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, 1998 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: $11,083,239.
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 22, 1999: $7,894,931.63.*
As of March 22, 1999, 5,107,739 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 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 12, 1999 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" 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 computer telephony software and
services that help automate the customer interaction process in call centers
using technologies which 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. Historically, the Company
has relied significantly on the marketing and distribution network of Lucent
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Technologies, Inc. (Lucent) to deliver its products and services into the
marketplace. In 1997 and 1998, 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 Frost & Sullivan, an independent research organization, the Company
believes that the interactive voice response (IVR) market is approximately $580
million and the computer telephony integration (CTI) market is approximately
$379 million. According to Frost & Sullivan, expected growth rates for the IVR
and CTI markets are approximately 17.5% and 16.1%, respectively.
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 a
computer telephony 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 Computer Telephony Integration (CTI) 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 CTI 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 computer telephony 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 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).
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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 $200,000, 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 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.
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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 was 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
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.
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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 1998 due to the Company's higher level of business from
its direct sales force, a large hardware order received in the fourth quarter of
1998, and a higher level of hardware upgrades purchased by the Company's
customers. 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 computer telephony 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 business. Other competitors focusing on CTI
applications, such as Davox, Genesys Labs, and Quintus/Nabnasset also compete
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with the company's line of interactive computer telecommunications products.
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:
o Call centers such as customer service centers, catalog order centers,
ticket reservation centers and businesses such as service bureaus.
o Media markets such as newspapers, cable, television and radio
organizations.
o Healthcare markets such as HMOs, PPOs, dental insurance and other insurance
coverage organizations in the health care field.
o Financial institutions such as banks, credit unions, mortgage banks and
diversified financial service organizations.
o Manufacturers with dealer distribution networks such as lawn and garden,
construction, electronic and other consumer products.
o Human resources, with the Company's SurveyPower and HireSolution
applications which aid in call center agent hiring, performance
measurement, and retention.
In addition, the Company plans to continue to sell its products through its
relationships with Lucent and its 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.
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The Company's direct sales employees solicit prospective customers and provide
technical advice and support with respect to the Company's products. During
1998, the Company focused its marketing and sales efforts on enhancing its sales
organization to call directly on system users in its target markets, and on
developing marketing alliances to aid in distribution of the Company's products.
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 $4,957,000 and $3,693,000 for the years ended December
31, 1998 and 1997, respectively, which represented 45% and 56% of total revenues
for 1998 and 1997, 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 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.
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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 $1,282,549 in 1998 and $1,463,905 in 1997 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. 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 and professional services, which
are designed to the customer's specifications and requirements by Company
engineers, according to the customer's schedule, subject to the availability of
engineers to work on the project. On December 31, 1997, the Company had a
backlog of approximately $814,000 of custom software and professional services
orders which were filled in 1998. By December 31, 1998, the backlog of custom
software and professional services orders had increased to $962,000, which the
Company expects to fill during 1999.
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 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
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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, 1998, the Company employed 95 employees, of which 91 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, 1998 and December 31, 1997 was $243,747 and $229,242,
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.
1998 High Low
---- ---- ---
First Quarter 3 2
Second Quarter 3 3/4 2 3/4
Third Quarter 4 1/4 2 1/2
Fourth Quarter 4 1/8 3 1/8
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
(b) Approximate Number of Holders of Common Stock
Approximate Number of Record Holders
Title of Class as of March 19, 1999)
-------------- ------------------------------------
Common Stock, No par value 64*
* 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.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1998
Annual Report to Shareholders is hereby incorporated by reference and included
in Exhibit 13.2 hereto.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements of the Company are incorporated herein by
reference from the Company's 1998 Annual Report, and included in Exhibit 13.1 of
this document:
(i) Report of Independent Accountants dated February 12, 1999
(ii) Balance Sheet as of December 31, 1998 and 1997
(iii) Statement of Operations for the years ended December 31, 1998
and 1997
(iv) Statement of Shareholders' Equity for the years ended December
31, 1998 and 1997
(v) Statement of Cash Flows for the years ended December 31, 1998
and 1997
(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
12, 1999, 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 12, 1999, 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 12, 1999, 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 12, 1999, 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,
1998.
<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, 1999 /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, 1999
Brett A. Shockley Executive Officer and Director
(Principal Executive Officer)
/s/ Timothy E. Briggs Vice President Finance, Chief March 30, 1999
Timothy E. Briggs Financial Officer
(Principal Financial and
Accounting Officer )
/s/ Loren A. Singer, Jr. Secretary, Director March 30, 1999
Loren A. Singer, Jr.
/s/ Bruce E. Humphrey Director March 30, 1999
Bruce E. Humphrey
Director March ___, 1999
Thomas F. Madison
Director March ___, 1999
Joseph D. Mooney
<PAGE>
SPANLINK COMMUNICATIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
For the Fiscal Year Ended December 31, 1998
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).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
<PAGE>
10.7 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).
10.8 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).
10.9 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).
10.10 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).*
10.11 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).
10.12 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).
10.13 Spanlink Communications, Inc. 1998 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).*
10.14 Software Acceptance and Distribution Agreement between the Company and
Lucent Technologies, Inc. dated December 31, 1996 (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997).
<PAGE>
10.15 Software Co-Marketing Agreement between the Company and Lucent
Technologies, Inc. dated December 31, 1996 (incorporated by reference
to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.16 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 (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.17 FastCall Purchase Agreement between the Company and Aurora Systems,
Inc. dated December 31, 1997 (incorporated by reference to Exhibit
10.19 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.18 Separation Agreement and Release between the Company and Patrick P.
Irestone dated July 15, 1997 (incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).*
10.19 Amendment No. 1 to Software Acceptance and Distribution Agreement
between the Company and Lucent Technologies, Inc. dated June 23, 1998.
10.20 Amendment No. 2 to Software Acceptance and Distribution Agreement
between the Company and Lucent Technologies, Inc. dated August 6, 1998.
10.21 Agreement for Resale of Lucent Technologies Interactive Voice Response
between Lucent Technologies, Inc., the Company and Inacom
Communications, Inc. dated June 5, 1998.
10.22 Second Renewal Agreement dated July 24, 1998 to the Maintenance
Agreement between the State of New York Department of Labor and the
Company.
10.23 Letter Agreement Regarding $1,000,000 Line of Credit and $1,000,000
Promissory Note between the Company and Marquette Capital Bank, N.A.,
each dated April 30, 1998.
13.1 Audited Financial Statements.
13.2 Portion of the 1998 Annual Report containing Management's Discussion
and Analysis.
23.1 Consent of PricewaterhouseCoopers 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.
Agreement No. LFM003D
Amendment No. 1
Spanlink Communications, Inc. Lucent Technologies Inc.
One Main Street, SE 211 Mt. Airy Road
Minneapolis, Minnesota 55414 Basking Ridge, NJ 07920
Agreement No. LFM003D between Spanlink Communications, Inc. ("SPANLINK") and
Lucent Technologies Inc. ("LUCENT") is hereby amended as follows:
Article 2 - License Grant, paragraph A, the first sentence is modified to read:
"SPANLINK grants LUCENT, subject to payment terms set forth in Exhibit B, a
non-exclusive, worldwide right and license to use, reproduce, demonstrate,
market, sub-license, and distribute copies of PRODUCT supplied to LUCENT by
SPANLINK in object code form.
Effective June 1, 1998, Exhibit A, Exhibit B, Exhibit C, and Exhibit D are
deleted in their entirety and replaced with the attached Exhibit A, Exhibit B,
Exhibit C, and Exhibit D, dated June 1, 1998.
Effective July 1, 1998, Article 8 - Payments, Section A is modified to read as
follows:
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 monthly basis
within thirty (30) days from the date of the end of the month
in which the PRODUCT was sold by LUCENT or a LUCENT AFFILIATE.
All other terms and conditions shall remain unchanged.
ACCEPTED:
SPANLINK COMMUNICATIONS, INC. LUCENT TECHNOLOGIES INC.
By /s/ Brett Shockley By /s/ Kimberley A. Leitner
Name Brett Shockley Name Kimberley A. Leitner, C.P.M.
Title CEO Title OEM Sourcing Manager
Date 6/23/98 Date June 22, 1998
<PAGE>
EXHIBIT A
PRODUCTS TO BE DELIVERED TO LUCENT
For the purposes of this Agreement PRODUCT is defined as follows:
1. For Customer Assist Care Center Version 6.0 associated with CONVERSANT
Voice Information System (VIS) Version 6.0 (V6.0)
A. DEFINITIONS:
1. The most current version of Conversant Call Center
namely Customer Assist Care Center Version 6.0, or
any portion thereof, in object and source code form,
as described in the most current user documentation,
the June 7, 1996 summary letter, the September 17,
1996 Phase II Implementation document, and the
September 24, 1996 Requirements for Customer Assist
Care Center document. Copies of said user
documentation, June 7, 1996 letter, September 17,
1996 Implementation document, and September 24, 1996
Requirements document are attached hereto as or
described on Attachments 1, II, III., and IV,
respectively. In the event said documents conflict,
the user document shall control.
2. Any future version of PRODUCT, as modified by
SPANLINK, pursuant to ARTICLE 6 DELIVERABLES and all
terms and conditions described therein, provided,
however, that SPANLINK has access to and reasonable
assistance from LUCENT developers as needed. In
addition, SPANLINK shall be provided with development
equipment and software at a special business partner
price mutually agreed upon between the parties.
3. Any system modifications of current or future
versions of PRODUCT as required by ARTICLE 13 -
WARRANTY. Such modifications shall include the latest
error updates and maintenance releases of the Source
Code.
4. Any future PEC coded items mutually agreed upon, in
writing, between the parties.
B. OPERATING ENVIRONMENT
The PRODUCT is intended to run on the Intuity CONVERSANT Voice
Information System (VIS) Version 6.0 (V6.0)
C. DELIVERABLE ITEMS
SPANLINK agrees to deliver the following to LUCENT on or
before December 16, 1996:
1. Object code in a format that operates on each of the
following LUCENT target computers:
Conversant System MAP/100
Conversant System MAP/40
2. User documentation that reflects all current PRODUCT
deliverables in U.S. English with no translation into
any other languages. LUCENT shall be responsible for
replication (including associated costs) of all
documentation.
3. Source Code, subject to EXHIBIT E. ESCROW AGREEMENT
4. SPANLINK further agrees to deliver on an as requested
basis:
a. Training as described in EXHIBIT C. TRAINING
DELIVERABLES
b. Maintenance support services as described in
EXHIBIT D. MAINTENANCE SUPPORT
Parties hereby acknowledge adequate compliance with
all dates set forth in Attachment II and III and that
the December 16, 1996 date for deliverable items in
paragraph three (3.) hereof sets forth the obligation
of SPANLINK, hereunder, notwithstanding different
dates provided in Attachments II and III.
D. ACCEPTANCE
PRODUCT will be deemed accepted if the software meets the
following criteria:
1. Performs according to the most current user
documentation and the September 24, 1996
Requirements for Customer Assist Care Center
document, including functionality, performance, and
installation requirements. Copies of said documents
are attached hereto or described on Attachments I and
IV. In the event said documents conflict, the most
current user document shall control.
2. Terms and conditions of acceptance are governed by
ARTICLE 10 - ACCEPTANCE.
E. PRODUCT SPECIFICATION
1. PRODUCT will be packaged by SPANLINK in accordance
with instructions contained in the most current user
documentation as described in Attachment I.
2. PRODUCT will be administered/installed without the
use of Scriptbuilder software.
3. PRODUCTS' System Administrator and "voice mail" like
interfaces will be consistent with LUCENT FMLI style
menus and forms.
4. LUCENT will reasonably cooperate with SPANLINK to
provide any necessary PBX's, Conversant systems, and
adjunct software and components for developmental and
testing purposes.
F. SOFTWARE MEDIA FORMAT
Golden Master Diskette on 3-1/2 inch removable medium pursuant
to ARTICLE 6 - DELIVERABLES.
II. For Customer Assist Care Center Version 7.0 associated with CONVERSANT
Voice Information System (VIS) Version 7.0 (V7.0)
A. DEFINITIONS:
1. The most current version of Conversant Call Center
namely Customer Assist Care Center Version 7.0, or
any portion thereof, in object and source code form,
as described in the May 29, 1998, product proposal.
Copy of the May 29, 1998, Product Proposal is
attached hereto as or described on Attachments V,
respectively.
2. Any future version of PRODUCT, as modified by
SPANLINK, pursuant to ARTICLE 6 - DELIVERABLES and
all terms and conditions described therein, provided,
however, that SPANLINK has access to and reasonable
assistance from LUCENT developers as needed. In
addition, SPANLINK shall be provided with development
equipment and software at a special business partner
price mutually agreed upon between the parties.
3. Any system modifications of current or future
versions of PRODUCT as required by ARTICLE 13 -
WARRANTY. Such modifications shall include the latest
error updates and maintenance releases of the Source
Code.
4. Any future PEC coded items mutually agreed upon, in
writing, between the parties.
B. OPERATING ENVIRONMENT
The PRODUCT is intended to run on the Intuity CONVERSANT Voice
Information System (VIS) Version 7.0 (V7.0)
C. DELIVERABLE ITEMS
SPANLINK agrees to deliver the following to LUCENT on or
before June, 30, 1998:
1. Object code in a format that operates on each of the
following LUCENT target computers:
Conversant System MAP/100
Conversant System MAP/40
Conversant System MAP/5P
2. User documentation that reflects all current PRODUCT
deliverables in U.S. English with no translation into
any other languages. LUCENT shall be responsible for
replication (including associated costs) of all
documentation.
3. Source Code, subject to EXHIBIT E ESCROW AGREEMENT
4. SPANLINK further agrees to deliver on an as requested
basis:
a. Training as described in EXHIBIT C. TRAINING
DELIVERABLES
b. Maintenance support services as described in
EXHIBIT D SUPPORT
Parties hereby acknowledge adequate compliance with all dates
set forth in Attachment V hereof sets forth the obligation of
SPANLINK hereunder.
D. ACCEPTANCE
PRODUCT will be deemed accepted if the software meets the
following criteria:
1. Performs according to Attachment V.
2. Terms and conditions of acceptance are governed by
ARTICLE 10 - ACCEPTANCE.
E. PRODUCT SPECIFICATION
1. PRODUCT will be packaged by SPANLINK in accordance
with the PEC codes specified by LUCENT, as shown in
Exhibit B.
2. PRODUCT will be administered/installed without the
use of Scriptbuilder software.
3. PRODUCTS' System Administrator and "voice mail" like
interfaces will be consistent with LUCENT FMLI style
menus and forms, and may use the new SPANLINK
Windows-based administration tool.
4. LUCENT will reasonably cooperate with SPANLINK to
provide any necessary PBX's, Conversant systems, and
adjunct software and components for developmental and
testing purposes.
F. SOFTWARE MEDIA FORMAT
Golden Master Diskette on 3 1/2 inch removable medium pursuant
to ARTICLE 6 - DELIVERABLES.
<PAGE>
EXHIBIT C
TRAINING DELIVERABLES
1. SPANLINK will make available to LUCENT one each of the following three
training courses:
a) Service Support Training - This training is intended to
prepare LUCENT Technical Staff to support questions from the
LUCENT end user hotline. It should contain all of the
information made available under end user training and include
specific materials such as the answers to the most frequently
questions asked by end users, directed to end user support.
b) Operational Training - In-depth technical instruction
involving an overview of the PRODUCT design and function,
advanced training on product enhancements, as well as use and
maintenance.
c) Professional Services Training - SPANLINK Field Service
Engineering group will provide a complete, week-long
professional services class at the SPANLINK training facility
in Minneapolis, MN. This course focuses on the professional
services (installation and configuration) for PRODUCT.
The intent of these courses is to teach LUCENT personnel to train other
LUCENT representatives. LUCENT shall be responsible for providing the
facilities, computer equipment, and complete site preparation necessary
for SPANLINK to conduct the so-designated courses, unless otherwise
noted.
2. All training will be provided at locations and dates designated by
LUCENT, subject to applicable course lead times.
3. The three training courses described above are included in the PRODUCT
royalty structure as outlined in Exhibit B.
4. Travel expenses and materials are additional, and are not included in
the royalty structure. These expenses include a coach seat for domestic
travel and business seat for international travel, lodging and other
reasonable living expenses, and materials up to a maximum amount to be
negotiated between LUCENT and SPANLINK.
5. LUCENT personnel or customers may attend SPANLINK in house training
courses at SPANLINK published rates.
<PAGE>
EXHIBIT D
SUPPORT
SPANLINK agrees to provide to LUCENT support as follows:
1. DEFINITION
For the purposes of this Section, Support is defined as follows:
All Technical Support Engineers are the points of contact for LUCENT
support personnel for problem related identification and resolution.
All support questions should be directed to the Spanlink Maintenance
support line at (612) 971-2100.
These Technical Support Engineers will:
a. Act as subject matter experts and/or have direct personal
access to subject matter experts on PRODUCT and their
execution on LUCENT computers.
b. Track and log the nature, severity and originator of all
troubles or requests for information from LUCENT support
personnel and assure the timely response to LUCENT requests.
LUCENT will have access to the log during business hours
subject to reasonable advance notice.
c. Be immediately available to LUCENT to respond to LUCENT
support calls between 7:00 a.m. and 6:30 p.m. Central Standard
Time.
d. Upon LUCENT's request, have a designated employee accompany
LUCENT personnel on visits to other LUCENT locations or LUCENT
customer locations to assist and consult on trouble or sales
subject to reasonable advance notice, payment of travel,
materials, and expenses. Any training related activities will
be according to the criteria set forth in Exhibit C.
2. All support will be subject to the terms in Exhibit B. SPANLINK agrees
to make available to LUCENT such other support services as may be made
available by SPANLINK to its licensees of the PRODUCT upon similar
terms and conditions (including charges) or otherwise as agreed upon
between SPANLINK and LUCENT.
3. SPANLINK will classify all support as one of the following:
a. Severity Level 4. The system is providing less than 75 percent
service. Either less than 75 percent of the callers are
receiving full service or less than 75 percent of the services
are available to callers. All call center tickets escalated
from Tier 3 are classified as Severity Level 4.
b. Severity Level 3. The system is providing more than 75 percent
service.
c. Severity Level 2. The system is providing less than 75 percent
service. Either less than 75 percent of the callers are
receiving fill service or less than 75 percent of the services
are available to callers.
d. Severity Level 1. The system is providing more than 75 percent
service.
4. If a PRODUCT error of Severity Level 3 or 4 is discovered by LUCENT and
notification of such is given to SPANLINK, SPANLINK agrees to use its
best efforts to promptly eliminate such error and provide the fix
and/or workaround to LUCENT support personnel. SPANLINK will use its
best efforts to complete the first diagnosis within four business hours
of the trouble report for a Severity Level 3 or 4 problem and
twenty-four business hours or 3 business days for a Severity Level 1 or
2. A Severity Level 3 or 4 is not considered resolved until SPANLINK,
LUCENT, and customer agree that it is resolved.
5. SPANLINK agrees to also provide to LUCENT, according to one of the fee
schedules set forth in paragraph 2 above, the following support
services for the PRODUCT: (i) on-line access to a database covering
topics such as an in depth discussion of known bugs and solutions,
PRODUCT release information and available training courses; (ii) prompt
verbal and written communications detailing operational instructions,
problem reporting and technical advice including diagnosis via remote
diagnostic techniques of problems experienced by LUCENT in the use of
PRODUCT, and furnishing required fixes and/or workarounds; (iii)
installation support consultation; and (iv) support on a technical
level sufficient to permit LUCENT to integrate the corrections or
updates into PRODUCT and appropriate system software and hardware.
6. If requested by LUCENT, SPANLINK agrees to use its best efforts with
LUCENT to provide integrated support to LUCENT customers of PRODUCT.
Integrated support is defined as understanding and diagnosing a
customer problem related to a system of hardware, communications
facilities, system software and application software to the point where
the trouble is positively isolated to a particular element of the
system, rather than only to the point where some elements of the system
are identified as not causing the problem.
7. SPANLINK agrees to provide Support to LUCENT for X - 2 versions of the
PRODUCT, i.e. SPANLINK will support the current version of the PRODUCT
plus two versions immediately preceding the current version.
8. SPANLINK agrees to Support prior version (previous to version X-2 as
listed in point 7 above) for Year 2000 issues only. Support issues
outside of this issue will be forwarded to Lucent Product Management
for follow-up.
AMENDMENT NO. 2 TO
SOFTWARE ACCEPTANCE DISTRIBUTION AGREEMENT NO. LFM003D
BETWEEN
LUCENT TECHNOLOGIES INC.
AND
SPANLINK COMMUNICATIONS, INC.
Lucent Technologies Inc. ("Lucent") and Spanlink Communications, Inc.
("Spanlink") agree that this Addendum supplements, and to the extent it differs,
amends the above referenced Software Acceptance and Distribution Agreement
("Agreement").
ARTICLE 1 - RECITALS
WHEREAS, Spanlink has purchased all rights and title to the FastCall(R) product
("FastCall") from Aurora Systems; and
WHEREAS, Spanlink has the right to license FastCall to Lucent for distribution
and sub-licensing by Lucent; and
WHEREAS, Lucent desires to distribute and sub-license FastCall under the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the terms and
conditions set forth in this Addendum, the parties agree as follows:
ARTICLE 2 - TERM
This Addendum shall be effective on the later of the dates upon which duly
authorized representatives of the parties sign this Addendum. The term of this
Addendum shall coincide with the remaining term of the Agreement and any
renewals thereof as set forth in ARTICLE 16 of the Agreement unless the parties
mutually agree otherwise.
ARTICLE 3 - ADDITION OF FASTCALL TO AGREEMENT
The parties hereby agree that the term PRODUCT in the Agreement shall, as of the
effective date of this Addendum, include FastCall and all applicable
documentation, support materials, and training materials. Unless expressly
stated in this Addendum, all terms and conditions applicable to PRODUCTS in the
Agreement shall apply to FastCall as if originally set forth therein.
ARTICLE 4 - EXHIBITS
Exhibits A, B, C, and D of the Agreement are hereby supplemented with Exhibits
A1, B1, C1, and D1, respectively, to incorporate FastCall related terms and
conditions. Exhibits A, B, C, and D shall continue to apply to all PRODUCTs
except FastCall.
ARTICLE 5 - REPRESENTATION AND WARRANTIES
Spanlink hereby represents and warrants to Lucent that it has full, unrestricted
title and interest in the FastCall software and that it has the unrestricted
right to grant Lucent a non-exclusive worldwide right and license to use,
demonstrate, market, sub-license, and distribute copies of FastCall in object
code form. Except as set forth below, all other warranties and the
indemnifications set forth in the Agreement applicable to PRODUCTs shall also
apply to FastCall.
The PRODUCT warranties set forth in ARTICLE 13 of the Agreement shall apply to
FastCall for a period of one (1) year after FastCall is installed at Lucent's
customer site instead of the ninety (90) days set forth therein.
ARTICLE 6 - ESCROW
Within thirty (30) days of the effective date of this Addendum, Spanlink shall
deposit the Source Code for FastCall into escrow pursuant to ARTICLE 6(A) and
Exhibit E of the Agreement.
ARTICLE 7 - PAYMENTS
All payments due to SPANLINK under this Agreement shall be made on a monthly
basis within thirty (30) days from the date of the end of the month in which the
PRODUCT was shipped by LUCENT or a LUCENT AFFILIATE.
All other terms and conditions of the Agreement remained unchanged.
IN WITNESS WHEREOF, the parties have executed this Addendum to the Software
Acceptance and Distribution Agreement No. LFM003D.
Spanlink Communications, Inc. Lucent Technologies Inc.
By: /s/ Brett Shockley By: /s/ Kimberley A. Leitner
Name: Brett Shockley Name: Kimberley A. Leitner, C.P.M.
(print) (print)
Title: CEO Title: OEM Sourcing Manager
Date: 8/6/98 Date: August 6, 1998
<PAGE>
EXHIBIT A1
FASTCALL PRODUCTS TO BE DELIVERED TO LUCENT
Exhibit A of the Agreement is hereby supplemented specifically in connection
with FastCall as follows:
1. DEFINITIONS
(a) EXISTING PRODUCT. The Term "EXISTING PRODUCT" means the most current version
of FastCall, or any portion thereof, as of the effective date of this Addendum.
The current version of FastCall for Passageway Telephone Services is FastCall
2.03. The current version of FastCall for Definity Direct Connection is FastCall
2.1.
(b) NEW VERSION. The term "NEW VERSION" means any modification of a MODIFIED
PRODUCT for which SPANLINK, in its sole discretion, changes the number to the
left of the first decimal point in SPANLINK's version number of the PRODUCT
(e.g., a change from versions 3.10.01 to 4.0).
(c) UPDATE. The term "UPDATE" means any modification of a PRODUCT for which
SPANLINK, in its sole discretion, changes a number to the right of the first
decimal point in the SPANLINK version number of the PRODUCT (e.g., a change from
version 3.10 to 3.30).
2. OPERATING ENVIRONMENT
The CURRENT PRODUCT shall run on the most current version of Microsoft Windows
NT, Windows NT 4.0, Windows 95 and Windows 3.1.
3. DELIVERABLE ITEMS
For each PRODUCT, SPANLINK shall deliver:
(1) Object code (including relinkable object code) that operates on a
486/Pentium personal computer running the operating systems in section
2.
(2) User documentation, in electronic form, Adobe Framemaker format
adhering to the Lucent Style Guide.
(3) Source Code subject to Exhibit E - ESCROW AGREEMENT
SPANLINK further agrees to deliver on an as needed basis:
(1) Training as described in EXHIBIT C1: TRAINING DELIVERABLES - FASTCALL
(2) Technical support services as described in EXHIBIT D1: TECHNICAL
SUPPORT - FASTCALL
4. ACCEPTANCE
The EXISTING PRODUCT has been accepted by LUCENT.
NEW VERSIONS and UPDATES will be deemed acceptable if the software meets the
following criteria:
(a) Performs according to the most current user documentation.
(b) Operates on the Windows NT and Windows 95 operating systems and passes
LUCENT's certification test program.
(c) Terms and conditions of acceptance are governed by ARTICLE 10 -
ACCEPTANCE
5. SOFTWARE MEDIA FORMAT
Golden Master Diskette(s) on 3.5 inch removable medium.
<PAGE>
EXHIBIT C1
TRAINING DELIVERABLES - FASTCALL
Exhibit C of the Agreement is hereby supplemented specifically in connection
with FastCall s follows:
SPANLINK shall make available to LUCENT, at no charge, three forms of training
courses from which LUCENT may select 3 sessions per year (with each session
accommodating up to twenty-five (25) students) in any mix from the following:
(1) Account Executive Sales Training: Demonstration training for LUCENT
Account Executives. This training is expected to include, but shall not
be limited to, identification of target markets, qualification of
potential customers, and specific sales advice.
(2) Service Support Training: Supplier to provide to LUCENT support
organizations (including SDSC, NSAC, TSC, ITAG and others as the
develop) product training on the FastCall family of products. This
training to include: overall product familiarization (how it works, how
do I ...), installation and testing, support, debugging and escalation
procedures. The above training is to be provided initially and ongoing
as product and personnel needs require. There is to be no charge for
any of this training. Training beyond the scope mentioned above is to
be negotiated between the parties. This training is intended to prepare
the LUCENT Technical staff to support questions from LUCENT's end user
hotline. It should contain all of the information made available under
end user training and include specific materials, such as the answers
to the most frequent questions asked by end users, directed to end user
support.
(3) Technical Training: For technical instruction in the use and
operational technical support of the product.
It is understood that LUCENT may request and Spanlink shall provide "train the
trainer" courses as part of the above-mentioned courses at no charge to LUCENT.
The intent of these courses is to teach LUCENT personnel to train other LUCENT
representatives. The selected courses will be conducted at locations and dates
to be designated by LUCENT. LUCENT shall be responsible for providing the
facilities and computer equipment necessary for conducting these courses.
<PAGE>
EXHIBIT D1
TECHNICAL SUPPORT - FASTCALL
Exhibit D of the Agreement is hereby supplemented specifically in connection
with FastCall as follows:
SPANLINK agrees to provide to LUCENT warranty and post-warranty technical
support as follows:
1. Two (2) Designated SPANLINK employees, mutually agreeable to both
SPANLINK and LUCENT, to act as the points of contact via a telephone
line between SPANLINK and LUCENT support personnel for problem related
identification and resolution.
These designated employees will:
o Act as subject matter experts and/or have direct personal
access to subject matter experts on FastCall and its
execution.
o Track and log the nature, severity and originator of all
troubles or requests for information from LUCENT support
personnel and to assure the timely response to LUCENT
requests. LUCENT will have access to the log at any time.
o Provide to LUCENT Product Management monthly status reports of
technical support, product enhancements and future product
plans.
o Be immediately available to respond to LUCENT support calls
between 7:00 a.m. and 6:30 p.m. Central Standard Time.
o Upon LUCENT's request, have a designated employee accompany
LUCENT personnel on visits to other LUCENT locations or LUCENT
customer locations to assist and consult on troubles subject
to reasonable advance notice, payment or reasonable travel and
materials expenses. Any training related activities will be
according to the criteria set forth in Exhibit C1.
2. If a PRODUCT error of severity level 1 or 2 is discovered by LUCENT
during the warranty period and notification of such is given to
SPANLINK, SPANLINK agrees to use its best effort, at its own expense,
to promptly eliminate such error and provide the fix and/or workaround
to LUCENT support personnel.
o A severity level 1 error is classified by LUCENT as one which
significantly impacts use. SPANLINK shall use its best efforts
to eliminate a severity level 1 error within three (3) days
after notification thereof. SPANLINK agrees to initiate a
verbal report to LUCENT every twenty-four (24) hours that a
severity level 1 error is outstanding.
o A severity level 2 error is any error causing the PRODUCT to
give incorrect results per SPANLINK's user documentation.
SPANLINK shall use its best efforts to eliminate the severity
level 2 error within thirty (30) days after written
notification thereof.
A severity level 1 or 2 error is not considered resolved until both
SPANLINK and LUCENT agree that it is resolved.
3. SPANLINK agrees to also provide at no charge to LUCENT during the term
of this Addendum, the following support services for the PRODUCT:
prompt verbal and written communications detailing operational
instructions; problem reporting and technical advice including
diagnosis via remote diagnostic techniques of problems experienced by
LUCENT in the use of PRODUCT; and the furnishing of required fixes
and/or workarounds. SPANLINK shall also furnish installation support
consultation at the rate of one hundred dollars ($100) per hour. At
LUCENT's request, SPANLINK agrees to make available to LUCENT such
other support services as may be made available by SPANLINK to its
licensees of the PRODUCT upon similar terms and conditions (including
but not limited to applicable charges, if any) or as otherwise agreed
upon between SPANLINK and LUCENT.
4. SPANLINK agrees to make available to LUCENT, at no charge, as published
during the term of this Addendum, software and documentation that
correct reproducible errors or problems discovered by SPANLINK in the
CURRENT PRODUCT, NEW VERSION, and UPDATES in the form supplied to
LUCENT by SPANLINK under this Addendum.
5. SPANLINK shall provide LUCENT with training on a technical level
sufficient to permit LUCENT to integrate NEW VERSIONS or UPDATES to the
PRODUCT.
6. If requested by LUCENT, SPANLINK agrees to use its best efforts with
LUCENT to provide integrated support to LUCENT customers of PRODUCT.
Integrated support is defined as understanding and diagnosing a
customer problem related to a system of hardware, communications
facilities, system software and application software to the point where
the trouble is positively isolated to a particular element of the
system, rather than only to the point where some elements of the system
are identified as not causing the problem.
7. SPANLINK agrees to serve as Tier IV support for CURRENT PRODUCT - in
both keystroke macro and Dynamic Data Exchange (DDE) implementations.
Compensation for providing Tier IV support is included in the PRODUCT
royalty rate, as shown in Exhibit B1.
Tier IV support is defined as providing bug fixes to the PRODUCT, and
to accept escalated trouble tickets from the LUCENT TSO to the SPANLINK
TSO. In the case of DDE integration, SPANLINK will ensure the specified
and documented DDE functionality within PRODUCT. If customer problems
arise due to a PRODUCT bug, SPANLINK will assume responsibility for
resolution. If customer problems are not due to a bug in the FastCall
software (e.g., in the LUCENT DDE integration), LUCENT will be
responsible for resolution. However, SPANLINK will offer LUCENT an
"Enhanced DDE Service" (see point 8 below).
8. SPANLINK agrees to offer LUCENT "Enhanced DDE Services" for PRODUCT on
a time and materials (T&M) basis. Enhanced DDE Services are defined as
a Spanlink Professional Services offering that provides either remote
or on-site integration of the PRODUCT with a customer's existing
application using Microsoft's DDE commands and scripts. This service
will be marketed directly by Spanlink Communications, and will be
available through Lucent Technologies to Lucent customers. The Enhanced
DDE Services offer will be offered at the T&M rate of $250 per hour.
Enhanced DDE Services will not be covered under the Tier IV product
support terms outlined in point 7 above. This service requires that
SPANLINK receive a copy of the customer's application software (with
which PRODUCT is integrated via DDE), as well as a copy of the LUCENT
DDE integration software. SPANLINK assume responsibilities for problem
resolution, and communication of such resolution to the LUCENT TSO and
the customer.
9. SPANLINK agrees to provide post-warranty support to LUCENT for the
current and two (2) last releases of the PRODUCT.
AGREEMENT NO. VPC-
AGREEMENT FOR RESALE OF LUCENT TECHNOLOGIES INTERACTIVE VOICE
RESPONSE PRODUCTS BY AUTHORIZED RESELLER
Agreement effective as of _______________, between Lucent Technologies Inc., by
and for its Business Communications Systems unit, ("Lucent"), a Delaware
corporation having an office at 211 Mount Airy Road, Basking Ridge, New Jersey
07920 and Spanlink Communications, ("Reseller"), a Corporation organized under
the laws of Minnesota having its principal office at 7125 North Terrace,
Brooklyn Park, MN 55428, and Inacom Communications, Inc., a Delaware corporation
("MVPC"), with offices at Technologies Center, 13831 Chalco Valley Parkway,
Omaha, Nebraska 68138.
1. TERM
This Agreement shall become effective on the date first set forth above, and
shall continue in effect for an initial term ending one year after the date
first set forth above, unless earlier terminated as provided herein. This
Agreement will be renewed for additional one-year terms so long as Reseller and
Lucent continue to meet their obligations hereunder and this Agreement has not
been earlier terminated pursuant to Section 12 hereof. Such renewal will be
evidenced by a written agreement signed by the parties hereto.
2. DEFINITIONS
2.1 "End User" means a third party to whom Reseller markets or sells
Products and provides Licensed Materials together with Lucent's End User License
for such Licensed Materials, for use by such third party in the ordinary course
of its business within the Area or Territory set forth in Appendix A and not for
resale.
2.2 "Licensed Materials" means the System software and related
documentation listed in Appendix A. Lucent shall have the right to add System
software and related documentation to Appendix A upon written notice to
Reseller.
2.3 "Product" or "Lucent Product" means an Lucent Voice Processing
product listed in Appendix A. Each Product consists of one or more Product
Components. The set of Product Components that may be used to equip a Product is
determined solely by Lucent. Lucent shall have the right to add products to
Appendix A upon written notice to Reseller.
2.4 "Services" means those installation and post warranty maintenance
services furnished to End Users in connection with Products marketed or Licensed
Materials transmitted by Reseller.
3. RESELLER APPOINTMENT
3.1 Lucent hereby appoints Reseller, and Reseller hereby accepts an
appointment, to be an authorized Lucent Reseller, also referred to as an
"Authorized Voice Processing Co-Marketer" for the limited purpose of marketing
the Products and providing the Licensed Materials listed in Appendix A to End
Users. Lucent's appointment of Reseller is predicated on Reseller's agreement to
achieve its forecasts and on the successful completion by Reseller's personnel
of the training requirements set forth in Section 4 of this Agreement.
3.2 Reseller shall have no right to authorize others to resell or
market the Products or to provide the Licensed Materials set forth in Appendix A
and any such authorization or attempted authorization shall be void and without
effect. Reseller is not authorized to employ sales agents (other than an
employee of Reseller) or other independent contractors to market the Products or
to provide the Licensed Materials unless this Agreement contains a Sales Agency
Addendum. Reseller agrees that it has no exclusive right to market the Products
or to provide the Licensed Materials, and that no franchise is granted to
Reseller herein. No payment of any fee or equivalent charge is required of
Reseller by Lucent as a condition of entering into this Agreement.
3.3 Lucent expressly reserves both the right to contract with others to
market the Products and provide the Licensed Materials and to itself directly
engage in such marketing and licensing.
3.4 The relationship of the parties under this Agreement shall be, and
shall at all times remain, one of independent contractors and not that of
franchiser and franchisee, joint venturers, or principal and agent. Neither
party shall have any authority to assume or create obligations on the other's
behalf with respect to Products or Licensed Materials, and neither party shall
take any action that has the effect of creating the appearance of its having
such authority. The term "Authorized Voice Processing Co-Marketer ("VPC"), as
used by Lucent to identify an authorized reseller of its voice processing
products and provider of its Licensed Materials, such as Reseller, is not
intended to, nor under the terms of this Agreement does it in fact, create a
joint marketing relationship or obligation between Lucent and Reseller. There
are no obligations between Lucent and Reseller's customers other than those
stated in this Agreement.
3.5 All persons furnished by Reseller shall be considered solely
Reseller's employees, and Reseller shall be solely responsible for payment of
all their unemployment, Social Security and other payroll taxes including
contributions from Reseller when required by law.
4. RESELLER RESPONSIBILITIES
4.1 Reseller has submitted to Lucent a "Voice Processing Co-Marketer
Application". Reseller certifies and warrants that, to the best of its
knowledge, the information in that application is current, accurate, complete
and not misleading. Reseller also agrees during the term of this Agreement to
notify Lucent immediately in writing and describe in detail any significant or
material change in such information.
4.2 Reseller agrees to devote its best efforts to promote and market
Products and provide Licensed Materials to End Users. Reseller also warrants
that it will conduct its business in a manner that reflects favorably on the
quality image of Lucent and its Products and Licensed Materials.
4.3 Reseller represents and warrants that it is able to resell and
provide interactive voice response systems such as the Products and Licensed
Materials and is able, when appropriate to Provide additional materials to
operate with the Products or Licensed Materials, (hereinafter "Value-Added
Equipment or Systems"), the Value-Added Equipment or Systems being respectively
sold and provided by Reseller only to end user customers in the United States
for such customers' internal use. Reseller further certifies that such
incorporation shall add substantial value to such Products in the form of
hardware, software or customer-specific applications software which is
manufactured or developed directly by Reseller, which value added (hereinafter
"Added Value") shall significantly enhance the functions, capabilities and
marketability of the Products.
4.4 Reseller agrees to provide its own license terms for software
developed by Reseller, which license terms shall be clearly separate from the
terms of the Lucent License for the System software.
4.5 Reseller represents that it will purchase a minimum of $100,000.00
worth of Products for resale to End Users during the initial term of this
Agreement.
4.6 Reseller agrees to provide and consistently maintain at least one
(1) salesperson and one (1) marketing and sales support person trained on the
Products and Licensed Materials and at least one (1) technician trained on the
installation and maintenance of the Products and Licensed Materials. The
training that Lucent requires Reseller personnel to undergo is set forth in
Appendix B.
Reseller shall train End Users in the effective use of the Products and Licensed
Materials, including providing any instructional material furnished to Reseller
by Lucent.
4.7 Reseller shall inform End Users of the Services available from
Reseller or Lucent, as appropriate.
4.8 Reseller shall report promptly to Lucent all known or suspected
Product defects or safety problems and keep Lucent informed of End User
complaints with respect to Products or Licensed Materials.
4.9 Reseller shall comply with all applicable requirements of federal,
state and local laws, ordinances, administrative rules and regulations,
including, by way of illustration and not limitation, compliance with all
requirements of Part 68 of the Federal Communication Commission's (FCC) Rules
and Regulations and the Federal Export Administration Act of 1969, 50 U.S.C.
Sections 2401-2414.
4.10. Reseller-shall purchase or otherwise obtain new Lucent Products
and Licensed Materials only from the MVPC identified in this agreement, which
shall have purchased and obtained them only from Lucent through its Distribution
Development and Management organization.
4.11 To ensure fulfillment of Lucent's Product warranties to End Users,
to ensure End User safety, to ensure End Users receive the latest information
concerning the use of Products and enhancements thereto and to maintain End User
satisfaction, Reseller agrees to maintain and make available to Lucent on
reasonable request an accurate and complete list of Reseller's Product End Users
by name and address, the Product installation address (if different), the
Product Components furnished to each End User and the transaction date. Reseller
shall also retain such information in list form for a period of five (5) years
from the transaction date. The obligation to maintain and make such information
available to Lucent shall survive expiration or termination of this Agreement.
5. PRODUCT AND LICENSED MATERIAL CHANGES
Lucent may, at any time without advising Reseller, delete any Product
or Licensed Material from Appendix A, make changes in the Products or Licensed
Materials or modify the drawings and specifications relating thereto, or
substitute Products or Licensed Materials of later design to fill an order,
provided the changes, modifications or substitutions under normal and proper use
do not adversely impact upon form, fit or function or are recommended by Lucent
to enhance safety.
6. USE OF INFORMATION
All technical and business information and trade secrets in any form
furnished to Reseller under or in contemplation of this Agreement and identified
as or known by Reseller to be proprietary to Lucent (all hereinafter designated
"Information") shall remain the property of Lucent. Unless Lucent otherwise
expressly agrees in writing, such Information: (i) shall be treated in
confidence by Reseller and used by Reseller only for the purposes of performing
Reseller's obligations under this Agreement; (ii) shall not be disclosed to
anyone, except to employees of Reseller and End Users to whom such disclosure is
necessary to the use for which rights are granted hereunder; (iii) shall not be
reproduced or copied in whole or in part, except as necessary for use as
authorized in this Agreement; and (iv) shall, together with any copies thereof,
be returned, be destroyed or, if recorded on an erasable storage medium, be
erased when no longer needed or when this Agreement terminates, whichever occurs
first. Any copies made as authorized herein shall contain the same copyright
notice or proprietary notice or both that appear on the Information copied. The
above conditions do not apply to any part of the Information which is or becomes
known to Reseller free of any obligation to keep same in confidence.
7. LICENSE
7.1 Upon delivery of Lucent Licensed Materials to Reseller, Lucent
grants to Reseller a personal and non-exclusive right to use such Licensed
Materials in the Area and Territory solely to fulfill its duties and obligations
under this Agreement. NO TITLE OR OTHER OWNERSHIP RIGHTS IN INTELLECTUAL
PROPERTY OR OTHERWISE IN THE LICENSED MATERIAL OR ANY COPY THEREOF SHALL PASS TO
RESELLER UNDER THIS AGREEMENT OR AS A RESULT OF ANY PERFORMANCE HEREUNDER.
7.2 Reseller agrees: (i) to make only those copies of Licensed
Materials necessary for its use under this Agreement and assure that such copies
contain any proprietary or copyright notice appearing on the Licensed Materials
being copied; (ii) not to reverse engineer, decompile or disassemble the
Licensed Materials or otherwise attempt to learn the source code, structure,
algorithms or ideas underlying the Licensed Materials; (iii) not to export the
Licensed Materials out of the United States of America, and (iv) not to use the
Licensed Materials directly for any third person or permit any third person to
use the Licensed Materials except as necessary under this Agreement.
7.3 Lucent further grants to Reseller the right to furnish Licensed
Materials to End Users coincident with the sale of Lucent Products utilizing
such Licensed Materials, provided, however, that unless the Licensed Materials
come with a limited use license, which may be in the form of a shrink-wrap
(break-the-seal) agreement or in the standard Product documentation provided by
Lucent for delivery to the End User with the Products, Reseller obtains
agreement in writing from the End User, before or at the time of furnishing each
copy of Licensed Materials, in the form set forth in Appendix A to this
Agreement.
8. TRADEMARKS
8.1 Lucent grants Reseller permission to utilize certain Lucent
designated trademarks, insignia, and symbols ("Marks") in Reseller's advertising
and promotion of Lucent Products furnished hereunder, provided such use conforms
to Lucent's standards and guidelines. Reseller shall not do business under any
Mark or any derivative or variation thereof, and Reseller shall not directly or
indirectly hold itself out as having any relationship to Lucent or its
affiliates other than as an "Authorized Lucent Reseller" or other Lucent
approved term. Marks may only be used by Reseller to advertise and promote the
Lucent Products during the term of this Agreement. Marks are not to be used by
Reseller in any way to imply Lucent's endorsement of products, licensed
materials or services not furnished hereunder, such as used or unused products
originally manufactured by Lucent. Marks are not to be used by Reseller in
advertising or marketing materials, including print media, radio, television,
broadcast facsimile, telemarketing or Internet websites, that reach End User
prospective customers outside Reseller's Area. Such uses of Marks will be cause
for immediate termination of this Agreement. Reseller will not alter or remove
any Mark applied to Lucent Products without the prior written approval of
Lucent. Nothing in this Agreement creates in Reseller and Reseller agrees not to
assert, any rights in the Marks.
8.2 All Reseller-initiated advertisements or promotions using Marks or
any reference thereto, whether under a promotional allowance program or
otherwise, shall receive prepublication review and approval by Lucent with
respect to, but not limited to context, style, appearance, composition, timing
and media.
8.3 This Agreement does not give Reseller any rights to use the logo or
trademark of AT&T Corp. Such rights cannot be obtained under this Agreement or
any other Agreement with Lucent Technologies Inc.
9. PRODUCT WARRANTY
9.1 Reseller may, but is not required to, provide warranties and
remedies in addition to but not less than the warranties and remedies set forth
in Section 9.2. Reseller shall inform the End User of Lucent's Limitation of
Liability as set forth in Section 10 of this Agreement, in a reasonable manner.
Lucent has warranted to MVPC the title of the Lucent Products purchased by MVPC
from DDM and resold to Reseller under this Agreement. This warranty of title is
the only warranty provided to Reseller.
9.2 Reseller shall, before or at the time of delivery of Lucent
Products, advise an End User of the following":
a. that the Lucent Products may contain remanufactured parts
that are equivalent to new in performance and appearance;
b. that there is a toll fraud exclusion in Lucent's warranty,
with a specific reference to the words of that exclusion and an explanation of
the meaning of those words;
c. that the Lucent Products are warranted on the Delivery or
In-Service Date, whichever is applicable, and for a period of one (1) year
thereafter to operate in accordance with Lucent's standard published
specifications and if any Lucent Products are not operational during the
warranty period, that the End User shall notify the Reseller who at its option
will replace or repair those Lucent Products without charge.
Replaced Lucent Products become the property of Reseller; and
d. THAT LUCENT AND ITS AFFILIATES AND SUPPLIERS MAKE NO OTHER
WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY DISCLAIM ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
9.3 EXCEPT FOR THE WARRANTY OF TITLE TO DISTRIBUTOR AND THE LIMITED
PRODUCT WARRANTY TO DEALER'S END USERS REFERENCED IN THIS SECTION, LUCENT, ITS
AFFILIATES AND SUPPLIERS MAKE NO WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY
DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
10. LIMITATION OF LIABILITY
EXCEPT FOR PERSONAL INJURY AND EXCEPT FOR THE LIABILITY EXPRESSLY
ASSUMED BY LUCENT UNDER SECTION 11 OF THIS AGREEMENT, THE LIABILITY OF LUCENT
AND ITS PARENT OR AFFILIATES FOR ANY CLAIMS, LOSSES, DAMAGES OR EXPENSES FROM
ANY CAUSE WHATSOEVER (INCLUDING CLAIMS OF INFRINGEMENT AND ACTS OR OMISSIONS OF
THIRD PARTIES) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR
OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE DIRECT DAMAGES PROVEN OR THE
REPAIR, REPLACEMENT COSTS (INCLUDING THE COSTS OF COVER) OR PURCHASE PRICE OF
THE PRODUCTS OR SERVICE THAT DIRECTLY GIVES RISE TO THE CLAIM. IN NO EVENT SHALL
LUCENT OR ITS PARENT OR AFFILIATES BE LIABLE TO RESELLER OR TO ANY OTHER COMPANY
OR ENTITY FOR ANY INCIDENTAL, RELIANCE, CONSEQUENTIAL OR ANY OTHER INDIRECT LOSS
OR DAMAGE (INCLUDING LOST-PROFITS OR REVENUES) ARISING OUT OF THIS AGREEMENT. NO
ACTION OR PROCEEDING AGAINST LUCENT MAY BE COMMENCED MORE THAN TWELVE (12)
MONTHS AFTER THE CAUSE OF ACTION ACCRUES. THIS SECTION SHALL SURVIVE FAILURE OF
AN EXCLUSIVE REMEDY.
11. INDEMNITY
11.1 Reseller will indemnify Lucent for the full amount of any
settlement or final judgment that arises out of a claim or suit by a third party
to the extent that such claim or suit is based on strict tort liability, breach
of warranty, or the intentional or negligent acts or omissions of Reseller.
Reseller's obligation to indemnify Lucent will be reduced in proportion to which
the settlement or final judgment is attributable to the strict tort liability of
Lucent, breach of an Lucent warranty, or the intentional or negligent acts or
omissions of Lucent, unless liability for such acts or omissions of Lucent is
otherwise excluded in other sections of this Agreement. Reseller's obligation to
indemnify Lucent shall be contingent upon: (1) Lucent promptly notifying
Reseller in writing of the existence of any claim or suit that may result in a
settlement or judgment for which Reseller may be obligated to indemnify Lucent;
(2) Lucent giving Reseller full opportunity and authority to assume sole
responsibility to settle and defend any such claim or suit; and (3) Lucent
furnishing to Reseller upon reasonable request all information and assistance
that Reseller deems to be reasonably required to settle or defend such claim or
suit. This indemnity is in lieu of all other obligations of Reseller, express or
implied, in law or in equity, to indemnify Lucent for claims or suits covered by
this section. Reseller's liability to indemnify Lucent shall in no event exceed
$500,000.
11.2 Unless Lucent's liability is otherwise limited or excluded in
other sections of this Agreement, Lucent will indemnify Reseller for the full
amount of any settlement or final judgment that arises out of a claim or suit by
a third party to the extent that such claim or suit is based on the strict tort
liability of Lucent, breach of an Lucent warranty, or the intentional or
negligent acts or omissions of Lucent. Lucent's obligation to indemnify Reseller
shall be reduced in proportion to which the settlement or final judgment is
attributable to the strict tort liability of Reseller, breach of a Reseller
warranty, or the intentional or negligent acts or omissions of Reseller or any
other third party not under Lucent's direct control. Lucent's obligation to
indemnify Reseller will be contingent upon: (1) Reseller promptly notifying
Lucent in writing of the existence of any claim or suit that may result in a
settlement or final judgment for which Lucent may be obligated to indemnify
Reseller; (2) Reseller giving Lucent full opportunity and authority to assume
sole responsibility to settle or defend any such claim or suit; and (3) Reseller
furnishing to Lucent upon reasonable request all information and assistance
available to Reseller that Lucent deems to be reasonably required to settle or
defend such claim or suit. THIS INDEMNITY IS IN LIEU OF ALL OTHER OBLIGATIONS OF
LUCENT, EXPRESS OR IMPLIED, IN LAW OR IN EQUITY, TO INDEMNIFY RESELLER FOR
CLAIMS OR SUITS COVERED BY THIS SECTION. LUCENT'S LIABILITY TO INDEMNIFY
RESELLER SHALL IN NO EVENT EXCEED $500,000.
The party electing to take responsibility for settling or defending any
claim or suit covered by this Section will be responsible for the attorney's
fees and costs incurred by said party to settle or defend such claim or suit.
12. TERMINATION OF AGREEMENT
12.1 Either party may terminate this Agreement without cause upon
ninety (90) days prior written notice to the other party.
12.2 Lucent may terminate this Agreement upon sixty (60) days prior
written notice to Reseller if: (I) Reseller fails to achieve the Product and
Licensed Materials purchase representations or to maintain the level of
personnel and training set forth in Section 4 of this Agreement; (ii) Reseller
fails to provide an acceptable quality of service to End Users in accordance
with Lucent's Quality Policy; or (iii) there occurs any significant change in
the management or control of Reseller.
12.3 Except as otherwise provided in this Agreement, either party may
terminate this Agreement upon thirty (30) days prior written notice if the other
party has defaulted in the performance or has breached its obligations under
this Agreement, and such breach or default remains uncured for a period of
twenty (20) days following receipt of notice of such breach or default.
12.4 Lucent may terminate this Agreement upon twenty-four (24) hours
written notice if Reseller has: (i) become insolvent, invoked as a debtor any
laws relating to the relief of debtors' or creditors' rights, or has had such
laws invoked against it; (ii) become involved in any liquidation or termination
of its business; (iii) been involved in an assignment for the benefit of its
creditors; (iv) sold or attempted to resell Products listed in Appendix A to any
third party other than an End User; (v) appointed or attempted to appoint any
unauthorized agent or unauthorized manufacturer's representatives for Products
listed in Appendix A; (vi) sold or attempted to resell any Lucent Interactive
Voice Response Products not previously authorized by Lucent under this Agreement
or that are obtained from a source other than the MVPC; (vii) failed to comply
with Lucent's guidelines for the proper use of Lucent's Marks, or (viii)
misrepresented, by statement or by omission, Reseller's authority to resell
under this or any other written agreement with Lucent that is limited to
specific Lucent products or services, by stating or implying, by use of an
Lucent Mark or otherwise, that the authority granted in this or such other
agreement applies to any Lucent product or service not covered by this or such
other agreement.
12.5 Notwithstanding such termination rights, Lucent reserves all of
its legal rights and equitable remedies, including without limitation those
under the Uniform Commercial Code.
12.6 Upon termination of this Agreement neither party shall be liable
to the other, either for compensation or for damages of any kind or character
whatsoever, on account of the loss by Lucent or Reseller of present or
prospective profits on sales or anticipated sales, good will, or expenditures,
investments or commitments made in connection therewith or in connection with
the establishment, development or maintenance of Reseller's business except that
termination shall not prejudice or otherwise affect the rights or liabilities of
the parties with respect to Products or Licensed Materials sold hereunder or any
indebtedness then owing by either party to the other.
12.7 Upon termination or expiration of this Agreement, Reseller shall
immediately:
a. provide the original seller of the Products or licensor of the
Licensed Materials still in Reseller's possession or control and not already
identified with an executed End User contract, with the first right to
repurchase any Products or relicense any Licensed Materials.
b. discontinue any and all use of Marks, including but not limited to
such use in advertising or business material of Reseller, except to identify the
Products or Licensed Materials; provided that if Reseller's remaining inventory
is not repurchased by the original seller, Reseller may continue using Marks as
authorized in this Agreement for an additional ninety (90) days for the limited
purpose of marketing such inventory to End Users after termination is effective;
c. return at Reseller's expense all Lucent Proprietary Information
except that which Lucent determines is necessary to operate and maintain
previously furnished Products or Licensed Materials;
d. cease holding itself out, in any manner, as an Lucent authorized
reseller of the Products or sublicensor of the Licensed Materials;
e. notify and arrange for all publishers and others (including, but not
limited to, publishers of telephone and business directories) who may identify
list or publish Reseller's name as an Authorized Lucent Voice Processing
Co-Marketer of Products or Licensed Materials, to discontinue such listings; and
f. on Lucent's request, provide Lucent with all source programs,
technical documentation and other information related to customer-specific
applications programs developed by Reseller for any End User using a Product or
Licensed Materials listed in Appendix A, to the extent required by Lucent for
maintenance, modification or correction of the most current version of such
customer-specific applications program developed for the End User, and grant to
Lucent a non-exclusive worldwide license to use such materials for such
purposes. The preceding sentence shall only apply to the extent Reseller is
unable or unwilling to maintain, modify or correct said customer-specific
application previously installed by Reseller, or this Agreement has been
terminated by reason of Reseller's having: (i) become insolvent, invoked as a
debtor any laws relating to the relief of debtors' or creditors' rights, or
having had such laws invoked against it; (ii) become involved in any liquidation
or termination of its business; or (iii) been involved in an assignment for the
benefit of its creditors. Nothing in this paragraph is intended to give Lucent
the right or license to use or distribute said source program, technical
documentation, other information or the customer-specific application program
for or to any other Lucent customer without the prior written consent of the
Reseller.
13. SURVIVAL OF OBLIGATIONS
The respective obligations of Reseller and Lucent under this Agreement
that by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, shall survive termination, cancellation or
expiration hereof, such as, by way of example only, the obligations pursuant to
the following Sections: USE OF INFORMATION, TERMINATION OF AGREEMENT,
CONFIDENTIALITY, LIMITATION OF LIABILITY, INDEMNITY and TRADEMARKS.
14. SEVERABILITY
If any section, or clause thereof, in this Agreement is held to be
unenforceable, then the meaning of such section or clause will be construed so
as to render it enforceable, to the extent feasible; and if no reasonable
interpretation would save such section or clause, it will be severed from this
Agreement and the remainder will remain in full force and effect. However, in
the event such section or clause is considered an essential element of this
Agreement by either Lucent or Reseller, the parties shall promptly negotiate a
replacement therefor.
15. ASSIGNMENT
Reseller shall not assign any right or interest under this Agreement or
delegate any work or other obligation to be performed or owed by Reseller under
this Agreement without the prior written consent of Lucent. Any assignment or
delegation by reseller without such consent shall be void and ineffective.
Lucent shall have the right to assign this Agreement and to assign its rights
and delegate its duties under this Agreement either in whole or in part at any
time upon notice to Reseller and without Reseller's consent, to any present or
future affiliate of Lucent or to another entity in connection with the sale or
transfer to such other entity of all or substantially all of Lucent's business
assets used in performance of this Agreement.
16. NON-WAIVER
No course of dealing, course of performance or failure of either party
strictly to enforce any term, right or condition of this Agreement shall be
construed as a waiver of any term, right or condition.
17. NOTICES
All notices under this Agreement shall be in writing and shall be given
in person, by telegram or by U.S. mail, addressed to the addresses set forth at
the beginning of this Agreement or to such other address as either party may
designate by written notice to the other. All written notices sent by mail shall
be sent first class or better, postage prepaid. All notices shall be deemed to
have been given on the earlier of the date actually received or the third day
after mailing.
18. ENTIRE AGREEMENT
The terms and conditions contained in this Agreement, including its appendices,
supersede all prior oral or written understandings between the parties and
constitute the entire Agreement between them concerning the subject matter of
this Agreement and shall not be contradicted, explained or supplemented by any
course of dealing between Lucent or any of its affiliates and Reseller or any of
its affiliates. This Agreement shall not be modified or amended except by a
writing signed by an authorized representative of the party to be charged.
IN WITNESS WHEREOF the parties have caused this Agreement to be signed
by their duly authorized representatives.
LUCENT TECHNOLOGIES INC. SPANLINK COMMUNICATIONS
By: By: /s/ T. E. Briggs
Name: Name: Timothy E. Briggs
Title: Title: Vice President & CFO
INACOM COMMUNICATIONS, INC.
By:
Name:
Title:
<PAGE>
Appendix A: Products, Licensed Materials, Area, and License
A. Products:
Intuity Conversant
B. Licensed Materials:
Intuity Conversant
C. Authorized Area:
National
D. Territory: "Territory" means the United States of America, including
the District of Columbia but excluding the Commonwealth of Puerto Rico and all
other territories, protectorates and possessions of the United States of
America.
E. License:
The following is the limited use end-user system software license referred to in
Section 7.3 of this Agreement:
END USER SYSTEM SOFTWARE LICENSE
LIMITED WARRANTY AND LIMITED LIABILITY
Compatibility. THE SOFTWARE IS NOT WARRANTED FOR NONCOMPATIBLE SYSTEMS.
Software. Lucent Technologies warrants that if the Software does not
substantially conform to its specifications, the end-user customer
("You) may return it to the place of purchase within 90 days after the
date of purchase, provided that You have deployed and used the Software
solely in accordance with this License Agreement and the applicable
Lucent Technologies installation instructions. Upon determining that
the returned Software is eligible for warranty coverage, Lucent
Technologies will either replace the Software or, at Lucent
Technologies's option, will offer to refund the License Fee to You upon
receipt from You of all copies of the Software and Documentation. In
the event of a refund, the License shall terminate.
DISCLAIMER OF WARRANTIES. LUCENT TECHNOLOGIES MAKES NO WARRANTY,
REPRESENTATION, OR PROMISE TO YOU NOT EXPRESSLY SET FORTH IN TIES
AGREEMENT. LUCENT TECHNOLOGIES DISCLAIMS AND EXCLUDES ANY AND ALL
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE OR
DOCUMENTATION WILL SATISFY YOUR REQUIREMENTS, THAT THE SOFTWARE OR
DOCUMENTATION ARE WITHOUT DEFECT OR ERROR, OR THAT THE OPERATION OF THE
SOFTWARE WILL BE UNINTERRUPTED. ALSO, LUCENT TECHNOLOGIES DOES NOT
WARRANT THAT THE SOFTWARE WILL PREVENT, AND LUCENT TECHNOLOGIES WILL
NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF
COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED
THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD). Some states do not
allow the exclusion of implied warranties or limitations on how long an
implied warranty lasts, so the above limitation may not apply to You.
This warranty gives You specific legal rights which vary from state to
state.
EXCLUSIVE REMEDY AND LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY
PROXIMATELY CAUSED BY LUCENT TECHNOLOGIES'S NEGLIGENCE, YOUR EXCLUSIVE
REMEDY AND LUCENT TECHNOLOGIES'S ENTIRE LIABILITY ARISING FROM OR
RELATING TO TIES LICENSE AGREEMENT OR TO THE SOFTWARE OR DOCUMENTATION
SHALL BE LIMITED TO DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $ 10,000.
LUCENT TECHNOLOGIES SHALL NOT IN ANY CASE BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE DAMAGES, EVEN IF
LUCENT TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. LUCENT TECHNOLOGIES IS NOT RESPONSIBLE FOR LOST PROFITS OR
REVENUE OR SAVINGS, LOSS OF USE OF THE SOFTWARE, LOSS OF DATA, COSTS OF
RECREATING LOST DATA, THE COST OF ANY SUBSTITUTE EQUIPMENT OR PROGRAM,
CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES
ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD), OR CLAIMS
BY ANY PERSON OTHER THAN YOU. THESE LIMITATIONS OF LIABILITY SHALL
APPLY NOTWITHSTANDING THE FAILURE OF AN EXCLUSIVE REMEDY. Some states
do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation or exclusion may not apply to You.
Lucent Technologies grants You a personal, non-transferable and
non-exclusive right to use, in object code form, all software and
related documentation furnished under the Agreement between Lucent
Technologies and [Reseller]. This grant shall be limited to use with
the equipment for which the software was obtained or, on a temporary
basis, on back-up equipment when the original equipment is inoperable.
Use of software on multiple processors is prohibited unless otherwise
agreed to in writing by Lucent Technologies. You agree to use your best
efforts to see that your employees and users of all software licensed
under this Agreement comply with these terms and conditions and You
will refrain from taking any steps, such as reverse assembly or reverse
compilation, to derive a source code equivalent of the software.
You are permitted to make a single archive copy of software. Any copy
must contain the same copyright notice and proprietary marking as the
original software. Use of software on any equipment other than that for
which it was obtained, removal of the software from the United States,
or any other material breach shall automatically terminate this
license.
If the terms of this license differ from the terms of any license
packaged with the software, the terms of the license packaged with the
software shall govern.
<PAGE>
Appendix B: Conversant Training
Course No. Description
BTT509H INTUITY CONVERSANT Install & Maintenance
BTC128H Introduction To Scriptbuilder
BTC301H INTUITY CONVERSANT VIS Advanced Scriptbuilder
BTC130H INTUITY CONVERSANT Graphical Designer For New Application Design
Customers
BTC302H INTUITY CONVERSANT Graphical Designer For Experienced
Scriptbuilder Users
BTC201H Scriptbuilder Host Application Development Workshop
BTC421M CONVERSANT VIS 5.0/6.0 IBM Host Interface
BTC437M CONVERSANT VIS 6.0 Hardware & Admin Overview
STATE OF NEW YORK
DEPARTMENT OF LABOR
BUILDING #12
STATE CAMPUS
ALBANY, NY 12240-0052
THIS AGREEMENT, made this 1st day of June in the year One thousand,
nine hundred and ninety-eight, by and between Spanlink Communications, 7125
Northland Terr., Minneapolis, MN 55428, the "Vendor", and the State of New York,
Department of Labor, the "Customer".
WITNESSETH, that the Vendor, in consideration of the agreements made by
the Customer, and the Customer, in consideration of the agreements herein made
by the Vendor does hereby as follows:
ARTICLE I. The Vendor shall perform on-site maintenance on the
Department's AT&T Conversant equipment as specified in Bid #39E, opened in
Albany, New York at 10:05 a.m., on the 27th day of May, 1998, which together
with all appendices is hereby made a part of this agreement.
ARTICLE II. It is hereby mutually agreed between the Vendor and the
Customer hereto that the sum to be paid by the Customer to the Vendor for said
services shall be as follows:
Two hundred seventy-five thousand, one hundred eighty-four dollars and
zero cents ($275,184.00).
ARTICLE III. This agreement shall be in effect from June 1, 1998,
through May 31, 1999.
ARTICLE IV. This agreement is subject to cancellation by the Customer,
upon fifteen (15) days notice in writing to the Vendor.
ARTICLE V. That Appendix A, Article 15A, The MacBride Fair Employment
Principles, the Omnibus Procurement Act of 1992 and the Year 2000 Date Change
Warranty are hereby made a part of this agreement.
IN WITNESS WHEREOF, the parties hereto have set their hand and seals,
the day and year first written.
STATE OF MINNESOTA, COUNTY OF HENNEPIN. On the 5th day of June,
Nineteen hundred and ninety-eight, before me personally came Timothy Briggs, to
me known, who being by me duly sworn, did depose and say that he resides at 3011
North Innsbruck Drive, New Brighton, Minnesota, that he is the Vice President
and Chief Financial Officer of Spanlink Communications Inc., the Corporation
described in and which executed the foregoing instrument, and that he signed his
name thereto by order of the Board of Directors of said Corporation.
/s/ Patricia Ann Rilley
Notary Public (affix stamp)
Agency Certification
"In addition to the acceptance of this contract, I also certify that original
copies of this signature page will be attached to all other exact copies of this
contract."
Spanlink Communications NYS DEPT. OF LABOR
/s/ T. E. Briggs /s/ Cathleen M. Wheat
Authorized Signature Authorized Signature
Timothy E. Briggs Cathleen M. Wheat
Printed Name Printed Name
Vice President and CFO Administrative Aide
Title Title
6/5/98 JUN 08 1998
Date Date
NYS ATTORNEY GENERAL STATE COMPTROLLER
APPROVED AS TO FORM Daniel J. Ryan
NYS ATTORNEY GENERAL
JUN 17 1998 JUL 24 1998
PETER FAVRETTO
ASSOCIATED ATTORNEY
Date Date
<PAGE>
Bid 39E Specifications
On-site maintenance to include all parts and labor necessary to maintain or
restore all covered equipment to its proper working order.
Maintenance is to be performed during normal working hours, Monday through
Friday, 8:00 a.m. to 5:00 p.m., except State holidays.
Preventative maintenance as specified by the manufacturer's recommendations.
PM's shall include, but are not limited to: cleaning, testing and replacement of
parts with a history of wear.
All replacement parts and products should be available at all times.
Similar equipment may be added at any time to the contract. Equipment may be
deleted at any time during the term of the contract. Any equipment added or
deleted must be invoiced on a pro-rated basis.
Site locations for equipment may be added or deleted at any time.
Vendors must show proof that they are an authorized service provider.
No subcontracting is allowed without prior written approval from the Dept. of
Labor. If vendor is planning to subcontract, subcontractor's name and address
must be submitted with the bid.
Should the Department allow subcontracting, any work performed by the
subcontractor must be invoiced through the vendor holding the contract. The
Department twill only pay the awardee.
Response time must be within 2 hours for a call for service to an 800 number and
on-site service must be performed within 4 hours.
The contract may be renewed, in writing, at its expiration. The original
contract and its renewals may not exceed a total of five (5) years.
Any increases to the contract and its renewals may not exceed 5% or CPI,
whichever is lower. Vendor is to submit the current CPI when submitting renewal
pricing.
Vendor must guarantee that the pricing offered is lower or as low as any pricing
offered to any other customer.
All contracts are subject to approval by the NYS Dept. of Labor, the State
Attorney General's Office, and the Office of the State Comptroller.
Appendix A, Article 15A, the MacBridge Fair Employment Principles, the Omnibus
Procurement Act of 1992 and Year 2000 Date Change Warranty (whether it pertains
to this type of contract or not) are hereby made apart of the contract.
All bid specifications are hereby made apart of the contract.
The Dept. of Labor reserves the right to reject any or all bids that are not in
the best interest of the State of New York.
The award will be based upon the lowest total amount of the bid proposal. The
vendor is to submit with their bid a cost per hour and/or service call charge on
repairs outside the designated scope of the bid. This should be for
weekends/holidays or for hours outside the bid.
Please indicate in your bid response a procedure to be used by the Department's
Customer Support Staff to report problems to a single point of contact.
Upon resolution of an outage, vendor must call the Department's Customer Support
Staff to close the outage. Vendor must provide all close-out information (ex:
type of problem, resolution, parts replaced) and verify with a Customer Service
Representative that the device is operational.
Vendor must provide problem escalation procedures and a detail of how the vendor
will escalate its dedication of support and management staff.
<PAGE>
ADDITIONAL BID SPECIFICATIONS FOR BID #39E
Maintenance is to include monitoring and alarm software for an automated 24 hour
monitoring of all systems status. Vendor is to describe the software and its
capabilities in their bid response.
The vendor is to notify the Dept.'s Customer Support Staff of any emergency,
recovery, or inoperative conditions as soon as they occur, including weekends
and holidays.
Trained technicians are required to perform all service. Technicians should have
a minimum of two years experience on this type of equipment.
Vendor must have a supply of replacement equipment available and should detail
this supply in their bid response.
Systems must be operational within 24 hours of notice to the vendor of a
problem. If a system cannot be repaired within this time, vendor must be able to
replace all or part of the in-operational system.
Marquette Capital Bank, N.A. - Letter Agreement
- --------------------------------------------------------------------------------
April 30, 1998
To: Spanlink Communications, Inc. (the "Borrower")
7125 Northland Terrace
Minneapolis, MN 55428
Ladies and Gentlemen:
This letter agreement confirms the additional agreements between the Borrower
and Marquette Capital Bank, N.A. (the "Bank"). In consideration of the mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties, the
Borrower and the Bank agree as follows (check all that apply):
1. [x] Subject to the provisions of this letter agreement, at the
Borrower's request, the Bank shall make loans to the Borrower during the period
from the date of this letter agreement to April 30, 1999 in an aggregate amount
not exceeding $1,000,000.00 at any time outstanding (the "Line of Credit"). The
Line of Credit is a revolving line of credit, and the Borrower may borrow,
prepay and reborrow under the Line of Credit. The Borrower's obligation to repay
such loans and to pay interest and other charges, fees and expenses thereon is
evidenced by the Borrower's promissory note dated April 30, 1998 payable to the
order of the Bank in the principal amount of $1,000,000.00 (together with any
amendments, extensions, renewals and replacements thereof, called the "Revolving
Note"). The Bank may credit each such loan to the Borrower's account number
2510497693 at the Bank. The Bank shall have no obligation to make any such loan
after the occurrence of any Event of Default. In each period of 12 months ending
on December 30 of each year, the Borrower shall cause the unpaid principal
balance of the Revolving Note to be zero for 30 consecutive days. The Borrower
shall use all proceeds of such loans solely for working capital purposes.
[x] The Borrower shall not at any time permit the unpaid
principal balance of the Revolving Note to exceed the Borrowing Base.
[x] The Borrower also is indebted to the Bank pursuant to the
Borrower's Line of Credit Application and Agreement with the Bank in the
original principal amount(s) of $150,200.000 (together with any amendments,
extensions, renewals and replacements thereof, also collectively called the
"Letter of Credit Note").
2. The Borrower shall pay the following fees to the Bank: $5,000.00
commitment fee (paid on April 16, 1998 with original $300,000 note.)
3. As long as any now existing or hereafter arising debt, obligation or
liability of the Borrower to the Bank (including but not limited to any debt,
obligation or liability relating to any letter of credit) shall remain
outstanding, the Borrower shall comply with the following requirements:
a. The Borrower shall deliver to the Bank, in form and
substance acceptable to the Bank (check all boxes that apply)
[x] As soon as possible, and in any event within 90 days after
each fiscal year of the Borrower, the annual audited financial
statements of the Borrower for such fiscal year, prepared in
accordance with GAAP; and
[x] As soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the projected
financial statements of the Borrower for the next fiscal year;
and
[x] As soon as available, and in any event within 30 days after
the end of each month, the financial statements of the
Borrower for such month, prepared by the Borrower in
accordance with GAAP; and
[x] As soon as available, and in any event within 30 days after
the end of each month, an aging and a listing of accounts
receivable and accounts payable of the Borrower as of the end
of such month; and
[x] As soon as available, and in any event within 30 days after
the end of each month, a Borrowing Base and Covenant
Compliance Certificate in the form of Exhibit A attached
hereto, completed with amounts determined as of the end of
such month; and
[ ] At least once every 12 months, and as otherwise requested by
the Bank, the current signed personal financial statements of
any guarantors of any of the Borrower's indebtedness to the
Bank (called the "Guarantors"); and
[ ] Within ____ days after the same are filed with the United
States Internal Revenue Service, the annual federal income tax
returns of the Borrower and any Guarantors, including all
schedules, attachments and amendments thereto; and
[x] Within 10 days after the Bank's request therefor, such other
information about the Borrower and any Guarantors as the Bank
may reasonably request from time to time.
b. The Borrower shall keep accurate books and records in which
true and complete entries will be made in accordance with GAAP. Upon request of
the Bank, the Borrower, during normal business hours, shall give any
representatives of the Bank access to and permit such representatives to examine
and copy all books, records and other writings in its possession, to inspect its
property and to discuss its finances, accounts, property and business with any
of its officers and directors.
c. The Borrower shall file when due all required tax returns,
shall pay when due all taxes, assessments and other governmental charges levied
or imposed upon it or upon its income or profits or upon any of its property,
and shall pay when due all lawful claims for labor, materials and supplies
which, if unpaid, might become a lien or charge upon any property of the
Borrower; provided, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
d. The Borrower shall keep and maintain its inventory,
equipment, real estate and other property necessary or useful in its business in
good condition and repair and shall pay when due all rental and mortgage
payments due on such property; provided, that nothing in this Section shall
prevent the Borrower from discontinuing the operation and maintenance of any
such property if such discontinuance is desirable in the conduct of the
Borrower's business and is not disadvantageous to the Bank.
e. The Borrower shall obtain and maintain insurance with
insurers that are acceptable to the Bank, in such amounts and with such
coverages (including without limitation professional liability insurance, public
liability insurance, fire, hazard and extended coverage insurance on all of its
assets, necessary workers' compensation insurance, and all other coverages as
are consistent with industry practice) as are acceptable to the Bank.
f. The Borrower shall not declare or pay any dividends or
other distributions on account of any shares of its stock or any of its other
ownership interests, or make any payment on account of any purchase, redemption
or other retirement of any shares of such stock or any such ownership interests,
or make any other payment or distribution on account of any shares of stock or
any ownership interests, or any warrant or option therefor, either directly or
indirectly; provided that, before the occurrence of an Event of Default, in any
fiscal year of the Borrower for which the Borrower has made an effective S
corporation election or an election to be treated as a partnership under the
United States Internal Revenue Code, the Borrower may pay dividends to its
shareholders or distributions to its members or partners in an aggregate amount
not exceeding ____% of the Borrower's pretax net income in such fiscal year as
long as such dividends or distributions would not create an Event of Default.
g. The Borrower shall preserve and maintain its existence and
all of its rights, privileges and franchises, and shall comply with all
applicable laws and regulations.
h. The Borrower shall not create, incur or permit to exist in
favor of any person other than the Bank any mortgage, deed of trust, assignment,
security interest or other lien on any of its property now owned or hereafter
acquired, except purchase money security interests securing indebtedness
permitted by Section 3(i)(iii).
i. The Borrower shall not incur, create, assume or permit to
exist any Funded Debt, except:
(i) Indebtedness to the Bank;
(ii) Subordinated Debt; and
(iii) Indebtedness in an aggregate amount not to
exceed at any time outstanding $100,000.00
incurred in the purchase (or borrowing for
the purchase) or lease of equipment.
j. The Borrower shall maintain its primary operating deposit
account at the Bank.
k. The Borrower shall comply with the following requirements
(check boxes that apply):
[x] The Borrower shall not permit the Borrower's Tangible
Net Worth to be less than $2,000,000.00.
[x] The Borrower shall not permit the Borrower's Debt
Service Coverage Ratio for any quarter of the
Borrower to be less than 1.25 to 1.
4. In this letter agreement:
a. "Borrowing Base" means 80% of Eligible Accounts Receivable.
b. "Capital Expenditures" means all expenditures for any
assets, or for improvements, replacements, substitutions or additions therefor
or thereto, which are capitalized on the balance sheet and which, in accordance
with GAAP, are required to be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in such balance sheet, and
shall included without limitation capitalized lease obligations.
c. "Current Assets" means the aggregate amount of assets of
the Borrower which, in accordance with GAAP, may be properly classified as
current assets, after deducting adequate reserves where proper, but in no event
including any real estate.
d. "Current Liabilities" means (i) all Debt of the Borrower
due on demand or within one year from the date of determination thereof, and
(ii) all other items (including taxes accrued as estimated) which, in accordance
with GAAP, may be properly classified as current liabilities of the Borrower.
e. "Debt" means (i) all items of indebtedness or liability of
the Borrower which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of the Borrower's balance
sheet on the date as of which Debt is to be determined, plus (ii) indebtedness
secured by any mortgage, pledge, lien or security interest on property of the
Borrower, whether or not the indebtedness secured thereby shall have been
assumed, plus (iii) guaranties, endorsements (other than for purposes of
collection in the ordinary course of business) and other contingent obligations
to borrower in respect o or to purchase or otherwise acquire indebtedness of
others.
f. "Debt Service Coverage Ratio" for any fiscal year of the
Borrower means the ratio of (i) the Borrower's earnings before interest, taxes,
depreciation and amortization for such fiscal year, to (ii) the aggregate amount
of principal and interest payments due and payable in such fiscal year on all
Funded Debt.
g. "Eligible Accounts Receivable" means only such accounts
receivable of the Borrower as the Bank, in its sole discretion, shall deem
eligible. Without limiting the discretion of the Bank to consider any account
receivable not to be an Eligible Account Receivable, and by way of example only
of the types of accounts receivable that the Bank will consider not to be
Eligible Accounts Receivable, notwithstanding any earlier classification of
eligibility, the following accounts receivable shall not be considered Eligible
Accounts Receivable: (i) any account receivable which is not paid in full within
90 days after it is created; (ii) any account receivable as to which any
warranty is breached; (iii) any account receivable as to which the account
debtor or other obligor disputes liability or makes any claim; (iv) any account
receivable owed by any officer, director or shareholder of the Borrower or any
of their relatives or any partnership, corporation, association, joint venture
or other business entity wholly or partly owned or controlled directly or
indirectly by the Borrower or any of them or any of their relatives; (v) any
account receivable owed by any person as to whom a petition in bankruptcy or
other application for relief is filed under any bankruptcy, reorganization,
receivership, moratorium, insolvency or similar law; (vi) any account receivable
owed by any person who makes an assignment for the benefit of creditors, becomes
insolvent, fails, suspends business, or goes out of business; (vii) any account
receivable owed by the United States government or any agency of the United
States government; (viii) any account receivable owed by any person if 10% or
more in amount of the accounts receivable owed by such person to the Borrower
are considered ineligible; (ix) consignment receivables; (x) bonded receivables;
(xi) any account receivable constituting a retainage; (xii) any account
receivable for goods which have not been shipped or work which has not been
fully performed; (xiii) any account receivable owed by any person outside the
United States o America; (xiv) any account receivable owed by any person with
whose creditworthiness the Bank becomes dissatisfied; and (xv) any account
receivable in which the Bank does not have a perfected security interest
constituting a first hen. In the event the Borrower owes any amount to any
person that owes an account receivable to the Borrower, such amount owed by the
Borrower shall be deducted from that portion of the account receivable which
would otherwise qualify as an Eligible Account Receivable and only the
difference thereof shall be considered an Eligible Account Receivable. No
account receivable which does not qualify as an Eligible Account Receivable
shall be considered an Eligible Account Receivable unless the Bank, upon the
written request of the Borrower, states in writing that such account receivable
is to be considered an Eligible Account Receivable.
h. "Eligible Equipment" means the net book value of only such
equipment of the Borrower as the Bank, in its sole discretion, shall deem
eligible. Without limiting the discretion of the Bank to consider any equipment
not to be Eligible Equipment, notwithstanding any earlier classification of
eligibility, the following equipment shall not be considered Eligible Equipment:
(i) any equipment which does not meet all standards imposed by any governmental
agency; (ii) any equipment which is not located in the United States of America;
(iii) any equipment which is obsolete, or which is not usable by the Borrower in
the normal course of its business; (iv) any equipment which is on consignment to
or from any other person or entity, or which has been sold or otherwise
delivered, transferred or conveyed to any other person or entity, or which is
subject to any bailment or lease; and (v) any equipment in which the Bank does
not have a perfected security interest constituting a first lien.
i. "Eligible Inventory" means the lesser of cost or fair
market value of only such raw materials inventory and finished goods inventory
of the Borrower as the Bank, in its sole discretion, shall deem eligible.
Without limiting the discretion of the Bank to consider any inventory not to be
Eligible Inventory, notwithstanding any earlier classification of eligibility,
the following inventory shall not be considered Eligible Inventory: (i) any
inventory which does not constitute finished goods, or which does not constitute
raw materials that are to be used or consumed by the Borrower in the normal
course of its business in the processing of such raw materials into finished
goods which, upon completion, will constitute Eligible Inventory; (ii) any
inventory which does not meet all standards imposed by any governmental agency;
(iii) any inventory which is not located in the United States of America; (iv)
any inventory which is obsolete, or which is not usable by the Borrower in the
normal course of its business; (v) any inventory which is on consignment to or
from any other person, or which has been sold or otherwise delivered,
transferred or conveyed to any other person, or which is subject to any bailment
or lease; (vi) any finished goods inventory which is not held for sale by the
Borrower in the normal course of its business, or which is not saleable by the
Borrower in the normal course of its business; and (vii) any inventory in which
the Bank does not have a perfected security interest constituting a first lien.
j. "Event of Default" means any default or event of default
under any existing or future note or other agreement of the Borrower with the
Bank.
k. "Funded Debt" means all indebtedness of the Borrower for
borrowed money and capital leases, all other indebtedness of the Borrower
evidenced by notes, bonds, debentures and similar obligations, and all other
interest-bearing indebtedness of the Borrower, including but not limited to all
indebtedness to the Bank under the Revolving Note and the Term Note, but
excluding all Subordinated Debt.
1. "GAAP" means generally accepted accounting principles
consistently applied. Except as otherwise approved by the Bank in writing, all
financial reporting, financial record keeping, and financial calculations in
connection with this letter agreement shall be made on the basis of accounting
principles, methods, elections and estimates that are consistent and that are
consistent with the accounting principles, methods, elections and estimates used
in the last annual financial statements of the Borrower delivered by the
Borrower to the Bank before or upon the execution of this letter agreement, and
that fairly present the financial condition or results of operations for the
period then ended.
m. "Senior Debt" means the difference of (i) Debt, minus (ii)
the unpaid principal balance of the Subordinated Debt.
n. "Subordinated Debt" means all indebtedness of the Borrower
that is subordinated to the Bank in form and substance acceptable to the Bank.
o. "Tangible Capital Base" means the sum of (i) Tangible Net
Worth, plus (ii) the unpaid principal balance of the Subordinated Debt:
p. "Tangible Net Worth" means the difference of:
(i) the tangible assets of the Borrower which, in
accordance with GAAP, are tangible assets, after deducting adequate
reserves in each case where, in accordance with GAAP, a reserve is
proper, minus
(ii) all Debt of the Borrower;
provided, that (A) inventory shall be taken into account on the basis of the
cost or current market value, whichever is lower, (B) in no event shall there be
included as such tangible assets patents, trademarks, tradenames, copyrights,
licenses, good will, memberships, prepaid expenses, deferred charges or treasury
stock or any securities or debt of the Borrower, or any officer, director,
employee, agent, shareholder or affiliate of the Borrower, or any officer,
director, employee, agent, shareholder or affiliate of any shareholder or
affiliate of the Borrower, or any other debt or securities unless the same are
readily marketable in the United States of America, (C) securities included as
such tangible assets shall be taken into account at their current market price
or cost, whichever is lower, and (D) any write-up in the book value of any
assets shall not be taken into account.
5. The Borrower consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy relating in any way to this letter agreement or to any transaction
or matter relating to this letter agreement, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by the
Borrower against the Bank relating in any way to this letter agreement or to any
transaction or matter relating to this letter agreement shall be venued in
either the Minnesota District Court of the county where the Bank is located, or
the United States District Court, District of Minnesota.
6. No provision of this letter agreement can be amended, modified,
waived or terminated, except by a writing executed by the Borrower and the Bank.
The Borrower shall pay to the Bank on demand all of the Bank's costs and
expenses, including but not limited to reasonable attorneys' fees and legal
expenses, in connection with this letter agreement, the writings executed
herewith, and the transactions described herein and therein. This letter
agreement shall bind and benefit the parties and their respective successors and
assigns; provided, the Borrower shall not assign any of its right or obligations
under this letter agreement without the prior written consent of the Bank and
any assignment in violation of this sentence shall be null and void. This letter
agreement shall be governed by and construed in accordance with the laws of the
State of Minnesota.
Sincerely,
MARQUETTE CAPITAL BANK, N.A.
By: /s/ Margaret Mary Yanez
Title: Vice President
The Borrower agrees to this letter agreement:
THE BORROWER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE
BORROWER HAS READ ALL OF THIS LETTER AGREEMENT AND UNDERSTANDS ALL OF THE
PROVISIONS OF THIS LETTER AGREEMENT.
Executed as of April 30, 1998
SPANLINK COMMUNICATIONS, INC.
By: /s/ T. E. Briggs
Title: Vice President and Chief Financial Officer
<PAGE>
Marquette Capital Bank, N.A. - Promissory Note
- -------------------------------------------------------------------------------
$1,000,000.00 Minneapolis, Minnesota
No.____________________ Date: April 30,1998
Maker: Spanlink Communications, Inc.
FOR VALUE RECEIVED, the Maker promises to pay to the order of Marquette
Capital Bank, N.A. (the "Bank"), at its office in Minneapolis, Minnesota or at
such other place as any present or future holder of this Note may designate from
time to time, the principal amount of $1,000,000.00, or so much thereof as is
advanced and remains outstanding as shown in the records of the holder of this
Note, plus interest thereon from the date on which the same is advanced until
this Note is fully paid, computed on the basis of the actual number of days
elapsed and a 360-day year. Check all boxes that apply:
Interest: The interest rate under this Note is:
[ ] A fixed rate of _____% per annum.
[x] A variable rate that shall always be 1% per annum more than the highest
prime rate published in the Midwest edition of The Wall Street Journal,
as determined by the holder of this Note.
[ ] A variable rate that shall always be ___% per annum (more) (less)
than the United States Treasury securities constant maturities rate
published in the Federal Reserve Statistical Release, as determined by
the holder of this Note.
[ ] A variable rate that shall always be ____% per annum (more) (less)
than the LIBOR rate published in the Midwest edition of The Wall Street
Journal, as determined by the holder of this Note.
[ ] Other:
[ ] The interest rate under this Note will not exceed ____% per annum.
[ ] The interest rate under this Note will not be less than ____% per annum.
[ ] If there is a variable interest rate, the interest rate will be
adjusted _______________________ based on the index rate in effect on
_______________________________________________________________________.
If the interest rate under this Note is a variable rate based on an index rate
that is no longer available, the holder of this Note may select a comparable
index rate for use under this Note. If this Note provides for a variable
interest rate based on an index rate, the Bank may lend to its other customers
at rates that are equal to, more than, or less than the index rate.
Payments: The Maker shall make the following payments of principal and interest
under this Note:
[x] Payments of accrued interest only on the 1st day of each month
beginning May 1, 1998, and final payment of the remaining unpaid
balance of principal and accrued interest on April 30 , 1999.
[ ] ____ consecutive equal payments of $______ each on the ___ day of each
______________ beginning ________, _______ and continuing through
______________________, _________, and 1 final payment of the remaining
unpaid balance of principal and accrued interest on _________________,
__________.
[ ] ____ consecutive equal principal payments of $ each on the ___ day of
each _______________ beginning , _______ and continuing through
__________________, ______, and 1 final payment of the remaining unpaid
balance of principal and accrued interest on _________________,
__________. Accrued interest is due and payable on the _________, day
of each _________ beginning ______________________, _________, and on
______________, _______.
[ ] Other: _____________________________________________________________
Additional Interest, Late Fees:
[x] Notwithstanding the foregoing, after the occurrence of an Event of
Default and until such Event of Default is cured, the interest rate
under this Note shall automatically increase to a rate that is 2 % per
annum in excess of the rate otherwise in effect. If this Note provides
for a variable interest rate, the increased rate shall continue to vary
based on changes in the index rate.
[x] If any payment under this Note (including but not limited to any final
payment, and any payment due by reason of default or acceleration) is
more than 10 days past due, the Maker shall pay the holder of this Note
a late fee equal to 5% of the past due amount.
Prepayments:
[x] All or any part of the unpaid balance of this Note may be prepaid at
any time without penalty.
[ ] At the time that any amount under this Note is paid before such
amount is due under the above payment schedule, the Maker shall pay the
holder of this Note the following prepayment fee:
[ ] Other:____________________________________________________________.
Other Provisions:
[x] This Note evidences the Maker's obligation to repay one or more loans
under a revolving line of credit.
[x] The extensions of credit under this Note are made under Section(s)
47.59 of the Minnesota Statutes.
[ ] This Note is an amendment, extension, renewal or replacement of the
Maker's $___________ promissory note to the Bank dated ________, ____.
At the option of the holder of this Note, any payment under this Note
may be applied first to the payment of charges, fees and expenses (other than
principal and interest) under this Note and any other agreement or writing in
connection with this Note, second to the payment of interest accrued through the
date of payment, and third to the payments of principal under this Note in
inverse order of maturity. Also, at the option of the holder of this Note, if
there is any overpayment of interest under this Note, the holder may hold the
excess and apply it to future interest accruing under this Note. The Maker
represents, warrants, certifies to the Bank and agrees that all advances under
this Note shall be used solely for business purposes.
The occurrence of any of the following events shall constitute an Event
of Default under this Note:
(i) any breach or default in the payment of this Note; or
(ii) any breach or default under the terms of any other note,
obligation, mortgage, assignment, guaranty, other agreement,
or other writing heretofore, herewith or hereafter existing to
which the Maker or any endorser, guarantor or surety of this
Note or any other person or entity providing security for this
Note or for any guaranty of this Note is a party; or
(iii) the insolvency, death, dissolution, liquidation, merger or
consolidation of any such Maker, endorser, guarantor, surety
or other person or entity; or
(iv) any appointment of a receiver, trustee or similar officer of
any property of any such Maker, endorser, guarantor, surety or
other person or entity; or
(v) any assignment for the benefit of creditors of any such Maker,
endorser, guarantor, surety or other person or entity; or
(vi) any commencement of any proceeding under any bankruptcy,
insolvency, receivership, dissolution, liquidation or similar
law by or against any such Maker, endorser, guarantor, surety
or other person or entity; or
(vii) the sale, lease or other disposition (whether in one or more
transactions) to one or more persons or entities of all or a
substantial part of the assets of any such Maker, endorser,
guarantor, surety or other person or entity; or
(viii) any such Maker, endorser, guarantor, surety or other person or
entity takes any action to go out of business, or to revoke or
terminate any agreement, liability or security in favor of the
holder of this Note; or
(ix) the entry of any judgment or other order for the payment of
money in the amount of $10,000.00 or more against any such
Maker, endorser, guarantor, surety or other person or entity;
or
(x) the issuance or levy of any writ, warrant, attachment,
garnishment, execution or other process against any property
of any such Maker, endorser, guarantor, surety or other person
or entity; or
(xi) the attachment of any tax lien to any property of any such
Maker, endorser, guarantor, surety or other person or entity;
or
(xii) any statement, representation or warranty made by any such
Maker, endorser, guarantor, surety or other person or entity
(or any representative of any such Maker, endorser, guarantor,
surety or other person or entity) to the holder of this Note
at any time shall be incorrect or misleading in any material
respect when made; or
(xiii) there is a material adverse change in the condition (financial
or otherwise), business or property, of any such Maker,
endorser, guarantor, surety or other person or entity; or
(xiv) the holder of this Note shall in good faith believe that the
prospect of due and punctual payment or performance of this
Note or the due and punctual payment or performance of any
other note, obligation, mortgage, assignment, guaranty, or
other agreement heretofore, herewith or hereafter given to or
acquired by the holder of this Note in connection with this
Note is impaired.
Upon the commencement of any proceeding under any bankruptcy law by or
against any such Maker, endorser, guarantor, surety or other person or entity,
the unpaid principal balance of this Note plus accrued interest and all other
charges, fees and expenses under this Note shall automatically become
immediately due and payable in full, without any declaration, presentment,
demand, protest, or other notice of any kind. Upon the occurrence of any other
Event of Default and at any time thereafter, the then holder of this Note may,
at its option, declare this Note to be immediately due and payable and thereupon
the unpaid principal balance of this Note plus accrued interest and all other
charges, fees and expenses under this Note shall automatically become due and
payable in full, without any presentment, demand, protest or other notice of any
kind.
The Maker: (i) waives demand, presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment of this Note; (ii) agrees to
promptly provide the holder of this Note from time to time with the Maker's
financial statements and such other information respecting the financial
condition, business and property of the Maker as the holder of this Note may
request, in form and substance acceptable to the holder of this Note; (iii)
agrees that when or at any time after this Note becomes due the holder of this
Note may offset or charge the full amount owing on this Note against any account
then maintained by the Maker with the holder of this Note without notice; (iv)
agrees to pay on demand all fees, costs and expenses of the holder of this Note
in connection with this Note and any transactions and matters relating to this
Note, including but not limited to audit fees and expenses and reasonable
attorneys' fees and legal expenses, plus interest on such amounts at the rate
set forth in this Note; and (v) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related in any way to this Note or any transaction or matter
relating to this Note, waives any argument that venue in such forums is not
convenient, and agrees that any litigation initiated by the Maker against the
Bank or any other holder of this Note relating in any way to this Note or any
transaction or matter relating to this Note, shall be venued in either the
Minnesota District Court of the county where the Bank is located, or the United
States District Court, District of Minnesota. interest on any amount under this
Note shall continue to accrue, at the option of the holder of this Note, until
such holder receives final payment of such amount in collected funds in form and
substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of the holder of this Note shall be cumulative and may be
exercised singly, concurrently or successively. The Maker, if more than one,
shall be jointly and severally liable under this Note, and the term "Maker",
wherever used in this Note, shall mean the Maker or any one or more of them. All
references in this Note to the holder of this Note shall mean the Bank and any
and all other present and future holders of this Note. This Note shall bind the
Maker and the heirs, representatives, successors and assigns of the Maker. This
Note shall benefit the holder of this Note and its successors and assigns. This
Note shall be governed by and construed in accordance with the internal laws of
the State of Minnesota (excluding conflict of law rules).
THE MAKER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE MAKER
HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE.
Address of Maker: Spanlink Communications, Inc.
7125 Northland Terrace
Minneapolis, MN 55428 /s/ T. E. Briggs
Telephone: (612) 971-2000 By: Timothy E. Briggs
Title: Vice President Finance & CFO
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, 1998 and 1997, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 12, 1999
<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,358 $ 553,458
Restricted cash 150,200 150,200
Accounts receivable, less allowance for doubtful accounts of
$216,000 and $218,000 2,871,108 2,113,271
Inventory 505,787 345,775
Costs and estimated earnings in excess of billings 1,703,186 554,572
Other current assets 162,831 148,072
- ---------------------------------------------------------------------------------------------------------
Total current assets 5,404,470 3,865,348
Property and equipment 1,227,089 1,264,160
Intangible assets 491,015 611,619
Other assets 138,500 113,500
- ---------------------------------------------------------------------------------------------------------
Total assets $ 7,261,074 $5,854,627
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Loan payable $ 985,000 $
Accounts payable 1,259,812 631,263
Accrued expenses 294,167 560,933
Current portion of long-term obligations 107,755 300,570
Deferred maintenance revenue 439,697 432,809
Other current liabilities 451,613 452,466
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 3,538,044 2,378,041
=========================================================================================================
Long-term obligations 365,889 445,083
- ---------------------------------------------------------------------------------------------------------
Total liabilities 3,903,933 2,823,124
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
5,105,289 and 5,080,500 shares issued and outstanding
at December 31, 1998 and 1997, respectively 8,255,348 8,193,663
Accumulated deficit (4,898,207) (5,162,160)
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,357,141 3,031,503
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,261,074 $5,854,627
=========================================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $11,083,239 $ 6,637,018
Cost of revenues 5,047,616 2,842,424
- ------------------------------------------------------------------------------------------
Gross profit 6,035,623 3,794,594
- ------------------------------------------------------------------------------------------
Operating expenses:
Sales, general and administrative 4,440,679 4,562,239
Research and product development 1,282,549 1,463,905
- ------------------------------------------------------------------------------------------
Total operating expenses 5,723,228 6,026,144
- ------------------------------------------------------------------------------------------
Income (loss) from operations 312,395 (2,231,550)
Interest income (expense), net (48,442) 86,020
- ------------------------------------------------------------------------------------------
Net income (loss) $ 263,953 $(2,145,530)
==========================================================================================
Net income (loss) per share-- basic and diluted $ .05 $ (.42)
==========================================================================================
</TABLE>
See accompanying notes to the financial statements.
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, 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
Exercise of employee stock options 8,910 17,820 17,820
Stock purchased through employee stock
purchase plan 15,879 43,865 43,865
Net income 263,953 263,953
- -------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 5,105,289 $8,255,348 $(4,898,207) $3,357,141
===================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 263,953 $(2,145,530)
Reconciliation of net income (loss) to net cash used by operating activities:
Depreciation and amortization 467,257 181,250
Provision for doubtful accounts 50,000 215,000
Changes in current assets and liabilities:
Restricted cash (150,200)
Accounts receivable (807,837) (334,604)
Costs and estimated earnings in excess of billings (1,148,614) (535,915)
Other current assets (174,771) (242,948)
Accounts payable 628,549 (293,327)
Accrued expenses (266,766) (241,488)
Other current liabilities 6,035 197,603
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (982,194) (3,350,159)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of marketable securities 2,092,553
Purchase of product line (116,819)
Additions to property and equipment (309,582) (302,322)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (309,582) 1,673,412
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Other assets (25,000)
Principal payments on capital lease (50,892) (54,747)
Principal payments on other long-term obligations (221,117)
Proceeds from issuance of loan payable 985,000
Proceeds from employee common stock issuances 61,685
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 749,676 (54,747)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (542,100) (1,731,494)
Cash and cash equivalents at beginning of year 553,458 2,284,952
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11,358 $ 553,458
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 72,725 $ 32,887
===================================================================================================================
Noncash operating and financing activities:
Capital lease obligations incurred $ -- $ 300,400
===================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NOTE 1 DESCRIPTION OF BUSINESS ACTIVITIES
- --------------------------------------------------------------------------------
Spanlink Communications, Inc. (the Company) was incorporated in 1988 and
designs, develops and markets streamlined computer telephony software solutions
that help call centers rapidly automate and manage the customer interaction
process via the telephone or 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. Cash equivalents consist of highly liquid investments
with original maturities of three months or less which are readily convertible
to cash.
Fair Value of Financial Instruments. Cash and cash equivalents 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 11 for discussion of major customer and
economic relationships.
Revenue Recognition. The Company adopted AICPA Statement of Position
97-2, "Software Revenue Recognition," effective January 1, 1998. The adoption
did not have a material effect on the Company's revenue recognition policies.
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 labor cost
incurred to-date to the total estimated labor 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 which are not sold as part of
a system installation contract are recognized upon execution of a license
agreement, shipment of the software, fulfillment by the Company of all of its
significant contractual obligations and when collection is probable. Revenues
derived from maintenance contracts are deferred and recognized ratably over the
contract period. The Company provides a 120-day warranty on sales of Company
software products. Estimated warranty costs are accrued at the time of product
shipment.
Revenues derived from hardware which is not sold as part of a system
installation contract are recognized upon shipment.
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 estimated lives of the assets. Estimated useful lives generally range
from three to ten 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 with a
cost of $300,400 at December 31, 1998 and 1997.
<PAGE>
Intangible Assets. Intangible assets relate to the purchase of the
FastCall product line (Note 12) and are being amortized over a five-year life.
Accumulated amortization at December 31, 1998 and 1997 was $128,564 and $5,200,
respectively.
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 have also been expensed because they have
not been significant.
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 Income (Loss) Per Share The Company's net income (loss) per share is
computed under SFAS No. 128, "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.
NOTE 3 CONTRACTS IN PROGRESS
- --------------------------------------------------------------------------------
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
December 31,
1998 1997
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $3,240,601 $ 2,239,395
Estimated earnings 2,948,751 1,839,011
- --------------------------------------------------------------------------------
6,189,352 4,078,406
Billings to-date (4,937,777) (3,961,262)
- --------------------------------------------------------------------------------
$1,251,575 $ 117,144
- --------------------------------------------------------------------------------
This activity is included in the accompanying balance sheet under the
following captions:
December 31,
1998 1997
- --------------------------------------------------------------------------------
Costs and estimated earnings in
excess of billings $1,703,186 $ 554,572
Billings in excess of costs and
estimated earnings (451,611) (437,428)
- --------------------------------------------------------------------------------
$1,251,575 $ 117,144
- --------------------------------------------------------------------------------
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,
1998 1997
- --------------------------------------------------------------------------------
Equipment $1,585,879 $1,337,482
Office furniture and fixtures 431,546 394,266
Leasehold improvements 172,340 152,611
- --------------------------------------------------------------------------------
2,189,765 1,884,359
Less: Accumulated depreciation
and amortization (962,676) (620,199)
- --------------------------------------------------------------------------------
Total property and equipment $1,227,089 $1,264,160
- --------------------------------------------------------------------------------
<PAGE>
NOTE 5 LONG-TERM OBLIGATIONS
- --------------------------------------------------------------------------------
At December 31, 1998, long-term obligations are comprised as follows:
Remaining minimum obligation
in connection with acquisition
of product line (Note 12) $ 278,883
Obligations under capital lease (Note 7) 194,761
- --------------------------------------------------------------------------------
473,644
Less current portion (107,755)
- --------------------------------------------------------------------------------
$ 365,889
NOTE 6 INCOME TAXES
- --------------------------------------------------------------------------------
The Company has available net operating loss carryforwards for income tax
purposes of approximately $4,600,000 at December 31, 1998 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, 1998 and 1997 as their realization presently is not assured.
Deferred tax assets consist of the following:
December 31,
1998 1997
- --------------------------------------------------------------------------------
Loss carryforward $1,727,000 $ 1,727,000
Allowance for doubtful accounts 81,099 81,549
Vacation accrual 20,615 14,764
Rent accrual 0 69,091
Other accruals 15,540 33,350
- --------------------------------------------------------------------------------
1,844,254 1,925,754
Valuation allowance (1,844,254) (1,925,754)
- --------------------------------------------------------------------------------
$ 0 $ 0
- --------------------------------------------------------------------------------
NOTE 7 LEASES
- --------------------------------------------------------------------------------
Operating Leases. The Company leases certain office space and equipment
under noncancelable 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, 1998 and 1997 was approximately $248,699 and $329,220,
respectively. At December 31, 1998, future minimum lease payments under these
operating leases are as follows:
Year Ending December 31,
- --------------------------------------------------------------------------------
1999 $260,023
2000 260,023
2001 260,023
2002 156,213
2003 9,065
-----------
Total minimum payments required $945,347
- --------------------------------------------------------------------------------
<PAGE>
Capital Leases. The Company acquired $300,400 of fixed assets during 1997
under a capital lease arrangement. 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,
- --------------------------------------------------------------------------------
1999 $ 76,608
2000 80,892
2001 80,892
- --------------------------------------------------------------------------------
Total minimum lease payments 238,392
Less: Amount representing interest (43,631)
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 194,761
Less: Current portion (57,755)
- --------------------------------------------------------------------------------
$137,006
- --------------------------------------------------------------------------------
NOTE 8 SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Warrants. In February 1996, the Company issued warrants in a private debt
offering 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. As part of the Company's initial public offering in May 1996, the
underwriters were granted a five-year 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
this 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
four-year or 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 stock options, stock appreciation
rights and restricted stock. In 1996, the Company also granted 100,000 fixed
options outside of the Plan. In addition, the Company in 1998 granted 195,000
fixed options outside the plan. These options generally follow the provisions of
the Plan.
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 income
(loss) and net income (loss) per share would have increased to the pro forma
amounts indicated below:
Year Ended December 31, 1998 1997
- --------------------------------------------------------------------------------
Net income (loss)-- as reported $ 263,953 $(2,145,530)
Net loss-- pro forma $ (192,105) $(2,502,033)
Net income (loss) per share -- basic and
diluted as reported $ 0.05 $ (.42)
Net loss per share-- basic and
diluted pro forma $ (.04) $ (.49)
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 1998 and 1997: dividend yield of 0%; expected
volatility of 58% and 55%; risk-free interest rate of 5.4% and 6.2%; and
expected lives of 8.0 and 8.8 years. The weighted average fair value of options
granted during 1998 and 1997 was $2.07 and $1.49, respectively.
<PAGE>
There are 1,295,000 shares of common stock reserved for issuance upon
exercise of stock options as of December 31, 1998. 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
- --------------------------------------------------------------------------------
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
Granted 495,000 $2.19-$3.81
Exercised ( 8,910) $2.00
Canceled (65,500) $2.00-$3.50
- --------------------------------------------------------------------------------
Outstanding
at December
31, 1998 1,251,090 554,210 $2.00-$3.81 $2.76 7.2 years
The following table summarizes information about stock options outstanding at
December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Exercise Number Outstanding Weighted-Average Weighted-Average Number Exercisable Weighted-Average
Prices Remaining Exercise Price Exercise Price
Contractual Life
<S> <C> <C> <C> <C> <C>
$2.00-2.88 735,340 7.8 years $2.28 211,710 $2.00
$3.00-3.81 515,750 6.2 years 3.45 342,500 3.51
- ---------------------- -------------------- -------------------- -------------------- -------------------- --------------------
1,251,090 7.2 years $2.76 554,210 $2.93
</TABLE>
Employee Stock Purchase Plan. The Company has an Employee Stock
Purchase Plan (ESPP) which is available to eligible employees. Under terms of
the plan, eligible employees may designate from 1% to 10% of their compensation
to be withheld through payroll deductions for the purchase of common stock at
85% of the lower of the market price on the first or last day of the offering
period. Under the plan 200,000 shares of common stock have been reserved for
issuance. As of December 31, 1998, 15,879 shares have been issued under the
plan. Related fair value disclosures under SFAS No. 123 are immaterial.
<PAGE>
NOTE 9 EARNINGS PER SHARE
- -------------------------------------------------------------------------------
A reconciliation of the denominators of the basic and diluted earnings
per share (EPS) computations for the years ended December 31 is presented below.
1998 1997
---- ----
Net Income (Loss) $ 263,953 $(2,145,530)
------------------------------------------------ --------- -----------
Shares Calculation:
Weighted average basic shares outstanding 5,085,706 5,080,500
Effect of dilutive securities
Options 144,312
Warrants
--------- -----------
Total shares used to compute diluted
earnings per share 5,230,018 5,080,500
------------------------------------------------ --------- -----------
Net Income (Loss) per Share:
Basic $ .05 $ (.42)
Diluted $ .05 $ (.42)
------------------------------------------------ --------- -----------
NOTE 10 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 1998 or 1997.
NOTE 11 MAJOR CUSTOMER AND ECONOMIC RELATIONSHIPS
- --------------------------------------------------------------------------------
The Company generates a significant portion of its revenues from Lucent
Technologies, Inc. (Lucent) under a number of agreements that provide royalties
and product sales to the Company. These agreements terminate at various times
but Lucent may extend them, as they have in the past.
Total revenues from Lucent were approximately $4,957,061 and $3,693,000
for the years ended December 31, 1998 and 1997, respectively, which represented
45% and 56% of total revenues for 1998 and 1997, respectively. Accounts
receivable from Lucent represented approximately 59% and 53% of total accounts
receivable at December 31, 1998 and 1997, respectively.
NOTE 12 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.
NOTE 13 RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
As of December 31, 1998, the company has three notes receivable
outstanding totaling $138,500 with current and former officers. The notes bear
interest at 5.99 % to 6.31%. The notes and accrued interest are due in full in
2002 and 2003. The notes receivable are recorded in other assets on the balance
sheet.
<PAGE>
NOTE 14 LOAN PAYABLE
- --------------------------------------------------------------------------------
As of December 31, 1998, the Company has a $1 million working capital
line of credit with a bank which expires April 30, 1999. Borrowings are limited
to the lesser of $1 million or 80% of eligible accounts receivable. Borrowings
bear interest at 1% above the bank's prime rate (7.75% at December 31, 1998) and
are collateralized by all of the Company's assets. As of December 31, 1998,
$985,000 was outstanding under the line of credit.
Subsequent to year-end the amount of the line of credit was increased
by $1.7 million. Management believes that upon the April 30, 1999 expiration of
the line, the agreement will be renewed or replaced at similar terms.
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, 1998 1997
- ----------------------------------------------------- --------- -----------
Revenues 100% 100%
Cost of revenues 45.5 42.8
- ----------------------------------------------------- --------- -----------
Gross profit 54.5 57.2
Operating expenses:
Sales, general and administrative 40.1 68.7
Research and product development 11.6 22.1
- ----------------------------------------------------- --------- -----------
Total operating expenses 51.7 90.8
Income (loss) from operations 2.8 (33.6)
Interest income (expense) (.4) 1.3
- ----------------------------------------------------- --------- -----------
Income (loss) before income taxes 2.4 (32.3)
Provision for income taxes -- --
Net income (loss) 2.4 (32.3)%
- ----------------------------------------------------- --------- -----------
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues
Total revenues increased 67% from $6,637,018 in 1997 to $11,083,239 in
1998. All product lines reflected strong growth in 1998, with the largest gains
from packaged (configurable) software, hardware and services. The Company's
revenues are derived primarily from the sale of hardware, packaged
(configurable) software, custom software and services. The software component
(including both packaged and custom software) increased 65% from $3,485,157 in
1997 to $5,741,492 in 1998. The software increase was attributable to a
significant increase in the number of packaged software products sold as well as
a higher level of custom software revenue. 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 hardware component of revenue
increased 98% from $1,670,028 in 1997 to $3,311,817 in 1998. The hardware
revenue increase was primarily due to a large hardware sale in the Company's
fourth quarter, together with an increase in customer demand for hardware
upgrades related to Year 2000 compliance. 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 37% from $1,481,833 in 1997 to
$2,029,930 in 1998.
Cost of Revenues
Cost of revenues increased 78% from $2,842,424 in 1997 to $5,047,616 in
1998. The increase was due primarily to the increased sales levels together with
the higher percentage of hardware revenue.
Gross Profit
Gross profit increased 59% to $6,035,623 in 1998 from $3,794,594 in
1997. Gross profit as a percentage of total revenues decreased to 55% in 1998
from 57% in 1997. 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 3% in 1998 to
$4,440,679 from $4,562,239 in 1997. Sales, general and administrative expenses
as a percentage of total revenues were 40% in 1998, down from 69% in 1997. The
decrease as a percentage of total revenues resulted from the Company's higher
revenue levels achieved with comparable expenditures.
<PAGE>
Research and Product Development
Research and product development expenses decreased 12% in 1998 to
$1,282,549 from $1,463,905 in 1997. Research and product development expenses as
a percentage of total revenues were 12% in 1998 and 22% in 1997. 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 increase,
although such expenses as a percentage of total revenues will vary from period
to period.
Net Interest Income
The Company recorded net interest expense of $48,442 for the year ended
December 31, 1998, versus net interest income of $86,020 for the comparable
period in 1997. The change was attributable to borrowings on the Company's bank
credit line to support increased working capital needs primarily resulting from
the Company's revenue growth. Interest income in 1997 and 1998 resulted from
investment of the cash proceeds from the Company's initial public offering
completed in the second quarter of 1996.
Income Tax Provision
The Company did not record a tax benefit for the year ended December 31,
1998 or December 31, 1997, as the likelihood of realization of the benefit is
presently not assured.
Net Income (Loss)
The Company realized net income of $263,953 in 1998 compared with a net
loss of $2,145,530 in 1997. The 1997 loss was 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. That expense
reduction, in addition to increased revenues, allowed the Company to
significantly improve its operating performance in the second half of 1997 and
in 1998.
Impact of Inflation
The Company believes that generally, inflation has no appreciable effect
on the Company's operations.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $161,558 as of December 31,
1998, a decrease of $542,100 from December 31, 1997. 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 $2,871,108 at December 31, 1998 compared with
$2,113,271 at December 31, 1997. Inventory and costs and estimated earnings in
excess of billings increased from $900,347 at December 31, 1997 to $2,208,973 at
December 31, 1998. This increase reflects the higher level of jobs in process at
the end of 1998 compared to the end of 1997. Working capital at December 31,
1998 was $1,866,426. The Company currently has a $1.7 million working capital
line of credit with a bank which expires April 30, 1999. Borrowings are limited
to the lesser of $1.7 million or 80% of eligible accounts receivable. Borrowings
bear interest at 1% above the bank's prime rate (7.75% currently) and are
collateralized by all of the Company's assets. Currently, $1,685,000 is
outstanding under the line of credit. Although the Company believes that upon
the April 30, 1999 expiration of the line, the agreement will be renewed or
replaced at similar terms, there is no such 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 projected capital needs through 1999.
<PAGE>
Year 2000 Compliance
Year 2000 Background The Company's overall goal is to be Year 2000 ready.
To accomplish this goal, the Company has been addressing the issue with respect
to both its information technology (IT) and non-IT systems, as well as its
business relationships with key third parties. To be ready, the Company needs to
evaluate the Year 2000 issues and fix any problems it can so that all of its
systems and relationships will be suitable for continued use into and beyond the
Year 2000.
The Company began addressing the Year 2000 issue in 1998 using a
multi-step approach, including inventory and assessment, remediation and
testing, and contingency planning. The Company began by assessing its major
internal software systems that were susceptible to system failure or processing
errors as a result of the Y2K issue. This phase is substantially complete. The
Company's Year 2000 efforts will also include assessment of "embedded" systems
(such as security and telephone systems, as well as heating and air conditioning
systems).
As part of the assessment phase, the Company has also had conversations
with many of its major software and service suppliers, and has recently
initiated plans to obtain formal written assurances from such key third parties
in order to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. The Company has
not yet completed this part of the assessment phase and cannot predict the
outcome of other companies' remediation efforts.
Year 2000 Costs The Company currently plans to substantially complete its
Year 2000 compliance efforts by June 30, 1999. To date, the Company has spent
only a minimal amount during the assessment phase, which essentially amounts to
purchases of software and hardware and compensation of internal employees
working on Year 2000 projects. Although the Company has not yet completed its
assessment phase, the total remaining cost of such efforts is estimated at less
than $100,000. The cost of the project and the date on which the Company plans
to complete Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
availability of certain resources, third parties' Year 2000 readiness and other
factors.
Risk Assessment Possible consequences to the Company or its business
partners not being fully Y2K compliant could include delays in the receipt of
revenues or inability to meet customer needs. These consequences could have a
material adverse impact on the Company's results of operations, financial
condition and cash flows if the Company is unable to conduct its business in the
ordinary course.
The Company does not currently have a contingency plan but will continue
to monitor the necessity of such in 1999. If a contingency plan is reasonably
necessary, it will likely include identifying and securing alternative
suppliers, and the Company intends to have the plan substantially finalized by
June 30, 1999.
<PAGE>
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:
o 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 and demand 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.
o The 1999 introduction and success of new Company applications including
FastCall Enterprise 3.0 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.
o 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.
o The accuracy of the Company's belief that its current capital resources
will be sufficient to fund current and anticipated business operations
throughout 1999 depends, in part, on meeting anticipated revenue goals,
operating efficiencies and effective expense management, in addition to renewal
of the Company's bank line of credit and general and competitive conditions.
o The impact of Year 2000 issues on the Company's business depends on the
accuracy, reliability and effectiveness of the Company's and its suppliers' and
customers' assessment and remediation of Year 2000 issues.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-14949 and 333-62745) of Spanlink Communications,
Inc. of our report dated February 12, 1999 appearing on page 16 of the Annual
Report to Shareholders which is incorporated in this Annual Report on Form
10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 161,558
<SECURITIES> 0
<RECEIVABLES> 2,871,108
<ALLOWANCES> 0
<INVENTORY> 505,787
<CURRENT-ASSETS> 5,404,470
<PP&E> 1,227,089
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,261,074
<CURRENT-LIABILITIES> 3,508,044
<BONDS> 0
0
0
<COMMON> 8,255,348
<OTHER-SE> (4,898,207)
<TOTAL-LIABILITY-AND-EQUITY> 7,261,074
<SALES> 11,083,239
<TOTAL-REVENUES> 11,083,239
<CGS> 3,047,616
<TOTAL-COSTS> 3,047,616
<OTHER-EXPENSES> 5,723,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,442
<INCOME-PRETAX> 263,953
<INCOME-TAX> 0
<INCOME-CONTINUING> 263,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,953
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
