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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 000-28052
EN POINTE TECHNOLOGIES, INC
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I. D.
incorporation or organization: Delaware Number: 75-2467002
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
(Address of principal executive offices) (ZIP CODE)
Registrant's telephone number, including area code: (310) 725-5200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES X NO
--- ---
As of February 11, 1996, 5,665,698 shares of Common Stock of the Registrant were
issued and outstanding.
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INDEX
EN POINTE TECHNOLOGIES, INC.
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- --------
Item 1 Financial Statements
Condensed Balance Sheets - December 31, 1996 and
September 30, 1996 3
Condensed Statements of Operations - Three months ended
December 31, 1996 and 1995 4
Condensed Statements of Cash Flows - Three months ended
December 31, 1996 and 1995 5
Notes to Condensed Financial Statements - December 31, 1996 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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EN POINTE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
December 31, September 30,
1996 1996
----------- --------------
(Unaudited)
ASSETS:
Current assets:
Cash $ 2,567 $ 3,158
Restricted cash 610 610
Accounts receivable, net 59,363 55,673
Inventories 5,428 1,806
Deferred tax asset 289 289
Prepaid expenses and other current assets 637 566
--------- ---------
Total current assets 68,894 62,102
Property and equipment, net of accumulated
depreciation 3,082 2,821
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Total assets $ 71,976 $ 64,923
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable $ 164 $ 164
Borrowings under lines of credit 37,913 36,504
Accounts payable 2,858 1,781
Accrued liabilities 2,470 2,425
Other current liabilities 5,795 2,890
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Total current liabilities 49,200 43,764
Notes payable 270 284
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Total liabilities 49,470 44,048
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 17,114 16,670
Retained earnings 5,386 4,199
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Total stockholders' equity: 22,506 20,875
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Total liabilities and stockholders' equity $ 71,976 $ 64,923
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See Notes to Condensed Financial Statements
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EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended
December 31,
---------------------------
1996 1995
------------ -------------
Net sales $ 111,666 $ 77,016
Cost of sales 101,811 70,955
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Gross profit 9,855 6,061
Selling and marketing expenses 5,383 3,304
General and administrative expenses 2,140 985
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Operating income 2,332 1,772
Interest expense 332 579
Other income, net (57) (27)
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Income before income taxes 2,057 1,220
Provision for income taxes 870 518
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Net income $ 1,187 $ 702
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Net income per share, primary
and fully diluted $ 0.21 $ 0.21
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Weighted average shares outstanding 5,784 3,410
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See Notes to Condensed Financial Statements
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EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three months ended
December 31,
---------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 1,187 $ 702
Adjustments to reconcile net earnings to
net cash used by operations:
Depreciation and amortization 254 101
Deferred compensation 47
Allowance for doubtful accounts 408 30
Allowance for returns 50 85
Net changes in operating assets and
liabilities (3,814) (11,437)
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Net cash used by operating activities (1,868) (10,519)
Cash flows from investing activities:
Purchase of property and equipment (515) (200)
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Net cash used by investing activities (515) (200)
Cash flows from financing activities:
Net borrowings under lines of credit 1,409 11,182
Payment on notes payable to stockholders -- (150)
Payment on notes payable (14) (454)
Proceeds from sales of stock to employees 397 --
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Net cash provided by financing activities 1,792 10,578
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Decrease in cash $ (591) $ (141)
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Supplemental disclosures of cash flow
information:
Interest paid $ 303 $ 550
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Income taxes paid $ 253 $ 583
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See Notes to Condensed Financial Statements
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EN POINTE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and General Information
The accompanying unaudited financial statements of En Pointe Technologies, Inc.
(the "Company" or "En Pointe") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended September 30,
1997. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1996.
Note 2 - Recently Issued Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation." The accounting or disclosure requirements of this statement are
effective for the Company's fiscal year 1997. The Company will adopt the
disclosure requirement only of this statement and will continue to measure
compensation costs using Accounting Principles Board No. 25.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those discussed below. Forward-looking information provided by En
Pointe pursuant to the safe harbor established by recent securities legislation
should be evaluated in the context of these factors.
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
Three Months Ended
December 31,
-----------------------
1996 1995
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Net sales. . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 91.2 92.1
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Gross profit. . . . . . . . . . . . . . . . . . . . 8.8 7.9
Selling and marketing expenses . . . . . . . . . . . . . 4.8 4.3
General and administrative expenses. . . . . . . . . . . 1.9 1.3
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Operating income. . . . . . . . . . . . . . . . . . 2.1 2.3
Interest expense . . . . . . . . . . . . . . . . . . . . 0.3 0.7
Other income, net. . . . . . . . . . . . . . . . . . . . -- --
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Income before income taxes. . . . . . . . . . . . . 1.8 1.6
Provision for income taxes . . . . . . . . . . . . . . . 0.7 0.7
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Net income. . . . . . . . . . . . . . . . . . . . . 1.1% 0.9%
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COMPARISON OF THE QUARTER ENDED DECEMBER 31, 1996 AND 1995
All comparisons within the following discussion are related to the same period
of the previous year.
NET SALES. Revenues for the quarter ended December 31, 1996 were $111.7
million, an increase of $34.6 million (45.0%) over prior period. $4.4 million
(12.7%) of the $34.6 million increase in sales were generated from sales from
two new branch offices opened in Chicago and Salt Lake City. However, increased
sales from the New York branch office and sales to IBM accounted for the major
portion of the increase, $8.2 million (23.7%) and $7.4 million (21.4%)
respectively.
GROSS PROFIT. Gross profit as a percentage of sales increased from 7.9% to
8.8% for the three-month period. The
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quarterly increase was attributable to improved purchasing terms due to a higher
volume of purchases.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the quarter
ended December 31, 1996 were $5.4 million, an increase of $2.1 million, or
62.9%, compared to the $3.3 million for the prior year's quarter, primarily as a
result of increased variable sales costs as a result of increased sales volume.
As a percentage of sales, selling and marketing expenses increased from 4.3% to
4.8% for the quarter ended December 31, 1996. Of the .5% increase in selling
and marketing expenses as a percentage of sales, 0.4% of the increase was
attributable to an increase in the allowance for uncollectible accounts and
another 0.1% resulted from a direct write-off of a receivable owed to the
catalog division (a discontinued start up operation). The increase in the
reserve allowance was provided to address the risk associated with large balance
accounts and an increasing volume of sales and does not reflect a deterioration
in the quality of the accounts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the quarter ended December 31, 1996 were $2.1 million, an increase of $1.2
million, or 117.3%, compared to $1.0 million for the quarter ended December 31,
1995. Accounting for $.5 million of the increase was software development,
maintenance, and upgrades, which was not a material factor in the comparable
1995 quarter. The remainder was due to increased staff and other administrative
functions necessary to support the increase in sales volume. As a percentage of
sales, general and administrative expense was 1.9%, of which 0.4% was software
related. Excluding software related costs, general and administrative expense as
a percentage of sales increased 0.3% from that reported in the quarter ended
December 31, 1995 but decreased 0.4% from the immediate prior fourth quarter of
1996.
INTEREST EXPENSE. Interest expense for the quarter ended December 31, 1996 was
$0.3 million, a decrease of $0.2 million, or 42.7%, compared to $0.6 million for
the quarter ended December 31, 1995. The decrease in interest expense was
primarily due to more favorable financing terms as well as the paydown of debt
from the proceeds of the public offering.
NET INCOME. Net income for the quarter ended December 31, 1996 was $1.2
million, an increase of $0.5 million, or 69.1%, compared to $0.7 million for the
quarter ended December 31, 1995. Net income increased primarily as a result of
the increase in sales and a decline in operating expenses as a percentage of
sales due to the fixed expenses being spread over a higher volume of sales.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $1.9 million during the three months
ended December 31, 1996. Net cash used in operating activities has been
significant due to the working capital requirements resulting from the rapid
growth of the Company and, more specifically, the financing of increasing
accounts receivable balances that are a direct result of increased sales.
Accounts receivable increased $4.1 million, as a result of continuing sales
growth and inventories increased $3.6 million as of December 31, 1996. The
unusual increase in inventories was a result of a large order at the Company's
Memphis configuration center that was not completed and shipped until early
January.
Investing activities used cash totaling $.5 million during the three months
ended December 31, 1996. The investing activities related to the upgrading of
computer equipment and acquisition of office furniture and equipment.
Financing activities provided net cash totaling $1.8 million during the three
months ended December 31, 1996. The primary source of cash was from net
borrowings under lines of credit of $1.4 million. Additionally, $.4 million was
provided by employee purchases of stock under the Company's Employee Stock
Purchase Plan.
The Company's accounts receivable balance at December 31, 1996 and September 30,
1996 was $60.7 and $56.6 million. The number of days' sales outstanding in
accounts receivable was 54 and 59 days as of December 31, 1996 and September 30,
1996, respectively. The reduction in days' sales outstanding was a result of the
continued focus on collection activities.
As of December 31, 1996, the Company had approximately $2.6 million in cash,
$0.6 million in restricted cash, and $19.7 million in working capital. The
Company has several revolving credit facilities collateralized by accounts
receivable and all other assets of the Company, including a $70 million line
with IBM Credit Corporation ("IBM Credit"). As of December 31, 1996, such lines
of credit provided for maximum aggregate borrowings of approximately $79
million, of which $37.9 million was outstanding. Because the lines of credit are
primarily collateralized by accounts receivable, the available credit and credit
limit are dependent upon the amount of accounts receivable at any given point in
time. Outstanding borrowings on the lines of credit bear interest at the prime
rate. The lines of credit are automatically
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renewable on an annual basis unless notification of an election not to renew is
made by either the Company or creditor on or prior to the annual renewal date.
Borrowings are collateralized by substantially all of the Company's assets. In
addition, the lines of credit contain certain financing and operating covenants
relating to net worth, liquidity, profitability, repurchase of indebtedness and
prohibition on payment of dividends.
Management believes that existing cash, cash equivalents, available line of
credit and anticipated cash generated from operations will be sufficient to
satisfy the Company's currently anticipated cash requirements.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation." The accounting or disclosure requirements of this statement are
effective for the Company's fiscal year 1997. The Company will adopt the
disclosure requirement only of this statement and will continue to measure
compensation costs using Accounting Principles Board No. 25.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and legal actions pending against the
Company. In the opinion of management, the outcome of such claims and
litigation will not have a material adverse effect upon the Company's
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
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10.28 Subtenant Lease Agreement dated August 1996 between
NCR International, Inc. and the Registrant for the
property located at 100 N. Sepulveda Blvd. 19th
Floor, El Segundo, California.
10.29 * Agreement for Sale of Computer Products between
Merisel Fab, Inc. and the Registrant dated August
1996.
11.2 Computation of Earnings Per Common Share
27 Financial Data Schedule for the quarter ended
December 31, 1996
b. The Company did not file any reports on Form 8-K during the three
months ended December 31, 1996.
* Confidential treatment for this exhibit has been requested pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EN POINTE TECHNOLOGIES, INC.
----------------------------
(REGISTRANT)
Date: February 14, 1997 By: /s/ Robert A. Mercer
---------------------------
Robert A. Mercer,
Chief Financial Officer
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SUBLEASE
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FROM
NCR International, Inc.
SUBLANDLORD
TO
En Pointe Technologies, Inc.
SUBTENANT
PREMISES: 100 N. Sepulveda, El Segundo, California
DATE: August , 1996
* * *
The mailing, delivery or negotiation of this Sublease by Sublandlord or its
agent or attorney shall not be deemed an offer by Sublandlord to enter into any
Sublease or to enter into any other relationship with Subtenant, whether on the
terms contained herein or on any other terms. This Sublease shall not be
binding upon Sublandlord, nor shall Sublandlord have any obligations or
liabilities or Subtenant any rights with respect thereto, or with respect to the
Premises, unless and until Sublandlord has executed and delivered this Sublease
and the master landlord has consented to it. Until such execution and delivery
of this Sublease, Sublandlord may terminate all negotiations and discussion of
the subject matter hereof, without cause for any reason, without recourse or
liability.
<PAGE>
SUBLEASE
THIS Sublease entered into as of the _______ day of August 1996, between NCR
International, Inc., a Delaware Corporation having its principal place of
business in Dayton, Ohio, herein referred to as "Sublandlord" and En Pointe
Technologies, Inc., a Delaware corporation, having its principal place of
business at 5245 Pacific Concourse Drive, Suite 200, Los Angeles 90455,
hereinafter referred to as "Subtenant."
WITNESSETH
Whereas, Sublandlord leases space at 100 N. Sepulveda, El Segundo, California,
under an Office Lease dated as of October 5, 1989 between Teradata Corporation,
Sublandlord's predecessor by merger, and the owner of the demised premises (the
"Landlord"), as amended up to and including Amendment 9 dated as of, September
28, 1993, (collectively, the "Master Lease"), a copy of which is affixed hereto
as "Exhibit A."
Whereas, Subtenant wishes to sublease a portion of the premises leased by
Sublandlord under the Master Lease;
Whereas, the parties desire to enter into a sublease defining all the rights,
duties and liabilities of the parties hereto.
Now therefore, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1.0 THE PREMISES
1.1 Sublandlord, for and in consideration of the Subtenant's payment of the
Rent (defined below) and performance of the covenants contained in this
Sublease, does hereby demise and sublease to Subtenant approximately 24,042
rentable square feet of office space (the "Premises") comprising all the usable
area of the nineteenth floor of the building (the "Building") located at 100 N.
Sepulveda, in the City of El Segundo, in the State of California, together with,
on a non-exclusive basis, whatever rights Sublandlord has to use common areas of
the Building and the property on which the Building is located (the "Property").
The Premises are as described and shown on "Exhibit B" affixed hereto. This
Sublease is subject and subordinate to the Master Lease.
1.2 Subtenant shall be entitled to use its pro rata share of the Building's
parking spaces, at the ratio of four (4) spaces per 1,000 rentable square feet
of the Subleased Premises. Subtenant shall pay all associates fees with parking
spaces it uses.
2.0 PURPOSE OF SUBLEASE
The Premises demised under this Sublease are to be used by Subtenant for
GENERAL OFFICE USE, and for any other use permitted by the Master Lease and for
no other purpose
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without the prior written consent of Sublandlord, which consent shall not be
unreasonably withheld. Subtenant shall not use the premises for any unlawful,
noxious, immoral, or hazardous activity, whether within or outside the scope of
the business of Subtenant.
3.0 TERM
3.1 Subtenant may take possession and the term of this Sublease shall
commence on the later of (i) October 1, 1996 and (ii) the date both parties have
executed this Sublease and Sublandlord has received Landlord's written consent
to this Sublease (the "Commencement Date"). This Sublease shall end on May 31,
2001, unless terminated earlier by breach of the terms and conditions of this
Sublease or as provided herein.
3.2 Subtenant may, at any time after both parties have executed this
Sublease and prior to the Commencement Date, without incurring any liability for
payment of Rent, measure the Premises, design and layout the Subtenant's
furniture and personal property, and place and install its cabling and
telecommunication equipment in the Premises at Subtenant's risk and expense. In
exercising the foregoing rights, Subtenant shall not cause any material
interference with or delay to Sublandlord or to any existing tenant. All terms
and conditions of the Sublease shall apply to such early entry by Subtenant,
except for the payment of Rent. Notwithstanding the above, Subtenant shall not
use Premises until Landlord's written approval is received. In the event that
Landlord consent is not received Subtenant at Sublandlord option shall remove
any cabling and other installation in the Premises and pay for repair of any
damage caused by Subtenant's said installation.
4.0 RENTAL
4.1 Subtenant shall pay to Sublandlord during the term hereof the annual
rental ("Base Rent") payable at the monthly rate on the first of each and every
month in advance without demand, reduction, or set-off, in accordance with the
following schedule:
Months $/RSF/Month Monthly Rental
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1 $ 14,104.64
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2-10 $1.10/RSF/Month $ 26,446.20
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11-15 $0.00/RSF/Month $ 0.00
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16-Till end of the term $1.10/RSF/Month $ 26,446.20
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The first month's rent shall be due and payable with the execution of this
Sublease but shall be returned to Subtenant if this Sublease does not commence
by December 31, 1996, in which event this Sublease shall be null and void. Base
Rent will be payable on the first day of each month, commencing on with the
second calendar month after the Commencement Date, provided that if this
Sublease does not commence on the first of the calendar month then the Base Rent
paid with the execution of this Sublease will be applied to the second month's
rent and the prorated amount for the first, partial calendar month shall be due
and payable on the Commencement Date. Subtenant will pay in like manner any
additional sums which may hereinafter be called for under this Sublease. All
such rentals, unless otherwise directed, shall be payable to:
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c/o NCR Corporation
Corporate Real Estate - WHQ-E1
1700 S. Patterson Blvd.
Dayton, Ohio 45479
ATTN.: Sublease Administration
4.2 In addition to the Base Rent, commencing January 1, 1997, Subtenant
covenants and agrees to pay annual Additional Rent in the amount of "Subtenant's
Pro Rata Share," as defined below, of the increases in the annual "Direct
Expenses," as defined in Article 4 of the Master Lease, which are in excess of
the "Base Year Direct Expenses," as defined in below ("Excess Direct Expenses").
(a) Base Year Direct Expenses means the amount of Direct Expenses for
the Project during the calendar year 1996, as determined by Landlord.
(b) Subtenant's Pro Rata Share means the ratio expressed as a
percentage of the rentable square feet in the Subleased Premises to the total
number of rentable square feet in the Project (986,079), which percentage is
currently 2.44%.
(c) Direct Expenses means the costs defined as such in the Master
Lease.
4.3 In addition to the Base Rent, Subtenant covenants and agrees to pay
Additional Rent on account of Subtenant's Pro Rata Share of the Excess Direct
Expenses monthly, commencing on the first month in 1997 that Landlord increases
the monthly amount of Direct Expenses being paid by Sublandlord over the monthly
amount being paid in 1996, within ten (10) days following Subtenant's receipt
from Sublandlord of a statement and reasonable supporting documentation thereof.
Promptly after Landlord sends Sublandlord the accounting indicating the actual
Base Year Direct Expenses, Sublandlord will adjust the amount of Subtenant's
monthly payment of Excess Direct Expenses based on the actual 1996 Direct
Expenses and Landlord's estimate of Direct Expenses for 1997. Sublandlord will
send Subtenant documentation supporting the adjustment. A similar process will
be followed each year of the Sublease Term.
4.4 All amounts to be paid by Subtenant as Direct Expenses, and any other
payments to be made by Subtenant to Sublandlord under this Sublease, shall be
deemed to be "rent" and shall survive the expiration of the Sublease term.
5.0 UTILITIES AND SERVICES
Subtenant shall receive such utilities and services as Landlord is required to
provide for the benefit of the Premises and Sublandlord under the Master Lease.
Subtenant shall pay for services and utilities used at the Premises to the
extent that Sublandlord is liable to pay for such services and utilities under
the Master Lease. Subtenant shall pay directly
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all after building hours charges for lights/electrical and HVAC Subtenant is
responsible to pay this rate or any future increased rate as determined and set
by the Landlord.
6.0 COMPLIANCE WITH MASTER LEASE AND LAWS
6.1 Subtenant shall not take any action or fail to take any action which
would violate the terms of the Master Lease or cause Sublandlord to be in
default or breach under the Master Lease. Sublandlord shall not take any action
or fail to take any action which would cause it to be in default of the terms of
the Master Lease. If Sublandlord is in default under the Master Lease,
Sublandlord shall use reasonable best efforts to assist Subtenant in any
discussions and negotiations with Landlord to prevent a termination of this
Sublease, or taking an action that causes an eviction of the Subtenant, and
support Subtenant in its efforts to enter into a direct lease with Landlord
6.2 Subtenant, at Subtenant's sole cost and expense, shall promptly comply
with all applicable statutes, ordinances, rules, regulations, orders, judgments
and other requirements pertaining to Subtenant's use and occupancy of the
Premises, relating to matters not covered elsewhere in this Sublease, including
without limitation, requirements, of state or federal law concerning
accessibility to and employment of disabled persons.
6.3 Where not expressly inconsistent with the terms hereof and except as
otherwise stated herein to the contrary, this Sublease shall be subject and
subordinate to all of the terms and conditions contained in the Master Lease as
said terms and conditions affect the Premises, and all of the terms and
conditions of the Master Lease, except as otherwise set forth herein, are hereby
incorporated into this Sublease and shall be binding upon Subtenant with respect
to the Premises to the same extent as if Subtenant were named as tenant and
Sublandlord as landlord under the Master Lease. If a term or provision of this
Sublease is inconsistent or in conflict with a term or provision of the Master
Lease, the term or provision of this Sublease shall control as between
Sublandlord and Subtenant. For purposes of this Sublease, references in the
Master Lease to the term of lease shall mean the term of this Sublease and
references to the premises, demised premises, or similar references in the
Master Lease shall mean the Premises. Except as otherwise provided herein, when
any fraction, factor or formula, which is based on the number of square feet
leased, is expressed in the Master Lease, it will be adjusted by substituting
the number of square feet of the Premises for the number of square feet of the
premises leased by Sublandlord under the Master Lease. With the exceptions set
forth herein, Subtenant shall be entitled to all of the rights and privileges of
the Sublandlord as tenant under the terms of the Master Lease with respect to
the Premises. To the extent related to the Premises, Subtenant shall perform
and observe the terms and conditions to be performed on the part of Sublandlord,
excepting the covenant for the payment of rent or other expenses reserved
thereby, and provisions for the payment of Base Rent and Direct Expenses that
are expressly covered by this Sublease and shall indemnify Sublandlord against
all claims, damages, costs and expenses in respect to the non-performance or
non-observance of any such terms or conditions and shall enjoy all rights
granted to Sublandlord under the provisions of the Master Lease, except as
otherwise stated herein.
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6.4 Any expansion, renewal, first refusal, or other similar rights or
options in the Master Lease are reserved to the Sublandlord (without any
obligation to exercise any such rights or options) and may not be exercised by
Subtenant. Any right in the Master Lease for Sublandlord to contest property
taxes with the authority imposing the taxes is reserved solely to Sublandlord.
7.0 INDEMNIFICATION
7.1 Subtenant, as a material part of the consideration to Sublandlord,
hereby assumes all risk of damage to property or injury to persons in, upon or
about the Premises and Subtenant hereby waives all claims thereof against
Sublandlord, except for any claims arising from the willful or grossly negligent
misconduct of Sublandlord, its agents or employees. Subtenant shall, and hereby
agrees to indemnify and hold Sublandlord and Landlord harmless against all
claims, actions, causes of action, damages, liabilities, expenses, costs and
reasonable attorneys' fees, on appeal, arising from or incident to (i)
Subtenant's use of Premises, (ii) the business conducted by Subtenant, (iii) any
act, omission or negligence of Subtenant or Subtenant's agents, representatives,
employees, invitees or other persons, with or without authority of Subtenant, in
entering upon or performing any act relating to the Premises, (iv) any accident,
injury or damage whatsoever caused to any person or property in the Premises, or
(v) any breach or default in the performance of any obligation on Subtenant's
part to be performed under the terms of this Lease.
7.2 Subtenant shall indemnify, hold harmless, and defend Sublandlord and
Landlord against any and all claims of liability for failure of the Premises to
comply with disability access requirements under the Americans with Disability
Act and regulations thereunder. This indemnity extends to claims based on (i)
noncompliance of the Premises, including fixtures and improvements provided and
installed by Subtenant, or (ii) policies, practices and procedures of Subtenant,
or (iii) auxiliary aids or services provided by Subtenant (or which should have
been provided by Subtenant but were not provided).
This indemnity does not apply if the claim concerns (i) noncompliance of the
Common Areas including fixtures and improvements resulting from acts or failure
to act by Sublandlord, or (ii) policies, practices or procedures of Sublandlord,
or (iii) auxiliary aids or services provided by Sublandlord (or which should
have been provided by Sublandlord but were not), unless the claim concerning the
Common Areas is by an employee of Subtenant or by an applicant for employment
with Subtenant.
7.3 Subtenant, upon notice from Sublandlord or Landlord, shall defend
Sublandlord and Landlord against any of the foregoing at Subtenant's expense by
counsel reasonably acceptable to Sublandlord.
8.0 ADVERTISEMENTS
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All signs or symbols placed by Subtenant in the windows or doors of the
Premises, or on any exterior part of the building of which they are a part,
shall be subject to the written approval of Sublandlord and Master Landlord as
required by the Master Lease. Any signs so placed on the Premises shall be so
placed on the understanding and agreement that Subtenant shall remove those
signs or symbols at the termination of the tenancy herein created and repair any
damage or injury caused thereby. If not so removed by Subtenant, Sublandlord
may have the signs or symbols removed, and repairs made, at the expense of
Subtenant.
9.0 SALES, ASSIGNMENTS, AND SUBLEASE
9.1 In addition to the provisions of the Master Lease, Subtenant shall not
assign this Sublease, or any part thereof or interest therein, nor sublet part
or all of the Subleased Premises or permit anyone other than Subtenant to use
or occupy the Premises, or any part thereof or interest therein, without the
prior written consent of Sublandlord and Master Landlord. Sublandlord' prior
written consent shall not be unreasonably withheld or delayed. If consent is
once given by Sublandlord and Master Landlord to the assignment of this Sublease
or the sublease of the Premises or any interest therein, Sublandlord and Master
Landlord shall not be barred from subsequently refusing to consent to any
further assignment or sublease. Any sale, assignment, or subletting without the
prior written consent of Sublandlord and Master Landlord shall be deemed as a
default by Subtenant or, at the option of Sublandlord, shall render this
Sublease null and void and of no effect.
9.2 In the event of a subletting or assignment, Subtenant shall pay 50% of
all rent and all other consideration received by Subtenant in connection with
the assignment or sublease, in excess of Subtenant's rent obligations under this
Sublease net of all tenant improvement costs, real estate commissions and
architectural fees actually incurred by Subtenant in connection with the
assignment or subletting.
10.0 QUIET ENJOYMENT
Sublandlord agrees to maintain the Master Lease during the entire term of this
Sublease, subject to any earlier termination of the Master Lease without the
fault of the Sublandlord. If Subtenant performs in accordance with the terms of
this Sublease, Sublandlord will warrant and defend Subtenant in the enjoyment
and peaceful possession of the Premises during the term hereof against any
interruption by Sublandlord or anyone claiming under Sublandlord. Sublandlord
represents that the Master Lease is in full force and effect and that no default
of Sublandlord exists under the Master Lease.
11.0 DEFAULT OF SUBTENANT
11.1 The occurrence of any one or more of the following matters constitutes
an "Event of Default" by Subtenant under this Sublease, and Sublandlord shall
have the right to exercise any remedies provided herein or in law or at equity :
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(a) If any rents reserved hereunder, or any part thereof, shall be
and remain unpaid when such rents shall become due and such violation or
default shall continue for ten (10) days.
(b) Subtenant shall violate or default in any of the provisions of
the Master Lease and such violation or default shall continue for ten
(10) days after written notice thereof (or longer period as is
reasonably necessary to remedy such default, provided that Subtenant
shall continuously and diligently pursue such remedy at all times until
such default is cured).
(c) Subtenant shall violate or default in any of the provisions of
this Sublease and such violation or default shall continue for twenty
(20) days (or longer period as is reasonably necessary to remedy such
default, provided that Subtenant shall continuously and diligently
pursue such remedy at all times until such default is cured) after
written notice thereof from Sublandlord to Subtenant
(d) If a petition in bankruptcy is filed by Subtenant; or Subtenant
is adjudged bankrupt or insolvent by any court of competent
jurisdiction.
(e) If a receiver or trustee in bankruptcy or receiver of the
property of Subtenant shall be appointed in any suit or proceeding
brought by or against Subtenant.
(f) If Subtenant makes an assignment for the benefit of creditors.
11.2 Upon the occurrence of any event of default by Subtenant, Sublandlord
shall have, in addition to any other remedies available to Sublandlord at law or
in equity, the option to pursue any one or more of the following remedies, each
and all of which shall be cumulative and nonexclusive, without any notice or
demand whatsoever.
(a) Terminate this Sublease, in which event Subtenant shall
immediately surrender the Premises to Sublandlord, and if Subtenant
fails to do so, Sublandlord may, without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter upon and
take possession of the Premises and expel or remove Subtenant and any
other person who may be occupying the Premises or any part thereof,
without being liable for prosecution or any claim or damages therefor;
and Sublandlord may recover from Subtenant the following:
(i) The worth at the time of award of any unpaid rent which has been
earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Subtenant proves
could have been reasonably avoided; plus
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(iii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Subtenant proves could
have been reasonably avoided; plus
(iv) Any other amount necessary to compensate Sublandlord for all the
detriment approximately caused by Subtenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, specifically including but not
limited to, brokerage commissions and advertising expenses incurred,
expenses of remodeling the Premises of any portion thereof for a new
tenant, whether for the same or a different use, and any special
concessions made to obtain a new tenant; and
(v) At Sublandlord's election, such other amounts in addition to or
in lieu of the forgoing as may be permitted from time to time by
applicable law.
(b) As used in Paragraphs 11.2(a) (i) and (ii), above, the "worth at
the time of award" shall be computed by allowing interest at the rate as
set forth in 11.5 of this Sublease. As used in Paragraph 11.2 (a) (iii)
above, the "worth at the time of award" shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
11.3 If Sublandlord does not elect to terminate this Lease on account of any
default by Subtenant, Sublandlord may, from time to time, without terminating
this Lease, enforce all of its rights and remedies under this Lease, including
the right to recover all rent as it becomes due.
11.4 If Sublandlord does not elect to terminate this Sublease on account of
any default by Subtenant, Sublandlord may, but shall be under no obligation to,
except as may be required by law, relet the Premises or any part thereof for the
account of Subtenant for such rent, from time to time (which may be for a term
extending beyond the Sublease Term) and upon such terms as Sublandlord in
Sublandlord's sole discretion shall determine, and Sublandlord shall not be
required to accept any tenant offered by Subtenant or to observe any
instructions given by Subtenant relative to such reletting. Also, in any such
case, Sublandlord may change the locks or other entry devices of the Premises
and make repairs, alterations and additions in or to the Premises and redecorate
the same to the extent deemed by Sublandlord necessary or desirable, and
Subtenant shall upon written demand pay the cost thereof together with
Sublandlord's expenses of reletting
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11.5 Subtenant will pay to Sublandlord on demand all costs and expenses
(including reasonable attorney fees) together with interest thereon at the rate
of 1% per month, after demand, in connection with any litigation commenced by or
against Sublandlord to which Sublandlord without fault on its part shall be made
a party. If Subtenant shall fail to make payment or take any action as provided
in the lease, then Sublandlord at its option may make such payment or take such
action on Subtenant's behalf, and Subtenant will repay to Sublandlord upon
demand the full amount so paid or cost or expense so incurred by Sublandlord.
12.0 WAIVER OF BREACH
The waiving of any of the provisions of this Sublease by any party shall be
limited to the particular instance and shall not be deemed to waive any other
rights of the same or any other terms of this Sublease.
13.0 TERMINATION AND SURRENDER
13.1 Subtenant shall, at the expiration or upon the termination of this
Sublease, surrender the keys to the Premises to Sublandlord, and Subtenant
agrees to surrender the Premises in as good a condition as upon Subtenant taking
occupancy, excepting ordinary wear and tear. Subtenant will comply with all
requirements of Sublandlord made under the Master Lease with respect to any
additions, alterations and improvements made by or on behalf of Subtenant.
13.2 To the extent required in the Master Lease, Subtenant shall perform any
restoration/surrender obligations in the Subleased Premises at the sole cost and
expense of Subtenant, at the time of the expiration or termination of this
Sublease.
14.0 REMOVAL OF PERSONAL PROPERTY
Subject to the terms of the Master Lease, Subtenant shall have the right to
remove all personal property, trade fixtures, and other office equipment,
whether attached to the Premises or not, provided that those items can be
removed without serious damage to the building or to the Premises. All holes or
damages to the building or to the Premises caused by removal of any items shall
be restored or repaired by Subtenant promptly.
15.0 HOLDING OVER
The failure of Subtenant to surrender the Premises on May 31, 2001, the date
provided herein for the termination of the Sublease term, and the subsequent
holding over by Subtenant, with or without the consent of Sublandlord, shall
result in the creation of a tenancy from month-to-month at a monthly rental rate
of two hundred percent, (200%) of the monthly rental rate current for the last
month hereof, payable on the first day of each month during the month-to-month
tenancy. This provision does not give Subtenant any right to hold over at the
expiration of the term nor does it release Subtenant from any liability for
damages Sublandlord may incur as a result of Subtenant's holding over. All
other terms and conditions of this Sublease shall remain in full force during
any month-to-month tenancy hereunder. Anything to the contrary notwithstanding
in the event the Sublease and Master Lease have a common expiration date,
Subtenant waives any right
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under applicable law to hold over at the expiration of this Sublease, Subtenant
agrees to vacate the Premises on or before May 31, 2001, or (subject to the
provisions of paragraph 10 hereof) earlier in the event of the termination of
the Master Lease.
16.0 INTEREST OF SUCCESSORS
Each and every covenant, term, and condition of this Sublease shall be binding
upon and inure to the benefit of each of the parties, its or his/her respective
heirs, executors, administrators, successors and assigns.
17.0 NOTICES
17.1 All notices which may be necessary or proper for either party to give to
the other shall be effectively given only upon personal delivery, or upon
receipt or refusal of receipt, mailed postage prepaid, registered or certified
mail, or upon receipt by over-night courier to the following addresses:
As to Sublandlord:
NCR Corporation
Global Real Estate WHQ-E1
1700 S. Patterson Blvd.
Dayton, Ohio 45479
As to Subtenant: PRIOR TO MOVE IN DATE
En Pointe Technologies, Inc.
5245 Pacific Concourse Drive
Suite 200
Los Angeles, CA 90455
AFTER MOVE IN DATE
En Pointe Technologies, Inc.
100 N. Sepulveda
Suite 1900
El Segundo, California 90245
17.2 Either party may from time to time specify in writing a new address to
which any such notice intended for such party shall thereafter and until further
notice be addressed.
18.0 FURNITURE PROVIDED BY SUBLANDLORD
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18.1. During the term of this Sublease, Subtenant shall have the use of the
furniture described on the attached Exhibit C "Furniture Inventory." Sublandlord
shall retain ownership of the furniture at the early termination or expiration
of this sublease.
18.2 Subtenant represents that it has inspected the Furniture and agrees to
accept possession of the Furniture in its present "as-is" condition without any
obligation on the part of the Sublandlord, except as expressly stated herein.
Subtenant acknowledges that Sublandlord has made no representations or
warranties with respect to the Furniture. SPECIFICALLY DENIES ANY AND ALL
WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
19.0 AS IS
Subtenant represents that it has inspected the Premises and agrees to accept
possession of the Premises in their present "as-is" condition without any
obligation on the part of the Sublandlord, except as expressly stated herein.
20.0 ALTERATIONS
20.1 Subtenant shall not make any alterations, improvements or installations
including the placement of signs (collectively, "Alterations") in or to the
Subleased Premises without the prior written consent of Sublandlord, which may
be withheld in Sublandlord's sole discretion. Provided, however, to the extent
permitted by the Master Lease. Sublandlord shall not unreasonably withhold or
delay consent to any alterations which: (a) are not structural, (b) do not
affect the roof, (c) are not visible from the exterior of the Subleased Premises
or the Building, and (d) do not adversely affect the building electrical,
plumbing, gas, elevators, security, utility, sprinkler, or HVAC systems. All
alterations and improvements shall be done in compliance with all legal and
shall be subject to the terms and conditions of the Master Lease, and in those
instances, if required, shall be subject to the Master Landlord's approval as
provided in the Master Lease. If required by the terms of the Master Lease, any
Alterations shall be made by the Master Landlord or Master Landlord's
contractors, at the sole cost and expense of Subtenant.
20.2 Currently Sublandlord utilizes its own cooling tower separate from the
building standard cooling system to cool various computer rooms on various
floors of the building, including one room within the Sublease Premises (with
approximately 3 1/2 ton cooling capacity). Sublandlord shall allow Subtenant to
use this system and reroute duct work a maximum thirty (30) feet to another room
within the Premises provided, however, that Subtenant must first submit to
Sublandlord its projected use and obtain, Landlord's prior approval and provided
that, in Sublandlord' sole discretion, Subtenant's projected use of the system
will not have a negative impact on Sublandlord's use of the system outside of
the Premises. In the event Subtenant is granted approval to tap into the system,
Sublandlord shall have the right at any time during the Term, upon reasonable
notice, to require, in its sole discretion, that Subtenant cease using the
system and replace its cooling requirements with an alternative cooling system.
Subtenant shall pay for all
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required mechanical revisions and a ratable share of utilities and maintenance
costs for this service, and any costs to stop using the system and replace.
21.0 ATTACHMENTS
The following attachments are included as part of this
Exhibit A: Master Lease
Exhibit B: Floorplan
Exhibit C: Furniture Inventory
22.0 MASTER LEASE
Nothing contained herein shall be deemed to affect, waive or change any term or
provision of the Master Lease. Sublandlord shall have no liability whatsoever
to Subtenant if the Landlord fails to perform or fails to properly perform any
services, maintenance, repairs, or other matters, obligations or actions to be
performed by the Landlord under the terms of the Master Lease. Provided,
however, at Subtenant's expense and request, Sublandlord will take all
reasonable actions necessary to attempt to enforce the Sublandlord's rights as
tenant under the Master Lease for the benefit of Subtenant with respect to the
Premises.
23.0 SECURITY DEPOSIT
Subtenant shall submit Twenty Six Thosand Four Hundred Forty Six Dollars
($26,446.00) as the Security Deposit along with its signed copy of this
Sublease. If Subtenant defaults with respect to any provision of this Sublease,
Sublandlord may retain, use or apply all or any part of the Security Deposit to
compensate Sublandlord for any loss or damage suffered by Subtenant's default
including but not limited to, the payment of base rent, Parking Charges and any
other rental sums due, and for payment of amounts Sublandlord is obligated to
spend by reason of Subtenant's default. If any portion is so retained, used or
applied Subtenant, upon demand, will deposit with Sublandlord an amount
sufficient to restore the Security Deposit to its original amount, except as
otherwise provided by law. If Subtenant fully and faithfully performs every
provision of this Sublease, the Security Deposit or balance thereof will be
returned to Subtenant the earlier of the end of the time permitted by law or
sixty (60) days after Subtenant makes written demand therefore. In no event
will Subtenant have the right to apply any part of the Security Deposit to any
Rent payable under this Sublease.
24.0 CONSENT OR APPROVAL OF PRIME LANDLORD
If the consent or approval of Prime Landlord is required under the Prime Lease
with respect to any matter relating to the Subleased Premises, Subtenant shall
be required first to obtain the consent or approval of Sublandlord with respect
thereto and, if Sublandlord grants such consent or approval, Sublandlord will
promptly forward a request for consent or approval to the Prime Landlord and ,
at Subtenant's cost and expense, will cooperate reasonably to obtain such
consent. Sublandlord shall have no liability to Subtenant for the failure of
Prime Landlord to give its consent.
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25.0 LATE PAYMENTS
If either party fails to make a payment to the other when due under the terms of
this Sublease, interest shall be added to the payment at the Prime Rate (as set
forth in THE WALL STREET JOURNAL from time to time) plus two percent (2%). In
any case where payment is required under this Sublease and a specific time
period is not set forth for making such payment, the payment shall be due within
thirty (30) days of the date a bill is rendered for such payment, or for
situations where a bill is not rendered (e.g., a refund of an overpayment) the
payment will be due thirty (30) days from (a) the date that the precise amount
of the payment can reasonably be determined and (b) the party obligated to make
the payment becomes aware of the obligation to make the payment.
26.0. BROKERS
The parties warrant that they have had no dealings with any other real estate
broker or agent except Eric Olofson of Cushman Realty/Cushman Peninsula, Eric
Lastistion of Seeley & Company, M. Siam of Investment Development Services,
Inc., in connection with this Sublease. Each party covenants to pay, hold
harmless and indemnify the other from and against any and all costs, expenses or
liabilities for any compensation, commissions and charges claimed by any other
broker or agent with respect to this Sublease or the negotiation thereof, based
upon alleged dealings with the indemnifying party.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and
year first written above.
WITNESSES SUBLANDLORD:
NCR INTERNATIONAL , INC.
BY:
- ----------------------------------- --------------------------------
ITS
- ----------------------------------- --------------------------------
WITNESSES SUBTENANT:
EN POINTE TECHNOLOGIES, INC.
BY:
- ----------------------------------- --------------------------------
ITS:
- ----------------------------------- --------------------------------
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ACKNOWLEDGMENTS
STATE OF OHIO,
COUNTY OF MONTGOMERY, SS:
I, _______________________, a Notary Public of the said State, do hereby certify
that ______________________________, personally known to me to be the same
person whose name is, as ________________ of NCR International, Inc. a
corporation of the State of Delaware subscribed to the foregoing instrument and
acknowledged that s/he, being thereunto duly authorized, signed and delivered
the said instrument as her/his free and voluntary act and the free and voluntary
act of said corporation.
Given under my hand and seal this ____ day of _____________, 1996.
-------------------------
STATE OF __________________,
COUNTY OF _________________, SS:
I, ____________________________, a Notary Public of the said State, do hereby
certify that _____________________________, personally known to me to be the
same person whose name is, a _____________________________ of
___________________________, a corporation of the State of __________________,
subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that he, being thereunto duly authorized, signed and delivered
the said instrument as his free and voluntary act and the free and voluntary act
of said corporation.
Given under my hand and seal this ____ day of _____________, 1996.
-------------------------
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EXHIBIT A
MASTER LEASE
The complete copy of the Master Lease is attached hereto.
16
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EXHIBIT B
FLOORPLAN
19TH FLOORPLAN
PREMISES = 24,042 RSF
17
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EXHIBIT C
FURNITURE INVENTORY
Freestanding Furniture
(56) Office furniture groupings consisting of
1 Desk
1 Chair
1 Table
1 File
1 Bookcase
This plan indicates possible groupings and final configuration and number of
each item (not to exceed the maximum 56) needs to be determined by Subtenant.
Modular Furniture
Panels required to construct (42) workstations as show on plan consisting of 70"
high x 30" and 36" wide panels. This will include all required 2 way connectors
and (42) 30" deep corner worksurfaces. Sublandlord shall not provide all
required: bins, pedestal files, 3 way connectors, 4 way connectors, finished
ends, electrical components or other hang-on components i.e. worksurfaces, bins
or shelves. Subtenant is responsible for documentation of final inventory,
movement, design, deinstall and reinstall of the modular furniture.
18
<PAGE>
AGREEMENT FOR SALE OF COMPUTER PRODUCTS
This Agreement is between Merisel FAB, Inc. ("Merisel") and
En Pointe Technologies, Inc.
5245 Pacific Concourse Drive, Suite 200
Los Angeles, California 90045 ("Reseller")
Merisel is in the business of distributing and selling computer hardware,
software and peripherals ("Products") and providing product-related services to
resellers.
Reseller wishes to purchase Products from Merisel subject to the terms and
conditions of this Agreement.
1. PRODUCT SALES AND PRICING.
1.1. Merisel agrees to sell Reseller Products ordered from Merisel's
then-current inventory list subject to availability and dealer authorization
requirements. Reseller agrees to purchase Products in accordance with this
Agreement and policies and procedures contained in a published Merisel manual or
other writings from Merisel that contain or apply to standard practices and
policies. In the event of a conflict between this Agreement and any Merisel
manual or writing, the terms of this Agreement shall govern. Merisel may
allocate its available Products among its customers in any way that Merisel
deems equitable pursuant to Merisel's standard practice and policy. Reseller
has received a copy of the most current Merisel manual, "How to Do Business with
CLA" dated June 28, 1996.
1.2 Except as otherwise provided in this Section 1, Merisel's prices shall be
the "Inventory Cost" as defined below plus ** % mark-up. This mark-up may not
be increased during the term of this Agreement.
1.3 "Inventory Cost" is the invoice price charged by Merisel's vendor for the
product plus the inbound freight and insurance fee which shall not exceed 32
basis points (0.32%) during the term of this Agreement. Inventory Cost shall
not be reduced by any money, credits, materials or other assistance provided to
Merisel by its vendors, nor by any prompt payment discounts or credit provided
to Merisel. Merisel may establish its Inventory Cost through any commercially
reasonable accounting method.
1.4 Reseller shall pay the fees for product-related services as stated on
Exhibit A. For any product-related service not listed on Exhibit A, Reseller
shall pay the then-current fee for that service as stated in a published Merisel
manual or writing issued by Merisel that contains or applies to standard
practice and policy.
1.5 Merisel may sell the following Products to Reseller at prices established
by pricing methods determined by Merisel using its standard pricing practice and
policy for that Product (a) Products not on the inventory list or generally
carried in inventory; (b) Products where the
<PAGE>
vendor's invoice price to Merisel fluctuates frequently, including memory
chips, boards, and disk drives; or (c) Products that are procured from an
alternate source at Reseller's request. 1.6 All Products will be shipped FOB
destination to Reseller's customers as designated by Reseller.
1.7 Reseller may participate in all Product and Product pricing programs made
available to all of Merisel's customers pursuant to the terms and conditions of
that program.
2. Order Procedures/Payment/Late Payment.
2.1 Reseller must pay for Products in advance by wire transfer, cashier's
check or through a financing company approved by Merisel to finance Reseller's
orders by direct payments to Merisel.
2.2 Reseller must place all Product orders electronically through Merisel's
automated purchasing system and comply with Merisel's then-current standard
published ordering procedures.
2.3 Reseller may use EDI to order Products from Merisel and at Reseller's
election, may use the EDI Value Added Network provider ("VAN"). Each party will
bear its own costs for any modifications that are necessary to that party's
computer systems so that Reseller may use EDI to place orders from Merisel.
Merisel shall pay all VAN and communication charges incurred by Merisel or
Reseller resulting from Reseller's use of EDI to place orders with Merisel.
Reseller understands that if Reseller elects to use EDI to order Products, then
both Reseller and Merisel must take steps to modify their computer systems and
that such modifications will require a reasonable time to complete and the
cooperation of each party.
2.4 For amounts due Merisel not paid in advance by Reseller, Reseller shall
promptly pay by wire transfer, cashier's check or a check drawn on Reseller's
account representing good and available funds. Any amounts due Reseller which
are received or credited by or from third parties or Merisel may be applied
against any amounts due Merisel from Reseller.
2.5 On payments not received from Reseller within 30 days of the due date,
Reseller shall pay finance charges assessed by Merisel which will not exceed the
legally permitted rate. Merisel may suspend all sales, assistance or services to
Reseller if Reseller fails to promptly pay any amount due Merisel. Reseller
shall pay Merisel's costs and expenses including reasonable attorneys' fees
related to the collection of monies owed to Merisel under this Agreement.
3. QUARTERLY VOLUME PURCHASE COMMITMENT.
3.1 For each quarter under this Agreement, Reseller shall purchase a volume
of Products (net of returns) from Merisel at least equal to the Volume Purchase
Commitment for that quarter as listed in the chart below.
Quarter Volume Purchase Commitment
------- --------------------------
October 1, 1996 - December 31, 1996 $3.5 million
<PAGE>
January 1, 1997 - March 31, 1997 $6.5 million
April 1, 1997 - June 30, 1997 $8 million
July 1, 1997 - September 30, 1997 $10 million
October 1, 1997 - December 31, 1997 $12 million
January 1, 1998 - March 31, 1998 $15 million
Any purchases made by Reseller from Merisel in July, August, or September
1996, shall be included in Reseller's purchases under the first quarter.
3.2 If in each six month period under this Agreement, Reseller fails to
purchase a volume of Products from Merisel at least equal to the Volume Purchase
Commitment for the two quarters in that six month period, then funds for the
benefit of Merisel shall be segregated as described under Section 3(c) of the
Escrow Agreement between Reseller, Merisel and CITIBANK N.A. attached as
Exhibit A.
3.3 Merisel may in its discretion, at the request of Reseller, reduce the
mark-up for certain of Reseller's bids, contracts, or customers ("Bid Desk
Pricing"). For purposes of determining if Reseller has met its Volume Purchase
Commitment under Section 3.1 for any quarter or purchased $55 million in
Products under Section 4, only $8.25 million of Products purchased at Bid Desk
Pricing may be included during the term of this Agreement.
4. TERM AND TERMINATION. This Agreement is effective as of the date it is
executed by both parties (the "Effective Date"). The Agreement will expire upon
the earlier of 18 months from the Effective Date or the date Reseller purchases
$55 million in Products from Reseller (net of returns). All purchases by
Reseller from Merisel after expiration of this Agreement shall be according to
the terms and conditions of this Agreement unless otherwise agreed to by both
parties in writing. However, Section 3 terminates with the expiration of the
original term of this Agreement.
5. DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY. FOR ANY PRODUCTS
SOLD TO RESELLER UNDER THIS AGREEMENT, MERISEL EXPRESSLY DISCLAIMS ANY AND ALL
EXPRESS OR IMPLIED WARRANTIES INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL MERISEL BE LIABLE TO
RESELLER FOR ANY INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OF ANY KIND.
6. OPTIONAL SERVICES. Merisel may provide Reseller and Reseller may
participate in additional programs, services or assistance pursuant to the
terms for that program, service or assistance. If the program, service or
assistance is provided by a party other than Merisel, Merisel shall not be
<PAGE>
liable to Reseller for any claims, demands, damages or liabilities of
Reseller arising from that third party's acts or omissions.
7. COMPAQ STAR ALLOCATION. Reseller shall within 90 days of the Effective
Date move its Compaq Star Allocation to Merisel except for the seven current
Reseller customer contracts as designated by Reseller within 90 days of the
Effective Date.
8. PROHIBITION ON USE OF MERISEL'S NAMES AND MARKS. Reseller shall not
use any name, trademark, service mark, logo or slogan now or hereafter owned
by Merisel or its affiliated companies.
9. ARBITRATION. Any dispute, claim, or controversy (except trademark),
on demand of either party, must be submitted to binding arbitration before
the American Arbitration Association in San Francisco and under the then
existing AAA commercial rules.
10. ASSIGNMENT. Merisel may assign this Agreement without Reseller's
consent to a party capable of performing Merisel's obligations under this
Agreement.
11. MISCELLANEOUS.
11.1 Notwithstanding any other provision of this Agreement, Merisel and
Reseller agree that in the event of an alleged or actual breach, default, or
claim based on or arising out of this Agreement, the exclusive remedy available
to Merisel shall be as provided in Section 3 of the Escrow Agreement between
Merisel, Reseller and CITIBANK N.A., which Escrow Agreement is given as security
for the purchase obligation imposed by this Agreement, and which Escrow
Agreement is attached to and incorporated in this Agreement as Exhibit A.
11.2 Reseller or Merisel each represent that neither the entry into nor the
performance of this Agreement by that party violates that party's obligations
to any third party.
11.3 Any notice given under this Agreement shall be sent by courier,
overnight mail by a nationally recognized company, or United States certified
mail, return receipt requested, postage prepaid. Notices to Merisel shall be
sent to ComputerLand Headquarters, 5964 West Las Positas Boulevard, P. O. Box
9012, Pleasanton, California, 94566-9012, Attention: Vice President/Sales
and Franchise Operations, or to a different address designated by Merisel.
Notices to Reseller shall be sent to the address on the first page of this
Agreement or to a different address designated by Reseller. Notice or demand
shall be deemed effective when received.
11.4 This Agreement contains the entire agreement between the parties and
supersedes any agreement between Merisel and the Reseller concerning the
subject matter hereof. There are no representations, agreements, terms or
conditions other than those contained or referred to in this Agreement. The
Agreement cannot be modified except by an agreement in writing signed by both
parties.
11.5 This Agreement shall bind the parties and their successors and assigns.
<PAGE>
11.6 Merisel and Reseller are independent businesses. There is no agent,
partnership, franchise or joint venture relationship between them by virtue
of this Agreement or by any course of dealing between them.
11.7 Both parties agree both during and after this term of this Agreement
to maintain the confidentiality of this Agreement and all confidential or
proprietary information concerning the other party including its methods of
doing business, programs, business systems, procedures, pricing, business
plans, vendor arrangements, price lists, and manuals. However, each party
may disclose to any vendor information regarding the purchases by Reseller of
that vendor's Products.
11.8 The interpretation and performance of this Agreement shall be governed by
the laws of the State of California. Venue shall be in the federal or state
courts located in Alameda or San Francisco Counties, California. The parties
submit to jurisdiction of the State of California.
11.9 In the event of any litigation or arbitration arising out of or
relating to this Agreement, the prevailing party shall be entitled to receive
from the nonprevailing party payment of all costs, attorneys' fees, expert
witness fees and related expenses incurred in such litigation or arbitration.
EN POINTE TECHNOLOGIES, INC. MERISEL FAB, INC.
By:______________________________ By:______________________________
Name:____________________________ Name: Verilyn Smith
Title:_____________________________ Title: President
Dated:____________________________ Dated: August 22, 1996
** Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT A
SERVICES FEE
Outbound Freight No charge for outbound freight using
standard 2-day freight method;
payment of actual outbound freight
charges for any upgrade from the
standard 2-day freight method.
Configuration Level Charge Per Merisel's then-current price grid
for configuration.
Restock Fee/Factory Sealed Return 5%
(Note 1)
Restock Fee/Open Box Return (Note 2) Per Merisel's then-current restock fee
matrix for open box returns.
Ship Complete and Configuration Day 0-15 is free; Day 16 forward is
0.00045 per day on purchase price of
allocated inventory.
Configuration Returns (Note 2) Return fee is the same as the restock
fee for open box returns. Configuration
returns must be received by Merisel
within 30 days of the invoice date.
Alternate Distribution Center Fee Fee waived.
(Note 3); Direct Ship Fee; Sign-Up and
Renewal Fees; On-Line Express Fee;
MeriSource Fee; eMail Access Fee;
Order Cancellation Fee; Non-electronic
Order Fee; Minimum Ship Fee
Note 1: Within 45 days of each quarter's end under this Agreement, Merisel
shall rebate Reseller restock fees paid by Reseller in that quarter for factory
sealed returns so that Reseller does not pay a restock fee for factory sealed
returns until the volume of factory sealed returns in a quarter exceeds 3.75% of
the volume of Reseller's purchases (net of returns) in that quarter.
Note 2: Within 45 days of each quarter's end under this Agreement, Merisel
shall rebate Reseller restock fees for open box returns and configuration return
fees paid in that quarter in an amount equal to:
[2.5% multiplied by the restock fee paid by Reseller for open box returns and
configurations return fee for configuration returns in that quarter] minus [the
number of RMA's issued to Reseller in the quarter multiplied by $30.00].
Note 3: Within 45 days of each quarter's end under this Agreement, Merisel
shall rebate Reseller any Alternate Distribution Center fees paid by Reseller in
that quarter for freight using the standard freight method.
<PAGE>
EN POINTE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.2
<TABLE>
<CAPTION>
Three Months ended
PRIMARY December 31,
---------------------------------
(in thousands, except per share data) 1996 1995
-------------- --------------
<S> <C> <C>
Net income $ 1,187 $ 702
------------ ------------
------------ ------------
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,645 3,350
Weighted average (incremental) common
share equivalents after considering the effects
of options and warrants , exercised and
canceled during the period and after assumed
repurchase of treasury shares 139 60
------------ ------------
Total weighted shares 5,784 3,410
------------ ------------
------------ ------------
Earnings per share $ 0.21 $ 0.21
------------ ------------
------------ ------------
Three Months ended
FULLY DILUTED December 31,
---------------------------------
(in thousands, except per share data) 1996 1995
-------------- --------------
<S> <C> <C>
Net income $ 1,187 $ 702
------------ ------------
------------ ------------
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,645 3,350
Weighted average (incremental) common
share equivalents after considering the effects
of options and warrants , exercised and
canceled during the period and after assumed
repurchase of treasury shares 84 60
------------ ------------
Total weighted shares 5,729 3,410
------------ ------------
------------ ------------
Earnings per share $ 0.21 $ 0.21
------------ ------------
------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,567
<SECURITIES> 0
<RECEIVABLES> 60,423
<ALLOWANCES> 1,060
<INVENTORY> 5,428
<CURRENT-ASSETS> 68,894
<PP&E> 4,471
<DEPRECIATION> 1,389
<TOTAL-ASSETS> 71,976
<CURRENT-LIABILITIES> 49,200
<BONDS> 270
0
0
<COMMON> 6
<OTHER-SE> 22,500
<TOTAL-LIABILITY-AND-EQUITY> 71,976
<SALES> 111,666
<TOTAL-REVENUES> 111,666
<CGS> 101,811
<TOTAL-COSTS> 7,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 609
<INTEREST-EXPENSE> 332
<INCOME-PRETAX> 2,057
<INCOME-TAX> 870
<INCOME-CONTINUING> 1,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,187
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
