation accrual 14,764 11,241
Rent accrual 69,091 101,171
Deferred revenue 0 61,431
Other accruals 33,350 51,711
- ------------------------------------------------------------------
1,925,754 1,106,351
Valuation allowance (1,925,754) (1,106,351)
- ------------------------------------------------------------------
$ 0 $ 0
==================================================================
SPANLINK Communications, Inc.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 7 LEASES
-------------------------------------------------------------------------
OPERATING LEASES The Company leases certain office space and equipment
under operating lease agreements. The office space lease requires the Company to
pay certain annual operating costs, including maintenance, insurance and real
estate taxes. Rental expense under these operating leases, excluding operating
expenses for the office space lease, for the years ended December 31, 1997 and
1996 was approximately $329,220 and $103,332, respectively. At December 31,
1997, future minimum lease payments under these operating leases are as follows:
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------
1998 $ 410,646
1999 249,145
2000 249,145
2001 249,145
Thereafter 145,335
- -------------------------------------------------------
Total minimum payments required $1,303,416
=======================================================
CAPITAL LEASES The Company acquired $300,400 of fixed assets during 1997
under a capital lease arrange ment. Borrowings bear interest at 11.5% and are
due in monthly installments of $7,179, including interest, through 2001. Future
minimum payments are as follows:
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------
1998 $ 76,929
1999 80,892
2000 80,892
2001 80,892
- -------------------------------------------------------
Total minimum lease payments 319,605
Less: Amount representing interest (73,952)
- -------------------------------------------------------
Present value of net minimum lease payments 245,653
Less: Current portion (50,570)
- -------------------------------------------------------
$195,083
=======================================================
NOTE 8 SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
RECAPITALIZATION On February 9, 1996, the Com pany's Board of Directors
and shareholders increased the number of authorized shares from 1,000,000 shares
of common stock, no par value, to 25,000,000 shares of common stock, no par
value, and authorized 5,000,000 shares of undesignated preferred stock. The
Company also approved a 900-for-1 stock split of the issued and outstanding
common stock of the Company. All share and per share data included in the
financial statements and related notes have been adjusted to give retroactive
effect to such authorization and split.
STOCK GRANT On February 28, 1996 the Company issued 67,500 and 3,000
shares of restricted common stock for no cash consideration to the Company's
president and outside directors, respectively. The issuance of these shares
resulted in a contribution to capital and compensation expense of $246,750.
CONVERTIBLE BRIDGE NOTES AND WARRANTS On February 28, 1996, the Company
closed on a $400,000 bridge financing of convertible promissory notes (the
Bridge Notes) in a private placement, resulting in net proceeds to the Company
of $283,732 after underwriter's commission and offering expenses. The Bridge
Notes provided for interest at 10% per annum and converted to 125,000 shares of
common stock upon the closing of the Company's initial public offering.
The Company also issued warrants to the holders of the Bridge Notes to
purchase a total of 80,000 shares of common stock. The warrants are exercisable
for a period of five years from the date of issuance at $3.60 per share. The
fair value of the warrants was determined to be $64,000 and was credited to
common stock, resulting in the recognition of a similar amount as original issue
discount which was expensed over the outstanding period of the Bridge Notes.
INITIAL PUBLIC OFFERING The Company completed an initial public offering
(IPO) in May 1996 at a price of $4.00 per common share. Net proceeds to the
Company from the offering were $7,537,640, net of commissions and issuance costs
of $1,202,360. As part of the IPO, the Company granted the underwriters a
five-year stock warrant to purchase 182,748 shares of common stock at $4.80 per
share.
STOCK OPTIONS On January 31, 1996, the Company's Board of Directors and
shareholders approved the Company's 1996 Omnibus Stock Plan (the Plan). Under
the fixed Plan, 1,000,000 common shares have been reserved for issuance of
restricted shares or for options to be granted to employees, consultants and
non-employee directors. Options granted generally are exercisable over a
five-year period from the date of grant at prices not less than the fair market
value at the date the options are granted and expire 10 years after the date of
grant. The Plan allows for the grant of incentive stock options, nonqualified
stock options, reload options, stock appreciation rights and restricted stock.
In 1996, the Company also granted 100,000 fixed options outside of the Plan.
These options generally follow the provisions of the Plan.
SPANLINK Communications, Inc.
<PAGE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's stock options been determined based on the fair value at the grant
date consistent with the provision of SFAS No. 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
below:
YEAR ENDED DECEMBER 31, 1997 1996
- -----------------------------------------------------------------------
Net loss -- as reported $(2,145,530) $(2,834,648)
Net loss -- pro forma $(2,502,033) $(3,497,608)
Net loss per share -- basic and
diluted as reported $ (.42) $ (.66)
Net loss per share -- basic and
diluted pro forma $ (.49) $ (.81)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during 1997: dividend yield of 0%; expected
volatility of 55%; risk-free interest rate of 6.2%; and expected lives of 8.8
years.
There are 1,100,000 shares of common stock reserved for issuance upon
exercise of stock options as of December 31, 1997. A summary of stock option
activity is as follows:
WEIGHTED
WEIGHTED AVERAGE
OPTIONS OUTSTANDING AVERAGE REMAINING
SHARES PRICE EXERCISE CONTRACTUAL
TOTAL EXERCISABLE PER SHARE PRICE LIFE
- --------------------------------------------------------------------------------
Granted in 1996
and outstanding
at December
31, 1996 811,863 365,071 $2.00-$3.50 $2.59 8.6 years
Granted 218,050 $2.00-$2.56
Canceled (199,413) $2.00-$3.50
---------
Outstanding
at December
31, 1997 830,500 439,490 $2.00-$3.50 $2.49 7.8 years
=========
The weighted average fair value of options granted during 1997 was $1.49.
NOTE 9 BENEFIT PLAN
-------------------------------------------------------------------------
The Company sponsors a profit sharing and 401(k) plan which provides that
eligible employees may contribute up to 15% of their annual earnings, not to
exceed the maximum allowed under the Internal Revenue Code. The plan covers
substantially all employees after specified periods of service and the
attainment of minimum age requirements. Company contributions are discretionary.
There were no Company contributions to the plan during 1997 and 1996.
NOTE 10 MAJOR CUSTOMER AND ECONOMIC RELATIONSHIPS
-------------------------------------------------------------------------
The Company generates a significant portion of its revenues from Lucent
Technologies, Inc. (Lucent) under an agreement that provides for royalties to
the Company based upon sales of its products by Lucent. This agreement
terminates in December 1999, but may be extended for successive one-year terms
at the option of Lucent. The Company also has a co-marketing arrangement with
Lucent.
Total revenues from Lucent were approximately $3,693,000 and $2,550,000
for the years ended December 31, 1997 and 1996, respectively, which represented
56% and 47% of total revenues for 1997 and 1996, respectively. Accounts
receivable from Lucent represented approximately 53% and 50% of total accounts
receivable at December 31, 1997 and 1996, respectively.
NOTE 11 PURCHASE OF PRODUCT LINE
-------------------------------------------------------------------------
In December 1997, the Company acquired certain intellectual property
rights related to the FastCall product line from Aurora Systems, Inc. Under the
agreement, the purchase price was established as a minimum of $600,000 subject
to a maximum obligation of $1,100,000 dependent upon future sales of the
FastCall product by the Company over a five-year period. The Company recorded
the acquired rights as intangible assets based on the contractual minimum
obligation of $600,000 plus acquisition related costs of $16,819. The purchase
price was funded by an initial payment of $100,000, with the balance due over
the five-year term of the agreement. The long and short term components of the
remaining obligation are determined based on estimated sales of the product by
the Company.
SPANLINK Communications, Inc.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SPANLINK COMMUNICATIONS, INC.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Spanlink Communications, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
MINNEAPOLIS, MINNESOTA
FEBRUARY 13, 1998
SPANLINK Communications, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
-------------------------------------------------------------------------
The following table sets forth, for the periods indicated, certain items
from the Company's statement of operations, expressed as a percentage of total
revenues:
YEAR ENDED DECEMBER 31, 1997 1996
- ---------------------------------------------------------
Revenues 100.0 %100.0%
Cost of revenues 42.8 40.1
- ---------------------------------------------------------
Gross profit 57.2 59.9
Operating expenses:
Sales, general and administrative 68.7 96.1
Research and product development 22.1 18.7
- ---------------------------------------------------------
Total operating expenses 90.8 114.8
Loss from operations (33.6) (54.9)
Interest income 1.3 2.6
- ---------------------------------------------------------
Loss before income taxes (32.3) (52.3)
Provision for income taxes -- --
Net loss (32.3)% (52.3)%
=========================================================
YEARS ENDED
DECEMBER 31, 1997 AND 1996
-------------------------------------------------------------------------
REVENUES
Total revenues increased by 22.4% from $5,422,929 in 1996 to $6,637,018
in 1997. The increase resulted from increases in both hardware and software
revenue. The Company's revenues are derived primarily from the sale of hardware,
packaged (configurable) software, custom software and services. The hardware
component of revenue increased 59.2% from $1,049,294 in 1996 to $1,670,028 in
1997. The hardware revenue increase was primarily due to the increase in the
Company's direct marketing strategy. The software component (including both
packaged and custom software) increased 13.6% from $3,068,992 in 1996 to
$3,485,157 in 1997. The software increase was attributable to a significant
increase in the number of packaged software products sold partially offset by
lower custom software. The sales increase in packaged software is partially due
to the success of the Company's continued focus on selling packaged solutions to
its customers. The Company anticipates, but can provide no assurance, that
revenues from packaged software will continue to increase as a percentage of
total revenues and that custom software revenues will continue to decrease as a
percentage of total revenues over the next several years. Services revenue
increased 13.6% from $1,304,643 in 1996 to $1,481,833 in 1997.
COST OF REVENUES
Cost of revenues increased 30.7% from $2,175,018 in 1996 to $2,842,424 in
1997. The increase was due primarily to the increased sales levels together with
the higher percentage of hardware revenue.
GROSS PROFIT
Gross profit increased 16.8% to $3,794,594 in 1997 from $3,247,911 in
1996. Gross profit as a percentage of total revenues decreased to 57.2% in 1997
from 59.9% in 1996. The decrease resulted in part from higher levels of hardware
revenue which generally have a lower gross profit percentage. Gross profit as a
percentage of total revenue will vary from period to period depending on the
product mix of sales revenue.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses decreased 12.4% in 1997 to
$4,562,239 from $5,210,783 in 1996. Sales, general and administrative expenses
as a percentage of total revenues were 68.7% in 1997, down from 96.1% in 1996.
The dollar decrease as well as the decrease as a percentage of total revenues
resulted from the Company's cost reduction program initiated in mid-year 1997.
Those cost reductions were primarily focused in marketing and general and
administrative areas.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses increased 44.1% in 1997 to
$1,463,905 from $1,016,048 in 1996. The increase resulted primarily from ongoing
development of the Company's packaged software products and core software
modules. Research and product development expenses as a percentage of total
revenues were 22.1% in 1997 and 18.7% in 1996. A portion of the Company's custom
software development efforts are included in cost of revenues and are
essentially customer sponsored product development expenses. Accordingly, the
Company's total research and development efforts are greater as a percentage of
total revenues than the amounts indicated above.
Research and product development expenses are charged to operations as
incurred. Costs, otherwise capitalizable, also have been expensed because they
have been insignificant or the timing of realization is not determinable. The
Company expects the dollar amount of product development expenses to continue to
increase, although such expenses as a percentage of total revenues will vary
from period to period.
NET INTEREST INCOME
The Company recorded net interest income of $86,020 for the year ended
December 31, 1997 versus net interest income of $144,272 for the comparable
period in 1996. The decrease was attributable to lower levels of investments in
the current year. The interest income in 1996 and 1997 resulted from investment
of the cash proceeds from the Company's initial public offering completed in the
second quarter of 1996.
SPANLINK Communications, Inc.
<PAGE>
INCOME TAX PROVISION
The Company did not record a tax benefit for the year ended December 31,
1997 or December 31, 1996, as the likelihood of realization of the benefit is
presently not assured.
NET LOSS
The Company incurred a net loss of $2,145,530 in 1997 compared with a net
loss of $2,834,648 in 1996. The losses were due primarily to high operating
expenses relative to the revenue levels the Company was able to achieve. The
Company initiated an expense reduction plan at mid-year 1997. As a result, the
Company significantly improved its operating performance in the second half of
1997.
IMPACT OF INFLATION
The Company believes that during 1997, inflation had no appreciable
effect on the Company's operations.
YEAR 2000 COMPLIANCE
The Company believes that year 2000 compliance issues will not have a
material adverse effect on the Company's operations, and that the Company's
software products are year 2000 compliant.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $703,658 as of December 31,
1997, a decrease of $3,673,847 from December 31, 1996. The Company's cash
equivalents and marketable securities are invested primarily in short-term
obligations of government agencies, treasury notes, money market funds or
high-grade commercial paper.
Accounts receivable were $2,113,271 at December 31, 1997 compared with
$1,993,667 at December 31, 1996. Inventory and costs and estimated earnings in
excess of billings increased from $89,998 at December 31, 1996 to $900,347 at
December 31, 1997. This increase reflects the higher level of jobs in process at
the end of 1997 compared to the end of 1996. Purchased intangibles of $611,619
at December 31, 1997 represents the costs of acquiring the FastCall(R) product
line from Aurora Systems, Inc. in December of 1997. Working capital at December
31, 1997 was $1,600,807. The Company plans to seek additional financing which
may include a line of credit or term loans from a bank or other financial
institution, factoring of receivables, equity financing or a combination of the
foregoing. Although the Company believes that it will be able to obtain such
financing on reasonable terms, there is no assurance that such financing will be
available. The Company believes its cash and cash equivalents, together with
cash flow from operations and the additional financing described above, will be
sufficient to meet the Company's currently projected needs.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Management's Discussion and elsewhere in
the Annual Report, which are summarized here, are forward-looking statements
that involve risk and uncertainties. Actual results may differ materially from
the results anticipated by such forward-looking statements. Factors that could
cause the actual results to differ include, but are not limited to those
discussed below with respect to each forward-looking statement:
* The Company's expectation that revenues from packaged software will
continue to increase as a percentage of total revenues while revenues from
custom software decrease as a percentage of total revenues depends upon (i)
increasing marketplace acceptance of the packaged software products; (ii)
continuing ability of the Company to develop new packaged products to keep pace
with technological advancements; and (iii) availability of financing to support
marketing and distribution.
* The 1998 introduction of Lucent's CentreVu Messenger (which bundles the
Company's call center application with Lucent's AUDIX voice mail application) is
dependent on Lucent's continuing commitment to the product and their willingness
to invest in marketing. The Company's ability to benefit from this relationship
is dependent upon marketplace acceptance of the product, the quality and
performance of the Company's product as compared to competitive products, and
the Company's ability to meet Lucent's demands.
* The 1998 introduction of new Company applications in a Computer
Telephone Integration format is subject to the risk of unanticipated problems or
delays in development and possible lack of financing to support the marketing
necessary for effective marketplace introduction. There is no assurance that
such products will be accepted in the marketplace.
* The Company's expectation that it will continue to increase revenues
and improve operating performance is subject to the highly competitive nature of
the computer telecommunications marketplace, the Company's dependence on certain
significant customers, the loss of which would have an adverse effect on the
Company, the possibility of adverse changes in the general business and economic
environment and the availability of sufficient financing.
SPANLINK Communications, Inc.
EXHIBIT 23.1 Consent of Price Waterhouse LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-14949) of Spanlink Communications, Inc. of our
report dated February 13, 1998, appearing in the 1997 Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-KSB.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 703,658
<SECURITIES> 0
<RECEIVABLES> 2,331,271
<ALLOWANCES> 218,000
<INVENTORY> 345,775
<CURRENT-ASSETS> 3,978,848
<PP&E> 1,884,359
<DEPRECIATION> 620,199
<TOTAL-ASSETS> 5,854,627
<CURRENT-LIABILITIES> 2,378,041
<BONDS> 0
0
0
<COMMON> 8,193,663
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,854,627
<SALES> 6,637,018
<TOTAL-REVENUES> 6,637,018
<CGS> 2,842,424
<TOTAL-COSTS> 2,842,424
<OTHER-EXPENSES> 6,026,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,887
<INCOME-PRETAX> (2,145,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,145,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,145,530)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
