AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-09789
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLSTAR SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 5045 76-0062751
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
TELEPHONE: (713) 795-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES H. LONG
CHIEF EXECUTIVE OFFICER
ALLSTAR SYSTEMS, INC.
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
TELEPHONE: (713) 795-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
NICK D. NICHOLAS RANDALL G. RAY
PORTER & HEDGES, L.L.P. GARDERE & WYNNE, L.L.P.
700 LOUISIANA, 35TH FLOOR 1601 ELM STREET, SUITE 3000
HOUSTON, TEXAS 77002-2764 DALLAS, TEXAS 75201
TELEPHONE: (713) 226-0600 TELEPHONE: (214) 999-3000
FAX: (713) 228-1331 FAX: (214) 999-4667
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same
offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1996
PROSPECTUS
2,035,000 SHARES
ALLSTAR SYSTEMS, INC.
COMMON STOCK
Of the 2,035,000 shares of Common Stock, $.01 par value per share ("Common
Stock") offered hereby (the "Offering"), 1,500,000 shares are being sold by
Allstar Systems, Inc. ("Allstar" or the "Company") and 535,000 shares are
being sold by a stockholder of the Company (the "Selling Stockholder"). The
Company will not receive any of the proceeds from any sale of Common Stock by
the Selling Stockholder. See "Principal and Selling Stockholders."
Prior to this Offering, there has been no public market for the Common
Stock. It is currently anticipated that the public offering price will be
between $10.00 and $12.00 per share. For information relating to the factors
considered in determining the initial public offering price, see
"Underwriting." The Company has applied for listing of the Common Stock on the
Nasdaq National Market under the symbol "ALLS."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(1)(2) STOCKHOLDER
- --------------------------------------------------------------------------------
Per Share..... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...... $ $ $ $
================================================================================
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Excludes a
non-accountable expense allowance payable to the Representatives of the
Underwriters. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 305,250 shares of Common Stock, solely to cover
over-allotments. See "Underwriting." If the Underwriters exercise this
option in full, the total price to public, underwriting discount and
proceeds to the Company will be $ , $ and $ ,
respectively.
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
evidencing the shares will be ready for delivery at the offices of Rauscher
Pierce Refsnes, Inc., Dallas, Texas, on or about , 1996.
RAUSCHER PIERCE REFSNES, INC. SUTRO & CO. INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[GRAPHICS TO BE PROVIDED]
Prior to the Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by independent certified
public accountants following the end of each fiscal year and with quarterly
reports containing unaudited summary financial information for each of the first
three quarters of each fiscal year.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION HEREIN AND IN THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES TO THE "COMPANY" OR TO
"ALLSTAR" REFER TO ALLSTAR SYSTEMS, INC., ITS PREDECESSORS AND SUBSIDIARIES.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE
REINCORPORATION OF THE COMPANY AS A DELAWARE CORPORATION WHICH WILL OCCUR PRIOR
TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT ("REGISTRATION STATEMENT")
OF WHICH THIS PROSPECTUS IS A PART AND THE RESULTING 8.15-FOR-1 SHARE CONVERSION
OF THE COMMON STOCK AND (II) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED. SEE "BUSINESS -- HISTORY AND REINCORPORATION"
AND "UNDERWRITING." A GLOSSARY OF NAMES AND CERTAIN TECHNICAL TERMS IS LOCATED
AFTER THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS IN THIS PROSPECTUS
BEGINNING AT PAGE G-1.
THE COMPANY
The Company is a growing regional provider of computer and
telecommunications hardware and software products and related services. The
Company primarily markets its products and services in Texas from two locations
in the Houston and Dallas-Fort Worth metropolitan areas. The Company's customer
base of over 3,800 accounts is comprised primarily of mid-sized customers and
regional offices of larger customers in commercial, educational and governmental
sectors. The Company positions itself to provide its customers with
single-source solutions for both their computer and telecommunications needs by
offering a broad range of products and services and by providing the expertise
to support integrated computer and telecommunications applications.
The Company's revenue is derived from sales of computer hardware and
software ("Computer Products"), computer-related information technology services
("IT Services"), telecommunications equipment and services ("Telecom Systems")
and the Company's proprietary computer/telephone integration software ("CTI
Software"). The Company is an authorized reseller of computer products from
Compaq, Hewlett-Packard, IBM, Microsoft, Novell and other leading manufacturers.
The Company has long-standing relationships with leading aggregators and
wholesale distributors of computer hardware and software products which enable
the Company to provide its customers with competitive product pricing and ready
product availability. IT Services include system design, installation,
integration and support services. With respect to Telecom Systems, the Company
markets, installs and services telecommunications equipment, including large PBX
telephone systems from NEC and Mitel. In 1995, the Company introduced
proprietary CTI Software products which facilitate computer and telephone
integration ("CTI"), primarily for telemarketing, call center and other high
volume calling applications.
The Company believes that the trend toward CTI is likely to continue and
that integrated voice, data and video communication will become more prevalent
and affordable. The Company believes open architecture CTI standards and
solutions will develop as they did in the computer industry. As the technology
and management of telecommunications and computer systems converge over the next
decade, the Company expects that customers will demand products and services
which integrate telecommunications and computer technologies.
For the year ended December 31, 1995, the Company produced a 91.3% increase
in operating income on a 42.2% increase in total revenue from 1994. For the six
months ended June 30, 1996, the Company increased operating income by 90.7% on a
47.0% increase in total revenue over the comparable period in 1995. The
Company's growth has been particularly influenced by the expansion of its
Computer Products and IT Services operations into the Dallas-Fort Worth market
and the launch of its Telecom Systems business, which completed its first full
year of operations in 1995. As the Company has grown, selling, general and
administrative expenses have declined as a percentage of total revenue during
each of the last three years.
3
The Company's goals include continuing the growth of its regionally-based
business while preparing the Company to be a national provider of computer and
telephone hardware and software products and related services. To achieve its
objectives, the Company intends to pursue several key strategies:
EXPAND GEOGRAPHICALLY. The Company intends to open additional offices
within Texas and in new regions to service existing customers and attract new
customers. The Company plans to open two new offices within the next year, the
first in Austin, Texas and the second in San Antonio, Texas. Upon opening an
office in San Antonio, the Company will have branch offices in three of the ten
largest metropolitan areas in the United States.
INCREASE TELECOM SYSTEMS AND CTI SOFTWARE BUSINESSES. The Company began
offering Telecom Systems in 1994 and CTI Software in 1995 to capitalize on the
growing trend in CTI. The Company intends to (i) expand Telecom Systems
operations to the Dallas-Fort Worth market in the second half of 1996,
(ii) pursue acquisitions of regional telephone system resellers with established
customer bases in targeted markets and (iii) increase the variety and
capabilities of its CTI Software products through internal development and
acquisitions of complementary software products.
IMPLEMENT INTERNET-BASED NATIONAL MARKETING PROGRAM. The Company intends
to implement a new method of marketing its Computer Products on a nationwide
basis under the trade name "800 PC Deals." By accessing an Internet home page
currently under development, the Company's sales representatives and customers
will be able to obtain product pricing and availability data, enter or change
orders and access customer account status information. The Company plans to
employ experienced sales representatives in selected metropolitan markets who
will be supported by the new Internet-based system and by a national sales
support call center performing order entry and customer service functions. After
establishing customer relationships in new markets with 800 PC Deals, the
Company intends to establish branch offices in certain of these markets. 800 PC
Deals is anticipated to begin operation in the first half of 1997.
The Company's executive offices are located at 6401 Southwest Freeway,
Houston, Texas 77074 and its telephone number is (713) 795-2000.
THE OFFERING
Common Stock offered by the 1,500,000 shares
Company............................
Common Stock offered by the Selling 535,000 shares
Stockholder........................
Common Stock to be outstanding after 4,175,000 shares(1)
this Offering......................
Use of proceeds by the Company....... To repay short-term borrowings, for
working capital and for general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol........ ALLS
- ------------
(1) Excludes 417,500 shares of Common Stock reserved for issuance under the 1996
Incentive Stock Plan, of which options to purchase 80,000 shares of Common
Stock will be granted upon closing of the Offering with exercise prices at
or above the initial public offering price, none of which will be currently
exercisable, and restricted stock awards for 10,000 shares which will be
granted upon closing of this Offering to certain key employees, none of
which will be vested. Also excludes 100,000 shares reserved for issuance
under the 1996 Non-Employee Director Stock Option Plan, none of which are
issued or outstanding. See "Management -- Incentive and Stock Option
Plans."
4
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........................ $ 49,536 $ 64,076 $ 91,085 $ 39,554 $ 58,150
Gross profit......................... 7,247 8,535 11,385 5,123 7,353
Operating income..................... 1,187 1,087 2,079 799 1,524
Income before provision for
income taxes....................... 543 323 861 170 941
Net income........................... 314 183 519 103 607
Net income per share................. $ 0.15 $ 0.07 $ 0.19 $ 0.04 $ 0.23
Weighted average shares
outstanding........................ 2,120,242 2,554,808 2,675,000 2,675,000 2,675,000
</TABLE>
AS OF JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
BALANCE SHEET DATA:
Working capital...................... $ 1,625 $ 16,382
Total assets......................... 24,436 29,656
Short-term borrowings(2)............. 9,537 --
Long-term debt....................... -- --
Stockholders' equity................. 3,331 18,088
- ------------
(1) As adjusted gives effect to this Offering and the application of the net
proceeds therefrom, assuming an initial public offering price of $11.00 per
share. See "Use of Proceeds."
(2) See Notes 4 and 5 to the Company's Consolidated Financial Statements.
Short-term borrowings does not include amounts recorded as floor plan
financing which are considered to be accounts payable.
5
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS, EACH OF WHICH COULD AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
AND PROSPECTS, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY.
RISK OF LOW MARGIN BUSINESS
The Company's past growth in net income has been fueled primarily by sales
growth rather than increased gross profit margins. Given the significant levels
of competition that characterize the computer reseller market, it is unlikely
that the Company will be able to increase gross profit margins in its core
business of reselling computer products which accounted for approximately 90% of
the Company's total revenue in 1993, 1994, 1995 and the first half of 1996.
Moreover, in order to attract and retain many of its larger customers, the
Company frequently must agree to volume discounts and maximum allowable markups
that serve to limit the profitability of sales to such customers. Accordingly,
to the extent that the Company's sales to such customers increase, the Company's
gross profit margins may be reduced and, therefore, any future increases in net
income will have to be derived from continued sales growth or effective
expansion into higher margin businesses, neither of which can be assured.
Furthermore, low margins increase the sensitivity of the Company's results of
operations to increases in costs of financing. Any failure by the Company to
maintain or increase its gross profit margins and sales levels could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON AVAILABILITY OF CREDIT; DEPENDENCE ON IBMCC; INTEREST RATE
SENSITIVITY
The Company is highly leveraged and the Company's business activities are
capital intensive in that the Company is required to finance accounts receivable
and inventory. In order to obtain necessary working capital, the Company relies
primarily on lines of credit under which the available credit and credit limits
are dependent on the amount and quality of the Company's accounts receivable and
inventory. As a result, the amount of credit available to the Company may be
adversely affected by factors such as delays in collection or deterioration in
the quality of the Company's accounts receivable, inventory obsolescence,
economic trends in the computer industry, interest rate fluctuations and the
lending policies of the Company's lenders. Many of these factors are beyond the
Company's control. Any decrease or material limitation on the amount of capital
available to the Company under its credit lines and other financing arrangements
would limit the ability of the Company to fill existing sales orders, purchase
inventory or expand its sales levels and, therefore, would have a material
adverse effect on the Company's financial condition and results of operations.
In addition, any significant increases in interest rates will increase the cost
of financing to the Company and would have a material adverse effect on the
Company's financial condition and results of operations. Substantially all of
the Company's credit availability is provided by IBMCC, through which it
maintains a $20.0 million revolving line of credit facility, and DFS, through
which it maintains a $3.0 million line of credit facility to finance certain
inventory purchases. It is anticipated that the Company will continue to rely on
accounts receivable and inventory financing from IBMCC and inventory financing
from DFS to finance future growth. During each of 1993, 1994, 1995 and the first
six months of 1996, the Company has been in default of certain financial and
other covenants under both its IBMCC and DFS credit facilities due largely to
the financing of its rapid growth during those periods by short-term
indebtedness under those same credit facilities. Although the Company has
periodically sought and obtained waivers from its lenders for prior defaults of
certain covenants (and may be required to do so in the future), and has obtained
amendments to its credit facilities liberalizing certain other covenants, there
can be no assurance that either of its principal lenders will accommodate future
requests for waivers or amendments. There can be no assurance that financing
from IBMCC, DFS or other lenders will be available to the Company in the future
in the amounts presently available, or at all. The inability of the Company to
have continuous access to such financing at reasonable costs would materially
and adversely impact the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
6
HIGHLY COMPETITIVE BUSINESS
The Company is engaged in business activities that are intensely
competitive and rapidly changing. The Company believes that the principal
competitive factors in the business in which it operates are relative price and
performance, product availability, technical expertise, adherence to industry
standards, financial stability, service support and reputation. Price
competition has intensified, particularly in the Company's Computer Products and
IT Services businesses, and is likely to continue to intensify. Such price
competition could materially adversely affect the Company's financial condition
and results of operations. There can be no assurance that the Company will be
able to continue to compete successfully with existing or new competitors. The
Company's competitors include major computer products and telephone equipment
manufacturers, aggregators and distributors, including certain manufacturers,
aggregators and distributors which supply products to the Company. Other
competitors include established national, regional and local resellers, systems
integrators, telephone systems dealers, computer-telephony VARs and other CTI
software suppliers. Some of the Company's current and potential competitors have
longer operating histories and financial, sales, marketing, technical and other
competitive resources which are substantially greater than those of the Company.
As a result, the Company's competitors may be able to adapt more quickly to
changes in customer needs or to devote greater resources than the Company to
sales and service of its products. Such competitors could also attempt to
increase their presence in the Company's markets by forming strategic alliances
with other competitors of the Company, offer new or improved products and
services to the Company's customers or increase their efforts to gain and retain
market share through competitive pricing. See "Business -- Competition."
MANAGEMENT OF GROWTH; REGIONAL CONCENTRATION
The Company has experienced rapid growth which has and may continue to put
strains on the Company's management, operational and financial resources. The
Company's ability to manage growth effectively will require it to continue to
implement and improve its operational, financial and sales systems, to develop
the skills of its managers and supervisors and to hire, train, motivate and
manage its employees. The Company's future growth, if any, is expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. There can be no assurance
that the Company will be successful in managing growth and the failure to do so
could materially adversely affect the Company's financial position and results
of operation. Within the next 12 months, the Company intends to open new offices
in Austin and San Antonio. The Company also plans to relocate its Dallas-Fort
Worth office and consolidate substantially all of its warehouse and distribution
operations in the Dallas-Fort Worth metropolitan area. The Company anticipates
that it will incur substantial costs in connection with these new office
openings, including expenditures for furniture, fixtures and equipment.
Additional burdens on the Company's working capital are also expected in
connection with the start-up of such operations. Any significant disruption or
unanticipated expenses in connection with these plans could also have a material
adverse effect on the Company's financial condition and results of operations.
For the foreseeable future, the Company expects that it will continue to derive
most of its total revenue from customers located in or near the metropolitan
areas in Texas in which the Company maintains offices. Accordingly, an economic
downturn in any of those metropolitan areas, or in the region in general, would
likely have a material adverse effect on the Company's financial condition and
results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company for the foreseeable future will depend largely
on the continued services of key members of management, leading salespersons and
technical personnel. There can be no assurance that the departure of one or more
of such key personnel would not have a material adverse effect on the Company's
results of operations. The Company is particularly dependent upon James H. Long,
founder, Chairman of the Board, President and Chief Executive Officer of the
Company, because of his knowledge of the Company's operations, industry
knowledge, marketing skills and relationships with major vendors and customers.
The Company does not maintain key personnel life insurance on any of its
executive officers or salespersons other than Mr. Long. The Company's success
also depends in part on its ability to attract,
7
hire, train and retain qualified managerial, technical and sales and marketing
personnel at a reasonable cost, particularly those involved in providing systems
integration, support services and training. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the qualified personnel, including technical personnel,
it requires to conduct and expand its operations successfully. The Company's
financial condition and results of operations could be materially adversely
affected if the Company were unable to attract, hire, train and retain qualified
personnel.
DEPENDENCE ON CONTINUED AUTHORIZATION TO RESELL AND PROVIDE
MANUFACTURER-AUTHORIZED SERVICES
The Company's future success in both product sales and services depends
largely on its continued status as an authorized reseller of products and its
continued authorization as a service provider. With respect to the Company's
computer hardware and software product sales and service, the Company maintains
sales and service authorizations with many industry-leading manufacturers,
including Compaq, Hewlett-Packard, IBM, Microsoft, NEC and Novell. In addition,
some of such agreements are based upon the Company's continued supply
relationship with Inacom or another aggregator or distributor approved by such
manufacturers. With respect to the Company's Telecom Systems business, the
Company maintains sales and service authorizations with industry-leading
manufacturers, including Active Voice, AVT, NEC, Macrotel and Mitel. Without
such sales and service authorizations, the Company would be unable to provide
the range of products and services currently offered by the Company. In
addition, loss of manufacturer authorizations for products that have been
financed under the Company's credit facilities constitutes an event of default
under such credit facilities. In general, the agreements between the Company and
its products manufacturers either provide for fixed terms or for termination on
30 days prior written notice. There can be no assurance that such manufacturers
will continue to authorize the Company as an approved reseller or service
provider.
DEPENDENCE ON SUPPLIERS
The Company's business depends upon its ability to obtain an adequate
supply of products and parts at competitive prices and on reasonable terms. The
Company's suppliers are not obligated to have product on hand for timely
delivery to the Company nor can they guarantee product availability in
sufficient quantities to meet the Company's demands. There can be no assurance,
therefore, that such products will be available as required by the Company at
prices or on terms acceptable to the Company. The Company procures a majority of
computers, computer systems, components and parts primarily from Inacom and
Ingram in order to obtain competitive pricing, maximize product availability and
maintain quality control. The Company's purchases from Inacom accounted for
approximately 55.6%, 46.4%, 36.6% and 54.8% of the Company's total product
purchases in 1993, 1994, 1995 and the first six months of 1996, respectively. In
July 1996, the Company renewed its long-term supply arrangement with Inacom and
is obligated under the terms of that agreement to purchase at least 80% of its
Computer Products from Inacom, but only to the extent that such products are
made available within a reasonable period of time at reasonably competitive
pricing. The Company's purchases from its second largest supplier, Ingram,
accounted for approximately 8.3%, 14.1%, 20.6% and 14.3% of the Company's total
product purchases in 1993, 1994, 1995 and the first six months of 1996,
respectively. There can be no assurance that the Company will be able to
continue to obtain necessary products from Inacom or Ingram on terms acceptable
to the Company, if at all. There can be no assurance that such relationships
will continue or that, in the event of a termination of its relationships with
either Inacom or Ingram, or both of such suppliers, it would be able to obtain
alternative sources of supply without a material disruption in the Company's
ability to provide products to its customers. Any material disruption in the
Company's supply of products would have a material adverse effect on the
Company's financial condition and results of operations. See
"Business -- Supply and Distribution."
RAPID TECHNOLOGICAL CHANGE
The business in which the Company competes is characterized by rapid
technological change and frequent introduction of new products and product
enhancements. The Company's success depends in large part on its ability to
identify and obtain products that meet the changing requirements of the
marketplace. There can be no assurance that the Company will be able to identify
and offer products necessary to remain
8
competitive or avoid losses related to obsolete inventory and drastic price
reductions. The Company attempts to maintain a level of inventory required to
meet its near term delivery requirements by relying on the ready availability of
products from its principal suppliers. Accordingly, the failure of the Company's
suppliers to maintain adequate inventory levels of products demanded by the
Company's existing and potential customers and to react effectively to new
product introductions could have a material adverse effect on the Company's
financial condition and results of operations. In addition, because certain
products offered by the Company are subject to manufacturer or distributor
allocations, which limit the number of units available to the Company, there can
be no assurance that the Company will be able to offer new products or product
enhancements to its customers in sufficient quantity to meet demand. Failure of
the Company to gain sufficient access to such new products or product
enhancements could also have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- Supply and
Distribution."
RELIANCE ON KEY CUSTOMERS
The Company's top ten customers (which varied from period to period)
accounted in the aggregate for approximately 37.2%, 31.4%, 27.9% and 35.5% of
the Company's total revenue during 1993, 1994, 1995 and the first six months
ending June 30, 1996, respectively. During the six months ended June 30, 1996,
the Company had one customer that accounted for 12.0% of its total revenue.
Based upon historical results and existing relationships with customers, the
Company believes that a substantial portion of its total revenue and gross
profit will continue to be derived from sales to existing customers. There are
no long-term commitments by such customers to purchase products or services from
the Company. Product sales by the Company are typically made on a purchase order
basis. A significant reduction in orders from any of the Company's largest
customers could have a material adverse effect on the Company's financial
condition and results of operations. Similarly, the loss of any one of the
Company's largest customers or the failure of any one of such customers to pay
its accounts receivable on a timely basis could have a material adverse effect
on the Company's financial condition and results of operations. There can be no
assurance that the Company's largest customers will continue to place orders
with the Company or that orders by such customers will continue at their
previous levels. There can be no assurance that the Company's service customers
will continue to enter into service contracts with the Company or that existing
contracts will not be terminated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations" and
"Business -- Customers."
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's success is largely dependent on the accuracy, quality and
utilization of the information generated by its customized management
information systems, which affects its ability to manage its sales, accounting,
inventory and distribution systems. The Company anticipates that it will
continually need to refine and enhance its management information systems as the
Company grows and the needs of its business evolves. In view of the Company's
reliance on information and telephone communication systems, any interruption or
errors in these systems could have a material adverse effect on the Company's
financial condition and results of operations. The Company's new Internet-based
system, through which 800 PC Deals will operate, is currently under development
and its implementation may encounter technical difficulties. There can be no
assurance that the new system will function as expected. See "Business --
Management Information Systems."
ACQUISITION RISK
The Company intends to pursue potential acquisitions of complementary
businesses. The success of this strategy depends not only upon the Company's
ability to acquire complementary businesses on a cost-effective basis, but also
upon its ability to integrate acquired operations into its organization
effectively, to retain and motivate key personnel and to retain customers of
acquired firms. No specific acquisitions are being negotiated or planned as of
the date of this Prospectus and there can be no assurance that the Company will
be able to find suitable acquisition candidates or be successful in acquiring or
integrating
9
such businesses. Furthermore, there can be no assurance that financing required
for any such transactions will be available on satisfactory terms.
INTELLECTUAL PROPERTY PROTECTION
The Company's success depends in part upon the protection of its
intellectual property from unauthorized use. The Company has recently filed for,
but has not yet received, federal copyright protection for its CTI Software
products and federal trademark protection for its CTI Software products and the
800 PC Deals trade name. The Company presently relies primarily on trade secrecy
and confidentiality agreements with customers and employees to establish and
protect its rights in its intellectual property. However, without federal
copyright and federal trademark protection, there can be no assurance that the
Company's present protective measures will be adequate to prevent unauthorized
use or disclosure of its intellectual property or independent third party
development of the same or similar technology. Additionally, the prevention of
unauthorized use and disclosure of the Company's intellectual property will
likely become more difficult as its CTI Software business grows.
CONTROL BY, AND BENEFITS TO, EXISTING STOCKHOLDERS
Upon completion of this Offering, James H. Long, founder, Chairman of the
Board, President and Chief Executive Officer of the Company will own 50.7% of
the outstanding Common Stock and Mr. Long will have the ability to control the
election of a majority of the members of the Company's Board of Directors, and
approve (or prevent the approval of) certain matters requiring the approval of
stockholders and exert significant influence over the affairs of the Company.
The existing stockholders of the Company will benefit from this Offering,
principally through the increased liquidity of their holdings, which may result
from the creation of a public market for Common Stock, and through the potential
unrealized gains in the value of the Common Stock held by them. Mr. Long has
personally guaranteed the Company's indebtedness to IBMCC and, therefore, may be
deemed to benefit from the application of a portion of the net proceeds of this
Offering to repay substantially all amounts outstanding under the Company's
accounts receivable revolving line of credit with IBMCC. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources," "Principal and
Selling Stockholders" and "Description of Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock existed and
there can be no assurance that an active market will develop upon completion of
this Offering or, if developed, that such market will be sustained. The initial
public offering price of the Common Stock was determined through negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock after this Offering. See
"Underwriting." The market price for the Common Stock may be volatile and
subject to fluctuations resulting from news announcements concerning the Company
or its industry, general securities market conditions or other factors.
It is anticipated that a significant number of the shares of Common Stock
being offered hereby will be sold to clients of the Representatives. Although
the Representatives have advised the Company that they intend to make a market
in the Common Stock following this Offering, they have no legal obligation to do
so. The Representatives, if they become market makers, could be a dominating
influence in the market for the Common Stock, if one develops. The prices and
the liquidity of the Common Stock may be significantly affected by the degree,
if any, of the Representatives' participation in such market. There can be no
assurance that any market activities of the Representatives, if commenced, will
be continued.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon completion of this Offering, the 2,035,000 shares of Common Stock
offered hereby will be freely tradeable by persons other than affiliates of the
Company without restriction. The remaining 2,140,000 shares held by current
stockholders of the Company will be eligible for resale, subject to the
provisions of Rule 144 under the Securities Act. The Company, its existing
stockholders (other than the
10
Selling Stockholder) and its officers and directors have agreed for a period of
180 days after the date of this Prospectus not to, directly or indirectly,
offer, sell, contract to sell, grant any option to sell or otherwise dispose of
any shares of Common Stock, or other securities substantially similar, or
securities convertible into or exercisable or exchangeable for or any rights to
purchase or acquire Common Stock or other securities substantially similar
(except for the grant of options or of restricted stock awards pursuant to the
1996 Incentive Stock Plan or the 1996 Non-Employee Director Stock Option Plan),
without the prior written consent of the Representatives. After this Offering,
the Company anticipates it will also have outstanding employee and director
stock options and restricted stock awards for an aggregate of 105,000 shares of
Common Stock and plans to file registration statements on Form S-8 with respect
to the issuance of such shares. Accordingly, such shares will generally be
freely tradeable upon issuance, except to the extent held by affiliates. Sales
of substantial amounts of the Common Stock in the public market, whether by
purchasers in this Offering or other stockholders of the Company, or the
perception that such sales could occur, may adversely affect the market price of
the Common Stock. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that may delay, deter or prevent a change in control of the Company.
Among other things, these provisions authorize the board of directors of the
Company to issue shares of preferred stock on such terms and with such rights,
preferences and designations as the board of directors of the Company may
determine without further stockholder action and limit the ability of
stockholders to call special meetings or amend the Company's Certificate of
Incorporation or Bylaws. Each of these provisions, as well as the Delaware
business combination statute could, among other things, restrict the ability of
certain stockholders to effect a merger or business combination or obtain
control of the Company. See "Description of Capital Stock -- Preferred Stock"
and "-- Certain Anti-Takeover Provisions."
DILUTION
A purchaser of Common Stock in this Offering will experience an immediate
and substantial dilution in the net tangible book value of its shares of $6.67
per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company expects to retain cash generated from operations to support its
cash needs and does not anticipate the payment of any dividends on the Common
Stock for the foreseeable future. In addition, the Company's credit facilities
with IBMCC and DFS prohibit the declaration or payment of dividends, unless
consent is obtained from each lender. See "Dividend Policy."
11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, at an assumed initial public offering price of $11.00 per share, after
deducting underwriting discounts and commissions and estimated Offering expenses
payable by the Company, are estimated to be $14.8 million. The Company will
receive no proceeds from the sale of Common Stock by the Selling Stockholder.
See "Principal and Selling Stockholders."
The Company intends to use an estimated $12.5 million (approximately 84% of
the estimated net proceeds) to repay substantially all of the Company's
outstanding short-term indebtedness under its accounts receivable revolving line
of credit with IBMCC. The outstanding balance under this accounts receivable
revolving line of credit, which was incurred to finance working capital, was
$9.5 million at June 30, 1996. Amounts outstanding under the accounts receivable
revolving line of credit bear interest at a fluctuating rate equal to the prime
interest rate plus 2.0%. At June 30, 1996, the interest rate in effect for the
IBMCC accounts receivable revolving line of credit was 10.25% per annum.
Principal and interest outstanding under the credit facility are due upon
termination of the facility, which remains in effect for successive one-year
periods until terminated by the Company or IBMCC upon 60 days written notice.
The Company intends to expend an estimated $1.0 million for leasehold
improvements and other capital expenditures, a majority of which will be
expended in connection with the planned consolidation of its warehouse
facilities into a single facility in the Dallas-Fort Worth area, the relocation
of its Dallas branch office and the opening of two branch offices in Austin and
San Antonio, Texas. All or a portion of the $1.0 million in capital expenditures
currently budgeted by the Company for such purposes may be paid from the net
proceeds of the Offering remaining after repayment of short-term indebtedness,
depending on the availability of remaining net offering proceeds at the time of
such expenditures and the availability of other sources of funds. Any remaining
proceeds available for working capital and general corporate purposes may be
used to acquire complementary businesses and technologies. The Company is not
currently a party to any commitments or agreements and is not currently involved
in any negotiations with respect to any acquisitions. Pending such uses, the
Company intends to invest the net proceeds from this Offering in short-term,
interest-bearing securities or accounts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the Common Stock.
The Company intends to retain any future earnings for reinvestment in its
business and does not intend to pay cash dividends in the foreseeable future.
Under the Company's credit facilities with IBMCC and DFS, the Company is
prohibited from declaring or paying dividends unless consent is obtained from
each lender. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
12
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996 and (ii) as adjusted to reflect the sale by the Company of
1,500,000 shares of Common Stock offered hereby (at an assumed initial public
offering price of $11.00 per share) and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the
Company, including the Notes thereto, included elsewhere in this Prospectus.
AS OF JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
Short-term borrowings(1)............. $ 9,537 $ --
--------- ------------
Long-term debt....................... -- --
Stockholders' equity:
Preferred Stock; $.01 par value;
5,000,000 shares authorized; no
shares outstanding............. -- --
Common Stock:
No par value; 1,000,000
shares authorized;
328,125 shares issued
and outstanding
(2,675,000 shares after
effect of
reincorporation)........ 2 --
$.01 par value; 50,000,000
shares authorized; no
shares outstanding
(4,175,000 shares as
adjusted)(2)............ -- 42
Additional paid-in capital...... 1,504 16,221
Retained earnings............... 1,825 1,825
--------- ------------
Total stockholders'
equity.................. 3,331 18,088
--------- ------------
Total capitalization.... $ 12,868 $ 18,088
========= ============
- ------------
(1) See Notes 4 and 5 to the Company's Consolidated Financial Statements.
Short-term borrowings does not include amounts recorded as floor plan
financing which are considered to be accounts payable.
(2) Excludes 417,500 shares of Common Stock reserved for issuance under the 1996
Incentive Stock Plan, of which options to purchase 80,000 shares of Common
Stock will be granted upon closing of this Offering with exercise prices at
or above the initial public offering price, none of which will be currently
exercisable, and restricted stock awards for 10,000 shares which will be
granted upon closing of this Offering to certain key employees, none of
which will be vested. Also excludes 100,000 shares reserved for issuance
under the 1996 Non-Employee Director Stock Option Plan, none of which are
issued or outstanding. See "Management -- Incentive and Stock Option
Plans."
13
DILUTION
The net tangible book value of the Company as of June 30, 1996, was $3.3
million or $1.25 per share. Net tangible book value per share represents the
total tangible assets of the Company reduced by its total liabilities and
divided by the number of outstanding shares of Common Stock. After giving effect
to the sale of Common Stock by the Company in this Offering (at an assumed
initial public offering price of $11.00 per share) and the application of the
estimated net proceeds therefrom, the net tangible book value of the Company at
June 30, 1996, would have been $18.1 million or $4.33 per share. This represents
an immediate increase in net tangible book value of $3.08 per share to existing
holders of Common Stock and an immediate dilution of $6.67 per share to new
investors purchasing shares of Common Stock in this Offering. The following
table illustrates this dilution per share:
Initial public offering price per share......... $ 11.00
Net tangible book value per
share as of June 30, 1996....... $ 1.25
Increase per share attributable
to new investors................ 3.08
---------
Adjusted net tangible book value per
share after this Offering..................... 4.33
---------
Dilution per share to new investors............. $ 6.67
=========
Utilizing the foregoing assumptions, the following table summarizes the
number of shares purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing holders of Common Stock
and by new investors purchasing shares of Common Stock from the Company in this
Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 2,675,000 64.1% $ 1,505,700 8.4% $ .56
New investors........................ 1,500,000 35.9% 16,500,000 91.6 11.00
----------- ------- -------------- -------
Total........................... 4,175,000 100.0% $ 18,005,700 100.0%
=========== ======= ============== =======
</TABLE>
- ------------
(1) Sales of Common Stock by the Selling Stockholder in this Offering will
reduce the number of shares held by existing stockholders to 2,140,000
shares, or 51.3% of the total number of shares of Common Stock outstanding
after this Offering and will increase the number of shares held by new
investors to 2,035,000 shares, or 48.7% of the total number of shares of
Common Stock outstanding after this Offering.
(2) Excludes 417,500 shares of Common Stock reserved for issuance under the 1996
Incentive Stock Plan, of which options to purchase 80,000 shares of Common
Stock will be granted upon closing of this Offering with exercise prices at
or above the initial public offering price, none of which will be currently
exercisable, and restricted stock awards for 10,000 shares which will be
granted upon closing of this Offering to certain key employees, none of
which will be vested. Also excludes 100,000 shares reserved for issuance
under the 1996 Non-Employee Director Stock Option Plan, none of which are
issued or outstanding. See "Management -- Incentive and Stock Option
Plans."
14
SELECTED FINANCIAL DATA
The following selected financial data for each of the three years ended
December 31, 1993, 1994 and 1995 is derived from the Consolidated Financial
Statements of the Company which have been audited by Deloitte & Touche LLP,
independent auditors. The selected financial data for each of the two years
ended December 31, 1991 and 1992 is derived from the combined financial
statements of the Company of which the balance sheet as of December 31, 1991 and
1992 and the related combined statement of operations and retained earnings and
cash flows for the year ended December 31, 1992, were audited by other
independent auditors whose report does not appear herein. The selected
consolidated financial data for the six months ended June 30, 1995 and 1996 is
derived from the Company's unaudited consolidated financial statements and, in
the opinion of management, includes all adjustments (consisting of only normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial information set forth therein. Historical results
of operations, percentage fluctuations and any trends that may be inferred from
the data below are not necessarily indicative of the results of operations for
any future period. The selected consolidated financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........................... $ 16,813 $ 31,180 $ 49,536 $ 64,076 $ 91,085 $ 39,554 $ 58,150
Cost of sales and service............... 12,692 25,371 42,289 55,541 79,700 34,431 50,797
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 4,121 5,809 7,247 8,535 11,385 5,123 7,353
Selling, general and administrative
expenses.............................. 3,479 6,063 6,060 7,448 9,306 4,324 5,829
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............. 642 (254) 1,187 1,087 2,079 799 1,524
Interest expense........................ 153 243 644 764 1,218 629 583
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes........ 489 (497) 543 323 861 170 941
Provision (benefit) for income taxes.... 177 (122) 229 140 342 67 334
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ 312 $ (375) $ 314 $ 183 $ 519 $ 103 $ 607
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share............. $ 0.15 $ (0.18) $ 0.15 $ 0.07 $ 0.19 $ 0.04 $ 0.23
Weighted average shares outstanding..... 2,118,600 2,118,600 2,120,242 2,554,808 2,675,000 2,675,000 2,675,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1991 1992 1993 1994 1995 JUNE 30, 1996
--------- --------- --------- --------- --------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 297 $ 269 $ 1,307 $ 1,363 $ 1,732 $1,625
Total assets............................ 5,823 8,796 17,431 19,077 24,266 24,436
Short-term borrowings(1)................ 2,253 2,806 6,896 8,972 9,912 9,537
Long-term debt.......................... -- 47 43 -- -- --
Stockholders' equity.................... 582 208 2,022 2,205 2,724 3,331
</TABLE>
- ------------
(1) See Notes 4 and 5 to the Company's Consolidated Financial Statements.
Short-term borrowings does not include amounts recorded as floor plan
financing which are considered to be accounts payable.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company was formed in 1983 to engage in the business of reselling
computer hardware and software products and, to date, most of its revenue has
been derived from Computer Products sales. In addition, the Company derives
revenue from providing IT Services to purchasers of Computer Products and other
customers. The Company operated from a single office in Houston, Texas until
1992 when it opened a branch office in Dallas, Texas. In 1994, the Company began
offering Telecom Systems in its Houston office. In the fourth quarter of 1995,
the Company acquired and began marketing CTI Software.
The Company's gross margin varies substantially between each of its
businesses. The Company's Computer Products sales have produced a gross margin
ranging from 9.7% to 12.2% over the three and a half year period ended June 30,
1996, due to the intense price competition characteristic of the Computer
Products market. The gross margin for IT Services, which reflects direct labor
costs, has ranged from 28.3% to 40.9% over the same periods. This variation is
primarily attributable to the pricing and the mix of services provided, and to
the level of direct labor as a component of cost during any given period. The
gross margin for Telecom Systems, which includes both product sales and
services, has varied between 33.1% and 48.6% since the Company entered the
Telecom Systems market in 1994. This variation reflects the different mix of
product sales and the amount of services-related revenue from period to period.
The gross margin for CTI Software has been approximately 60%, primarily due to
the intellectual property value of the Company's proprietary CTI Software.
Revenue from CTI Software has accounted for less than 1% of the Company's total
revenue since its introduction in 1995.
For each year since 1993, the Company has lowered its selling, general and
administrative expenses as a percentage of total revenue. Selling, general and
administrative expenses consist primarily of personnel costs and facility costs.
While personnel costs are predominantly variable in nature and facility costs
are relatively fixed, both such costs as a percentage of total revenue have
decreased during these periods. Also contributing to this decrease is the
Company's initiative begun in 1995 to drop ship a higher percentage of orders
directly from suppliers to customers. This initiative has resulted in the
percentage of drop shipped orders (measured by the cost of goods drop shipped as
a percentage of total cost of goods) growing from 5.1% in the first six months
of 1995 to 18.4% in the first six months of 1996. While the Company does not
believe that it is in its best interest to drop ship all orders, it does intend
to continue to move more of its Computer Products distribution toward drop
shipments.
Manufacturers of many of the Computer Products resold by the Company have
consistently reduced unit prices near the end of a product's life cycle, most
frequently following the introduction of newer, more advanced models. While the
major manufacturers of computer products have a policy of providing price
protection to resellers when prices are reduced, on occasion, and particularly
during 1994, manufacturers introduced new models of their products and then
reduced the price of, or discontinued the older models without price protection.
In these instances, the Company often sells the older models at reduced prices,
which adversely affects gross margin.
Inacom is the largest supplier of Computer Products sold by the Company.
Purchases from Inacom accounted for approximately 55.6%, 46.4%, 36.6% and 54.6%
of the Company's total product purchases in 1993, 1994, 1995 and the first six
months of 1996, respectively. In July 1996, the Company renewed its long-term
supply arrangement with Inacom and agreed to purchase at least 80% of its
Computer Products from Inacom, but only to the extent that such products are
made available within a reasonable period of time at reasonably competitive
pricing. Inacom does not carry certain product lines sold by the Company and
Inacom may be unable to offer reasonable product availability and reasonably
competitive pricing from time to time on those product lines that it carries.
The Company thus expects that less than 80% of its total Computer Products
purchases will be made from Inacom, and that any increase over historical levels
in the percentage of products it purchases from Inacom under the new Inacom
agreement will not have any material impact on the Company's results of
operations.
16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates percentage of total revenue for each item.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- -------------------
1993 1994 1995 1995
------------------- ------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- --------- ------- --------- ------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue:
Computer Products..................... $44,405 89.6 $57,792 90.2 $81,740 89.7 $35,343 89.4
IT Services........................... 5,131 10.4 6,167 9.6 7,814 8.6 3,692 9.3
Telecom Systems....................... -- 0.0 117 0.2 1,458 1.6 519 1.3
CTI Software.......................... -- 0.0 -- 0.0 73 0.1 -- 0.0
Total revenue....................... 49,536 100.0 64,076 100.0 91,085 100.0 39,554 100.0
Gross profit(1):
Computer Products..................... 5,429 12.2 5,962 10.3 8,491 10.4 3,899 11.0
IT Services........................... 1,818 35.4 2,523 40.9 2,379 30.4 1,043 28.3
Telecom Systems....................... -- -- 50 42.7 482 33.1 181 34.9
CTI Software.......................... -- -- -- -- 33 45.2 -- --
Total gross profit.................. 7,247 14.6 8,535 13.3 11,385 12.5 5,123 12.9
Selling, general and
administrative
expenses.............................. 6,060 12.2 7,448 11.6 9,306 10.2 4,324 10.9
Operating income...................... 1,187 2.4 1,087 1.7 2,079 2.3 799 2.0
Interest expense........................ 644 1.3 764 1.2 1,218 1.3 629 1.6
Income before provision for income
taxes............................... 543 1.1 323 0.5 861 1.0 170 0.4
Provision for income taxes.............. 229 0.5 140 0.2 342 0.4 67 0.1
Net income............................ 314 0.6 183 0.3 519 0.6 103 0.3
PER OFFICE DATA(1):
Houston Office:
Revenue............................. 39,104 78.9 41,057 64.1 53,095 58.3 22,004 55.6
Gross profit........................ 5,811 14.9 5,946 14.5 6,968 13.1 3,028 13.8
Dallas Office:
Revenue............................. 10,432 21.1 23,019 35.9 37,990 41.7 17,550 44.4
Gross profit........................ 1,436 13.8 2,589 11.2 4,417 11.6 2,095 11.9
</TABLE>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996
-------------------
AMOUNT %
------- ---------
OPERATING DATA(1):
Revenue:
Computer Products..................... $52,525 90.3
IT Services........................... 3,719 6.4
Telecom Systems....................... 1,398 2.4
CTI Software.......................... 508 0.9
Total revenue....................... 58,150 100.0
Gross profit(1):
Computer Products..................... 5,082 9.7
IT Services........................... 1,287 34.6
Telecom Systems....................... 679 48.6
CTI Software.......................... 305 60.0
Total gross profit.................. 7,353 12.6
Selling, general and
administrative
expenses.............................. 5,829 10.0
Operating income...................... 1,524 2.6
Interest expense........................ 583 1.0
Income before provision for income
taxes............................... 941 1.6
Provision for income taxes.............. 334 0.6
Net income............................ 607 1.0
PER OFFICE DATA(1):
Houston Office:
Revenue............................. 27,934 48.0
Gross profit........................ 4,247 15.2
Dallas Office:
Revenue............................. 30,216 52.0
Gross profit........................ 3,106 10.3
- ------------
(1) Percentages shown are percentages of total revenue, except gross profit
percentages which represent gross profit by each business category as a
percentage of revenue for each such category.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
TOTAL REVENUE. Total revenue increased by $18.6 million (47.0%) from $39.6
million in the first six months of 1995 to $58.2 million in the first six months
of 1996. Revenue from Computer Products, which comprised 90.3% of total revenue,
increased by $17.2 million (48.6%). The increase in Computer Products revenue
was generally attributable to increased sales to new and existing customers
resulting from the hiring of additional sales personnel. Revenue from IT
Services, which comprised 6.4% of total revenue, increased by less than one
percent because the Company implemented a program to replace less profitable
services with services that were expected to generate higher gross margins. This
program resulted in the loss of several large customers due to price increases
by the Company. The loss of revenue from those customers was more than offset,
however, by sales to new IT Services customers and existing customers, generally
at greater gross margins than those earned on sales to the former customers.
Although revenue from IT Services has increased during each of the last three
years and during the first six months of 1996 compared to the same period in
1995, IT Services revenue as a percentage of total revenue declined over the
same periods. This percentage change is generally reflective of the fact that
the combined growth rate of the Company's other three businesses over the same
periods was greater than the growth rate of IT Services revenue. The Company
presently expects that this trend will continue over the near term, though there
can be no such assurance due to competitive factors influencing the revenue
growth of each of the Company's four businesses. Revenue from Telecom Systems
sales, which comprised 2.4% of total revenue, increased by $879,000 (169.4%).
The increase in Telecom Systems revenue was primarily the result of adding new
customers, of which one customer accounted for $460,000 (52.3%) of the increase,
and expanding advertising and marketing efforts. Sales of CTI Software, which
were commenced during the fourth quarter of 1995, contributed total revenue of
$508,000 during the first six months of 1996.
17
GROSS PROFIT. Gross profit increased by $2.2 million (43.5%) from $5.1
million in the first half of 1995 to $7.4 million in the first half of 1996,
while gross margin decreased from 12.9% in the first six months of 1995 to 12.6%
in the first six months of 1996. The gross margin for Computer Products
decreased from 11.0% in the 1995 period to 9.7% in the corresponding period in
1996. This decrease was largely the result of continued price competition and a
large, drop shipped sale to a single customer which prepaid for the sale in
exchange for a reduced price. Also contributing to the decrease in gross margin
for Computer Products was the Company's continuing practice of offering its
Computer Products in the Dallas-Fort Worth market at gross margins lower than it
typically received in the Houston market in order to increase market
penetration. The gross margin for IT Services increased from 28.3% in the first
half of 1995 to 34.6% in the same period in 1996. As noted above, this increase
was primarily attributable to the replacement of less profitable IT Services
business lost due to price increases with more profitable business from new and
existing IT Services customers. The gross margin for Telecom Systems sales
increased from 34.9% in the first six months of 1995 to 48.6% in the
corresponding period in 1996, primarily attributable to a large purchase of a
complex system by a single customer at a higher than usual margin. CTI Software
sales resulted in a gross margin of 60.0% for the first half of 1996, which was
a start-up period for the Company's CTI Software business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.5 million (34.8%) from $4.3 million in
the first six months of 1995 to $5.8 million in the corresponding period of
1996. As a percentage of total revenue, selling, general and administrative
expenses decreased from 10.9% in the six months ended June 30, 1995 to 10.0% for
the corresponding 1996 period. Of the dollar increase, $714,000 (47.4%) was
attributable to increased compensation to sales personnel as a result of
increased sales levels. The decrease as a percentage of total revenue resulted
from increased sales without a proportionate increase in sales personnel and
increased efficiencies in certain expense areas, particularly warehouse and
distribution costs. Additionally, the Company contained the growth of
administrative expenses to a rate substantially less than the growth of total
revenue over the same period.
OPERATING INCOME. Operating income increased by $725,000 (90.7%) from
$799,000 in the first half of 1995 to $1.5 million in the same period in 1996.
Operating income increased as a percentage of total revenue from 2.0% in the
1995 period to 2.6% in the 1996 period.
INTEREST EXPENSE. Interest expense decreased by $46,000 (7.3%) from
$629,000 in the first six months of 1995 to $583,000 in the first six months of
1996, due principally to advance payments for a large purchase by a single
customer in 1996. The prepayments resulted in reduced accounts receivable and a
related reduction in borrowing. Interest expense as a percentage of total
revenue decreased from 1.6% in the first half of 1995 to 1.0% in the
corresponding period of 1996.
NET INCOME. Net income increased by $504,000 (489.3%) from $103,000 in the
1995 period to $607,000 in the 1996 period. Net income as a percentage of total
revenue increased from 0.3% in the first six months of 1995 to 1.0% in the same
period in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue increased by $27.0 million (42.2%) from $64.1
million in 1994 to $91.1 million in 1995. Revenue from Computer Products, which
comprised 89.7% of total revenue, increased by $23.9 million (41.4%). The
increase in Computer Products revenue was generally attributable to increased
sales to new and existing customers resulting from the hiring of additional
sales personnel. Revenue from IT Services, which comprised 8.6% of total
revenue, increased by $1.6 million (26.7%). The increase in revenue from IT
Services was primarily attributable to the addition of support contracts with
new customers and, to a lesser degree, additional non-contract business. Revenue
from Telecom Systems, which comprised 1.6% of total revenue, increased by $1.3
million in the first full year of Telecom Systemsoperations. The revenue gains
in Telecom Systems were largely the result of the addition of new customers
during 1995.
GROSS PROFIT. Gross profit increased by $2.9 million (33.4%) from $8.5
million in 1994 to $11.4 million in 1995; however, overall gross margin,
expressed as a percentage of revenue, decreased from 13.3% in 1994 to 12.5% in
1995, due primarily to decreased gross margin for IT Services and to higher
revenue growth in the Company's lower gross margin Computer Products business.
The gross margin for Computer Products increased slightly from 10.3% in 1994 to
10.4% in 1995, despite the continuation of the
18
Company's practice of offering its Computer Products in the Dallas-Fort Worth
market at gross margins lower than it typically obtained in the Houston market
in order to increase market penetration. The gross margin for IT Services
decreased from 40.9% in 1994 to 30.4% in 1995 because the Company added certain
large customers in 1995 at lower gross margins. The gross margin for Telecom
Systems decreased from 42.7% in 1994 to 33.1% in 1995, which represented its
first full year of operations. During 1995, the Company reduced gross margins on
most Telecom Systems products in order to add business during this start-up
period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.9 million (24.9%) from $7.4 million in
1994 to $9.3 million in 1995. As a percentage of total revenue, selling, general
and administrative expenses decreased from 11.6% in 1994 to 10.2% in 1995. The
dollar increase was primarily attributable to increased sales compensation as a
result of increased sales levels. In 1995, however, overall sales compensation
decreased as a percentage of total revenue because the Company completed
implementation of a change in its sales compensation policy, which resulted in a
reduction of overall sales commissions as a percentage of total revenue, and
reclassified certain types of business on which lower commission rates were paid
to sales personnel. Personnel costs, the largest component of general and
administrative expenses, also increased at a substantially slower rate than
total revenue. Certain general and administrative expenses are relatively fixed,
and the Company was able to leverage these expenses as revenue increased during
1995. In addition, certain variable expenses, primarily warehouse personnel and
distribution costs, were reduced as a percentage of total revenue. These
improvements were offset somewhat by certain expenses associated with the
start-up of the Company's Telecom Systems business in 1994.
OPERATING INCOME. Operating income increased by $992,000 (91.3%) from $1.1
million in 1994 to $2.1 million in 1995. Operating income increased as a
percentage of total revenue from 1.7% in 1994 to 2.3% in 1995.
INTEREST EXPENSE. Interest expense increased by $454,000 (59.4%) from
$764,000 in 1994 to $1.2 million in 1995. Interest expense increased as a
percentage of total revenue from 1.2% in 1994 to 1.3% in 1995. The increase in
interest expense was due principally to increased borrowing to finance accounts
receivable and a nominal increase in the prime rate.
NET INCOME. Net income increased by $336,000 (183.6%) from $183,000 in
1994 to $519,000 in 1995. Net income increased as a percentage of total revenue
from 0.3% in 1994 to 0.6% in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue increased by $14.5 million (29.4%) from $49.5
million in 1993 to $64.1 million in 1994. Revenue from Computer Products, which
comprised 90.2% of total revenue, increased by $13.4 million (30.1%). The
increase in Computer Products revenue was generally attributable to increased
sales to new and existing customers resulting from the hiring of additional
sales personnel. Revenue from IT Services, which comprised 9.6% of total
revenue, increased by $1.0 million (20.2%). The growth in revenue from IT
Services was primarily attributable to the addition of new customers.
GROSS PROFIT. Gross profit increased by $1.3 million (17.8%) from $7.2
million in 1993 to $8.5 million in 1994, while gross margin decreased from 14.6%
in 1993 to 13.3% in 1994. The gross margin for Computer Products declined from
12.2% in 1993 to 10.3% in 1994. This decrease was largely due to entry into the
Dallas-Fort Worth market where, in order to increase market penetration, the
Company offered its products at a gross margin lower than typically received in
the Houston market, and to the absence of price protection from certain Computer
Products manufacturers that introduced new products during 1994. The gross
margin for IT Services increased from 35.4% in 1993 to 40.9% in 1994 due to
higher revenue from new and existing customers which enhanced the productivity
of its technical personnel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million (22.9%) from $6.1 million in
1993 to $7.4 million in 1994. As a percentage of total revenue, selling, general
and administrative expenses decreased from 12.2% in 1993 to 11.6% in 1994. Of
the dollar increase, $769,000 (55.4%) was attributable to increased compensation
to sales and sales support personnel resulting from increased sales in 1994, the
hiring of additional sales and sales support personnel and a change in the
Company's sales compensation policy which increased the total portion of sales
compensation paid in the form of salary and decreased the portion paid as
commissions.
19
OPERATING INCOME. Operating income decreased by $100,000 (8.4%) from $1.2
million in 1993 to $1.1 million in 1994. Operating income decreased as a
percentage of total revenue from 2.4% in 1993 to 1.7% in 1994.
INTEREST EXPENSE. Interest expense increased by $120,000 (18.6%) from
$644,000 in 1993 to $764,000 in 1994, due principally to increased borrowing to
finance accounts receivable. During the latter part of 1993, the Company changed
its primary lender. As a result of a difference in the method by which the
Company's new lender computed interest charges, the Company realized a lower
effective rate of borrowing even though the nominal rate remained the same. The
lower effective interest rate was offset by increases in the prime rate, which
rose from a 6.0% rate throughout 1993 to an average rate of 7.25% during 1994.
Interest expense as a percentage of total revenue decreased from 1.3% in 1993 to
1.2% in 1994.
NET INCOME. Net income decreased by $131,000 (41.7%) from $314,000 in 1993
to $183,000 in 1994. Net income as a percentage of total revenue decreased from
0.6% in 1993 to 0.3% in 1994.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for the periods indicated and, in the opinion of management,
includes all adjustments (consisting of only normal recurring adjustments) which
the Company considers necessary for a fair presentation of the information set
forth therein. The Company's quarterly results may vary significantly depending
on factors such as the timing of large customer orders, timing of new product
introductions, adequacy of product supply, variations in the Company's product
costs, variations in the Company's product mix, promotions by the Company and
competitive pricing pressures. The results of any particular quarter may not be
indicative of results for the full year or any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ ---------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue........................ $ 20,685 $ 18,869 $ 23,726 $ 27,805 $ 25,948 $ 32,202
Cost of sales and service............ 18,208 16,223 20,665 24,604 22,662 28,135
--------- -------- ------------- ------------ ---------- ---------
Gross profit..................... 2,477 2,646 3,061 3,201 3,286 4,067
Selling, general and administrative
expenses........................... 2,148 2,176 2,512 2,470 2,738 3,091
--------- -------- ------------- ------------ ---------- ---------
Operating income................. 329 470 549 731 548 976
Interest expense..................... 319 310 276 313 298 285
--------- -------- ------------- ------------ ---------- ---------
Income before provision income
taxes.......................... 10 160 273 418 250 691
Provision for income taxes........... 4 63 108 167 111 223
--------- -------- ------------- ------------ ---------- ---------
Net income....................... $ 6 $ 97 $ 165 $ 251 $ 139 $ 468
========= ======== ============= ============ ========== =========
Net income per share................. $ 0.00 $ 0.04 $ 0.06 $ 0.09 $ 0.05 $ 0.18
Weighted average shares
outstanding........................ 2,675,000 2,675,000 2,675,000 2,675,000 2,675,000 2,675,000
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and service............ 88.0 86.0 87.1 88.5 87.3 87.4
--------- -------- ------------- ------------ ---------- ---------
Gross profit..................... 12.0 14.0 12.9 11.5 12.7 12.6
Selling, general and administrative
expenses........................... 10.4 11.5 10.6 8.9 10.6 9.6
--------- -------- ------------- ------------ ---------- ---------
Operating income................. 1.6 2.5 2.3 2.6 2.1 3.0
Interest expense..................... 1.5 1.7 1.2 1.1 1.1 0.9
--------- -------- ------------- ------------ ---------- ---------
Income before provision for
income taxes................... 0.1 0.8 1.1 1.5 1.0 2.1
Provision for income taxes........... 0.0 0.3 0.4 0.6 0.4 0.7
--------- -------- ------------- ------------ ---------- ---------
Net income....................... 0.1% 0.5% 0.7% 0.9% 0.6% 1.4%
========= ======== ============= ============ ========== =========
</TABLE>
20
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its cash requirements principally
through borrowings under its lines of credit and through operations. The Company
maintains a cash position sufficient to pay only its immediately due obligations
and expenses. When the amount of cash available falls below its immediate needs,
the Company requests advances under the IBMCC credit facility. As the Company's
total revenue has grown, the Company has obtained increases in its available
lines of credit to enable it to finance its growth. The Company's working
capital was $1.7 million and $1.6 million at December 31, 1995 and June 30,
1996, respectively. As of June 30, 1996, the Company had borrowing capacity
under the IBMCC credit facility of $3.8 million.
CASH FLOW
Operating activities used net cash totaling $4.9 million, $3.2 million and
$2.4 million during 1993, 1994 and 1995, respectively, and provided net cash
flow of $1.4 million for the six months ended June 30, 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 increased accounts receivable. Trade accounts
receivable increased $4.9 million, $2.0 million and $4.4 million for 1993, 1994
and 1995, respectively, and decreased $768,000 for the six months ended June 30,
1996. Inventory also increased as a result of the growth in total revenue by
$912,000, $1.7 million, $60,000 and $1.4 million for the same periods.
Net cash flow used in operating activities during 1995 of $2.4 million was
net of an accrual of $1.4 million for a delinquent Texas sales tax liability for
the period June 1995 to November 1995. Interest was accrued on the liability;
however, all penalties were waived by the state. The delinquency resulted from a
programming error in the Company's accounting system that has since been
corrected. In August 1996, the Company entered into an agreement with the state
to pay the agreed upon amounts. Had the sales taxes been timely paid, net cash
used in operations during 1995 would have been approximately $3.8 million.
Investing activities used cash totaling $51,000, $447,000, $419,000 and
$303,000, respectively, during 1993, 1994, 1995 and the six months ended June
30, 1996. The Company's investing activities that used cash during these periods
were primarily related to capital expenditures. The Company anticipates making
capital expenditures within the next year in connection with the consolidation
of its warehouse facilities into a single facility located in Dallas-Fort Worth,
the relocation of its Dallas-Fort Worth branch office and the opening of two new
branch offices in Austin and San Antonio.
Financing activities provided cash totaling $6.1 million, $2.8 million and
$3.1 million during 1993, 1994 and 1995. In March 1994, the Company received
$1.5 million cash proceeds from the sale of Common Stock to the Selling
Stockholder. For the first six months of 1996, financing activities used net
cash of $1.6 million as a result of the reduction of short-term debt under the
Company's credit facilities. The primary source of cash from financing
activities each period has been borrowings on the Company's lines of credit. The
lines of credit have been used principally to finance accounts receivable
balances and inventory purchases.
During the next twelve months, the Company expects to incur an estimated
$1.0 million for capital expenditures, a majority of which is expected to be
incurred for leasehold improvements and other capital expenditures in connection
with the planned consolidation of its warehouse facilities into a single
facility in the Dallas-Fort Worth area, the relocation of its Dallas branch
office and the opening of two branch offices in Austin and San Antonio, Texas.
All or a portion of the $1.0 million in capital expenditures currently budgeted
by the Company for such purposes may be paid from the net proceeds of this
Offering, depending on the availability of remaining net offering proceeds at
the time of such expenditures and other sources of funds. Any such capital
expenditures not paid from the net proceeds of this Offering are presently
expected to be financed from net cash flow from operations or borrowings under
the Company's line of credit with IBMCC. The actual amount and timing of such
capital expenditures may vary substantially depending upon, among other things,
the actual facilities selected, the level of expenditures required to render the
facilities suitable for the Company's purposes and the terms of lease
arrangements pertaining to the facilities.
21
ASSET MANAGEMENT
The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had trade accounts receivable of $11.4 million and $15.8
million at December 31, 1994 and 1995, respectively, and $15.1 million at June
30, 1996. The number of days' sales outstanding in trade accounts receivable was
45 days, 45 days and 49 days for the same periods. Bad debt expense as a
percentage of total revenue for the same periods was 0.1%, 0.1% and 0.3%. The
Company's allowance for doubtful accounts, as a percentage of trade accounts
receivable, was 1.6%, 2.9% and 4.6% at December 31, 1994 and 1995 and June 30,
1996, respectively.
With respect to accounts receivable due from Mintech, Inc. ("Mintech"), a
minority-owned business which is wholly-owned by the wife of Anthony Adame, an
executive officer of the Company, the Company typically carries such accounts
until such time as Mintech's customers pay Mintech or until the Company collects
amounts due as the assignee of accounts receivable due from Mintech's customers.
Since the inception of Mintech in 1995, Mintech has purchased an aggregate of
approximately $1.8 million of Computer Products from the Company. No accounts
receivable from Mintech or Mintech's customers have been written off as
uncollectible and payments of such accounts receivable are typically received
within time periods generally consistent with average collection times for the
Company's other customers. See "Certain Relationships and Related
Transactions -- Certain Related Business Transactions."
The Company manages its inventory in order to minimize the amount of
inventory held for resale and the risk of inventory obsolescence and decreases
in market value. The Company attempts to maintain a level of inventory required
to reach only its near term delivery requirements by relying on the ready
availability of products from its principal suppliers. Manufacturers of the
Company's major products generally provide price protection, which reduces the
Company's exposure to decreases in prices. In addition, its suppliers generally
allow for returns of excess inventory, which, on a limited basis, are made
without material restocking fees. Inventory turnover for 1994, 1995 and the
first six months of 1996 was 11.8 times, 14.4 times and 15.5 times on an
annualized basis.
CURRENT DEBT OBLIGATIONS
The principal source of liquidity for the Company, in addition to its cash
from operations, is its revolving line of credit with IBMCC (the "IBMCC
Facility"). The total credit available under the IBMCC Facility is currently
$30.0 million, subject to borrowing base limitations which are generally
computed as a percentage of various classes of eligible accounts receivable and
qualifying inventory. Borrowings are available under the IBMCC Facility for
floor plan financing of inventory from approved manufacturers (the "Inventory
Line"). Available credit under the IBMCC Facility, net of Inventory Line
advances, is used by the Company primarily to carry accounts receivable and for
other working capital and general corporate purposes (the "Accounts Line").
Borrowings under the Accounts Line bear interest at the fluctuating prime rate
plus 2.0% per annum. Under the Inventory Line, IBMCC pays the Company's
inventory vendors directly, generally in exchange for negotiated financial
incentives. Typically, the financial incentives received are such that IBMCC
does not charge interest to the Company until approximately 30 days after the
transaction is financed, at which time the Company is required to either pay the
full invoice amount of the inventory purchased from corporate funds or to borrow
under the Accounts Line for the amount due to IBMCC. Inventory Line advances not
paid within 30 days after the financing date bear interest at the fluctuating
prime rate plus 6.0%. IBMCC is permitted to fix a minimum prime rate for the
IBMCC Facility of not less than the average prime rate in effect at the time the
minimum prime rate is set but has not done so. IBMCC is authorized to change, on
30 days notice, the computation of the borrowing base and to disqualify accounts
receivable upon which advances have been made and require repayment of such
advances to the extent such disqualifications cause the Company's borrowings to
exceed the reduced borrowing base. The IBMCC Facility renews for successive
periods of 13 months unless either party chooses to terminate the arrangement on
60 days notice.
22
The IBMCC Facility is collateralized by a security interest in
substantially all of the Company's assets, including its accounts receivable,
inventory, equipment and bank accounts. The Company's Chief Executive Officer
and principal shareholder has personally guaranteed the Company's indebtedness
to IBMCC. Collections of the Company's accounts receivable are required to be
applied through a lockbox arrangement to repay indebtedness to IBMCC; however,
IBMCC customarily releases a portion of the Company's daily collections to the
extent that they exceed the daily estimated borrowing base. IBMCC is not
obligated to continue this accommodation. If in the future IBMCC insists that
all lockbox payments be applied to reduce the Company's indebtedness, the
Company would be required to seek funding from IBMCC or other sources to meet
substantially all of its cash needs.
Through most of 1995, the Company's credit limit under the IBMCC Facility
was $15.0 million. From October 1995 through February 1996, IBMCC extended a
temporary increase in the credit limit to $22.5 million and in April 1996
permanently increased the credit limit to $20.0 million. Effective September
1996, the Company was notified by IBMCC that it had received further temporary
credit limit adjustments consisting of increases to $30.0 million from September
1996 through February 1997, $28.0 million in March 1997, $25.0 million in April
1997, and returning to the permanent limit of $20.0 million thereafter. At June
30, 1996, the total indebtedness of the Company under the IBMCC Facility was
$15.6 million of which $9.6 million was outstanding under the Accounts Line and
$6.0 million was outstanding under the Inventory Line. The Company's remaining
available credit at June 30, 1996, based on its borrowing base was $3.8 million.
The Company intends to apply approximately $12.0 million of the net proceeds of
this Offering to repay substantially all indebtedness anticipated to be
outstanding under the Accounts Line on the closing date of this Offering.
The Company has a $3.0 million credit facility with Deutsche Financial
Services (the "DFS Facility") for the purchase of inventory from certain
suppliers. From October 1995 through May 1996, the Company received a temporary
increase in the available credit line to $6.0 million. As in the case of the
IBMCC Inventory Line, advances under the DFS Facility are typically interest
free for 30 days after the financing date for transactions in which adequate
financial incentives are received by DFS from the vendor. Within 30 days after
the financing date, the full invoice amount for inventory financed through DFS
is required to be paid by the Company. Amounts remaining outstanding thereafter
bear interest at the fluctuating prime rate (but not less than 6.5%) plus 6.0%.
DFS retains a security interest in the inventory financed. The DFS Facility is
immediately terminable by either party by written notice to the other. At June
30, 1996, the amount outstanding under the DFS Facility was $1.2 million.
The Company is required to comply with certain key financial and other
covenants under the IBMCC Facility and DFS Facility. During each of the periods
ended December 31, 1993, 1994, 1995 and the first six months of 1996, the
Company was in default of certain financial covenants and certain other
covenants under the IBMCC Facility and DFS Facility. For example, the Company
was required under the IBMCC Facility to maintain during 1995 the following
financial ratios: net profits after taxes to revenue of at least 0.5%;
annualized revenues to working capital of more than zero but no greater than
35.0 to 1; and total liabilities to tangible net worth of more than zero but no
more than 12.0 to 1. The ratios actually attained by the Company for the year
ended December 31, 1995, were approximately 0.57%, 43.9 to 1 and 12.7 to 1,
respectively. The DFS Facility, for instance, requires that at all times the
Company's indebtedness for borrowed money and capital lease obligations divided
by its tangible net worth plus subordinated debt not exceed 8.0 to 1, but at
June 30, 1996, the actual ratio attained by the Company was approximately 9.18
to 1. In addition to financial ratio covenants, the Company has violated other
covenants under both credit facilities, including timely filing of periodic
financial reports and covenants prohibiting certain transactions with
subsidiaries and other affiliates. IBMCC and DFS have, however, waived defaults
when requested by the Company from time to time. Most recently, IBMCC and DFS
waived certain defaults in August 1996, through the earlier of November 15, 1996
or the day after the closing date of this Offering in the case of IBMCC or the
day of the closing of this Offering in the case of DFS. Additionally, both
lenders liberalized certain financial covenants in connection with their
waivers. DFS increased the maximum permitted ratio for indebtedness for borrowed
money plus capital lease obligations to tangible net worth plus subordinated
debt to 9.5 to 1 through the first to occur of the closing of this Offering or
November 15, 1996, reverting to
23
8.0 to 1 thereafter. IBMCC increased the maximum permissible ratio of annualized
revenue to working capital to 56.0 to 1 through 1996 and to 52.0 to 1
thereafter, reserving the right to further change the ratio upon notice to the
Company. The repayment of all or substantially all indebtedness to IBMCC under
the Accounts Line upon closing of this Offering was not a condition to obtaining
default waivers from IBMCC and DFS. Rather, the termination of such waivers in
connection with the closing of the Offering reflects the Company's expectation
that it will be in compliance with the then applicable financial ratios under
both the IBMCC Facility and DFS facility as of the date it repays substantially
all of the IBMCC Accounts Line. The Company has requested waivers of IBMCC and
DFS under their respective credit agreements from time to time in the past and
may be required to do so in the future. Although the Company has previously
received waivers when requested, there can be no assurance that such defaults
will be waived as in the past. See Notes 4, 5 and 11 of the Company's
Consolidated Financial Statements.
Both the IBMCC Facility and the DFS Facility prohibit the payment of
dividends unless consented to by the lender.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 are effective for the
Company's fiscal year 1996. The Company has not yet determined whether it will
adopt the accounting requirements of this standard or whether it will elect only
the disclosure requirements and continue to measure compensation costs using
Accounting Principles Board Opinion No. 25.
24
BUSINESS
GENERAL
The Company is a growing regional provider of computer and
telecommunications hardware and software products and related services. The
Company primarily markets its products and services in Texas from two locations
in the Houston and Dallas-Fort Worth metropolitan areas. The Company's customer
base of over 3,800 accounts is comprised primarily of mid-sized customers and
regional offices of larger customers in commercial, educational and governmental
sectors. The Company positions itself to provide its customers with
single-source solutions for both their computer and telecommunications needs by
offering a broad range of products and services and by providing the expertise
to support integrated computer and telecommunications applications.
The Company's revenue is derived from sales of Computer Products, IT
Services, Telecom Systems and CTI Software. The Company is an authorized
reseller of computer products from Compaq, Hewlett-Packard, IBM, Microsoft,
Novell and other leading manufacturers. The Company has long-standing
relationships with leading aggregators and wholesale distributors of computer
hardware and software products which enable the Company to provide its customers
with competitive product pricing and ready product availability. IT Services
include system design, installation, integration and support services. With
respect to Telecom Systems, the Company markets, installs and services
telecommunications equipment, including large PBX telephone systems from NEC and
Mitel. In 1995, the Company introduced its proprietary CTI Software products
which facilitate computer and telephone integration, primarily for
telemarketing, call center and other high volume calling applications.
INDUSTRY OVERVIEW
The market for computer products and services has experienced significant
growth in recent years and the use of such products and services within
organizations has been impacted by several concurrent trends. The introduction
of LANs and WANs has allowed organizations to supplement or replace expensive,
centralized mainframe computer systems with more flexible and affordable
PC-based client/server platforms. The emergence of widely accepted industry
standards for hardware and software has increased the acceptance of open
architecture LANs and WANs which can and frequently do contain products from
numerous manufacturers and suppliers. Rapid technological improvements in
computer hardware and the introduction of new software operating systems have
also created the need to expand or upgrade existing networks and systems. At the
same time price decreases have made such networks and systems affordable to a
larger number of organizations. The Company believes that these trends have
increased the general demand for computer products and related information
technology services.
Distribution channels for computer products changed significantly beginning
in the early 1990s. During that period, many manufacturers of computers began to
scale back their sales forces and, in order to ensure the continued wide
distribution of their products, started to offer their products to wholesale
computer distributors which previously had sold only software and peripheral
equipment. In addition, manufacturers also began allowing resellers to purchase
products from more than one aggregator or distributor, a practice known as
"open sourcing." Expanding computer sales to distributors and allowing open
sourcing intensified price competition among suppliers. The Company believes
that, in general, the manufacturers of its primary product lines are continuing
to rely to a large degree on resellers of computer products to distribute a
significant portion of their products to end-users. Distribution patterns may
continue to evolve, however, and any future changes may significantly affect the
Company's business.
The advent of open architecture networks has also impacted the market for
information technology services. Wider use of complex networks involving a
variety of manufacturer's equipment, operating systems and applications software
has made it increasingly difficult to diagnose problems and maintain the
technical knowledge and repair parts necessary to provide support services. The
Company believes that increased outsourcing of more sophisticated support
services by business and institutional customers has resulted from the technical
complexities created by multi-manufacturer and supplier network systems and
rapid technological change. Increasingly, organizations seeking computer
products often require prospective
25
vendors not only to offer products from many manufacturers and suppliers, but to
have available and proficient service expertise to assist them in product
selection, system design, installation and post-installation assistance and
service. The Company believes that the ability to offer customers a
comprehensive solution to their information technology needs, including the
ability to work within its customers' corporate environments as integral members
of their management information system staff, are increasingly important in the
marketplace.
Telecommunications systems have evolved in recent years from simple analog
telephone systems to sophisticated digital systems, with modern digital systems
featuring voice processing, automated attendant, voice and fax mail, automatic
call distribution and call accounting. The ability to interface these new
digital phone systems to the user's PC-based computer systems now allows these
telephone systems to interact with the user's computerized data to create
powerful business solutions. New features, such as "caller ID" that is coupled
with a digital telephone system and integrated with a computer system, can
provide automatic look-up and display of account information while the user is
receiving a new call, thereby increasing productivity and the level of customer
service. Computerized "call accounting" allows an organization with integrated
telephone and computer systems to track telephone usage and long distance toll
billing and easily interface that data with computerized accounting and billing
systems. Integrated voice and facsimile handling allows a user to retrieve, send
and manage voice and facsimile messages on his computer screen. Computerized
telephone number listings allow the user to look up telephone numbers on the
computer and then have the computer dial the number automatically. For more
complex call center applications, computer systems can manage out-bound calling
campaigns while automatically blending in-bound calls to available agents in
order to enhance agent productivity.
The Company believes that the evolution of the digital telephone system to
a more open architecture, aided by standards established by Microsoft and Novell
for the interface of telephone and computer technologies, is causing rapid
industry change. This change is creating demand for digital telephone systems
which adhere to these new industry standards. These digital telephone systems,
along with the many software products which are rapidly becoming available for
use in CTI, require sophisticated installation and integration service
capability. The Company believes that the trend toward CTI is likely to continue
and that integrated voice, data and video communication will become more
affordable. As the technology and management of telecommunications and computer
systems converge over the next decade, the Company expects that growth
opportunities will be presented for companies able to provide and service the
latest integrated telecommunications and computer technologies.
BUSINESS STRATEGY
The Company's goals include continuing the growth of its regionally-based
business while preparing the Company to become a national provider of computer
and telephone hardware and software products and related services. To achieve
its objectives, the Company intends to pursue several key strategies:
EXPAND GEOGRAPHICALLY. The Company intends to open additional offices
within Texas and in new regions to service existing customers and attract new
customers. The Company plans to open two new offices within the next year, the
first in Austin, Texas and the second in San Antonio, Texas. Upon opening an
office in San Antonio, the Company will have branch offices in three of the ten
largest metropolitan areas in the United States.
INCREASE TELECOM SYSTEMS AND CTI SOFTWARE BUSINESSES. The Company began
offering Telecom Systems in 1994 and CTI Software in 1995 to capitalize on the
growing trend in CTI. The Company intends to (i) expand Telecom Systems
operations to the Dallas-Fort Worth market in the second half of 1996, (ii)
pursue acquisitions of regional telephone system resellers with established
customer bases in targeted markets, and (iii) increase the variety and
capabilities of its CTI Software products through internal development and
acquisitions of complementary software products.
IMPLEMENT INTERNET-BASED NATIONAL MARKETING PROGRAM. The Company intends
to implement a new method of marketing its Computer Products on a nationwide
basis under the trade name "800 PC Deals." By accessing an Internet home page
currently under development, the Company's sales representatives and
26
customers will be able to obtain product pricing and availability data, enter or
change orders and access customer account status information. The Company plans
to employ experienced sales representatives in selected metropolitan markets who
will be supported by the new Internet-based system and by a national sales
support call center performing order entry and customer service functions. After
establishing customer relationships in new markets with 800 PC Deals, the
Company intends to establish branch offices in certain of these markets. 800 PC
Deals is anticipated to begin operation in the first half of 1997.
PRODUCTS AND SERVICES
The Company markets computer and telecommunications hardware and software
products and provides related computer and telecommunications services. The
Company's largest source of revenue is derived from the sale of Computer
Products, which during each of the three years ended December 31, 1995 and the
six months ended June 30, 1996, accounted for approximately 90% of the Company's
total revenue. During 1993, 1994, 1995 and the first six months of 1996, IT
Services comprised approximately 10.4%, 9.6%, 8.6% and 6.4%, respectively, of
the Company's total revenue. The Company began selling Telecom Systems in 1994
and CTI Software in 1995.
COMPUTER PRODUCTS
The Company offers its customers a wide variety of computer hardware and
software products available from over 600 manufacturers and suppliers. The
Company's products include desktop and laptop computers, monitors, printers and
other peripheral devices, operating system and application software, network
products and mid-range host and server systems including the IBM RS6000,
Hewlett-Packard HP9000 and DEC Alpha systems. The Company is an authorized
reseller of products from a number of leading manufacturers of computer
hardware, software and networking equipment, including Compaq, Hewlett-Packard,
IBM, Microsoft and Novell. Products manufactured by Compaq, Hewlett-Packard and
IBM in the aggregate accounted for approximately 57.1%, 47.5%, 53.7% and 58.1%,
for 1993, 1994, 1995 and the first six months of 1996, respectively, of the
Company's total inventory purchases. There can be no assurance that the Company
will continue to resell such manufacturers' products in the future; however, the
Company believes that its relations with all of its major product manufacturers
and distributors are satisfactory.
IT SERVICES
IT Services are provided by the Company both in conjunction with and
separately from its Computer Products sales. The Company typically prices its IT
Services on a time and materials basis or under fixed fee service contracts,
depending on customer preference and the level of service commitment required.
In markets where the Company does not maintain branch offices, it often
subcontracts for necessary technical personnel, particularly where required for
larger scope or prolonged duration contracts. The Company's IT Services include
the following:
o INFORMATION SYSTEMS SUPPORT. The Company is an authorized warranty
service provider for many popular computer and computer peripheral
products and provides hardware repair and maintenance services,
complex network diagnostic services, end user support services and
software diagnostic services. The Company also offers complete
outsourcing of a customer's computer and network management and
technical support needs on a contract basis. The Company provides
on-site service parts stocking, help desk assistance and fixed asset
management and tracking.
o CONTRACT SYSTEMS ENGINEER, TECHNICIAN AND PROGRAMMER STAFFING. The
Company provides short-term supplemental technical staffing, including
hardware and software technicians, help desk personnel, systems and
network engineers and programming staff.
o SYSTEMS ENGINEERING. The Company provides systems engineering
services including information technology consulting, LAN/WAN design,
on-site and remote network administration, new technology feasibility
and impact analyses and disaster recovery plan analyses.
o INFORMATION TECHNOLOGY PROJECT MANAGEMENT. The Company provides
project management services for major hardware and software upgrades
and conversions, roll-outs of major new hardware.
27
and software installations and large network installations, including
multiple city WAN implementations.
o TELECOMMUNICATIONS AND DATA SYSTEMS CABLING. The Company provides
networking and telecommunications cabling services required for all
major networking topologies, including fiber optic cabling. The
Company also offers cabling services for adding to, moving or changing
existing network systems.
o CONTRACT PROGRAMMING SERVICES. Recently, the Company has begun to
offer contract programming services, primarily related to SQL database
design and implementation, client server applications and Internet
site development.
To support and maintain the quality of these services and to maintain
vendor accreditation necessary to resell and service its significant product
lines, the Company's technical staff participate in various certification and
authorization programs sponsored by hardware manufacturers and software
suppliers. The Company currently has attained several certifications and
authorizations, most notably as a Microsoft Solution Provider and a Novell
Platinum Reseller. The Company's ability to attract and retain qualified
professional and technical personnel is critical to the success of its IT
Services business.
TELECOM SYSTEMS
The Company began its Telecom Systems business in 1994 to capitalize on the
trend toward CTI. The Company currently markets, installs and services business
telephone systems, including large PBX systems and small key systems, along with
a variety of related products including hardware and software products for data
and voice integration, wide area connectivity and telephone system networking
and wireless communications. The Company resells PBX systems manufactured by NEC
and Mitel and smaller "key systems," including products from Macrotel, NEC and
Winn Communications. Wireless products include products from Uniden and
Spectralink. Software products include voice mail products from Active Voice and
AVT, interactive voice response applications from AVT and call center activity
reporting products from Taske.
The Company currently markets Telecom Systems only from its Houston office.
During the second half of 1996, the Company plans to expand Telecom Systems
sales to its Dallas office. The Company also intends to expand its Telecom
Systems products, particularly in the area of CTI products, as suitable new
products become available for resale.
CTI SOFTWARE
The Company develops and markets proprietary CTI Software, which integrates
business telephone systems and networked computer systems, under the trade name
"Stratasoft." CTI Software is designed to improve the efficiency of
telemarketing operations, inbound and outbound call centers and other high
volume calling applications. Basic products offered by the Company are typically
customized to suit a customer's particular needs and are often bundled with
computer hardware supplied by the Company at the customer's request. The Company
entered the CTI Software business in late 1995 by acquiring two CTI products,
currently sold under the names StrataDial and StrataVoice, from a corporation
owned by the individual who presently manages the Company's CTI Software
operations. See "Certain Relationships and Related Transactions -- Acquisition
of Stratasoft Products." A new product, Strata-Interactive, has also been
developed by the Company. The Company now markets these three CTI Software
products, which are described below:
o STRATADIAL. StrataDial is a predictive dialer software product for
outbound call center applications such as telemarketing, collections,
surveys, lead generation and announcements that require personal
contact. A predictive dialer is a product which is used in call center
applications to dial telephone numbers from lists of computerized data
and pass completed calls to waiting call center employees along with
computerized data used during the call. The call data displayed for
the employee might include, for example, the pertinent account balance
and payment history in the case of calling overdue credit card
accounts or a telemarketing script in the case of a telemarketing
28
campaign. The use of a predictive dialer product in telemarketing
substantially increases worker productivity due to increased call
volume. StrataDial features inbound/outbound call blending without
requiring an automated call distribution feature ("ACD") of the PBX
telephone system. Call blending allows call center employees to work
on out-bound calling campaigns when there are no in-bound calls
waiting to be serviced. Upon receipt of an in-bound call to the call
center, the employee automatically receives the next sequential
in-bound call rather than another out-bound campaign call generated by
the predictive dialer. This allows call center employees to be more
productive by allowing them to make out-bound calls during periods in
which there are no in-bound calls to be serviced. StrataDial collects
campaign specific data during the telephone call and provides
comprehensive on line reporting and statistical analysis of the
campaign data. StrataDial also features open architecture which allows
easy interaction with the customer's other database applications.
Dialing parameters and campaign characteristics can be changed without
shutting down the dialer, as is required with many competing products.
Through June 30, 1996, the Company had licensed and installed 11
StrataDial systems.
o STRATAVOICE. StrataVoice is an outbound dialing product designed for
high volume applications that do not require human interaction.
StrataVoice applications include appointment confirmation and setting,
court appearance notification, surveys, community notification such as
school closings and emergency evacuation, employee updates,
absenteeism notification, telemarketing and market research. A
telephone system utilizing StrataVoice dials a computerized list of
numbers and can ask the contacted person a number of questions,
including branching to other questions and statements based on
responses. StrataVoice also allows the contacted person to leave
messages. Scripting tools are included that allow the user to develop
campaigns. The system builds a database of respondent data and has
comprehensive response reporting capabilities. Through June 30, 1996,
the Company had licensed and installed 20 StrataVoice systems.
o STRATA-INTERACTIVE. Strata-Interactive is an interactive voice
response ("IVR") software product which allows telephone calls to
access computer information at any time using a simple touch-tone
telephone. Applications for IVR technology vary and include insurance
coverage verification and claims reporting, utility company account
information and outage reporting, bank account information and on-line
transactions, and shipment verification and tracking information.
Strata-Interactive is based upon open architecture and is designed to
work with networked computers. The first beta version of the product
was delivered to a customer in June 1996.
The Company provides CTI Software to its customers pursuant to a written
license agreement with the customer. The Company also intends to pursue
arrangements under which it will seek to license its CTI Software to
manufacturers and other distributors of CTI hardware and software for inclusion
in the CTI products sold by them, although there can be no assurance that it
will be successful in such efforts.
SALES AND MARKETING
DIRECT SALES
The Company markets its products and services primarily through direct
sales representatives. Direct sales representatives are teamed with in-house
customer service representatives and are assigned to specific customer accounts.
The Company believes that direct sales lead to better account penetration and
management, better communications and long-term relationships with its
customers. The Company's sales personnel, including account managers and
customer service representatives, are partially compensated, and in some cases
fully compensated, on the profitability of accounts which they participate in
developing. The Company believes that its past and future growth will depend in
large measure on its ability to attract and retain qualified sales
representatives and sales management personnel. The Company promotes its
products and services through general and trade advertising, participation in
trade shows and telemarketing campaigns. The Company believes that a significant
portion of new customers of its Computer Products and IT Services businesses
originates through word-of-mouth referrals from existing customers and industry
members, such as manufacturer's representatives. Additionally, Telecom Systems
sales personnel seek to capitalize on the many customer relationships developed
by the Company's Computer Products and IT Services personnel. By virtue of their
computer business contacts, Computer Products and IT Services
29
personnel often learn at a relatively early stage that their customers may soon
be in the market for telecommunications equipment and services. Sales leads
developed by this synergy are then jointly pursued. CTI Software is marketed by
direct sales representatives to organizations using telemarketing, call centers
or other high volume telecommunications functions. In addition, StrataVoice is
marketed through resale arrangements between the Company and a VAR.
INTERNET-BASED SALES SUPPORT SYSTEM
The Company is in the process of developing an Internet-based sales support
system that will be used by its entire sales force. The system will allow sales
representatives to access information on product pricing and availability, enter
and track specific orders and monitor customer account information. Sales
representatives will be able to access the system from their desktop computers
at the Company's offices or on the Internet. The system will also allow selected
customers to enter and manage their own orders on-line. The Company believes
that when implemented this sales support system will enhance the productivity
and flexibility of its sales force and improve its customer service.
800 PC DEALS
The Company intends to use its proposed Internet-based sales support system
to cost-effectively expand its marketing efforts for Computer Products on a
national level under the trade name 800 PC Deals. Specifically, the Company
intends to employ sales representatives with local experience in targeted
metropolitan markets to establish customer relationships utilizing the new
system. The Company also plans to operate a national sales support call center
to serve sales representatives and customers. Initially, the Company intends to
fulfill a large portion of orders in these new markets by drop shipping product
directly from suppliers to customers. Once sufficient customer relationships are
established and market knowledge is developed, the Company may seek to establish
a branch office in a market. 800 PC Deals is expected to begin operation in the
first half of 1997.
There can be no assurance that the new system will function as expected or,
if so, that its implementation will enable the marketing approach of 800 PC
Deals to be successful. Many factors could influence the performance of 800 PC
Deals, including competition by others using similar systems, technical
difficulties in the implementation of the new Internet-based system, lack of
customer or supplier acceptance and the inability of local, direct sales
representatives to successfully market Computer Products through 800 PC Deals.
CUSTOMERS
The Company focuses its marketing efforts on mid-sized customers and
regional offices of larger customers located in or near the metropolitan areas
in Texas in which the Company maintains offices. The Company occasionally
provides Computer Products and IT Services in markets where the Company does not
have an office, typically to branch operations of customers with which the
Company has an established relationship. The Company's customer base is not
concentrated in any industry group. Over 3,800 customers purchased products or
services from the Company during the 12-month period ended June 30, 1996. During
1993, 1994, 1995 and the first six months of 1996, the Company's top ten
customers (which varied from period to period) in the aggregate accounted for
approximately 37.2%, 31.4%, 27.9% and 35.5%, respectively, of the Company's
total revenue. In each of the same periods, the largest single customer (which
varied from period to period) accounted for approximately 6.4%, 3.6%, 5.8% and
12.0%. The customers shown below, each of which purchased products or services
in excess of $100,000 during the 18-month period ending June 30, 1996,
illustrate the diversity of the Company's customers:
Amoco Corporation GTE VISNET
Baker Oil Tools, Inc. H&R Block of South Texas
Bank America Corporation Houston Lighting & Power Co.
Blockbuster Entertainment Lucent Technologies
Chevron Chemical Company MCI Telecommunications Corp.
Coopers & Lybrand L.L.P. Motorola, Inc.
Exxon Corp. Rockwell International
General Instrument Corp. Southwestern Bell Telephone Co.
Tandy Corp.
Texas Commerce Bank
Toshiba International Corp.
Transamerica Finance Services
Turner Construction Company
Western Atlas International, Inc.
30
The Company has no long-term written commitments by customers to purchase
products from the Company. In addition, although the Company has service
contracts with many of its large customers, such service contracts are
project-based and terminable upon relatively short notice. A significant
reduction in orders from any of the Company's largest customers could have a
material adverse effect on the Company's financial condition and results of
operations.
SUPPLY AND DISTRIBUTION
The Company relies on aggregators and distributors of computer hardware,
software and peripherals to supply a majority of its Computer Products. Although
the Company uses many industry suppliers, the Company purchases its Computer
Products chiefly from two suppliers, Inacom and Ingram, to obtain competitive
pricing, better product availability and improved quality control. The Company
attempts to develop strategic arrangements with its principal suppliers,
including the coordination of drop shipment orders, the outsourcing of certain
computer configuration services, national roll-out and installation projects and
the sharing of product information. Telecommunications hardware and software
products are generally purchased by the Company on an as-needed basis directly
from the original equipment manufacturer. Suppliers providing trade to the
Company typically maintain a vendor's lien in the goods sold by them to the
Company.
The Company's largest supplier of Computer Products is Inacom, a leading
computer products aggregator. Inacom markets and distributes computer products
and provides various services on a wholesale basis through a network of
franchisees and resellers and also markets its products directly to end-users.
During 1993, 1994, 1995 and the first six months of 1996, the Company purchased
from Inacom approximately 55.6%, 46.4%, 36.6% and 54.8%, respectively, of its
total inventory purchases. The Company purchases Computer Products and obtains
drop shipping and other services from Inacom pursuant to an agreement entered
into in August 1996 (the "Inacom Agreement"). Under the Inacom Agreement, the
Company is required to purchase at least 80% of its Computer Products from
Inacom, but only to the extent that such products are made available within a
reasonable period of time at reasonably competitive pricing. Pricing from Inacom
is generally based on Inacom's cost plus a negotiated markup. With certain
exceptions, the Company is entitled to volume discounts at agreed upon levels.
The term of the Inacom agreement expires on December 31, 2001, and automatically
renews for successive one year periods unless notice of non-renewal is given 60
days prior to the end of the renewal period. A cancellation fee of $570,500 will
be payable by the Company in the event of non-renewal or early termination of
the Inacom Agreement by either party.
The Company's second largest supplier of computer products is Ingram. The
Company also purchases its Computer Products from Ingram on a cost-plus basis.
During 1993, 1994, 1995 and the first six months of 1996, the Company purchased
from Ingram approximately 8.3%, 14.1%, 20.6% and 14.3% respectively, of its
total inventory purchases. The Company's agreement with Ingram provides for
volume discounts at agreed upon levels. The agreement with Ingram may be
terminated by either party upon 30 days prior written notice.
Due to intense price competition among computer products resellers, the
price and shipping terms received by the Company from its suppliers, especially
Inacom and Ingram, are critical to the Company's ability to compete in Computer
Products. From time to time the availability of certain products has been
limited. Although the Company has not experienced unusual product availability
problems and has been generally satisfied with the product pricing and terms
available from its principal suppliers, there can be no assurance that such
relationships will continue or that, in the event of a termination of its
relationship with either Inacom or Ingram, or both, it would be able to obtain
an alternative supplier or suppliers without a material disruption in the
Company's ability to provide competitively priced products to its customers.
The Company maintains standard authorized dealership agreements from many
leading manufacturers of computer and telecommunications hardware and software.
Under the terms of these authorized dealership agreements, the Company is
entitled to resell associated products to end-users and to provide warranty
service. The Company's status as an authorized reseller of key product lines is
essential to the operation of
31
the Company's business. In general, the authorized dealer agreements do not
require minimum purchases and include termination provisions ranging from
immediate termination to termination upon 90 days prior written notice. Some of
such agreements are conditioned upon the continuation of the Company's supply
arrangement with Inacom or another major wholesaler acceptable to the
manufacturer.
The Company operates a warehouse at each of its two current offices for the
purpose of receiving, warehousing, configuration and shipping products. The
Company plans to consolidate its two warehouses into one central regional
warehouse located in the Dallas-Fort Worth metropolitan area in order to achieve
further productivity and efficiency enhancements.
During 1995, the Company began an initiative to drop ship a higher
percentage of its orders directly from the supplier to customer in order to
lower its distribution costs and freight costs. This initiative has resulted in
the percentage of drop shipped orders (measured by the cost of goods drop
shipped as a percentage of total cost of goods) growing from 5.1% during the six
months ended June 30, 1995 to 18.4% during the six months ended June 30, 1996.
While the Company does not believe that it is in its best interest to drop ship
all orders, it does intend to continue to move more of its Computer Products
distribution toward drop shipments.
MANAGEMENT INFORMATION SYSTEMS
The Company depends on its customized MIS to manage most aspects of its
business. The Company's MIS provides its sales staff, customer service
representatives and certain customers with product price, information and
availability from its principal suppliers' warehouses throughout the United
States. The Company utilizes its MIS to rapidly source product from a wide range
of suppliers. Purchase order expediting features including overdue shipment and
partial shipment reporting which enable the Company to identify and resolve
supplier and or freight carrier problems quickly. The purchasing systems are
real time, allowing buyers to act within minutes on a newly received and
credit-approved sales order. The Company's MIS contain productivity tools for
sales lead generation, including integration between telemarketing and prospect
database management. Sales management features include a variety of reports
available for any combination of customer, salesperson, sales team and office
criteria. The Company uses its MIS to manage service contracts, service calls
and work orders, engineer and technician scheduling and time tracking, service
parts acquisition and manufacturer warranties. Reporting can also be generated
for project profitability, contract and customer analysis, parts tracking and
employee time tracking.
EMPLOYEES
As of June 30, 1996, the company employed approximately 279 individuals. Of
these, approximately 105 were employed in sales, marketing and customer service,
105 were employed in engineering and technical positions and 69 were employed in
administration, finance and MIS. The Company believes that its ability to
recruit and retain highly skilled and experienced technical, sales and
management personnel has been, and will continue to be, critical to its ability
to execute its business plans. None of the Company's employees are represented
by a labor union or are subject to a collective bargaining agreement. The
Company believes that its relations with its employees are good.
COMPETITION
The markets in which the Company competes are all intensely competitive and
changing rapidly. The Company believes that the principal competitive factors in
the business activities in which it operates include relative price and
performance, product availability, technical expertise, adherence to industry
standards, financial stability, service, support and reputation. The Company
believes that it has many direct and indirect competitors in each of its
businesses, none of which is dominant in the Company's geographic markets. The
Company's competitors include major computer products and telephone equipment
manufacturers, aggregators and distributors, including certain manufacturers,
aggregators and distributors which supply products to the Company. Other
competitors include established national, regional and local resellers, systems
integrators, telephone systems dealers, computer-telephony VARs and other CTI
software suppliers. Some of the Company's current and potential competitors have
longer operating histories and
32
financial, sales, marketing, technical and other competitive resources which are
substantially greater than those of the Company. As the markets in which the
Company competes have matured, product price competition has intensified and is
likely to continue to intensify. Such price competition could adversely affect
the Company's financial condition and results of operations. There can be no
assurance that the Company will be able to continue to compete successfully with
existing or new competitors.
STATE SALES TAX COLLECTION
The Company presently collects sales tax only on shipments of Computer
Products to destinations in Texas. Various states have attempted to impose on
direct marketers the burden of collecting sales or use taxes on the sales of
products shipped to those state's residents. The United States Supreme Court in
1992 affirmed its position that it is unconstitutional for a state to impose
sales or use tax collection obligations on an out-of-state mail order company
whose only "nexus" with the state is the distribution of catalogs and other
advertising materials through the mail and whose subsequent delivery of
purchased goods is by United States mail or by interstate common carrier.
Legislation has been introduced in the United States Congress that if enacted
would supersede the Supreme Court's ruling and allow states to impose a tax
collection obligation on out of state sellers of goods destined for delivery
with the state. If legislation of this type is enacted, the imposition of a tax
collection obligation on the Company in states to which it ships products may
result in reduced demand for the Company's products and additional
administrative expense.
Certain states into which the Company delivers products through drop
shipping arrangements with its principal suppliers have imposed a sales tax
collection obligation on such sales based on the suppliers' (rather than the
Company's) contact with the state. Inacom has advised the Company that, due to
the existence of a nexus between Inacom and these states, Inacom must charge and
collect sales tax on any shipment it delivers into these states, including drop
shipments to the Company's customers in these states. The imposition of sales
taxes on the Company's drop shipments from Inacom will have the effect of
increasing the Company's costs on those shipments. The cost increase will either
be in the form of sales taxes on the products purchased from Inacom for drop
shipment to the taxing states or the higher costs of handling to bring the
product into the Company's Texas facilities and then ship the product to the
end-user's location. While the level of drop shipments to these states is at
present relatively low, an increase in the number of states imposing sales taxes
on these drop shipments could substantially reduce or eliminate any cost savings
to the Company from its plan to reduce shipping and distribution costs by
increasing the percentage of sales to be delivered by drop shipments.
The Company intends in the near term to hire sales representatives for 800
PC Deals to market Computer Products in states other than Texas. The presence of
its sales representatives in these states will impose a state tax collection
obligation in those states, thus reducing the number of markets into which the
Company may ship its Computer Products without collecting sales tax from its
customers. In some cases, the inapplicability of a state sales tax collection
obligation on the Company provides it with a pricing advantage when competing
against companies obligated to collect state taxes from the potential customer.
The Company believes, however, that the purchasing decisions of most of its
customers (who are primarily business organizations) is only slightly influenced
by whether state sales taxes will be collected on their purchase.
FACILITIES
The Company does not own any real property and currently leases all of its
existing facilities. The Company subleases its headquarters and Houston office
which are housed in a free standing building of approximately 49,000 square
feet. See "Certain Relationships and Related Transactions -- Houston Office
Lease." The Houston office sublease expires on December 31, 1998. The Company's
Dallas office is housed in a free-standing building of approximately 20,000
square feet. The Dallas facility lease expires on September 30, 1997. The
Company also leases a storage facility of approximately 7,000 square feet in
Houston. The lease on the storage facility expires on March 9, 1998. The Company
intends to lease other facilities as its business expands. The Company believes
that suitable facilities will be available as needed.
33
INTELLECTUAL PROPERTY
The Company's success depends in part upon its proprietary technology,
including its Stratasoft software. The Company relies primarily on trade secrecy
and confidentiality agreements to establish and protect its rights in its
proprietary technology. Additionally, the Company intends to file for copyright
protection for StrataDial and StrataVoice. The Company also has applied for
registration of Stratasoft, StrataDial, StrataVoice and 800 PC Deals as
trademarks. There can be no assurance that the Company's present protective
measures will be adequate to prevent unauthorized use or disclosure of its
technology or independent third party development of the same or similar
technology. While the Company's competitive position could be affected by its
ability to protect its proprietary and trade secret information, the Company
believes other factors, such as the technical expertise and knowledge of the
Company's management and technical personnel and the timeliness and quality of
support services provided by the Company, to be more significant in maintaining
the Company's competitive position.
The Company's various authorization agreements with manufacturers generally
permit the Company to refer to itself as an authorized dealer of the respective
manufacturer's products and to use their trademarks and trade names for
marketing purposes, but prohibit other uses. The Company considers the use of
these trademarks and trade names in its marketing efforts to be important to its
business.
LEGAL PROCEEDINGS
On August 29, 1995, a former employee of the Company brought suit in the
125th Judicial District Court of Harris County, Texas against the Company and
James H. Long and Anthony Adame, individually. The plaintiff has alleged that he
was wrongfully terminated from the Company and is suing for wrongful
termination, intentional infliction of emotional distress and breach of
contract. The plaintiff is seeking unspecified actual and punitive monetary
damages. The Company intends to vigorously defend such action.
On July 13, 1996, a former customer brought suit against the Company in the
152nd Judicial District Court of Harris County, Texas. The plaintiff alleges
that the Company failed to provide and complete promised installation and
configuration of certain computer equipment within the time promised by the
Company. Based on these allegations, the plaintiff is suing for breach of
contract and violations of the Texas Deceptive Trade Practices Act and is
seeking unspecified actual and punitive monetary damages, including treble
damages under the Texas Deceptive Trade Practices Act. The Company intends to
vigorously defend such action.
The Company is from time to time involved in routine litigation incidental
to its business. The Company believes that none of such proceedings, including
current proceedings, individually or in the aggregate will have a materially
adverse effect on the Company.
HISTORY AND REINCORPORATION
The Company was incorporated under Texas law in 1983 under the name
Technicomp Corp. On June 30, 1993, the Company changed its name to
Allstar-Valcom, Inc. and then again, on December 28, 1993, the Company changed
its name to Allstar Systems, Inc. On December 27, 1993, the Company engaged in a
merger in which it was the surviving corporation. In the merger, Allstar
Services, Inc. and R. Cano, Inc., both of which were affiliated with the
Company, were merged with and into Allstar Systems, Inc. in order to streamline
the business. In 1995, Company formed a wholly owned subsidiary, Stratasoft,
Inc., to purchase and develop its CTI Software. See "Certain Relationships and
Related Transactions -- Acquisition of Stratasoft Products." Prior to the
effective date of the Registration Statement, the Company plans to effect a
reincorporation and merger in the state of Delaware through which the 328,125
shares of the Company's predecessor, Allstar Systems, Inc., a Texas corporation,
which were outstanding prior to the merger, will be converted into approximately
2,675,000 shares of the newly incorporated Delaware corporation (the
"Reincorporation"). The effect of the Reincorporation on the number of shares
outstanding prior to the Reincorporation will be similar in effect to an
approximately 8.15-for-1 stock split.
34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
James H. Long........................... 38 Chairman of the Board, President and Chief Executive Officer
Donald R. Chadwick...................... 52 Director, Chief Financial Officer, Treasurer and Secretary
Frank Cano.............................. 32 Senior Vice President, Branch Office Operations
Thomas N. McCulley...................... 50 Vice President, Information Systems
Paulette R. Blount...................... 41 Vice President, Purchasing and Distribution
Anthony Adame........................... 40 President, Computer Products Division
Shabbir K. Ali.......................... 33 President, IT Services Division
Michael A. Torigian..................... 37 President, Telecom Systems Division
William R. Hennessy..................... 38 President, Stratasoft, Inc.
</TABLE>
JAMES H. LONG is the founder of the Company and has served as Chairman of
the Board, Chief Executive Officer and President since the Company's inception
in 1983. Prior to founding the Company, Mr. Long served with the United States
Navy in a technical position and was then employed by IBM in a technical
position.
DONALD R. CHADWICK has been the Chief Financial Officer of the Company
since February 1992. As Chief Financial Officer, his duties include supervision
of finance, accounting and controller functions within the Company. During 1990
and 1991 Mr. Chadwick served as the President of Regis, William Capital Corp., a
privately owned investment banking firm. Between 1988 and 1989 he served as a
Senior Vice President in investment banking with Underwood, Neuhaus & Co.,
Incorporated. From 1974 to 1988 he was a Senior Vice President of Prescott, Ball
and Turben, Inc., a Cleveland, Ohio-based investment banking firm.
FRANK CANO became the Senior Vice President, Branch Office Operations for
the Company in July 1996, and is responsible for the general management of the
Company's branch office. From June 1992 to June 1996, Mr. Cano was the Branch
Manager of the Company's Dallas-Fort Worth office. From June 1986 to May 1992,
Mr. Cano was employed by the Company as a sales representative. Prior to that,
Mr. Cano served at the Company in a variety of administrative and technical
positions, including Service Account Manager, Sales Account Manager, Purchasing
Agent and Computer Technician.
THOMAS N. MCCULLEY has been the Vice President, Information Systems for the
Company since July 1996. From January 1992 to June 1996, Mr. McCulley served as
the Information Services Director for the Company. He has responsibility for
management and supervision of the Company's MIS. Prior to joining the Company,
Mr. McCulley was employed with Mediacomp, Inc., a subsidiary of S.L. Brown &
Associates, for seven years, where his duties included development and
supervision of the conversion of MIS from mainframe applications to PC-based
applications.
PAULETTE R. BLOUNT joined the Company as Director of Product Purchasing and
Distribution in September 1994 and became Vice President, Purchasing and
Distribution in July 1996. Her responsibilities include overall management of
purchasing, warehousing, inventory control and shipping and receiving of
inventory products. Prior to joining the Company, Ms. Blount was the Director of
Service Operations in the Houston office of The Future Now, Inc., a computer
sales and service company, since May 1993. Prior to that time, Ms. Blount was
employed as the Director of Service for Techron Corp., a ComputerLand franchise
in Houston, Texas.
ANTHONY ADAME has been President of the Computer Products Division since
July 1996. From January 1996 to June 1996, Mr. Adame served as Vice President,
Computer Products, and from January 1991 to December 1995 as Vice President of
Sales. His current responsibilities include management of the Computer Products
Division. From 1986 until joining the Company, Mr. Adame was employed by Techron
35
Corp., where he was Vice President of Sales. Prior to that he was the Sales
Manager at Computer Galleries, a Houston retail computer store, for two years.
SHABBIR K. ALI has been the President of the IT Services Division since
July 1996. From January 1996 to June 1996, Mr. Ali served as Vice President, IT
Services Division and between August 1993 and December 1995 as Vice President of
Service Operations. Between July 1990 and July 1993 Mr. Ali served as the
Company's Operations Manager. Mr. Ali's present responsibilities include the
overall management of the Company's IT Services Division. Prior to joining the
Company, Mr. Ali was the Director of Operations for United Business Machines,
Inc. in Houston between 1987 and 1990.
MICHAEL A. TORIGIAN has been the President of the Telecom Systems Division
since July 1996. Between July 1994 and June 1996 Mr. Torigian served as Vice
President, Telecom Systems Division. His current responsibilities include the
overall management of the Company's Telecom Systems Division. From July 1992 to
May 1994, Mr. Torigian served as Director of Sales for CTWP, Inc., an
Austin-based computer, copier and office equipment dealer. From March 1990
through April 1992, he was the President of Communications Solutions, Inc., a
telephone and computer solutions provider in Houston. From March 1988 to
February 1990, Mr. Torigian was a Senior Dealer Sales Representative for Zenith
Data Systems. Prior to that, Mr. Torigian was Director of Sales at CTWP, Inc.
WILLIAM R. HENNESSY has served as the President of Stratasoft, Inc., the
Company's wholly owned subsidiary that was formed in 1995 to develop and market
CTI Software, since joining the Company in January 1996. Mr. Hennessy's
responsibilities include the general management of Stratasoft, Inc. From July
1991 to January 1996, Mr. Hennessy was employed by Inter-Tel, Incorporated, a
telephone systems manufacturer and sales and service company, where he served as
the Director of MIS and the Director of Voice and Data Integration for the
central region. From October 1984 to July 1991, Mr. Hennessy served as the MIS
Director of TSI/Bell Atlantic, a Houston-based subsidiary of a regional Bell
telephone company that sold and serviced business telephone systems and which
was acquired by Inter-Tel, Incorporated in 1991.
James H. Long and Frank Cano are brothers-in-law. There are no other family
relationships among any of the directors or executive officers of the Company.
All executive officers of the Company are elected by the board of directors
of the Company (the "Board") and hold office until the earlier of their
resignation, removal or other termination. All of the executive officers listed
above have entered into employment agreements with the Company effective upon
the closing of this Offering pursuant to which they hold their current
positions. See "-- Employment Agreements."
The Company's Board is currently composed of two directors. Within 90 days
following this Offering, the Company intends to expand the Board to five
positions by adding three directors who are not employees of or otherwise
affiliated with the Company ("independent directors"). Directors of the Company
hold office until the next annual meeting of stockholders or until their
successors are duly elected and qualified.
Following this Offering and the election of independent directors, the
Board will have an Audit Committee and a Compensation Committee, each of which
will initially be comprised of independent directors. The Audit Committee will
review the results and scope of the audit and other services provided by the
Company's independent auditors. The Compensation Committee will determine
salaries, incentive compensation and other benefits payable to the Company's
executive officers following this Offering, and will administer the Company's
1996 Incentive Stock Plan and 1996 Non-Employee Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995 and prior years, compensation levels were determined by the
Company's Board, each of the members of which were executive officers of the
Company. Following this Offering, the Company intends to create a Compensation
Committee, which will initially be composed of independent directors.
36
DIRECTORS' COMPENSATION
Employee directors of the Company do not receive any additional
compensation for their services as a director of the Company. The Company
intends to pay each independent director $1,000 for each Board meeting attended
and $500 for each committee meeting attended. The Company will also pay
reasonable out-of-pocket expenses incurred by independent directors to attend
Board and committee meetings. Independent directors also will be entitled to
receive options pursuant to the 1996 Non-Employee Director Stock Option Plan.
See "-- Incentive and Stock Option Plans."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
Chief Executive Officer and the most highly compensated executive officer of the
Company whose aggregate cash compensation exceeded $100,000 (the "Named
Executive Officers") during the years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
ANNUAL COMPENSATION RESTRICTED STOCK
NAME AND PRINCIPAL -------------------------------------------- STOCK OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1)(2) AWARDS (SHARES) COMPENSATION
- ---------------------------------------- ----- -------- -------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James H. Long
Chairman of the Board,
President and Chief
Executive Officer..................... 1995 $ 40,800 $100,000 -- -- -- --
1994 $ 43,500 -- -- -- -- --
1993 $ 40,800 -- -- -- -- --
Anthony Adame
President, Computer Products
Division.............................. 1995 $112,190 -- -- -- -- --
1994 $ 83,717 -- -- -- -- --
1993 $ 80,521 -- -- -- -- --
</TABLE>
- ------------
(1) The Company has made personal loans to Mr. Long from time to time. See
"Certain Relationships and Related Transactions -- Loans to Chairman and
Affiliates."
(2) Amounts exclude the value of perquisites and personal benefits because the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
Named Executive Officer's total annual salary and bonus.
The Company believes that its success is attributed in part to its ability
to attract and keep quality management personnel. The Company intends to pursue
growth using an entrepreneurial management style, giving responsible management
broad latitude to manage the office's or division's business, including profit
and loss responsibility. Commencing January 1996, executive managers began to be
compensated in part, on the profitability of their respective operations.
EMPLOYMENT AGREEMENTS
Each of the executive officers of the Company has entered into an
employment agreement (collectively, the "Executive Employment Agreements") with
the Company, which are effective upon the closing of this Offering. Under the
terms of their respective agreements, Messrs. Long and Adame are entitled to an
annual base salary of $150,000 and $96,000, respectively, plus other bonuses,
the amounts and payment of which are within the discretion of the Compensation
Committee. The Executive Employment Agreements may be terminated by the Company
or by the executive officer's resignation at any time by giving proper notice.
The Agreements generally provide that the executive officer will not, for the
term of his employment and for a period of either twelve or eighteen months,
whichever the case may be, following the end of such
37
executive officer's employment with the Company, compete with the Company,
disclose any confidential information of the Company, solicit any of the
Company's employees or customers or otherwise interfere with the relations of
the Company.
INCENTIVE AND STOCK OPTION PLANS
INCENTIVE PLAN. In September 1996, the Company's Board adopted and the
stockholders approved the Company's 1996 Incentive Stock Plan (the "Incentive
Plan"). Under the Incentive Plan, the Compensation Committee may grant incentive
awards to key employees of the Company and its subsidiaries with respect to up
to 417,500 shares of Common Stock, subject to certain antidilution adjustments.
The incentive awards available for grant under the Incentive Plan include (i)
incentive stock options (as provided in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code")) and non-qualified stock options, (ii) shares
of restricted stock, (iii) shares of phantom stock, (iv) stock bonuses and (v)
cash bonuses (collectively, the "Incentive Awards"). The maximum number of
shares of Common Stock subject to Incentive Awards which can be granted to any
one individual during any calendar year is 100,000 shares. No Incentive Awards
may be granted after the tenth anniversary of the adoption of the Incentive
Plan. Incentive Awards generally vest or otherwise become payable on the
occurrence of a change in control. Incentive Awards are reduced or subject to
early termination on the occurrence of certain events, including termination of
employment. No Incentive Awards have been granted under the Incentive Plan. Upon
closing of this Offering, however, the Company anticipates granting to certain
of its key executives non-qualified options to purchase up to an aggregate of
80,000 shares of Common Stock, with an exercise price equal to the fair market
value of the Common Stock at the date of grant and which will vest over five
years, and restricted stock awards for 10,000 shares of Common Stock which will
vest over two years.
DIRECTOR PLAN. In September 1996, the Company's Board adopted and the
stockholders approved the Company's 1996 Non-Employee Director Stock Option Plan
(the "Director Plan"). The Director Plan provides for the grant of non-qualified
options to purchase up to 100,000 shares of Common Stock, subject to certain
antidilution adjustments. To the extent shares remain available under the
Director Plan, the Director Plan entitles each newly elected non-employee
director, other than certain directors elected as part of financing or
acquisition transactions, to receive a one-time option to purchase 5,000 shares
of Common Stock as of the date of his first election to the Company's Board.
Furthermore, to the extent shares remain available under the Director Plan, each
incumbent director is entitled to receive an option to purchase 2,000 shares on
each date he is reelected to serve as a member of the Company's Board
(commencing with those directors reelected at the Company's 1997 annual meeting
of stockholders). All options granted under the Director Plan will have an
exercise price equal to the fair market value of a share of Common Stock on the
date of grant and will expire ten years after the date of grant (subject to
earlier termination under the Director Plan). Options granted under the Director
Plan are subject to early termination on the occurrence of certain events,
including ceasing to be a member of the Company's Board (other than by death).
ADMINISTRATION. The Incentive Plan and the Director Plan will be
administered by the Compensation Committee of the Board, which initially will be
composed of independent directors appointed by the Company's Board. Under the
Incentive Plan, the Compensation Committee determines which employees receive
grants of Incentive Awards, the type of Incentive Award granted and the number
of shares subject to each Incentive Award, and it also determines, subject to
the terms of the Incentive Plan, the prices, expiration dates, vesting schedules
and other material features of the Incentive Awards granted under the Incentive
Plan. The Compensation Committee has no discretion under the Director Plan as to
the selection of the non-employee directors to whom options are to be granted,
the number of shares subject to any option granted, the exercise price of any
option granted or the ten-year maximum term of any option granted thereunder.
The Compensation Committee has the authority to interpret and construe any
provision of the Incentive Plan and the Director Plan and to adopt such rules
and regulations for administering the Incentive Plan and the Director Plan as it
deems necessary.
38
401(K) PLAN
In 1992, the Company adopted a Section 401(k) Profit Sharing Plan and Trust
(the "Plan"). The Plan is intended to qualify for tax exemption under Section
401(k) of the Code and is subject to the Employee Retirement Income Security Act
of 1974. The Plan covers substantially all of the Company's employees who, as of
the enrollment eligibility dates under the Plan, have completed at least one
year of service with the Company and have elected to participate in the Plan.
Employees may contribute up to 15% of their annual compensation, which is
matched by the Company under a defined formula. In addition, the Company may
make discretionary contributions to the Plan, for the benefit of all
participants, at the election of the Board. All employee contributions are fully
vested at all times and contributions by the Company vest over a six-year period
based upon an employee's years of service. Benefits will normally be distributed
to an employee upon (i) the employee reaching age 59 1/2, (ii) the employee's
retirement with the Company, (iii) the employee's death or disability, (iv) the
termination of the employee's employment with the Company or (v) the termination
of the Plan.
As a result of operational defects in the administration of the Plan since
1992, the Company is currently in the process of filing under the Internal
Revenue Service Walk-In Closing Agreement Program to negotiate a settlement
regarding the qualified status of the Plan in order to meet the requirements of
Section 401(a) of the Code. During the six months ended June 30, 1996, the
Company has accrued $50,000 for estimated settlement costs.
KEY MAN INSURANCE
James H. Long is a key employee of the Company and the loss of Mr. Long
could adversely affect the Company's business. The Company maintains, and is the
beneficiary of, a life insurance policy on the life of Mr. Long. The face amount
of such policy is $7,000,000. The continuance of such policy is at the
discretion of the Board and may or may not continue in the future.
39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of the Company has adopted a policy requiring that any future
transactions between the Company and its officers, directors, principal
stockholders and their affiliates be on terms no less favorable to the Company
than could be obtained from unrelated third parties and that any such
transactions be approved by a majority of the disinterested members of the
Company's Board.
HOUSTON OFFICE LEASE
Since 1991, the Company has subleased its Houston, Texas headquarters
facility from Allstar Equities, Inc. ("Allstar Equities"), a Texas corporation
wholly-owned by James H. Long. Mr. Long is the Chief Executive Officer of the
Company and its largest stockholder.
Allstar Equities initially leased the Company's headquarters building in
1991 pursuant to a lease purchase agreement from Jakascki Corporation
("Jakascki"), a Texas corporation wholly-owned by the Selling Stockholder. The
initial lease purchase agreement between Allstar Equities and Jakascki expired
on December 31, 1993, and was continued on a day-to-day basis from that date
until August 1996, when a new lease purchase agreement was entered into (the
"New Lease"). During 1993, 1994, 1995 and the first six months of 1996, payments
by Allstar Equities to Jakascki under the lease arrangement amounted to $85,000,
$150,000, $150,000 and $159,000, respectively. The monthly rental of the
building is $17,500 through December of 1996, $18,000 during 1997 and $18,500
during 1998 under the New Lease. Additionally, Allstar Equities is required to
pay certain operating costs, including insurance, real property taxes and
utilities. Under the New Lease, Allstar Equities has an option to purchase the
building for $1.55 million in 1996, $1.6 million in 1997 and $1.7 million in
1998. In each case, the purchase price is to be reduced by the unpaid principal
and interest outstanding on a promissory note dated as of January 1, 1995,
payable by Jakascki to Allstar Equities in the original principal amount of
$150,000 and bearing interest at 8.0% per annum. The Company and James H. Long
each guaranteed the obligations of Allstar Equities under the expired lease
purchase agreement and have also guaranteed the obligations of Allstar Equities
under the New Lease. The New Lease expires on December 31, 1998.
The initial sublease expired on December 31, 1993, and was continued on a
day-to-day tenancy basis from that time until August 1996, at which time a new
sublease was executed (the "New Sublease"). During 1993, 1994, 1995 and the
first six months of 1996, rentals under the sublease arrangement amounted to
$290,000, $312,000, $372,000 and $186,000, respectively. In August 1996, the New
Sublease was executed in connection with the execution of the New Lease under
which Allstar Equities leases the facility. Under the New Sublease, the Company
will pay a monthly rental of $31,000 in 1996, $31,500 per month in 1997 and
$32,000 per month in 1998, and will also pay certain operating costs including
insurance and utilities, but not real property taxes. The New Sublease expires
on December 31, 1998.
In August 1996, the Company retained an independent real estate consulting
firm to conduct a survey of rental rates for facilities in Houston, Texas that
are in the vicinity of, and comparable to, its Houston headquarters facility.
Based upon this survey, and additional consultations with representatives of the
real estate consulting firm, the Company believes that the rental rate and other
terms of the Company's sublease from Allstar Equities are at least as favorable
as those that could be obtained in an arms-length transaction with an
unaffiliated third party.
CERTAIN SELLING STOCKHOLDER AGREEMENTS
In March 1994, Jack B. Corey, the Selling Stockholder, purchased a number
of shares of the Company's Common Stock equal to 20.0% of the then outstanding
shares of Common Stock for cash consideration of $1.5 million. After giving
effect to the Reincorporation, the number of shares held by Mr. Corey is
535,000. Contemporaneously with the share purchase, Mr. Corey entered into a
Stock Purchase Agreement with the Company under which Mr. Corey is entitled to:
(i) 90 days written notice of the Company's decision to make a public offering
of its Common Stock; (ii) require the Company to include all shares owned by Mr.
Corey in any offering, provided that the sale of such shares does not exceed a
number that would result in net proceeds to him of more than $1.5 million; (iii)
have all costs associated with the
40
preparation and filing of the registration statement pursuant to the Act paid by
Company; and (iv) share pro rata any underwriting commissions and costs
associated with a proposed public offering. Also executed in connection with the
share purchase was an Agreement Among Shareholders between Mr. Corey and James
H. Long containing certain buy-sell provisions and other shareholder matters
which was superceded by a Shareholders' Agreement executed in August 1996
containing similar provisions. In connection with the execution of the current
Shareholders Agreement, the Company and Mr. Corey entered into an Insurance
Agreement pursuant to which the Company agreed to repurchase Mr. Corey's Common
Stock in the event of Mr. Long's death, and to maintain life insurance on Mr.
Long sufficient for that purpose. The repurchase price under the Insurance
Agreement escalates monthly at prices during 1996, ranging from approximately
$1,904,800 to $2,130,200, for all 535,000 shares of Common Stock owned by Mr.
Corey. The Stock Purchase Agreement, the current Shareholders' Agreement and the
Insurance Agreement will be terminated upon the closing of this Offering.
COREY CONSULTING ARRANGEMENT
The Company entered into a consulting arrangement in March 1994, pursuant
to which the Selling Shareholder, Jack B. Corey, consults with the Company's
Chief Executive Officer on an as-needed basis concerning the Company's business
and affairs. The consulting arrangement was insisted upon by Mr. Corey as a
condition to his investment in the Company described under "-- Certain Selling
Stockholder Agreements." Consulting fees of $75,000 per year were payable under
the arrangement. Through June 30, 1996, the Company had paid aggregate
consulting fees of $139,000 to Mr. Corey. In August 1996, the consulting
arrangement was modified and commemorated in a written Consulting Agreement
between the Company and Mr. Corey. Consulting fees of $25,000 were paid in
connection with the execution of the Consulting Agreement, with an additional
payment of $25,000 (or a pro rata portion) being due on the first to occur of
November 15, 1996 or the closing of this Offering. Only minimal services have
been rendered by Mr. Corey under his consulting arrangements with the Company.
The Consulting Agreement will be terminated upon the closing of this Offering.
LOANS TO CHAIRMAN AND AFFILIATES
The Company has paid for the costs of substantially all leasehold repairs
and improvements to its Houston office since the inception of its sublease with
Allstar Equities, which is wholly owned by James H. Long. See "-- Houston Office
Lease." The Company has also loaned funds to Allstar Equities for the payment of
federal income tax liability associated with Mr. Long's ownership of Allstar
Equities, an S corporation for federal income tax purposes. These costs have
been treated by the Company and Allstar Equities as interest free, demand loans
by the Company to Allstar Equities. During the three year period ended December
31, 1995 and the six months ended June 30, 1996, the maximum aggregate amount
outstanding under such loans was $435,179. On July 1, 1996, the amounts
remaining due from Allstar Equities were consolidated into a promissory note
payable to the Company in the original principal amount of approximately
$386,600, and bearing interest at 9.0% per annum. Under the note, Allstar
Equities must make equal monthly payments of principal and interest until the
full amount owed has been paid. On December 1, 1998, all unpaid principal and
interest become due.
The Company has, from time to time, made personal loans and advances for a
variety of purposes to its Chief Executive Officer and principal stockholder,
Mr. Long. The maximum aggregate amount owed by Mr. Long during the three year
period ended December 31, 1995 and the six months ended June 30, 1996 was
$194,500. Effective June 30, 1996, Mr. Long executed a promissory note payable
to the Company in the amount of $173,300, which represents all amounts
outstanding as of that date, bearing interest at 9.0% per annum. Under the terms
of the note, Mr. Long has agreed to pay the Company in five equal installments,
each due on the first day of July of the next five years, beginning July 1,
1997, with a maturity date of July 1, 2001.
41
CERTAIN RELATED BUSINESS TRANSACTIONS
The Company supplies Computer Products to and provides marketing support
for Mintech, Inc. ("Mintech"), a minority-owned business engaged in reselling
computer products to third parties. Mintech is wholly owned by Consuelo Adame,
wife of Anthony Adame, who is also an officer of Mintech. James H. Long
currently is a director of Mintech and Donald R. Chadwick currently is both an
officer and director of Mintech. Messrs. Long, Chadwick and Adame will resign
from their positions at Mintech prior to the closing of this Offering.
The Company believes its commercial relationship with Mintech is beneficial
in obtaining Computer Products sales that would otherwise be lost to competitors
but for its relationship with Mintech. From time to time potential customers
advise the Company that they would prefer to procure Computer Products from a
minority-owned business. Most frequently, the Company believes, the customer's
preference is the result of provisions of contracts between the customer and
governmental entities or related governmental regulations mandating that a
certain portion of the customer's purchases be directed to minority-owned
business. In such instances, the Company has referred customers to Mintech.
Mintech fills the orders of customers referred to it by the Company by purchase
from the Company at a slight discount which represents Mintech's gross margin on
the sale. Since the inception of Mintech in 1995, the Company has sold an
aggregate of approximately $1.8 million of Computer Products to Mintech, which
represented an aggregate discount of approximately $9,800 below the aggregate
sale price which the Company would have charged had the sales been made directly
by the Company to Mintech's customers.
Mintech has limited financial capacity, and the Company provides financial
support in the form of carrying accounts payable until Mintech's customers pay
for products it has sold. In addition, the Company collects on Mintech's
accounts receivable as an assignee of those receivables. Collections on the
accounts receivable are applied to amounts owed to the Company and the
difference is remitted to Mintech. No cash payments had been made to Mintech
through June 30, 1996; however, the Company was indebted to Mintech for the
cumulative difference between amounts collected from Mintech's customers and the
amount of Mintech's purchases from the Company. The amount due to Mintech at
June 30, 1996 was approximately $8,100. No accounts receivable from Mintech have
been written off as uncollectible and payments of accounts receivable due from
Mintech and Mintech's customers are typically received within time periods
generally consistent with average collection times for other customers.
The Company expects that it will continue to refer potential customers
wishing to do business with a minority-owned business to Mintech, and that the
Company will continue to act as Mintech's supplier with respect to such
referrals. The Company intends to establish written contractual arrangements
with Mintech under which Mintech will sell Computer Products to its customers at
the same price the Company sells those products to Mintech, with Mintech
receiving a rebate of approximately 0.5% of the Company's gross profit on the
transaction when collected. A lock box collection system is also intended to be
established as part of an accounts receivable financing arrangement with Mintech
to ensure the collection by the Company of amounts due it from Mintech upon
receipt of payments from Mintech's end-user customers.
ACQUISITION OF STRATASOFT PRODUCTS
In late 1995, the Company entered the business of creating, manufacturing
and marketing the Company's customized CTI software by forming a new wholly
owned subsidiary, Stratasoft, Inc., and acquiring the rights to two software
products from William R. Hennessy and ILC and Aspen, companies of which Mr.
Hennessy is a director and officer and officer, respectively. Mr. Hennessy is
presently an executive officer of Stratasoft but was not employed by the Company
in any capacity at the time of such acquisition.
Stratasoft entered into an employment agreement with Mr. Hennessy as
consideration for the purchase of the software pursuant to which Mr. Hennessy
receives a monthly salary of aproximately $6,800. In addition, Mr. Hennessy is
paid a bonus equal to 10% of Stratasoft's gross profits for the first eighteen
months of his employment and an additional bonus equal to 10% of Stratasoft's
net profit multiplied by its net margin for each successive calendar year. Mr.
Hennessy's agreement contains restrictive covenants
42
regarding confidential information which generally prohibit disclosure of
certain information and, for a period of 12 months, certain competition with
Stratasoft. Additionally, Mr. Hennessy's agreement with Stratasoft provides
that, as long as he is not in violation of any of the restrictive covenants just
described, upon termination of his employment Mr. Hennessy will receive a
termination bonus equal to 10% of Stratasoft's net profits for the twelve
consecutive months immediately preceding the termination. Employment under the
agreement is terminable at will by either party upon 10 days notice.
At the same time the employment agreement was entered into, Mr. Hennessy
and Stratasoft entered into an agreement under which, Mr. Hennessy had the right
to purchase all rights to the software for nominal consideration if his
employment was terminated, by either himself or Stratasoft, at any time prior to
January 31, 1997. However, such rights were subject to Stratasoft's overriding
option to retain the software by making monthly payments of $7,500 following any
termination and ending on January 31, 1997. This agreement was terminated in
August 1996 by the parties for consideration of $5,000 paid by Stratasoft to Mr.
Hennessy.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person or entity known to the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO NUMBER OF OWNED
OFFERING(1)(2) SHARES AFTER OFFERING(1)(2)
-------------------- BEING --------------------
NAME AND ADDRESS NUMBER % OFFERED NUMBER %
- ------------------------------------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
James H. Long
6401 Southwest Freeway
Houston, Texas 77074............... 2,118,600 79.2% -- 2,118,600 50.7%
Anthony Adame
6401 Southwest Freeway
Houston, Texas 77074............... 21,400 * -- 21,400 *
Jack B. Corey
Post Office Box 525
Pinehurst, Texas 77362-0525........ 535,000 20.0% 535,000 -- --
All executive officers and directors
as a group (9 persons)............. 2,140,000 80.0% -- 2,140,000 51.3%
</TABLE>
- ------------
* Represents less than one percent of shares of Common Stock.
(1) Except as set forth in the footnotes to this table and subject to applicable
community property law, the persons named in the table have sole voting and
investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 2,675,000 shares of Common
Stock outstanding on June 30, 1996 and 4,175,000 shares of Common Stock
outstanding after the completion of this Offering.
43
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions with respect to the Company's
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the Company's Certificate of Incorporation
("Certificate") and Bylaws that have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part and by provisions of applicable
law.
Prior to the effectiveness of the Registration Statement, the Company
completed the Reincorporation in order to change its state of domicile to the
State of Delaware. After the Reincorporation, the Company's authorized capital
stock consists of 50,000,000 shares of Common Stock, $.01 par value per share,
of which 2,675,000 shares were issued and outstanding before this Offering and
held of record by three stockholders and 5,000,000 shares of preferred stock,
$.01 par value per share ("Preferred Stock"), none of which have been issued.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock will be entitled to receive dividends, subject
to the senior rights of preferred stockholders, if any, when, as and if declared
by the Board and to share ratably in the assets of the Company legally available
for distribution to its stockholders, in the event of the liquidation,
dissolution or winding-up of the Company. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All of the shares of
Common Stock to be sold in this Offering will be duly authorized, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of the Company, without any action by the stockholders of the
Company, is authorized to issue up to 5,000,000 shares of Preferred Stock in one
or more series and to determine the voting rights (including the right to vote
as a series on particular matters), preferences as to dividends and in
liquidation and the conversion and other rights of each such series. There are
no shares of Preferred Stock outstanding.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Certificate and Bylaws contain a number of provisions that could make
more difficult the acquisition of the Company by means of a tender or exchange
offer, a proxy contest or otherwise. The provisions are summarized below.
REMOVAL OF DIRECTORS. The Certificate provides that directors of the
Company may only be removed for cause and only by the affirmative vote of the
holders of two-thirds or more of the voting power of all of the then outstanding
shares of capital stock entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class. For purposes of
director removal, cause means conviction of a felony involving moral turpitude,
proof beyond a reasonable doubt that a director has committed grossly negligent
or willful misconduct resulting in a material detriment to the Company or
commission of a material breach of fiduciary duty to the Company resulting in a
material detriment to the Company.
ADVANCE NOTICE PROVISIONS FOR CERTAIN STOCKHOLDER ACTIONS. The Bylaws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the Board or a committee thereof, of candidates for
election as directors and with regard to certain matters to be brought before an
annual meeting of stockholders of the Company. The advance notice procedures
generally require that a stockholder give prior written notice, in proper form,
to the Secretary of the Company, the requirements as to the form and timing of
such notices specified in the Bylaws. If it is determined that such advance
notice procedures were not complied with, a Board nomination could be precluded
or certain business may not be conducted at the meeting.
Although the Bylaws do not give the Board the power to approve or
disapprove stockholder nominations for the election of directors or of any other
business desired by stockholders to be conducted at an annual or any other
meeting, the Bylaws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper
44
procedures are not followed, or (ii) may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or
other wise attempting to obtain control of the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company.
PREFERRED STOCK. The Certificate authorizes the Board to establish and
issue one or more series of Preferred Stock without any action by the
stockholders of the Company. Although the Board has no intention at the present
time of doing so, it could issue a series of Preferred Stock that could,
depending on the terms of such series, provide for a liquidation preference over
the Common Stock or impede the completion of a merger, tender offer or other
takeover attempt. The Board, in so acting, could issue Preferred Stock having
terms that discourage an acquisition attempt through which an acquiror may be
otherwise able to change the composition of the Board, including a tender or
exchange offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interest.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Certificate
provides that stockholder action can be taken only at an annual or special
meeting of stockholders and prohibits stockholder action by written consent in
lieu of a meeting. The Certificate and the Bylaws provide that special meetings
of stockholders can be called only by the Chairman of the Board, the Chief
Executive Officer, the President, the Board by the written order of a majority
of directors or upon a written request of stockholders owning two-thirds or more
of the entire capital stock of the Company issued and outstanding and entitled
to vote, stating the purpose of such meeting and delivered to the Chairman of
the Board, Chief Executive Officer, the President or the Secretary. Accordingly,
holders of a significant percentage of the outstanding capital stock of the
Company may not be able to request a special meeting of stockholders.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS. Under the General Corporation Law of the State of Delaware (the "DGCL"),
dthe stockholders have the right to adopt, amend or repeal the Bylaws and with
the approval of the Board, the Certificate of Incorporation. The Company's
Certificate provides that the affirmative vote of at least two-thirds of the
voting power of the then outstanding shares of Voting Stock, voting together as
a single class and in addition to any other vote required by the Certificate or
Bylaws, is required to amend provisions of the Certificate or Bylaws relating
to: (i) the prohibition of stockholder action without a meeting; (ii) the
restriction of stockholders calling a special meeting; (iii) the number,
election and term of the Company's directors; or (iv) the removal of directors.
The vote of a majority of the voting power of the then outstanding shares of
Voting Stock is required to amend all other provisions of the Certificate. The
Certificate further provides that the Bylaws may otherwise be amended by the
Board or by the affirmative vote of at least a majority of the voting power of
the then outstanding shares of Voting Stock, voting together as a single class.
These supermajority voting requirements will have the effect of making more
difficult any amendment by the stockholders of the Bylaws or the provisions of
the Certificate described above.
ANTI-TAKEOVER LEGISLATION. As a Delaware corporation, the Company is
subject to Section 203 of the DGCL. In general, Section 203 prohibits a
corporation from engaging in a "business combination" (as defined therein) with
an "interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) for three years following the time
such person became an interested stockholder unless (i) before such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of the stockholders by the affirmative vote of the holders of two-thirds
of the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions
45
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
CERTAIN REGISTRATION RIGHTS
The Company and the Selling Stockholder are parties to certain agreements
granting the Selling Stockholder registration rights with respect to the shares
of the Company's Common Stock owned by him. See "Certain Relationships and
Related Transactions -- Certain Selling Stockholder Agreements."
CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING LIABILITY OF DIRECTORS
As permitted by the DGCL, the Company's Certificate includes a provision
that eliminates the personal liability of its directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as a directors,
except liability for (i) breaches of the duty of loyalty to the Company or its
stockholders, (ii) acts or omissions in bad faith or involving intentional
misconduct or knowing violations of law, (iii) violations of Section 174 of the
DGCL (including the payment of unlawful dividends or unlawful stock purchases or
redemptions) or (iv) transactions in which a director receives an improper
personal benefit. The Certificate also contains provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company also has the power to maintain insurance,
on terms and conditions the Board deems acceptable, on behalf of officers and
directors against any expense, liability or loss arising out of such person's
status as an officer or director. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Co.
46
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
4,175,000 shares of Common Stock. Of these shares, the 2,035,000 shares sold in
this Offering will be freely transferable without restriction or registration
under the Securities Act by persons other than "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act. The remaining
2,140,000 shares of Common Stock outstanding are "restricted securities" (the
"Restricted Shares") within the meaning of Rule 144 under the Securities Act and
may not be sold in the absence of registration under the Securities Act unless
an exemption from registration is available, including an exemption afforded by
Rule 144.
The Company, its current stockholders (other than the Selling Stockholder),
directors and executive officers have entered into lock-up agreements with the
Representatives, providing that, subject to certain exceptions, they will not,
directly or indirectly, offer, sell contract to sell, grant any option to sell
or otherwise dispose of any shares of Common Stock, or other securities
substantially similar, or securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquire, Common Stock or other
securities substantially similar (except for the grant of options or of
restricted stock awards pursuant to the Incentive Plan or the Director Plan),
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Representatives. See "Underwriting." Following the
expiration of the lock-up period, all of the Restricted Shares will be eligible
for resale in the public market pursuant to Rule 144, subject to certain
limitations described below.
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least two years but less than three years is entitled
to sell, commencing 90 days after the date of this Prospectus, within any
three-month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (41,750 shares
immediately after this Offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
The Company plans to register, under the Securities Act, the 517,500 shares
of Common Stock available for issuance pursuant to the 1996 Incentive Stock Plan
and the 1996 Non-Employee Director Stock Option Plan on registration statements
on Form S-8. The Company intends to file such Form S-8 registration statements
with the Securities and Exchange Commission before any option first becomes
exercisable. Common Stock acquired pursuant to such plans can be sold in the
open market by holders who are not affiliates of the Company, but will be
subject to volume and other limitations of Rule 144 by holders who are
affiliates of the Company. Furthermore, shares of restricted stock and
non-qualified options issued pursuant to the Incentive Plan will be subject to
vesting requirements and will not be tradeable until vested. See "Management --
Incentive and Stock Option Plans."
Since there has been no public market for shares of the Common Stock prior
to this Offering, the Company is unable to predict the effect that sales made
pursuant to Rule 144, or otherwise, may have on the prevailing market price at
such times for shares of the Common Stock. Nevertheless, sales of a substantial
amount of the Common Stock in the public market, or the perception that such
sales could occur, could adversely affect market prices. See "Risk Factors --
Potential Effect of Shares Eligible for Future Sale on Price of Common Stock."
47
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below, for whom Rauscher Pierce Refsnes, Inc. and Sutro &
Co. Incorporated are acting as representatives (the "Representatives"), has
agreed severally to purchase from the Company and the Selling Stockholder the
number of shares of Common Stock set forth opposite its name below.
NUMBER
NAME OF SHARES
- ---------------------------------------- ---------
Rauscher Pierce Refsnes, Inc............
Sutro & Co. Incorporated................
---------
Total.............................. 2,035,000
=========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered by this
Prospectus, if any are taken.
The Underwriters propose initially to offer the shares of Common Stock
offered by this Prospectus to the public at the initial public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers not in excess of per share and the Underwriters
may allow, and such dealers may reallow, to certain other dealers a discount not
in excess of per share. After the initial public offering, the price to the
public, the concession and the reallowance may be changed by the
Representatives. The Representatives have advised the Company that they do not
expect any sales by the Underwriters to accounts over which they exercise
discretionary authority.
The Company has granted an option to the Underwriters, exercisable within
45 days after the date of this Prospectus, to purchase up to an additional
305,250 shares of Common Stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus for the
purpose of covering over-allotments, if any. If the Underwriters exercise the
over-allotment option, each Underwriter will be committed, subject to certain
conditions, to purchase from the Company pursuant to the over-allotment option
that number of additional shares which is proportionate to such Underwriter's
initial commitment.
The Company and the Selling Stockholder have agreed to pay, on a pro rata
basis, the Representatives a non-accountable expense allowance of $150,000 to
cover some of the underwriting costs and due diligence expenses related to this
Offering.
The Company, its stockholders (other than the Selling Stockholder) and its
executive officers and directors have agreed with the Underwriters, for a period
of 180 days after the date of this Prospectus, not to, directly or indirectly,
offer, sell, contract to sell, grant any option to sell or otherwise dispose of
any shares of Common Stock, or other securities substantially similar, or
securities convertible into or exercisable or exchangeable for, or any rights to
purchase or acquire, Common Stock or other securities substantially similar
(except for the grant of options or of restricted stock awards pursuant to the
Incentive Plan or the Director Plan), without the prior written consent of the
Representatives.
Prior to this Offering, no public market for the Common Stock existed. The
initial public offering price was negotiated between the Company and the
Representatives. Among the factors considered in determining such offering price
of the Common Stock, in addition to prevailing market conditions, were the
historical performance of the Company, estimates of the business potential and
earnings prospects of the Company, an assessment of the management of the
Company and the consideration of the above factors in relation to the market
valuation of companies in related businesses.
48
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters and certain related persons against certain liabilities relating to
this Offering contemplated by this Prospectus, including liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "ALLS."
LEGAL MATTERS
Certain legal matters in connection with the Commons Stock offered hereby
are being passed upon for the Company by Porter & Hedges, L.L.P. Certain legal
matters relating to this Offering will be passed upon for the Underwriters by
Gardere & Wynne, L.L.P.
EXPERTS
The consolidated financial statements at December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon such reports given upon the authority of that firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act,
with respect to the shares of Common Stock offered hereby. This Prospectus,
which forms a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits filed
therewith. For further information with respect to the Company and the shares of
Common Stock offered hereby, reference is made to the Registration Statement and
to such exhibits filed therewith. Statements contained herein as to the content
of any contract or other document are not necessarily complete and, in each
instance reference is made to a copy of such contract or other document filed as
an exhibit to the Registration Statement and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto may be inspected
without charge at the principal office of the Commission at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents may be obtained from the Public Reference Section of
the Commission, at prescribed rates, or on the Internet at HTTP://WWW.SEC.GOV.
49
ALLSTAR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............ F-2
Consolidated Balance Sheets at December
31, 1994 and 1995 and at
June 30, 1996 (Unaudited)............. F-3
Consolidated Statements of Operations
for the Years Ended December 31,
1993, 1994 and 1995 and for the Six
Months Ended
June 30, 1995 and 1996 (Unaudited).... F-4
Consolidated Statements of Cash Flows
for the Years Ended December 31,
1993, 1994 and 1995 and for the Six
Months Ended
June 30, 1995 and 1996 (Unaudited).... F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended
December 31, 1993, 1994 and 1995 and
for the Six Months
Ended June 30, 1996 (Unaudited)....... F-6
Notes to Consolidated Financial
Statements............................ F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Allstar Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Allstar
Systems, Inc. and subsidiary ("Allstar") at December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of Allstar's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstar at December 31, 1994 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Houston, Texas
April 19, 1996, except for
Notes 1, 4, 5 and 11 as to which
the date is , 1996
The accompanying financial statements reflect the 8.15-for-1 conversion of
the no par value common stock resulting from the reincorporation of Allstar
which is to occur prior to the effective date of this Prospectus. The above
opinion is in the form which will be signed by Deloitte & Touche LLP subsequent
to consummation of the reincorporation as described in Note 1 of Notes to
Consolidated Financial Statements, assuming that from April 19, 1996 to the date
of such reincorporation no other events will have occurred that would affect the
accompanying consolidated financial statements and notes thereto.
Deloitte & Touche LLP
Houston, Texas
September 19, 1996
F-2
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
--------------------
1994 1995 JUNE 30, 1996
--------- --------- --------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents:
Restricted cash.................. $ 336 $ 581 $ 481
Cash............................. 334 448 --
--------- --------- --------------
Total cash and cash
equivalents................ 670 1,029 481
Accounts receivable - trade, net... 11,385 15,822 15,054
Accounts receivable - affiliates... 599 679 56
Inventory.......................... 5,386 5,407 6,767
Deferred taxes..................... 112 258 270
Other current assets............... 83 79 102
--------- --------- --------------
Total current assets.......... 18,235 23,274 22,730
Property and equipment, net............. 835 986 1,182
Other assets - affiliates............... 7 6 524
--------- --------- --------------
Total................................... $ 19,077 $ 24,266 $ 24,436
========= ========= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................... $ 8,972 $ 9,912 $ 9,537
Floor plan liability............... 4,563 6,769 5,542
Accounts payable................... 1,109 880 1,342
Accrued expenses................... 1,684 3,357 3,940
Income taxes payable............... 230 283 539
Deferred service revenue........... 314 341 205
--------- --------- --------------
Total current liabilities..... 16,872 21,542 21,105
--------- --------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no
shares issued.................... -- -- --
Common stock:
No par value, 1,000,000 shares
authorized, 328,125 shares
issued and outstanding,
respectively.................. 2 2 2
$.01 par value, 50,000,000 shares
authorized, no shares issued
(2,675,000 shares issued and
outstanding after effect of
reincorporation and
conversion)................... -- -- --
Additional paid-in capital......... 1,504 1,504 1,504
Retained earnings.................. 699 1,218 1,825
--------- --------- --------------
Total stockholders' equity.... 2,205 2,724 3,331
--------- --------- --------------
Total................................... $ 19,077 $ 24,266 $ 24,436
========= ========= ==============
See notes to consolidated financial statements.
F-3
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue........................ $ 49,536 $ 64,076 $ 91,085 $ 39,554 $ 58,150
Cost of sales and services........... 42,289 55,541 79,700 34,431 50,797
----------- ----------- ----------- ----------- -----------
Gross profit......................... 7,247 8,535 11,385 5,123 7,353
Selling, general and administrative
expenses........................... 6,060 7,448 9,306 4,324 5,829
----------- ----------- ----------- ----------- -----------
Operating income..................... 1,187 1,087 2,079 799 1,524
Interest expense, net................ 644 764 1,218 629 583
----------- ----------- ----------- ----------- -----------
Income before provision for income
taxes.............................. 543 323 861 170 941
Provision for income taxes........... 229 140 342 67 334
----------- ----------- ----------- ----------- -----------
Net income........................... $ 314 $ 183 $ 519 $ 103 $ 607
=========== =========== =========== =========== ===========
Net income per share................. $ 0.15 $ 0.07 $ 0.19 $ 0.04 $ 0.23
=========== =========== =========== =========== ===========
Weighted average shares
outstanding........................ 2,120,242 2,554,808 2,675,000 2,675,000 2,675,000
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 314 $ 183 $ 519 $ 103 $ 607
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Gain on disposal of assets...... (5) -- (1) -- --
Depreciation and amortization... 149 211 309 129 179
Deferred taxes.................. (342) 230 (146) (29) (12)
Changes in assets and liabilities
that provided (used) cash:
Accounts receivable - trade,
net............................. (4,937) (2,018) (4,437) 1,138 768
Accounts
receivable - affiliates....... 51 (241) (80) 113 104
Inventory....................... (912) (1,681) (60) (1,138) (1,431)
Other current assets............ 19 (55) 4 56 (23)
Accounts payable................ (751) 424 (229) (1,109) 462
Accrued expenses................ 567 290 1,673 529 583
Income taxes payable............ 500 (341) 53 (163) 256
Deferred service revenue........ 428 (207) 27 (89) (136)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities.............. (4,919) (3,205) (2,368) (460) 1,357
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures............... (162) (447) (479) (34) (303)
Proceeds from sale of fixed
assets.......................... 22 -- 60 -- --
Payments received on note
receivable -- related party..... 89 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................. (51) (447) (419) (34) (303)
Cash flows from financing activities:
Net increase (decrease) in notes
payable......................... 4,090 2,075 940 454 (375)
Net increase (decrease) in floor
plan liability.................. 1,992 (735) 2,206 73 (1,227)
Proceeds from sale of common
stock........................... -- 1,500 -- -- --
Payment of long-term debt.......... (4) (43) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. 6,078 2,797 3,146 527 (1,602)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................... 1,108 (855) 359 33 (548)
Cash and cash equivalents at
beginning of period................ 417 1,525 670 670 1,029
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period............................. $ 1,525 $ 670 1,029 $ 703 $ 481
========= ========= ========= ========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest............. $ 520 $ 667 $ 1,189 $ 524 $ 355
========= ========= ========= ========= =========
Cash paid for income taxes......... $ 68 $ 221 $ 432 $ 271 $ 94
========= ========= ========= ========= =========
Schedule of noncash financing
activities:
Stock subscription receivable for
sale of common stock............ $ 1,500
=========
</TABLE>
See notes to consolidated financial statements.
F-5
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NO PAR VALUE
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993.............. 259,875 $ 2 $ 4 $ 202 $ 208
Net income......................... -- -- -- 314 314
Issuance of stock.................. 2,625 -- -- -- --
Sale of stock subscription......... -- -- 1,500 -- 1,500
--------- ------ ---------- --------- ---------
Balance at December 31, 1993............ 262,500 2 1,504 516 2,022
Net income......................... -- -- -- 183 183
Issuance of stock subscribed....... 65,625 -- -- -- --
--------- ------ ---------- --------- ---------
Balance at December 31, 1994............ 328,125 2 1,504 699 2,205
Net income......................... -- -- -- 519 519
--------- ------ ---------- --------- ---------
Balance at December 31, 1995............ 328,125 2 1,504 1,218 2,724
Net income (unaudited)............. -- -- -- 607 607
--------- ------ ---------- --------- ---------
Balance at June 30, 1996
(unaudited)........................ 328,125(1) $ 2 $1,504 $ 1,825 $ 3,331
========= ====== ========== ========= =========
</TABLE>
- ------------
(1) 2,675,000 shares of $.01 par value common stock after effect of
reincorporation and conversion as discussed in Note 1.
See notes to consolidated financial statements.
F-6
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allstar Systems, Inc. ("Allstar") is engaged in the sale and service of
computer and telecommunications hardware and software products. During 1995
Allstar formed and incorporated Stratasoft, Inc., a wholly owned subsidiary, to
create and market software related to the integration of computer and telephone
technologies. All operations of the business are primarily conducted from
offices located in Houston and Dallas, Texas.
A substantial portion of Allstar's sales and services are authorized under
arrangements with product manufacturers and Allstar's operations are dependent
upon maintaining its approved status with such manufacturers. As a result of
these arrangements and arrangements with its customers, gross profit could be
limited by the availability or allowance of volume discounts. Furthermore, net
income before income taxes could be affected by changes in interest rates which
underlie the revolving credit agreements which are used for working capital
(Notes 4 and 5).
The consolidated financial statements presented herein at June 30, 1996 and
for the six-month periods ended June 30, 1995 and 1996 are unaudited; however,
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods covered have been made and are of a normal, recurring nature.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of the interim periods are not
necessarily indicative of results for the full year.
Allstar's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of Allstar Systems, Inc. and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION -- Revenue from the sale of computer products is
recognized when the product is shipped. Service income is recognized ratably
over the service contract life. Revenues resulting from installations of
equipment for which duration is in excess of three months are recognized using
the percentage-of-completion method. The percentage of revenue recognized on
each contract is based on the most recent cost estimate available. Revisions of
estimates are reflected in the period in which the facts necessitating the
revision become known; when a contract indicates a loss, a provision is made for
the total anticipated loss. At December 31, 1993, 1994 and 1995, Allstar had no
such contracts in process.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include any highly
liquid debt instruments purchased with a maturity of three months or less when
purchased. See Note 4 for discussion of restricted cash.
INVENTORY -- Inventory consists primarily of personal computers and
components and is valued at the lower of cost or market with cost determined on
the first-in first-out method. Management provides a reserve for inventory which
may be slow-moving or obsolete.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense when incurred,
while expenditures for betterments are capitalized. Disposals are removed at
cost less accumulated depreciation with the resulting gain or loss reflected in
operations in the year of disposal.
Property and equipment are depreciated over their estimated useful lives
ranging from five to ten years using the straight-line method. Depreciation
expense totaled $148, $210 and $307 for 1993, 1994 and 1995, respectively.
F-7
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEDERAL INCOME TAXES -- Deferred taxes are provided at enacted rates for
the temporary differences between the financial reporting bases and the tax
bases of assets and liabilities.
RESEARCH AND DEVELOPMENT COSTS -- Expenditures relating to the development
of new products and processes, including significant improvements and
refinements to existing products, are expensed as incurred. The amount charged
to expense was $13 for the year ended December 31, 1995. No such costs were
incurred during 1993 or 1994.
USE OF ESTIMATES -- The preparation of the 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 amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Allstar's financial instruments
consist of cash and cash equivalents, accounts receivable, floor plan liability
and accounts and notes payable for which the carrying values approximate fair
values given the short-term maturity of the instruments. It is not practicable
to estimate the fair value of related-party receivables due to the nature of the
instrument.
EARNINGS PER SHARE -- Net earnings per share of common stock are based on
the weighted average number of shares of common stock and common stock
equivalents, if any, outstanding during each period. Prior to the effective date
of this Prospectus, the Company intends to complete a reincorporation in order
to change its state of domicile to Delaware, to authorize 50,000,000 shares of
$.01 par value common stock and to authorize 5,000,000 shares of $.01 par value
preferred stock. The reincorporation will have the effect of an 8.15-for-1 split
of Allstar's common stock. All applicable share and per share data in the
consolidated financial statements and related notes give retroactive effect to
this reincorporation and resulting stock conversion.
RECLASSIFICATIONS -- The accompanying consolidated financial statements for
the years presented have been reclassified to give retroactive effect to certain
changes in presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1994 and
1995:
1994 1995
--------- ---------
Trade................................... $ 11,573 $ 16,286
Allowance for doubtful accounts......... (188) (464)
--------- ---------
Total.............................. $ 11,385 $ 15,822
========= =========
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1994 and
1995:
1994 1995
--------- ---------
Equipment............................... $ 443 $ 581
Furniture and fixtures.................. 700 946
Leasehold improvements.................. 47 47
Vehicles................................ 105 129
--------- ---------
1,295 1,703
Accumulated depreciation and
amortization.......................... (460) (717)
--------- ---------
Total.............................. $ 835 $ 986
========= =========
F-8
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
Notes payable at December 31, 1995 consisted of advances under a revolving
credit agreement that provides for a $15 million credit line which, at Allstar's
discretion, may be used for inventory purchases (see Notes 5 and 11). Advances
under the agreement are limited to a collateral base as defined, which at
December 31, 1995 was approximately $10.6 million. Outstanding principal and
interest are due upon termination of the agreement, which continues in full
force and effect for successive thirteen month periods until terminated by 60
day written notice from the lender or Allstar. The notes are collateralized by
substantially all of Allstar's assets and a personal guarantee of the principal
stockholder of Allstar. The agreement contains default provisions which allow
the lender to accelerate payment if it determines itself to be insecure with
respect to any of the collateral or the payment of any part of the obligation.
At December 31, 1995, notes payable accrued interest at the prime rate
(8.25% at December 31, 1995) plus 2.0%. Allstar also pays an annual facility fee
of approximately 0.25%. The weighted average interest rate for 1993, 1994 and
1995 was 8.54%, 9.78% and 12.84%, respectively.
The credit agreement contains restrictive covenants which, among other
things, require specific ratios of revenue to working capital, total liabilities
to tangible net worth and net profit after tax to revenue. The terms of this
credit facility also prohibit the payment of dividends, purchase of Allstar
common stock and other similar expenditures, including advances to related
parties. As of December 31, 1995, Allstar was not in compliance with certain of
these covenants; however, the financing company has waived such noncompliance
through the earlier of November 15, 1996, or the closing of an initial public
offering. In addition to obtaining the waiver, the financing company liberalized
certain financial covenants, which Allstar had in the past violated. Allstar
believes that it will be able to comply with these less restrictive financial
covenants currently provided by the Credit Agreement. In April 1996 the credit
line was permanently increased to $20 million with an additional temporary
increase to $30 million for the period from September 1996 through February
1997, $28 million during March 1997 and $25 million in April 1997; thereafter
returning to the permanent credit line of $20.0 million.
The above agreement requires that all payments received from customers on
pledged accounts receivable be applied to the outstanding balance on the line of
credit. Accordingly, accounts receivable payments received in the amount of $336
and $581 at December 31, 1994 and 1995, respectively, but not yet applied to the
line of credit are shown as restricted cash in the accompanying balance sheets.
5. FLOOR PLAN LIABILITY
Allstar maintains two financing agreements to "floor plan" inventory
purchases. The first agreement, discussed in Note 4 above, provides for the
financing of inventory purchases as needed by Allstar. In no event shall the
combined indebtedness for the floor plan liability portion of this agreement and
the notes payable exceed $15 million (increased to $20 million in April 1996).
Provisions with respect to interest, collateralization and termination as
discussed in Note 4 also apply to the floor plan borrowings.
The second agreement provides a $3 million credit line to be used for
inventory purchases. Outstanding principal and interest are due upon termination
of the agreement, which continues in full force and effect until terminated by
notice from the lender or Allstar. This agreement contains restrictive covenants
which, among other things, require a specific ratio of total liabilities to
tangible net worth and a minimum tangible net worth. The terms of this credit
facility also prohibit the payment of dividends, purchase of Allstar common
stock and other similar expenditures, including advances to related parties. As
of December 31, 1995, Allstar was not in compliance with certain of these
covenants; however, the financing company has waived such noncompliance through
the earlier of November 15, 1996, or the closing of an initial public offering.
Allstar believes that it will have sufficient equity capital available to enable
it to comply with the restrictive financial covenants provided for by the Credit
Agreement.
F-9
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under both floor plan agreements, suppliers' invoices are paid directly by
the financing companies, who maintain a purchase money security interest in the
related inventory. The amounts due under both agreements are typically interest
free for 30 days from the financing date. After 30 days, interest accrues under
the first floor plan agreement at the prime rate plus 6.0% and interest accrues
under the second floor plan agreement at prime, which for purposes of this
agreement will not fall below 6.5%, plus 6.0%. At various times during 1995,
both financing companies extended to Allstar temporary financing in excess of
the amounts stated in the respective agreements. At December 31, 1995, Allstar
had credit lines totalling $28.5 million, subject to borrowing base limitations,
under these two financing agreements.
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 consisted of the following:
1993 1994 1995
--------- --------- ---------
Current provision (benefit):
Federal............................ $ 541 $ (105) $ 446
State.............................. 30 15 42
--------- --------- ---------
Total current provision (benefit)....... 571 (90) 488
Deferred provision (benefit)............ (342) 230 (146)
--------- --------- ---------
Total.............................. $ 229 $ 140 $ 342
========= ========= =========
The total provision for income taxes varied from the U.S. federal statutory
rate due to the following:
1993 1994 1995
--------- --------- ---------
Federal income tax at statutory rate.... $ 190 $ 113 $ 301
Nondeductible expenses.................. 2 17 48
State income taxes...................... 30 15 42
Other................................... 7 (5) (49)
--------- --------- ---------
Total.............................. $ 229 $ 140 $ 342
========= ========= =========
Deferred tax assets and liabilities computed at the statutory rate related
to temporary differences at December 31, 1994 and 1995 were as follows:
1994 1995
--------- ---------
Deferred tax assets:
Accounts receivable................ $ 115 $ 71
Deferred service revenue........... -- 75
Inventory.......................... -- 112
Other.............................. 19 --
--------- ---------
134 258
Deferred tax liabilities -- other....... (22) --
--------- ---------
Net deferred tax assets................. $ 112 $ 258
========= =========
F-10
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
Accrued liabilities consisted of the following as of December 31, 1994 and
1995:
1994 1995
--------- ---------
Sales tax payable (see Note 11)......... $ 904 $ 2,607
Accrued employee benefits, payroll, and
other related costs................... 536 456
Other................................... 244 294
--------- ---------
Total.............................. $ 1,684 $ 3,357
========= =========
8. FRANCHISE FEES
Allstar entered into an agreement in May 1989 whereby it became a
franchisee of Inacom Corp. Annual fees, amounting to 0.05% of certain gross
sales, were expensed in the period incurred. Allstar obtained a waiver effective
January 1, 1995 which eliminated the payment of franchise fees to Inacom Corp.
See Note 11.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES -- Allstar subleases office space from Allstar Equities,
Inc. ("Equities"), a company wholly owned by the principal stockholder of
Allstar. The lease is renewable annually. Rental expense under this agreement
amounted to approximately $290, $312 and $372 during 1993, 1994 and 1995,
respectively. Allstar is currently in the process of renewing this lease for
1996; in the interim, rental payments will continue at $31 per month. See Note
11.
Additionally, minimum annual rentals at December 31, 1995 on other
operating leases amount to approximately $101 for 1996 and $71 for 1997. Amounts
paid during 1993, 1994 and 1995 under such agreements totaled approximately
$134, $116 and $137, respectively.
BENEFIT PLAN -- Allstar maintains a group medical and hospitalization
insurance program under which Allstar pays employees' covered health care costs.
Any claims exceeding $10 per employee or a cumulative maximum of approximately
$112 per year are insured by an outside insurance company. Allstar's claim and
premium expense for this self-insurance program totaled approximately $127, $74
and $67 during 1993, 1994 and 1995, respectively.
Allstar maintains a 401(k) savings plan. All full-time employees who have
completed one year of service with Allstar are eligible to participate in the
plan. Employer contributions to the plan are at Allstar's discretion and
amounted to approximately $27, $30 and $46 in 1993, 1994 and 1995, respectively;
however, such amounts have not been remitted for 1994 or 1995. See Note 11.
Allstar is party to litigation and claims which are normal in the course of
its operations; while the results of such litigation and claims cannot be
predicted with certainty, Allstar believes the final outcome of such matters
will not have a materially adverse effect on its results of operations or
consolidated financial position.
10. RELATED-PARTY TRANSACTIONS
Effective December 31, 1993, Allstar entered into a stock sale agreement
whereby 65,625 shares of Allstar no par value common stock (535,000 shares of
$.01 par value common stock after effect of reincorporation and conversion --
see Note 1) were sold for $1.5 million. The proceeds from the stock subscription
agreement were recorded as accounts receivable - affiliates and additional
paid-in capital at December 31, 1993. In May 1994 the subscription price was
received and the shares of common stock were issued. The principal stockholder
of Allstar and this minority stockholder have entered into an agreement under
which this minority stockholder has the option to require the principal
stockholder to repurchase these
F-11
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares at an established price dependent upon the number of months held. In
addition, the principal stockholder may offer to have Allstar purchase these
shares; however, any such offer will not obligate Allstar to purchase such
shares. The minority stockholder is offering these shares for sale to the public
pursuant to the terms of Allstar's initial public offering.
Allstar has from time to time made payments on behalf of Equities and the
Company's principal stockholders for taxes, property and equipment. At December
31, 1994 and 1995, Allstar receivables from these affiliates amounted to
approximately $314 and $405, respectively. See Note 11.
During 1995 Allstar paid $75 in consulting fees to a minority stockholder.
11. SUBSEQUENT EVENTS
Effective June 30, 1996, Allstar and its principal stockholder entered into
a promissory note to repay certain advances, which were approximately $173 at
June 30, 1996, in annual installments of $35, plus interest, from August 1997
through 2001. This note bears interest at 9% per year. The advances as of June
30, 1996 are classified as long-term other assets-affiliates based on the
repayment terms of the promissory note.
Effective July 1, 1996, Allstar and Equities entered into a promissory note
whereby Equities would repay the balance of amounts advanced, which were
approximately $387 at June 30, 1996, in monthly installments of $6.5, including
interest, from August 1996 through November 1998 and a final payment of $275 on
December 1, 1998. This note bears interest at 9% per year. The advances as of
June 30, 1996 are classified as accounts receivable-affiliates and long-term
other assets-affiliates based on the repayment terms of the promissory note.
In August 1996, Allstar renewed its office sublease from Equities (see Note
9), with monthly rental payments of $31 plus certain operating expenses, through
December 1998.
Allstar entered into an agreement with a supplier in August 1996 in which
Allstar is required to purchase at least 80% of its computer products from the
supplier if such are available within a reasonable period of time at a
reasonably competitive price. The agreement expires on December 31, 2001 and
automatically renews for successive one-year periods. A cancellation fee of $571
will be payable by Allstar in the event of non-renewal or early termination of
the agreement by either party; however, Allstar does not anticipate termination
to occur by either party prior to the initial termination date.
In August 1996, Allstar entered into an agreement with the state
comptroller's office to pay 1995 delinquent sales taxes of $1.4 million plus
interest. All penalties were waived by the state. The $1.4 million plus interest
was included in accrued expenses at December 31, 1995.
Allstar is currently in process of filing under the Internal Revenue
Service Walk-In Closing Agreement Program (the "Program") to negotiate a
settlement regarding the qualified status of the 401(k) savings plan in order to
meet the requirements of Section 401(a) of the Internal Revenue Code. Under the
Program, any sanction amount negotiated is based upon the total tax liability
which could be assessed if the plan were to be disqualified. The Company has
accrued for the estimated settlement costs.
In September 1996, Allstar adopted the 1996 Incentive Stock Plan (the
"Incentive Plan"). Under the Incentive Plan, Allstar's Compensation Committee
may grant up to 417,500 shares of common stock, which have been reserved for
issuance, to certain key employees of Allstar. No incentive awards have been
granted under this plan. The Incentive Plan provides for the granting of
incentive awards in the form of stock options, restricted stock, phantom stock,
stock bonuses and cash bonuses in accordance with the provisions of the plan.
Additionally, no shares may be granted after the tenth anniversary of the
Incentive Plan's adoption.
* * * * * *
F-12
GLOSSARY
COMPANY NAMES*
3Com......................... 3Com Corporation
AVT.......................... Applied Voice Technology
Active Voice................. Active Voice Corporation
Aspen........................ Aspen System Technologies, Inc.
Compaq....................... Compaq Computer Corporation
DEC.......................... DEC Digital Equipment Corporation
DFS.......................... Deutsche Financial Services Corporation
Epson........................ Epson America, Inc.
Hewlett-Packard.............. Hewlett-Packard Company
IBM.......................... International Business Machines Corporation
IBMCC........................ IBM Credit Corporation
ILC.......................... International Lan and Communications, Inc.
Inacom....................... Inacom Corp.
Ingram....................... Ingram Micro, Inc.
Macrotel..................... Macrotel International Corporation
Microsoft.................... Microsoft Corporation
Mitel........................ Mitel, Inc.
NEC.......................... NEC America, Inc.
Novell....................... Novell, Inc.
Taske........................ Taske Technology, Inc.
Uniden....................... Uniden America Corporation
- ------------
* All company names and trade names are the legal property of their respective
owners.
G-1
TECHNICAL TERMS
<TABLE>
<CAPTION>
<S> <C>
Aggregator.............................. A company that purchases directly from manufacturers in large
quantities, maintains inventory, breaks bulk and resells to dis-
tributors, resellers and value-added resellers
Configuration........................... The customization of equipment to a customer's specifications which
may include the loading of software, adding of memory or combining
different manufacturers' equipment in such a way that it will be
compatible as an integrated system
CTI..................................... Computer and telephone integration
IVR..................................... Interactive voice response
LAN..................................... Local-area network
MIS..................................... Management information systems
Open architecture networks.............. Networks based on industry standard technical specifications that
enable the system to operate with hardware and software from
different manufacturers meeting those standards
PBX..................................... Private branch exchange
PC...................................... Personal computer
Price protection........................ A voluntary policy by a manufacturer that when a decrease in the
price of its product is instituted, the manufacturer will rebate
the Company for the difference between the new price and the price
paid by the Company for product in its inventory
Roll-out................................ Single sale involving a large volume of similar products to be
delivered on a pre-specified timetable
SQL..................................... Structured query language
VAR (Value-added reseller).............. A company that purchases equipment or software from a manu-
facturer, aggregator or distributor, provides value added services
to their clients including network management, configuration
systems integration and training and subsequently resells the
enhanced product
WAN..................................... Wide-area network
</TABLE>
G-2
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 12
Dividend Policy...................... 12
Capitalization....................... 13
Dilution............................. 14
Selected Financial Data.............. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 25
Management........................... 35
Certain Relationships and Related
Transactions....................... 40
Principal and Selling Stockholders... 43
Description of Capital Stock......... 44
Shares Eligible for Future Sale...... 47
Underwriting......................... 48
Legal Matters........................ 49
Experts.............................. 49
Additional Information............... 49
Index to Consolidated Financial
Statements......................... F-1
Glossary............................. G-1
------------------------
UNTIL , 1996, (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,035,000 SHARES
ALLSTAR
SYSTEMS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAUSCHER PIERCE REFSNES, INC.
SUTRO & CO. INCORPORATED
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with this
Offering are as follows:
Securities and Exchange Commission
registration fee..................... $ 9,684
NASD filing fee...................... 3,308
Nasdaq National Market listing fee... 28,500
Printing expenses.................... 70,000
Legal fees and expenses.............. 150,000
Accounting fees and expenses......... 150,000
Blue Sky fees and expenses (including
legal fees).......................... 5,000
Transfer Agent and Registrar fees.... 5,000
Representatives' non-accountable
expense allowance.................... 111,000
Miscellaneous........................ 55,608
----------
TOTAL........................... $ 588,100
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper stock repurchase or redemption or any transaction from
which the director derived an improper personal benefit. The Certificate of
Incorporation provides that the Company's directors are not liable to the
Company or its stockholders for monetary damages for breach of their fiduciary
duty, subject to the described exceptions specified by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") grants to the Company the authority to indemnify each officer and
director of the Company against liabilities and expenses incurred by reason of
the fact that he is or was an officer or director of the Company if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
determination as to whether a person seeking indemnification has met the
required standard of conduct is to be made (i) by a majority vote of a quorum of
disinterested members of the Board, or (ii) by independent legal counsel in a
written opinion, if such a quorum does not exist or if the disinterested
directors so direct or (iii) by the stockholders. The Bylaws provide for
indemnification of each officer and director of the Company to the fullest
extent permitted by Delaware law.
In a suit brought to obtain a judgment in the corporation's favor, whether
by the Company itself or derivatively by a stockholder, Section 145 of the DGCL
only allows the Company to indemnify for expenses, including attorney's fees,
actually and reasonably incurred in connection with the defense or settlement of
the case, and the Company may not indemnify for amounts paid in satisfaction of
a judgment or in settlement of the claim. In any such action, no indemnification
may be paid in respect of any claim, issue or matter as to which such persons
shall have been adjudged liable to the Company except as otherwise approved by
the Delaware Court of Chancery or the court in which the claim was brought.
According to the statute, in any other type of proceeding, the indemnification
may extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses (including attorneys' fees).
Section 145 of the DGCL also allows the Company to purchase and maintain
insurance on behalf of its directors and officers against liabilities that may
be asserted against, or incurred by, such persons in any
II-1
such capacity, whether the Company would have the authority to indemnify such
person against liability under the provisions of Section 145. The Company
intends to purchase and maintain a directors' and officers' liability policy for
such purposes.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement for certain provisions regarding the
indemnification of the Company, its officers and directors and any controlling
persons by the Underwriters against certain liabilities for information
furnished by the Underwriters.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and therefore is unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 3, 1993, the Company's predecessor, Allstar Systems, Inc., a
Texas corporation, issued 2,625 shares of common stock to Anthony Adame in a
privately negotiated transaction. Pursuant to an agreement entered into between
Mr. Adame and the Company at the time Mr. Adame first joined the Company, it was
agreed that when and if the Company considered an issuance to any party other
than James H. Long, the then sole stockholder, Mr. Adame would receive an amount
of shares equal to one percent of the outstanding shares of the Company at the
time of such issuance. The consideration for the shares issued to Mr. Adame was
his agreement to join the Company and his continued employment; thus, no cash
payment was received by the Company from Mr. Adame upon issuance of the shares.
The net book value of such shares at the time of issuance was approximately
$3,018. Mr. Adame had been employed by the Company for three years when the
Company considered the issuance of shares to Jack B. Corey described below and
the 2,625 shares of common stock were issued to Mr. Adame. The issuance of such
securities was exempt from registration under the Securities Act pursuant to
Section 4(2) as a transaction not involving any public offering.
On March 22, 1994, the Company's predecessor, Allstar Systems, Inc., a
Texas corporation, issued 65,625 shares of common stock to Jack B. Corey in a
privately negotiated transaction. The aggregate consideration paid for these
shares was $1.5 million. The sale of such securities was exempt from
registration under the Securities Act pursuant to Section 4(2) as a transaction
not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all the exhibits and financial statement
schedules filed as part of the Registration Statement.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
"1.1 -- Form of Underwriting Agreement.
+2.1 -- Form of Plan and Agreement of Merger by and Between Allstar Systems, Inc., a Texas
corporation and Allstar Systems, Inc., a Delaware corporation.
"3.1 -- Bylaws of the Company.
+3.2 -- Certificate of Incorporation of the Company.
"4.1 -- Specimen Common Stock Certificate.
+4.2 -- See Exhibits 3.1 and 3.2 for provisions of the
Certificate of Incorporation and Bylaws of the Company
defining the rights of the holders of Common Stock.
"5.1 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of securities.
+10.1 -- Revolving Loan and Security Agreement dated August 5, 1993, by and between IBM Credit
Corporation and Allstar Systems, Inc.
II-2
*10.2 -- Agreement for Wholesale Financing dated September 20, 1993, by and between ITT Commercial
Finance Corp. and Allstar-Valcom, Inc.
*10.3 -- Amendment to Agreement for Wholesale Financing dated October 25, 1994, by and between ITT
Commercial Finance Corp. and Allstar Systems, Inc.
+10.4 -- Sublease Agreement dated August 2, 1996, by and between Allstar Equities and Allstar
Systems, Inc.
+10.5 -- Form of Employment Agreement by and between the Company and certain members of Management.
*10.6 -- Employment Agreement dated September 7, 1995, by and between Stratasoft, Inc. and William
R. Hennessy.
*10.7 -- Assignment of Certain Software dated September 7, 1995, by International Lan and
Communications, Inc. and Aspen System Technologies, Inc. to Stratasoft, Inc.
+10.8 -- Microsoft Solution Provider Agreement by and between Microsoft Corporation and Allstar
Systems, Inc.
+10.9 -- Novell Platinum Reseller Agreement dated February 22, 1989, by and between Novell, Inc.
and Allstar Systems, Inc.
+10.10 -- Promissory Note dated August 6, 1996, by and between James H. Long and Allstar Systems,
Inc.
+10.11 -- Allstar Systems, Inc. 1996 Incentive Stock Plan.
+10.12 -- Allstar Systems, Inc. 1996 Non-Employee Director Stock Option Plan.
*10.13 -- Primary Vendor Volume Purchase Agreement dated August 1, 1996 by and between Inacom Corp.
and Allstar Systems, Inc.
*10.14 -- Resale Agreement dated December 14, 1995, by and between Ingram Micro Inc. and Allstar
Systems, Inc.
+10.15 -- Volume Purchase Agreement dated October 31, 1995, by and between Tech Data Corporation and
Allstar Systems, Inc.
"10.16 -- Intelligent Electronics Reseller Agreement by and between Intelligent Electronics, Inc.
and Allstar Systems, Inc.
"10.17 -- MicroAge Purchasing Agreement by and between MicroAge Computer Centers, Inc. and Allstar
Systems, Inc.
"10.18 -- IBM Business Partner Agreement by and between IBM and Allstar Systems, Inc.
+10.19 -- Confirmation of Allstar Systems, Inc.'s status as a Compaq authorized reseller dated
August 6, 1996.
+10.20 -- Hewlett-Packard U.S. Agreement for Authorized Second Tier Resellers dated March 13, 1995,
by and between Hewlett-Packard Company and Allstar Systems, Inc.
+10.21 -- Associate Agreement dated May 23, 1996, by and between NEC America, Inc. and Allstar
Systems, Inc.
+10.22 -- Mitel Elite Dealer Agreement and Extension Addendum dated August 5, 1996, by and between
Mitel, Inc. and Allstar Systems, Inc.
*10.23 -- Dealer Agreement dated March 1, 1995, by and between Applied Voice Technology and Allstar
Systems, Inc.
*10.24 -- Industrial Lease Agreement dated March 9, 1996, by and between H-5 J.E.T. Ltd. as lessor
and Allstar Systems, Inc. as lessee.
*10.25 -- Lease Agreement dated June 24, 1992, by and between James J. Laney, et al. as lessors, and
Technicomp Corporation and Allstar Services as lessees.
+10.26 -- Consulting Agreement dated August 2, 1996, by and between Jack B. Corey and Allstar
Systems, Inc.
+10.27 -- Acknowledgement, Waiver and Amendment to Revolving Loan Agreement dated August 2, 1996, by
and between IBM Credit Corporation and Allstar Systems, Inc.
+10.28 -- Agreement dated August 5, 1996, by and between DFS and Allstar Systems, Inc.
+10.29 -- Letter Agreement dated September 12, 1996 by and between Jack B. Corey, Jakascki
Corporation, James H. Long, Allstar Equities, Inc. and Allstar Systems, Inc.
II-3
+10.30 -- 1996 Credit Line Uplift Program supplement to
Revolving Loan Agreement dated September 10, 1996, by
and between IBM Credit Agreement and Allstar Systems,
Inc.
+10.31 -- Insurance Proceeds Agreement dated August 2, 1996, by and between Jack B. Corey and
Allstar Systems, Inc.
*21.1 -- List of Subsidiaries of the Company.
*23.1 -- Consent and Report on Schedule of Deloitte & Touche LLP, independent auditors.
+23.2 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
24.1 -- Power of Attorney (included on the signature page hereto).
*27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
+ Filed herewith.
" To be filed by Amendment.
(b) Financial Statements Schedules:
The following financial statement schedule is included in Part II of this
Registration Statement, can be found on the page indicated and should be read in
conjunction with the financial statements and notes thereto:
ITEM PAGE
- ---------------------------------------- ----
Schedule II Valuation and Qualifying
Accounts.............................. S-1
All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are omitted because they are
not required under the related instructions, are inapplicable or the required
information is included elsewhere in the financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To provide to the underwriter at the closing date specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(2) That for the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and this
Offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James H. Long and Donald R. Chadwick, and each of
them, either of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of either of them, may lawfully do or cause to be done
by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on September 19, 1996.
ALLSTAR SYSTEMS, INC.
By: /s/JAMES H. LONG
James H. Long,
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the indicated
capacities and on the 19th day of September, 1996.
SIGNATURE TITLE DATE
- --------------------- -------------------------------- --------------------
/s/JAMES H. LONG Director, Chairman of the Board, September 19, 1996
JAMES H. LONG President and Chief Executive
Officer (Principal Executive Officer)
/s/DONALD R. CHADWICK Chief Financial Officer September 19, 1996
DONALD R. CHADWICK (Principal Financial Officer and
Principal Accounting Officer)
II-5
FINANCIAL STATEMENT SCHEDULE II
ALLSTAR SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGE TO CHARGE TO
BEGINNING COSTS AND OTHER OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS CHANGES END OF YEAR
- ---------------------------------------- ---------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Accumulated provision deducted from related assets on balance sheet:
Allowance for doubtful accounts receivable:
1995.......................... $ 188 $ 353 -- $ (77 )(A) $ 464
1994.......................... 41 170 -- (23 )(A) 188
1993.......................... 110 281 -- (350 )(A) 41
Inventory reserves:
1995.......................... $ 178 $ 190 -- -- $ 368
1994.......................... 216 -- -- $ (38 )(A) 178
1993.......................... 200 16 -- -- 216
Reserves other than those deducted from assets on balance sheet:
Allowance for doubtful vendor receivables:
1995.......................... $ 150 $ 155 -- $ (55 )(A) $ 250
1994.......................... 626 49 -- (525 )(A) 150
1993.......................... 445 181 -- -- 626
</TABLE>
- ------------
(A) Reductions related to amounts written off.
S-1
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger (this "Plan") dated September__, 1996,
is made and entered into pursuant to Section 252 of the General Corporation Law
of the State of Delaware (the "DGCL"), and Article 5.01 of the Texas Business
Corporation Act (the "TBCA") by and between Allstar Systems, Inc., a Delaware
corporation (the "Surviving Corporation"), and Allstar Systems, Inc., a Texas
corporation (the "Merged Corporation", and together with the Surviving
Corporation, collectively the "Constituent Corporations").
WITNESSETH:
WHEREAS, the Surviving Corporation is a corporation duly organized and
existing under the laws of the State of Delaware, having been incorporated on
August 21, 1996 and having authorized capital stock of 50,000,000 shares of
Common Stock, $.01 par value (the "Common Stock of the Surviving Corporation"),
and 5,000,000 shares of preferred stock, $.01 par value (the "Preferred Stock"),
none of which are outstanding;
WHEREAS, the Merged Corporation is a corporation duly organized and
existing under the laws of the State of Texas, having been incorporated on April
28, 1983, as "Technicomp, Inc.", and having changed its name to "Allstar-Valcom,
Inc." on June 30, 1993, and again to "Allstar Systems, Inc." on December 28,
1993, and having authorized capital stock of 1,000,000 shares of common stock,
no par value (the "Common Stock of the Merged Corporation"), 259,875 of which
shares are issued and outstanding in the name of James H. Long, 2,625 of which
shares are issued and outstanding in the name of Anthony Adame and 65,625 of
which shares are issued and outstanding in the name of Jack B. Corey;
WHEREAS, the respective Boards of Directors of the Merged Corporation
and the Surviving Corporation deem it advisable and in the best interests of
both corporations that the Merged Corporation be merged with and into the
Surviving Corporation as authorized by the DGCL and the TBCA under and pursuant
to the terms and conditions set forth herein, and the Boards of Directors of the
Merged Corporation and the Surviving Corporation have duly approved this Plan;
and
WHEREAS, the Merged Corporation and the Surviving Corporation intend for
this merger to be a merger within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and for the purpose of setting forth
the terms and conditions of this merger, the mode of carrying the same into
effect and such other details and provisions as are deemed necessary or
desirable, the parties hereto have agreed and do hereby agree, subject to the
approval or adoption of this Plan by the requisite vote of the stockholders of
the Merged Corporation, and subject to the conditions set forth herein, as
follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
At the Effective Time of the Merger (as hereinafter defined), the Merged
Corporation shall be merged with and into the Surviving Corporation, which shall
not be a new corporation, but which shall continue its corporate existence as a
Delaware corporation to be governed by the laws of the State of Delaware, which
shall continue to be named "Allstar Systems, Inc." and which shall maintain a
registered office in the State of Delaware at Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801.
ARTICLE II
TERMS AND CONDITIONS OF MERGER
The terms and conditions of the merger are (in addition to those set
forth elsewhere in this Plan) as follows:
(a) At the Effective Time of the Merger:
(1) The Constituent Corporations shall be a single corporation,
which shall be the Surviving Corporation.
(2) The separate existence of the Merged Corporation shall cease.
(3) The Surviving Corporation shall thereupon and thereafter
possess all of the rights, privileges, powers and franchises as well of
a public as of a private nature, and be subject to all the restrictions,
disabilities and duties of each Constituent Corporation; and all and
singular, the rights, privileges, powers and franchises of each
Constituent Corporation, and all property, real, personal and mixed, and
all debts due to either Constituent Corporation on whatever account, as
well for stock subscriptions as all other things in action or belonging
to each Constituent Corporation shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of
the respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise in either Constituent Corporation
shall not revert or be in any way impaired by reason of the merger; but
all rights of creditors and all liens upon any property of either
Constituent Corporation shall not revert or be in any way impaired by
reason of the merger; but all rights of creditors and all liens upon any
property of either Constituent Corporation shall be preserved
unimpaired, and all debts, liabilities and duties (including duties to
any dissenting stockholder of either of the Constituent Corporations) of
the respective Constituent Corporations shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted
by it. Specifically, but not by way of limitation, any action or
proceeding whether civil, criminal or administrative, pending by or
against either Constituent Corporation shall be prosecuted as if the
merger had to taken place, or the Surviving Corporation may be
substituted in such action or proceeding.
(4) All corporate acts, plans, policies, contracts, approvals and
authorizations of the Merged Corporation and its stockholders, Board of
Directors, committees elected or appointed by the Board of Directors,
officers and agents, which were valid and effective immediately prior to
the Effective Time of the Merger shall be taken for all purposes as the
acts, plans, policies, contracts, approvals and authorizations of the
Surviving Corporation and shall be as effective and binding thereon as
the same were with respect to the Surviving Corporation. The employees
of the Merged corporation shall become the employees of the Surviving
Corporation and continue to be entitled to the same rights and benefits
which they enjoyed as employees of the Merged Corporation.
(5) The assets, liabilities, reserves and accounts of each
Constituent Corporation shall be recorded on the books of the Surviving
Corporation at the amounts at which they, respectively, shall then be
carried on the books of such Constituent Corporation subject to such
adjustments or eliminations of intercompany items as may be appropriate
in giving effect to the merger.
ARTICLE III
CAPITALIZATION AND CONVERSION OF SHARES
The total authorized capital stock of the Surviving Corporation shall be
as set forth in the Certificate of Incorporation of the Surviving Corporation,
that is, 50,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share.
The manner and basis of converting the shares of the Constituent
Corporations and the mode of carrying the merger into effect shall be that, as
of the Effective Time of the Merger, each share of the Merged Corporation shall
be converted automatically into 8.152380952 shares of the Common Stock of the
Surviving Corporation.
From and after the Effective Time of the Merger, the holders of shares
in the Merged Corporation may submit the certificate or certificates
representing such shares to the Surviving Corporation in order to receive the
consideration specified in the preceding paragraph.
ARTICLE IV
CERTIFICATE OF INCORPORATION AND BYLAWS
(a) The bylaws of the Surviving Corporation as existing and constituted
immediately prior to the Effective Time of the Merger shall be the bylaws of the
surviving corporation.
ARTICLE V
OTHER PROVISIONS WITH RESPECT TO MERGER
(a) After the approval or adoption of this Plan by the Boards of
Directors of the Constituent Corporations in accordance with the requirements of
the DGCL and the TBCA, all required documents shall be executed, filed and
recorded and all required acts shall be done in order to accomplish the merger
under the provisions of the DGCL and the TBCA.
(b) This Plan may be terminated at any time prior to the Effective Time
of the Merger, whether before or after action thereon by the stockholders of the
Merged Corporation by mutual consent of the Constituent Corporations, expressed
by action of their respective Boards of Directors.
(c) Each Constituent Corporation shall bear and pay all costs and
expenses incurred by it or on its behalf (including without limitation fees and
expenses of financial consultants, accountants and counsel) in connection with
the consummation of the merger.
ARTICLE VI
APPROVAL AND EFFECTIVE TIME OF THE MERGER
(a) Subject to the following actions having been taken, the merger shall
become effective on the occurrence of the following events:
(1) this Plan shall be adopted and approved on behalf of the
Merged Corporation and on behalf of the Surviving Corporation in
accordance with the DGCL and the TBCA; and
(2) a Certificate of Merger, setting forth the information
required by, and executed and verified in accordance with, the DGCL,
shall be filed in the office of the Secretary of State of the State of
Delaware (the particular time and date at which such filing and
recording shall be accomplished being herein referred to as the
"Effective Time of the Merger"); and
(3) Articles of Merger, setting forth the information required by
and executed in accordance with the TBCA, shall be filed in the office
of the Secretary of State of the State of Texas.
(b) If at any time the Surviving Corporation shall consider or be
advised that any further assignment or assurance in law or other action is
necessary or desirable to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation the title to any property or rights of the Merged
Corporation acquired or to be acquired by or as a result of the merger, the
proper officers and directors of the Merged Corporation and the Surviving
Corporation, respectively, shall be and they hereby are severally and fully
authorized to execute and deliver such deeds, assignments and assurances in law
and take such other action as may be necessary or proper in the name of the
Merged Corporation or the Surviving Corporation to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and otherwise
carry out the purposes of this Plan.
(c) For the convenience of the parties and to facilitate the filing and
recording of this Plan, any number of counterparts hereof may be executed, and
each such counterpart shall be deemed to be an original instrument.
(d) This Plan and the legal relations between the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Delaware.
(e) This Plan cannot be altered or amended except pursuant to an
instrument in writing signed on behalf of the parties hereto.
ALLSTAR SYSTEMS, INC., a Delaware
corporation
Dated: By:
James H. Long, President
ALLSTAR SYSTEMS, INC., a Texas
corporation
Dated: By:
James H. Long, President
I, the undersigned Secretary of Allstar Systems, Inc., a Delaware corporation
(the "Company"), hereby certify that this Plan and Agreement of Merger has been
adopted pursuant to Section 251(f) of the DGCL and that no shares of stock of
the Company were issued prior to the adoption by the Board of Directors of the
resolution, dated September ___, 1996, approving this Plan and Agreement of
Merger.
By:
Donald R. Chadwick, Secretary
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
ALLSTAR SYSTEMS, INC.
ARTICLE I
NAME
The name of the corporation is ALLSTAR SYSTEMS, INC. (the "Corporation").
ARTICLE II
REGISTERED AGENT
The address of its registered office in the State of Delaware is located
at 1209 Orange Street, Wilmington, Delaware 19801, Newcastle County. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "DGCL").
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The amount of the total authorized capital stock of the Corporation is
50,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and 5,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock").
1
A. ISSUANCE OF PREFERRED STOCK. Preferred Stock may be issued from time
to time by the board of directors as shares of one or more series. Subject to
the provisions hereof and the limitations prescribed by law, the board of
directors is hereby vested with the authority and is expressly authorized, prior
to issuance, by adopting resolutions providing for the issuance of, or providing
for a change in the number of, shares of any particular series and, if and to
the extent from time to time required by law, by filing a certificate pursuant
to the DGCL (or other law hereafter in effect relating to the same or
substantially similar subject matter), to establish or change the number of
shares to be included in each such series and to fix the designation and powers,
preferences and rights and the qualifications and limitations or restrictions
thereof relating to the shares of each such series, all to the maximum extent
permitted by the DGCL as in effect on the date hereof or as hereafter amended.
The vested authority of the board of directors with respect to each series shall
include, but not be limited to, the determination of the following:
(1) the distinctive serial designation of such series and the
number of shares constituting such series (provided that the aggregate
number of shares constituting all series of Preferred Stock shall not
exceed 5,000,000);
(2) The annual dividend rate, if any, on shares of such series
and the preferences, if any, over any other series (or of any other
series over such series) with respect to dividends, and whether
dividends shall be cumulative and, if so, from which date or dates;
(3) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(4) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or purchase fund
and, if so, the terms of such obligation;
(5) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes, any
stock of any series of the same class or any other class or classes or
any evidence of indebtedness and, if so, the terms and conditions of
such conversion or exchange, including the price or prices or the rate
or rates of conversion or exchange and the terms of adjustment, if any;
(6) whether the shares of such series shall have voting rights in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights,
2
including, without limitation, whether such shares shall have the right
to vote with the Common Stock on issues on an equal, greater or lesser
basis;
(7) the rights of the shares of such series in the event of a
voluntary or involuntary liquidation, dissolution, winding up or
distribution of assets of the Corporation;
(8) whether the shares of such series shall be entitled to the
benefit of conditions and restrictions upon (i) the creation of
indebtedness of the Corporation or any subsidiary, (ii) the issuance of
any additional stock (including additional shares of such series or of
any other series) or (iii) the payment of dividends or the making of
other distributions on the purchase, redemption or other acquisition by
the Corporation or any subsidiary of any outstanding stock of the
Corporation; and
(9) any other relative, rights, powers, preferences,
qualifications, limitations or restrictions thereof, including, but not
limited to, any that may be determined in connection with the adoption
of any stockholder rights plan after the date hereof, relating to any
such series.
Except where otherwise set forth in the resolution or resolutions adopted by the
board of directors providing for the issuance of any series of Preferred Stock,
the number of shares comprising such series may be increased or decreased (but
not below the number of shares then outstanding) from time to time by like
action of the board of directors. The shares of Preferred Stock of any one
series shall be identical with the other shares in the same series in all
respects except as to the dates from and after which dividends thereon shall
cumulate, if cumulative.
B. REDEEMED OR REQUIRED SHARES OF PREFERRED STOCK. Shares of any series
of any Preferred Stock that have been redeemed (whether through the operation of
a sinking fund or otherwise) or purchased by the Corporation, or which, if
convertible or exchangeable, have been converted into, or exchanged for, shares
of stock of any other class or classes or any evidences of indebtedness shall
have the status of authorized and unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the board of directors or as part of any
other series of Preferred Stock, all subject to the conditions or restrictions
on issuance set forth in the resolution or resolutions adopted by the board of
directors providing for the issuance of any series of Preferred Stock and to any
filing required by law.
C. INCREASE IN AUTHORIZED PREFERRED STOCK. The number of authorized
shares of Preferred Stock may be increased or decreased by the affirmative vote
of the holders
3
of a majority of the stock of the Corporation entitled to vote without the
separate vote of holders of Preferred Stock as a class.
D. DENIAL OF PREEMPTIVE RIGHTS. No holder of any stock of the
Corporation shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into stock of any
class whatsoever, whether now or hereafter authorized, or whether issued for
cash or other consideration or by way of dividend.
E. DENIAL OF CUMULATIVE VOTING. No holder of any stock of the
Corporation shall have the right of cumulative voting at any election of
directors or upon any other matter.
ARTICLE V
EXISTENCE
The existence of the Corporation is to be perpetual.
ARTICLE VI
DIRECTOR LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article VI shall not eliminate or limit
the liability of a director:
(1) for any breach of the director's duty of loyalty to the
Corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(3) under Section 174 of the DGCL, as it may hereafter be
amended from time to time, for any unlawful payment of a dividend or
unlawful stock purchase or redemption, or
(4) for any transaction from which the director derived an
improper personal benefit.
If the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. No
4
amendment to or repeal of this Article VI will apply to, or have any effect on,
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of the director occurring prior to such
amendment or repeal.
ARTICLE VII
INDEMNIFICATION
A. MANDATORY INDEMNIFICATION. Each person who at any time is or was a
director or officer of the Corporation, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, whether the basis of
a Proceeding is alleged action in such person's official capacity or in another
capacity while holding such office, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the DGCL, as the same exists
or may hereafter from time to time be amended, or any other applicable law as
may from time to time be in effect (but, in the case of any such amendment or
enactment, only to the extent that such amendment or law permits the Corporation
to provide broader indemnification rights than such law prior to such amendment
or enactment permitted the Corporation to provide), against all expense,
liability and loss (including, without limitation, court costs and attorneys'
fees, judgments, fines, excise taxes or penalties, and amounts paid or to be
paid in settlement) actually and reasonably incurred or suffered by such person
in connection with a Proceeding if such person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, and
such indemnification shall continue as to a person who has ceased to be a
director or officer of the Corporation or a director, officer, partner,
venturer, proprietor, member, employee, trustee, agent or similar functionary of
another domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise, and shall inure to the benefit of such person's heirs, executors and
administrators. The Corporation's obligations under this Section A include, but
are not limited to, the convening of any meeting, and the consideration of any
matter thereby, required by statute in order to determine the eligibility of any
person for indemnification.
B. PREPAYMENT OF EXPENSES. Expenses incurred by a director or officer of
the Corporation in defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding to the fullest extent
permitted by, and only in compliance with, the DGCL or any other applicable laws
as may from time to time be in
5
effect, including, without limitation, any provision of the DGCL which requires,
as a condition precedent to such expense advancement, the delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under Section A of this
Article VIII or otherwise. Repayments of all amounts so advanced shall be upon
such terms and conditions, if any, as the Corporation's board of directors deems
appropriate.
C. VESTING. The Corporation's obligation to indemnify and to prepay
expenses under Sections A and B of this Article VIII shall arise, and all rights
granted to the Corporation's directors and officers hereunder shall vest, at the
time of the occurrence of the transaction or event to which a Proceeding
relates, or at the time that the action or conduct to which such Proceeding
relates was first taken or engaged in (or omitted to be taken or engaged in),
regardless of when such Proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
bylaws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the bylaws of the Corporation
or otherwise, shall diminish or adversely affect any rights to indemnification
or prepayment of expenses granted under Sections A and B of this Article VIII
which shall have become vested as aforesaid prior to the date that such
amendment or other corporate action is effective or taken, whichever is later.
D. ENFORCEMENT. If a claim under Section A or Section B or both Sections
A and B of this Article VIII is not paid in full by the Corporation within
thirty (30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit in a court of competent
jurisdiction against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall also be entitled to
be paid the expense of prosecuting such claim. It shall be a defense to any such
suit (other than a suit brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the DGCL or other applicable law to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation. The
failure of the Corporation (including its board of directors, independent legal
counsel, or stockholders) to have made a determination prior to the commencement
of such suit as to whether indemnification is proper in the circumstances based
upon the applicable standard of conduct set forth in the DGCL or other
applicable law shall neither be a defense to the action nor create a presumption
that the claimant has not met the applicable standard of conduct. The
termination of any Proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the
6
best interests of the Corporation, and, with respect to any criminal Proceeding,
had reasonable cause to believe that his conduct was unlawful.
E. NONEXCLUSIVE. The indemnification provided by this Article VII shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, bylaw, other provisions of
this Certificate of Incorporation, agreement, vote of by the stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
7
F. PERMISSIVE INDEMNIFICATION. The rights to indemnification and
prepayment of expenses which are conferred to the Corporation's directors and
officers by Sections A and B of this Article VII may be conferred upon any
employee or agent of the Corporation if, and to the extent, authorized by the
board of directors.
G. INSURANCE. The Corporation shall have power to purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify him against such expense, liability or loss under the Corporation's
bylaws, the provisions of this Article VII, the DGCL or other applicable law.
H. OTHER ARRANGEMENTS FOR INDEMNIFICATION. Without limiting the power of
the Corporation to procure or maintain insurance or other arrangement on behalf
of any of the persons as described in paragraph G of this Article VII, the
Corporation may, for the benefit of persons eligible for indemnification by the
Corporation, (1) create a trust fund, (2) establish any form of self-insurance,
(3) secure its indemnity obligation by grant of a security interest or other
lien on the assets of the Corporation or (4) establish a letter of credit,
guaranty or surety arrangement.
ARTICLE VIII
BOARD OF DIRECTORS
All powers of the Corporation shall be vested in and exercised by or
under the direction of the board of directors except as otherwise provided
herein or required by law.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further creation, definition, limitation and regulation
of the power of the Corporation and of its directors and stockholders, it is
further provided:
A. NUMBER OF BOARD. The number of directors constituting the initial
board of directors shall be five.
8
B. QUORUM. A majority of the number of directors constituting the board
of directors will constitute a quorum for the transaction of business at
meetings of the board of directors.
C. REQUISITE VOTE. The requisite vote or concurrence of the board of
directors required to take board action shall be the vote or concurrence of a
majority of the directors present at the meeting at which a quorum is present.
D. ACTION WITHOUT A MEETING. Any action required or permitted by law or
by the Certificate of Incorporation or the bylaws of the Corporation to be taken
at a meeting of the board of directors or a committee thereof may be taken
without a meeting, without prior notice, and without a vote, if a written
consent or consents, setting forth the action so taken, shall have been signed
by all the members of the board of directors or such committee.
E. VACANCIES. Any vacancy occurring in the board of directors or any
directorship to be filled by reason of an increase in the number of directors
shall be filled exclusively by election at an annual or special meeting of
stockholders called for that purpose. A director elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office.
F. ADVANCE NOTICE OF NOMINATIONS. Advance notice of nominations for the
election of directors, other than by the board of directors or a Committee
thereof, shall be given in the manner provided in the Bylaws.
G. REMOVAL. Any director may be removed from office only for cause and
only by the affirmative vote of the holders of the holders of two-thirds or more
of the voting power of the then outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class.
Except as may otherwise be provided by law, cause for removal shall be construed
to exist only if during a director's term as director of the Corporation: (a)
such director has been convicted of a felony involving moral turpitude by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal; (b) there is proof beyond a reasonable doubt that the director
whose removal is proposed has committed grossly negligent or wilful conduct
resulting in a material detriment to the Corporation; or (c) such director has
committed a material breach of fiduciary duty to the Corporation resulting in a
material detriment to the Corporation.
H. STOCKHOLDER ACTION. Stockholder action can only be taken at an annual
or special meeting, and stockholders are prohibited from taking action without a
meeting. Except as otherwise required by law, special meetings of the
stockholders of the Corporation may be called only by the Chairman of the Board,
the Chief Executive Officer, the President or the board of directors by the
written order of a majority of the entire board of directors, upon the written
request of stockholders owning two-thirds or more of the
9
entire capital stock of the Corporation issued and outstanding and entitled to
vote, stating the purpose of such meeting delivered to the Chairman of the
Board, the President or the Secretary.
10
I. AMENDMENTS OF BYLAWS. The board of directors shall have the power to
make, alter, amend and repeal the bylaws. Any bylaws made by the board of
directors under the powers conferred hereby may be altered, amended or repealed
by the directors or by the stockholders; provided, however, that the bylaws
shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted by stockholder action without the affirmative vote of
at least two-thirds of the voting power of the then outstanding shares entitled
to vote generally in the election of directors, voting together as a single
class, and in the case of bylaws relating to (i) the prohibition of stockholder
action without a meeting; (ii) the number, election and term of the
Corporation's directors; (iii) the prohibition of, or limitation on,
stockholders calling a special meeting; or (iv) the removal of directors,
without the affirmative vote of at least two-thirds of the voting power of the
then outstanding shares entitled to vote generally at the election of directors,
voting together as a single class.
J. AMENDMENTS OF CERTIFICATE OF INCORPORATION. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of two-thirds of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class shall be required to alter, amend, adopt any
provision inconsistent with, or repeal, this Article VIII or any provision
hereof.
K. ELECTION BY WRITTEN BALLOT. Election of directors need not be by
written ballot unless the bylaws of the Corporation so provide.
ARTICLE IX
INCORPORATOR
The name and address of the incorporator is James H. Long, 6401
Southwest Freeway, Houston, Texas 77074.
Dated: August 20, 1996 \s\ JAMES H. LONG
James H. Long, Incorporator
11
EXHIBIT 10.1
REVOLVING LOAN AGREEMENT
This Revolving Loan Agreement ("Agreement") is hereby made this 5th day OF
AUGUST, 1993, BY AND BETWEEN IBM CREDIT CORPORATION, WITH AN OFFICE at 2707 W.
Butterfield Road, Oak Brook, IL 60521 ("IBM Credit") and ALLSTAR-VALCOM, INC., a
Texas corporation with its principal place of business at 6401 Southwest
Freeway, Houston, TX 77074 ("Customer").
1. DEFINITIONS
1.1 Special Definitions. The following terms shall have the following
respective meaning in this Agreement and in Other Agreements:
"A/R Advance": any loan or advance of funds made by IBM Credit to
Customer pursuant to Section 3.3 of this Agreement.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R
Advance under this Agreement.
"A/R Revolver Financing Charge": as defined in Attachment A.
"Accounts": all existing and, immediately upon creation, future
accounts, leases, contract rights, chattel paper, choses in action and
instruments, including any lien or other security interest that secures
or may secure any of the foregoing, plus all books, invoices, documents
and other records in any form evidencing or relating to any of the
foregoing.
"Advance": any loan or other extension of credit by IBM Credit to
Customer including, without limitation, (1) Product Advances and (2) A/R
Advances.
"Available A/R Credit": at any time, (1) the Maximum A/R Advance Amount
less (2) the Outstanding Advances at such time.
"Borrowing Base": As defined in Attachment A. Standards in respect to
which of Customer's assets are to be included within the Borrowing Base
and the valuation to be assigned thereto may be fixed and revised from
time to time by IBM Credit in the exercise of its sole discretion. IBM
Credit's decision with respect to the exclusion from the Borrowing Base
of one or more categories of Customer's assets or the revision of the
valuation to be assigned thereto shall be effective on the date which is
thirty (30) calendar days after the date on which
1
IBM Credit gives written notice thereof to Customer; provided, however,
that if, as of any date of determination,
Customer is in violation of any covenant in this Agreement or any Other
Agreement or prior to which a Default has occurred, such decision shall
be effective immediately.
"Business Day": any day other then a Saturday, Sunday, or legal holiday
on which commercial banks in New York, NY are generally closed or on
which IBM Credit is closed.
"Closing Date": the date upon which all conditions precedent to the
effectiveness of this Agreement are performed to the satisfaction of IBM
Credit or waived in writing by IBM Credit.
"Collateral":as defined in Section 4. 1.
"Default": Either (1) an Event of Default, or (2) any event or condition
which, but for the requirement that notice be given of time lapse or
both, would be an Event of Default.
"Delinquency Fee Rate": as defend in Attachment A.
"Guarantor": a guarantor of any of the Obligations.
"Line of Credit": as defined in Section 2. 1.
"Maximum A/R Advance Amount": at any time, the lesser of (1) the amount
of the Line of Credit at such time and (2) the Borrowing Base at such
time.
"Obligations":all covenants, agreements, warranties, duties,
representations, loans, advances, liabilities and indebtedness of any
kind and nature whatsoever now or hereafter arising, owing, due or
payable from Customer to IBM Credit (and any of its subsidiaries and
affiliates), whether primary or secondary, joint or several, direct,
contingent, fixed or otherwise, secured, unsecured or arising under this
Agreement, the Other Agreements or any agreements previously, now or
hereafter executed by Customer and delivered to IBM Credit or by oral
agreement or operation of law and whether or not evidenced by
instruments of indebtedness. "Obligations" shall include, without
limitation, any third party claims against Customer satisfied or
acquired by IBM Credit.
"Other Agreements": all security agreements, mortgages, leases,
instruments, documents, guarantees, schedules of assignment, contracts
and similar agreements heretofore, now or hereafter executed by Customer
and delivered to IBM Credit or delivered by or on behalf of Customer to
a third party and assigned to IBM Credit by operation of law or
otherwise.
2
"Outstanding Advances": at the time of determination, (1) the
Outstanding A/R Advances plus (2) the Outstanding Product Advances.
"Outstanding A/R Advances": at the time of determination, (1) the unpaid
amount of all A/R Advances made by IBM Credit under this Agreement- and
(2) any finance charge, fee, expense, or other amount related to A/R
Advances charged to Customer's account with IBM Credit.
"Outstanding Product Advances": at any time of determination, (1) the
unpaid amount of all Product Advances, and (2) any finance charge, fee,
expense or other amount related to Product Advances charged to
Customer's account with IBM Credit.
"Periodic Rate": the A/R Revolver Financing Charge or Delinquency Fee
Rate, as the case may be, multiplied by the quotient of the number of
days elapsed in the applicable billing period divided by 360.
"Person": any individual, association, firm, corporation, governmental
BODY, agency or instrumentality whatsoever.
"Policies": all policies of insurance required to be maintained by
Customer under this Agreement or any of the Other Agreements.
"Prime Rate": the average of the rates of interest announced by Citibank
N.A., Chase Manhattan Bank, N.A., and Bank of America National Trust &
Savings Association as their prime or base rate, as of the last Business
Day of the calendar month immediately preceding the determination of any
finance charge hereunder, whether or not such announced rates are the
actual rates charged by such banking institutions to their most
credit-worthy borrowers on an unsecured basis. IBM Credit reserves the
right to, upon written notice to Customer, establish a minimum Prime
Rate, provided however, that such minimum Prime Rate does not exceed the
then existing Prime Rate at the time IBM Credit exercises such right.
"Product Advances": any advance of funds made or committed to be made by
IBM Credit for the account of Customer pursuant to that certain
Agreement for Wholesale Financing dated ______,____ as amended from time
to time, executed by Customer's predecessor in interest, Technicomp
Corp. in favor of IBM Credit (the "AWF") and in connection with IBM
Credit's extension of credit and financing for Customer's purchases of
inventory and equipment.
1.2 Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in Illinois (the
"UCC") shall have the meanings assigned to them therein.
3
1.3 Subordination Agreements. The security interests granted herein are or
may become subject to any subordination or similar agreements which now
exists or which hereinafter may be executed by IBM Credit in favor of
another secured creditor ("Subordination Agreements").
1.4 Supplement. If Customer and IBM Credit have heretofore executed Other
Agreements in connection with all or any part of the Collateral as
defined in Section 4.1 herein, this Agreement shall supplement each and
every Other Agreement previously executed by and between Customer and
IBM Credit, and in that event this Agreement shall neither be deemed a
novation nor a termination of any such previously executed Other
Agreement nor shall execution of this Agreement be deemed a satisfaction
of any obligation secured by such previously executed Other Agreement.
2. LINE OF CREDIT/INTEREST RATES/CHARGES
2.1 Line of Credit. In consideration of Customer's performance of its
Obligations and subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date
on which this Agreement is terminated pursuant to Section 7, IBM Credit
agrees to grant to Customer a line of credit (the "Line of Credit") in
the amount set forth in Attachment A to this Agreement pursuant to which
IBM Credit will make to the Customer, from time to time, Advances-
provided, however, that (i) the aggregate Outstanding Product Advances
shall not exceed the amount set forth in Exhibit A as "Maximum Product
Advances" at any time- and (ii) the aggregate Outstanding A/R Advances
shall not exceed the Maximum A/R Advance Amount at any time. Each A/R
Advance made pursuant to this Agreement shall not exceed the Available
A/R Credit on the A/R Advance Date for such A/R Advance.
2.2 Interest. (A) Each A/R Advance shall accrue interest at a rate per annum
equal to the lesser of (a) the A/R Revolver Financing Charge and (b) the
highest rate from time to time permitted by applicable law. If it is
determined that amounts received from Customer in excess of such highest
rate, then the amount representing such excess shall be considered
reductions to principal.
(B) If any amount owed under this Agreement, including without
limitation any A/R Advance, is not paid when due (whether at maturity,
by acceleration or otherwise), the unpaid amount thereof will bear
interest from and including its due date to but not including the date
IBM Credit receives payment thereof, at a rate per annum equal to the
lesser of (a) the Delinquency Fee Rate and (b) the highest rate from
time to time permitted by applicable law. If it is determined that
amounts received from Customer in excess of such highest rate, then the
amount representing such excess shall be considered reductions to
principal.
4
The A/R Revolver Financing Charge and the Delinquency Fee Rate provided
for in this Agreement are computed on the basis of an actual day, 360
day year and are calculated by multiplying the applicable Periodic Rate
for the billing period by the applicable Average Daily Balance (as
hereinafter defined) of Customer's Outstanding A/R Advances during said
period. The "Average Daily Balance" of Customer's Outstanding A/R
Advances shall be equal to the sum of the Outstanding A/R Advances as of
the end of each day during the billing period, divided by the number of
days in the billing period. The A/R Revolver Financing Charge and
Delinquency Fee Rate for each billing period are based upon floating
rates which shall be adjusted as of the first Business Day of each
billing period based upon the Prime Rate in effect as of the last
business Day of the immediately preceding calendar month.
2.3 Charges. Customer hereby agrees to pay to IBM Credit the charges set
forth in the "Other Charges" section of Attachment A to this Agreement.
Customer hereby acknowledges that any such charges are not interest but
that such charges, if unpaid, will constitute part of the principal from
time to time outstanding.
2.4 Voluntary Prepayment. Customer may at any time prepay in whole or in
part all amounts owed under this Agreement. IBM Credit may apply
payments made to it (whether by the Customer or otherwise) to pay
interest and other amounts owing under this Agreement and the AWF first
and then to any principal amount owed by the Customer. IBM Credit may,
but shall not be obligated to, apply principal payments to the oldest
(earliest) Advances first.
2.5 Payments.
(A) If, on any date, the Outstanding A/R Advances shall exceed the
Maximum A/R Advance Amount (such excess, the "Shortfall Amount"), the
Customer shall on such date prepay the A/R Advances in an amount equal
to the Shortfall Amount.
(B) the finance charges and Other Charges owed under this Agreement, and
any changes hereafter agreed to by the parties are payable monthly on
receipt of IBM Credit's bill or statement of IBM Credit may, in its sole
discretion, add the finance charges and Other Charges to Customer's
Outstanding A/R Advances. Each statement of account and billing
statement delivered by IBM Credit to Customer and relating to the
Obligations shall be presumed to be correct and accurate and shall
constitute an account stated fully binding upon Customer unless, within
ten (10) calendar days after the statement is received by Customer,
Customer shall give to IBM Credit written objection specifying the error
or errors, if any, contained in that statement. Customer shall be deemed
to have received such statement three (3) Business Days from the date
IBM Credit mails such statement United States first-class mail, postage
prepaid, and properly addressed to Customer.
5
3. LINE OF CREDIT - ADDITIONAL PROVISIONS
3.1 Product Advances. IBM Credit will, from time to time, make Product
Advances in accordance with the terms, conditions and procedures of the
Customer's inventory financing plan under the AWF. Product Advances
shall be due and payable to IBM Credit in accordance with the terms of
such inventory financing plan.
3.2 Repayment of Product Advances. Customer may, at its option, repay each
Product Advance by either (i) paying IBM Credit as such indebtedness
becomes due and payable, or (ii) requesting IBM Credit to apply all or
any of the principal amount of an A/R Advance to the indebtedness due
and payable. Customer's request for such application shall be made in
accordance with Section 3.3. When so requested and subject to the terms
and conditions of this Agreement, IBM Credit shall apply the principal
amount of such A/R Advance to Customer's Outstanding Product Advances in
accordance with the terms and conditions of the AWF. Nothing in this
Agreement shall relieve Customer of its obligation to repay Product
Advances when due.
3.3 Procedures for A/R Advances. Customer shall deliver to IBM Credit
written notice ("Notice of Request for A/R Advance") of Customer's
request for an A/R Advance no later than __________ a.m. Central time on
the requested Advance Date. Customer may deliver a Notice of Request for
A/R Advance via facsimile. The Notice of Request for A/R Advance shall
specify (i) the requested Advance Date, (ii) the amount of the requested
A/R Advance, and (iii) if applicable, the amount of the requested A/R
Advance that should be applied to Customer's Outstanding Product
Advances. Customer shall include a schedule of accounts ("Schedule of
Accounts") summarizing all Accounts created or acquired by Customer
since the previous Schedule of Accounts with each Notice of Request for
A/R Advance; provided, however, that failure to do so will not impair
IBM Credit's rights and security interest with respect to all of
Customer's Accounts. Any Notice of Request for A/R Advance delivered to
IBM Credit shall be irrevocable.
3.4 Portion of A/R Advance Not Applied to Product Advance. Subject to the
terms and conditions of this Agreement, on the Advance Date specified in
a Notice of Request for A/R Advance, IBM Credit shall make any principal
amount not to be applied to the repayment of a Product Advance available
to Customer in immediately available funds by wire transfer to an
account maintained by Customer or as otherwise agreed by Customer and
IBM Credit.
3.5 Reborrowing By Customer. Subject to the terms and conditions of this
Agreement, any amount prepaid or repaid to IBM Credit in respect to the
Outstanding A/R Advances may be reborrowed by Customer.
6
3.6 Conditions to Each Advance. No Advance will be made under this Agreement
unless, on and as of the date of such Advance, the following statements
shall be true to the satisfaction of IBM Credit:
(a) The representations and warranties contained in this Agreement
and in each Other Agreement are true and correct on and as of the
date of such Advance as though made on and as of such date;
(b) No event has occurred and is continuing, or would result from
such Advance or the application of the proceeds thereof, which
would constitute a Default;
(c) No change or development of event involving a prospective change,
which in an such case, has had or could reasonably be expected to
have a material adverse effect on (i) the Customer's business
(financial or otherwise), (ii) value of the Collateral or the
amount which IBM Credit would be likely to receive in the
liquidation of such Collateral, (iii) the Customer's ability to
perform its Obligations, or (iv) the rights and remedies of IBM
Credit under this Agreement or the Other Agreements, shall have
occurred and be continuing; and
(d) Both before and after giving effect to the making of such
Advance, no Shortfall Amount exists.
Each request for an Advance or the receipt by the Customer of the
proceeds of any Advance shall be deemed to be a representation and
warranty by the Customer that, as of and on the date of such Advance,
the statements set forth in (A) through (D) above are true statements.
3.7 Ineligible Accounts. IBM Credit shall have the sole right to determine
eligibility of Accounts (the "Eligible Accounts"), and without limiting
IBM Credit's discretion in that regard, IBM Credit and Customer agree
that the following Accounts will be deemed ineligible.
(a) Accounts created from the sale of goods and services on
non-standard terms and/or that allow for payment to be made later
than thirty (30) days from the date of sale;
(b) Accounts unpaid more than ninety (90) days from date of invoice;
(c) Accounts of any obligor with fifty percent (50%) or more of the
outstanding balance unpaid for more than ninety (90) days from
the date of invoice;
7
(d) Accounts with respect to which the obligor is an officer,
employee, agent, parent, guarantor, subsidiary or affiliate of
Customer or is related to or has common shareholders, officers or
directors with Customer;
(e) Accounts arising from Consignment sales;
(f) Accounts with respect to which the payment by the obligor is or
may be conditional;
(g) Except for state, local, and United States government
institutions and public educational institutions, accounts with
respect to which
(I) the obligor is not a commercial or institutional entity,
or
(II) the obligor is not a resident of the United States;
(h) Accounts with respect to which Customer is or may become liable
to the obligor thereof for goods sold or services rendered by
such obligor to Customer;
(i) Accounts which represent goods purchased for a personal, family
or household purpose;
(j) Accounts which represent goods that have been used for
demonstration purposes or loaned by the Customer to another
party;
(k) Accounts which are progress payment accounts or contra accounts;
(1) Accounts which are, or Customer knows will become, subject to
proceedings under United States Bankruptcy Law or other law for
the relief of debtors;
(m) Accounts which are not payable IN US dollars;
(n) Accounts of any obligor who is a stockholder of Customer; they
are shipped by Customer;
(q) Accounts with respect to which Customer has permitted or agreed
to any extension, compromise or settlement, or made any change or
modification of any kind or nature, including, but not limited
to, any change or modification to the terms relating thereto;
(r) Accounts which do not represent undisputed bona fide transactions
completed in accordance with the terms and conditions contained
in the invoices and purchase orders relating thereto;
8
(s) Accounts which are discounted for the full payment term specified
in Customer's terms and conditions with its obligors, or for any
longer period of time;
(t) Accounts on cash on delivery (COD) terms;
(u) Accounts arising from maintenance or service contracts which are
billed in advance of full performance of service;
(v) Accounts arising from bartered transactions;
(w) Accounts arising from incentive payments, rebates, discounts,
credits, and refunds and
(x) Any and all other Accounts which IBM Credit deems, in its
Permitted Discretion, to be unacceptable.
If IBM Credit determines that any Account is or becomes an ineligible
Account, immediately upon notice thereof from IBM Credit, Customer shall
pay to IBM Credit an amount equal to the monies theretofore loaned or
advanced by IBM Credit upon or in respect of such ineligible Account.
The aggregate of all Accounts of Customer which are not deemed to be
ineligible Accounts by IBM Credit, shall be Eligible Accounts.
3.8 Reimbursement for Charges. Customer agrees to reimburse IBM Credit for
all charges that may be paid by IBM Credit with respect to collection of
checks and other items of payment, all fees relating to the use and
maintenance of the Lockbox and the Special Account (each as defined in
Section 3.3) with respect to remittances of proceeds of the loans
hereunder.
3.9 Lockbox and Special Account. Customer shall establish and maintain a
lockbox (the "Lockbox") at the address set forth in Exhibit A with a
financial institution ("Bank") pursuant to an agreement between the
Customer and Bank in form and substance satisfactory to IBM Credit.
Customer shall also establish and maintain a deposit or checking account
(the "Special Account") with the bank. Customer shall enter into a
blocked account agreement with the Bank for the benefit of IBM Credit in
form and substance satisfactory to the Bank and IBM Credit pursuant to
which, among other things, the Bank shall agree that disbursements from
Special Account shall be made only as IBM Credit shall direct.
3.10 Collections. Customer shall instruct all Account obligors to remit
payments directly to the Lockbox. In addition, Customer shall have such
instruction printed in conspicuous type on all invoices. IBM Credit may
at its option, at any time and from time to time notify any Account
obligor or obligors of the assignment of Accounts and collect the same.
In the event Customer receives a remittance in respect of an Account,
Customer shall hold all
9
money, checks, notes, drafts, other things of value and items of payment
shall be received by Customer solely as agent and in +trust for IBM
Credit. Customer shall deposit into the Special Account, (properly
endorsed if necessary), on the day of receipt thereof, all original
checks, drafts, acceptances, notes and other evidences of, or properties
constituting payment of, or on account of, Accounts, including all cash.
Customer shall have no right and agrees not to commingle with its own
funds or to use, divert or withhold any of the proceeds of any
collections received thereon. Customer shall make entries on its books
and records in a form satisfactory to IBM Credit and shall keep a
separate account on its record books of all collections received
thereon. Until delivery to IBM Credit, Customer shall keep all
remittances received separate and apart from Customer's funds so that
they are capable of identification as the property of IBM Credit.
3.11 Collection Days. Any Customer payments to IBM Credit in respect to the
Outstanding A/R Advances and all amounts received by IBM Credit in
respect of any Account will be credited by IBM Credit to the repayment
of the Customer's Outstanding A/R Advances no later than three (3)
Business Days of the actual receipt of such payments and amounts.
Notwithstanding the foregoing, the crediting of amounts received by IBM
Credit shall IN all cases be subject to the final collection thereof.
3.12 Power of Attorney. Customer hereby irrevocably appoints IBM Credit (and
any person designated by it) as Customer's true and lawful Attorney in
fact with full power to at any time, in good faith and in compliance
with commercially reasonable standards, in the discretion of IBM Credit:
(a) upon the occurrence and during the occurrence of an Event of
Default, to demand payment, enforce payment and otherwise
exercise all Customer's rights and remedies with respect to the
collection of any Accounts;
(b) upon the occurrence and during the occurrence of an Event of
Default, to settle, adjust, compromise, extend or renew any
Accounts;
(c) settle, adjust or compromise any legal proceedings brought to
collect any Accounts;
(d) upon the occurrence and during the occurrence of an Event of
Default, to sell or assign any Accounts upon such terms, for such
amounts and at such time or times as IBM Credit may deem
advisable;
(e) upon the occurrence and during the occurrence of an Event of
Default, to discharge and release any Accounts;
10
(f) prepare, file and sign Customer's name on any proof of claim in
Bankruptcy or similar document against any obligor;
(g) prepare, file and sign Customer's name on any notice of lien,
claim or mechanic's lien, assignment or satisfaction of lien or
mechanic's lien, or similar document in connection with any
Accounts;
(h) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to any Account or goods pertaining
thereto;
(i) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for
application to the Obligations;
(j) sign the name of Customer to requests for verification of
Accounts and notices thereof to obligors;
(k) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and
maintain perfected the security interest in the collateral
contemplated under this Agreement and the Other Agreements;
(l) make, settle and adjust claims under the Policies and endorse
Customer's name on any check, draft, instrument or other item of
payment of the proceeds of the Policies;
(m) take control in any manner of any item of payment or proceeds and
for such purpose to notify the Postal Authorities to change the
address for delivery of mail addressed to Customer to such
address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled
with an interest and is irrevocable so long as any Obligations remain
outstanding and nothing done by IBM Credit pursuant to such power of
attorney will reduce any Customer's Obligations.
3.13 Continuing Requirements. Customer shall:
(a) if from time to time required by IBM Credit, immediately upon
their creation, deliver to IBM Credit copies of all invoices,
delivery evidences and other such documents relating to each
Account;
11
(b) within three (3) Business Days upon Customer's learning thereof,
inform IBM Credit in writing of any rejection of goods by any
Account obligor, delays in delivery of goods, non-performance of
contracts and of any assertion of any claim, offset or
counterclaim by any Account obligor;
(c) not permit or agree to any extension, compromise or settlement or
make any change or modification of any kind or nature with
respect to any Account, including any of the terms relating
thereto;
(d) within three (3) business Days upon Customer's learning thereof,
furnish to and inform IBM Credit of all adverse information
relating to the financial condition of any obligor;
(e) affix appropriate endorsements or assignments upon all such items
of payment and proceeds so that the same may be properly
deposited by IBM Credit to IBM Credit's account;
(f) within three (3) Business Days upon Customer's learning thereof,
notify IBM Credit in writing which Accounts may be deemed
ineligible as defined in Subsection 3.7 herein;
(g) keep all goods rejected or returned by any Account obligor and
all goods repossessed or stopped in transit by Customer from any
Account obligor segregated from other property of Customer,
holding the same in trust and as trustee for IBM Credit until
otherwise directed in writing by IBM Credit;
(h) stamp or otherwise mark chattel paper and instruments now owned
or hereafter acquired by it to show that the same are subject to
IBM Credit's security interest and immediately thereafter deliver
or cause such chattel paper and instruments to be delivered to
IBM Credit or any agent designated by IBM Credit with appropriate
endorsements and assignments to vest title and possession in IBM
Credit.
(i) each time Customer provides a Notice of Request for A/R Advance,
Customer will also provide IBM Credit with a detailed aging
report of its Accounts, which shall include its accounts
receivable ledger and its on-line aging of Accounts.
3.14 Rights of IBM Credit. IBM Credit may, without notice to Customer and at
any time or times hereafter:
(a) verify with Account obligors or others the validity, amount or
any other matter relating to any Account by mail, telephone or by
means otherwise, as agreed to be the parties, in the name of
Customer or IBM Credit;
12
(b) enforce payment and collect, by legal proceedings or otherwise,
Accounts in the name of Customer or IBM Credit and
(c) take control in any manner of any cash or non-cash items of
payment or proceeds of Accounts and of any rejected, returned,
repossessed or stopped in transit goods relating to Accounts.
3.15 Release. Customer releases IBM Credit from any and all claims and causes
of action which Customer may now or hereafter have for any loss or
damage to it claimed to be caused by or arising from:
(a) any failure of IBM Credit to protect, enforce or collect, in
whole or in part, any Account;
(b) IBM Credit's notification to any Account obligors thereon of IBM
Credit's security interest in any of the Accounts;
(c) IBM Credit's directing any Account obligor to pay any sum owing
to Customer directly to IBM Credit; and
(d) any other act or omission to act on the part of IBM Credit, its
officers, agents, or employees, except for its gross negligence
or willful misconduct.
IBM Credit shall have no obligation to preserve rights to Accounts
against prior parties.
3.16 Documentation Requirements. Customer agrees to comply with the
documentation requirements set forth in Attachment A to this Agreement.
4. SECURITY - COLLATERAL
4.1 Grant. To secure Customer's payment and performance of the Obligations
and to secure Customer's prompt, full and faithful performance and
observance of all of the provisions under this Agreement and the Other
Agreements, Customer hereby grants IBM Credit a security interest in the
following: all of Customer's right, title and interest in and to,
whether now owned or hereafter acquired or existing and wherever
located: (a) all inventory and equipment, and all parts thereof,
attachments, accessories and accessions thereto, products thereof and
documents therefor; (b) all accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles and other obligations
of any kind, and all rights now or hereafter existing in and to all
mortgages, security agreements, leases or other contracts securing or
otherwise relating to any of the same; (c) all substitutions and
replacements for all of the foregoing; and (d) all proceeds of all of
the foregoing and, to the extent not otherwise included, all payments
under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to
13
any of the foregoing. All of the above assets are hereinafter
collectively referred to as "Collateral." Customer covenants and agrees
with IBM Credit that: (a) the security constituted to by this Agreement
is in addition to any other security from time to time held by IBM
Credit; (b) IBM Credit may realize upon all or part of any security in
any order it desires and any realization by any means upon any security
will not bar realization upon any other security; and (c) the security
hereby created is a continuing security interest and will cover and
secure the payment of all Obligations both present and future of
Customer to IBM Credit pursuant to this Agreement and the Other
Agreements.
4.2 Instruments. Customer shall execute and deliver to IBM Credit, or cause
to be executed and delivered, at such reasonable time or times as IBM
Credit may request, all financing statements, continuation statements,
security agreements, assignments, certificates, certificates of title,
applications for vehicle titles, affidavits, reports, notices, schedules
of accounts, and other documents and instruments that IBM Credit may
deem necessary to perfect and maintain perfected IBM Credit's security
interests in the Collateral and in order to full consummate all of the
transactions contemplated under this Agreement and the Other Agreements.
Customer shall make appropriate entries on its books and records
disclosing IBM Credit's security interests in the Collateral.
5. WARRANTIES, REPRESENTATIONS, AND COVENANTS
5.1 Affirmative Warranties, Representations and Covenants. Except as
otherwise specifically provided in any of the Other Agreements, Customer
warrants and represents to and covenants with IBM Credit that:
(a) Each Account is based on an actual and bona fide sale and
delivery of goods or rendition of services to Customers, made or
performed by Customer, in the ordinary course of its business-
the Customer's customers have accepted such goods or services,
owe and are obligated to pay the full amounts stated in the
invoices according to their terms, without any dispute, offset,
defense, counterclaim or contra and have the ostensible
authority to contract; and there are no proceedings or actions
known to Customer which are pending or threatened against any
obligor of any of the Accounts which might result in any
material adverse change in the obligor's financial condition.
(b) Customer has good and valid title to all Collateral and, subject
to the provisions of any Subordination Agreement, IBM Credit's
security interest in the Collateral is now and shall at all times
constitute a perfected, first security interest in such
Collateral;
14
(c) Except for any portion of IBM Credit's security interest which
may be the subject of a Subordination Agreement, IBM Credit's
security interest in the Collateral is not now and shall not
become subordinate or junior to the security interest, lien,
encumbrance or claim of any Person;
(d) Customer is and shall at all times during the term of this
Agreement be a corporation duly organized, existing and in good
standing under the laws of the state of Texas and qualified and
licensed to do business in each state, county, or parish, in
which the nature of its business or property requires it to be
qualified or licensed;
(e) Customer has the right and is duly authorized to enter into this
Agreement and the Other Agreements;
(f) each Guarantor has the right and power to and is duly authorized
to make any guaranty given to IBM Credit;
(g) Customer's execution of this Agreement and the Other Agreements
does not constitute a breach of any provision contained in
Customer's articles of incorporation or by-laws or in any
agreement to which Customer is now or hereafter becomes a party
or by which Customer is, may or hereafter becomes bound;
(h) all financial statements and information relating to Customer and
any Guarantor which have been or may hereafter be delivered by
Customer or any Guarantor to IBM Credit are true and correct and
have been prepared in accordance with generally accepted
accounting principles and there has been no material adverse
change in the financial or business condition of Customer since
the submission of any such financial information to IBM Credit;
(i) there are and will be no actions or proceedings pending or
threatened against Customer which have not been disclosed to IBM
Credit and which might result in any material adverse change in
Customer's financial or business condition or which might in any
way have a material adverse effect on any of Customer's assets;
(j) Customer shall maintain all of its properties (business and
otherwise) in good condition and repair and pay and discharge all
costs of repair and maintenance thereof and all rental and
mortgage payments and related charges pertaining thereto;
(k) Customer will lose commercially reasonable efforts to collect
all Accounts owed;
15
(l) Customer has duly filed and shall hereafter duly file all
federal, state, local and other governmental tax returns which it
is required by law to file;
(m) all taxes, levies, assessments and governmental charges of any
nature which are or may be due by Customer have been fully paid
(except those being contested in good faith by appropriate
proceedings diligently conducted and in which adequate reserves
for the payment thereof has been made) and Customer shall
promptly pay when due all such tax liabilities which may
hereafter accrue;
(n) Customer shall maintain a system of accounting in accordance with
generally accepted accounting principles and ledger and account
records which contain such information as may be requested by IBM
Credit;
(o) Customer shall at al times permit IBM Credit (or any person
designated by it) upon demand, during Customer's usual business
hours, to enter upon the premises of Customer for the purposes of
(i) inspecting the Collateral, (ii) inspecting and/or copying any
records pertaining thereto, (iii) discussing the affairs,
finances and business of Customer with any officers employees and
directors of Customer or with its auditors and (iv) verifying
Eligible Accounts and other Collateral.
(p) Customer shall deliver to IBM Credit:
(1) within ninety (90) days after the end of each of
Customer's fiscal years, a reasonably detailed balance
sheet and a reasonably detailed profit and loss statement
covering Customer's operations for such fiscal year,
prepared by an independent certified public accountant
satisfactory to IBM Credit,
(2) within forty-five (45) days after the end of each of
Customer's first three fiscal quarters, Customer shall
deliver to IBM Credit a reasonably detailed balance sheet
as of the last day of such quarter and profit and loss
statement covering Customer's operations for such quarter
(subject to normal year-end audit adjustments) prepared as
set forth in Attachment A to this Agreement either by (i)
Customer or (ii) an independent certified public
accountant satisfactory to IBM Credit,
(3) within ten (IO) days after request therefore by IBM
Credit, any other report requested by IBM Credit relating
to the Collateral or the financial condition of Customer.
Each report, statement, or document delivered or caused to be
delivered to IBM Credit under this Subsection 5. 1 (o) shall be
accompanied by the certificate of an authorized officer of
Customer to the effect that to the best of such officer's
knowledge, after due diligence and following a reasonably
independent
16
investigation and review, the same is complete, correct and
thoroughly and accurately presents the financial condition of
Customer and that there exists on the date of delivery of said
certificate no condition or event which constitutes a breach or
event of Default under this Agreement or any of the Other
Agreements;
(q) Customer shall promptly supply IBM Credit with such other
information concerning its or any Guarantor's affairs as IBM
Credit from time to time hereafter may reasonably request.
(r) The address of the principal place of business and chief
executive office of Customer is as set forth in Attachment B to
this Agreement. The books and records of Customer, and all of
its chattel paper and records of Accounts, are maintained at
such location. There is no jurisdiction in which Customer has
any assets, equipment or inventory (except for vehicles and
inventory in transit for processing) other than those
jurisdictions identified on Attachment B. Attachment B also
contains a complete list of the legal names and addresses of
each warehouse at which Customer's inventory is stored. None of
the receipts received by Customer from any warehouseman states
that the goods covered thereby are to be delivered to bearer or
to the order of a named person or to a named person and such
person's assigns. Customer covenants to supplement Attachment B
to this Agreement thirty (30) days prior to the effective date
of a change in the locations set forth thereon.
(s) Customer covenants that it shall give IBM Credit thirty (30) days
advance notice prior to any change in Customer's identity, name,
form of ownership or management.
(t) Customer, at its sole expense, shall keep and maintain the
Collateral insured for its full insurable value against loss or
damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners or
users of such properties and interests in properties in similar
businesses. All insurance policies ("Policies") shall be in
form, with companies and in amounts satisfactory to IBM Credit.
Customer shall deliver to IBM Credit true and correct copies of
the Policies as well as such evidence of insurance as IBM Credit
may from time to time require, and, on IBM Credit's request,
evidence of payment of all premiums therefor. Each of the
Policies shall contain an endorsement, in a form satisfactory to
IBM Credit, showing loss payable to IBM Credit; upon receipt of
proceeds by IBM Credit the same shall be applied on account of
Obligations.
Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent
instruments furnished to IBM Credit, at least ten (10) days'
written notice before any Policy shall be altered or cancelled
and that no act or default of Customer or any other person shall
affect the right of
17
IBM Credit to recover under the Policies. Customer hereby directs
all insurers under the Policies to pay all proceeds directly to
IBM Credit;
(u) Customer shall, consistent with reasonable commercial practice,
observe and perform all matters and things necessary or expedient
to be observed or performed under or by virtue of any lease,
license, concession or franchise forming part of the Collateral
in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(v) Customer shall advise IBM Credit of the commencement or
institution of legal proceedings filed against the Customer
subsequent to the execution of this Agreement before any court,
administrative board or tribunal which, in the event of an
adverse decision to Customer, could have a material adverse
effect on the Customer's condition (financial or otherwise),
operations, properties or prospects;
(w) Customer shall, consistent with reasonable commercial practice,
diligently maintain, use and operate the Collateral and shall
carry on and conduct its business in a proper and efficient
manner so as to preserve and protect the Collateral and the
earnings, incomes, rents, issues and profits thereof.
5.2 Negative Covenants. Customer covenants with IBM Credit that Customer
will not at any time (without IBM Credit's express prior written
consent):
(a) except to IBM Credit, grant to or in favor of any person a
security interest in or permit to exist a superior lien, claim or
encumbrance in the collateral;
(b) other than the ordinary course of its business, sell, lease or
otherwise dispose of or transfer any of its assets;
(c) merge or consolidate with another corporation;
(d) acquire any other corporation;
(e) enter into any transaction not in the usual course of its
business which might in any material way adversely affect the
ability of Customer to repay the Obligations;
(f) guarantee or indemnify or otherwise become in any way liable
with respect to the obligations of any person, except by
endorsement of instruments or items of payment for deposit to the
general account of Customer or which are transmitted or turned
over to IBM Credit on account of the Obligations;
(g) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any material portion of Customer's capital stock;
18
(h) make any change in Customer's capital structure or in any of its
business objectives, purposes or operations which might in any
material way adversely affect the ability of Customer to repay
the Obligations;
(i) make any distribution of Customer's property or assets;
(j) incur any debts outside of the ordinary course of Customer's
business except renewals or extensions of existing debts and
interest thereon; and
(k) make any loans, advances, contributions or payments of money or
goods to any subsidiary, affiliated or parent corporation or to
any officer, director or stockholder of Customer or of any such
corporation (except for compensation for personal services
actually rendered).
5.3 Financial Covenants. Customer agrees to comply with the financial
covenants set forth in Attachment A to this Agreement.
5.4 Non-Financial Covenants. Customer agrees to comply with the
non-financial covenants set forth in Attachment A to this Agreement.
6. DEFAULT
6.1 Definition. Any one or more of the following events shall constitute an
Event of Default by Customer under this Agreement and the Other
Agreements:
(a) Customer or any Guarantor breaches any term, provision,
condition or covenant contained in this Agreement, in any of the
Other Agreements or any guaranty;
(b) any warranty representation, statement, report, or certificate
made or delivered by Customer or any of its officers, employees,
or agents or by any Guarantor to IBM Credit is not true and
correct;
(c) Customer fails to immediately pay any of the Obligations when
due and payable or declared to be due and payable;
(d) IBM Credit shall determine in good faith that it is insecure with
respect to any of the Collateral or the repayment of any part of
the Obligations and the reason for such insecurity shall continue
for a period of more than five (5) Business Days after notice
thereof to Customer;
(e) Customer attempts to or shall sell, transfer, convey, exchange,
assign, mortgage, pledge, charge, hypothecate, grant a security
interest in or otherwise dispose of or
19
in any way part with the possession of the Collateral, other
than in the ordinary course of business or as permitted under
this Agreement;
(f) Customer removes, other than by sale to the extent allowed under
this Agreement and any intracompany transfers of inventory
between the occasions set forth in Attachment B to this
Agreement, any part of the Collateral from any of the Customer's
location specified in Attachment B to this Agreement.
(g) Customer abandons the Collateral or any part thereof;
(h) The entry of any judgment against Customer and such judgement is
not satisfied, dismissed, stayed or supercoded by bond within
thirty (30) days after the date of entry thereof (and in the
event of a stay or supersedeas bond such judgement is not
discharged within 30 days after termination of such stay or
bond);
(i) there issues a warrant of distress for any rent or taxes with
respect to any premises occupied by Customer in or upon which the
Collateral, or any part thereof, may at any time be situated and
such warrant shall continue in force for a period of more than
five (5) Business Days after notice thereof to Customer.
(j) Customer suffers or permits the Collateral to be seized or taken
in execution without the consent of IBM Credit;
(k) Customer fails to insure or keep insured the Collateral within
the provisions of this Agreement and such failure shall continue
for a period of five (5) Business Days after notice thereof to
Customer.
(1) Customer suspends business;
(m) (i) Customer shall become insolvent or generally fail to
pay, or shall admit its inability or refusal to pay debts
as they become due;
(ii) Customer shall apply for, consent to, or acquiesce in
the appointment of a trustee, receiver or other custodian
for Customer or for its properties, assets, business or
undertakings, and, if such appointment has not been
applied for by Customer, the appointment of such trustee,
receiver or custodian is not discharged within five (5)
Business Days,
(iii) any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation
proceeding, shall be commenced in respect to Customer and,
if such case or proceeding has not been commenced by
Customer, such case
20
or proceeding shall be consented to or acquiesed in by
Customer or remain for five (5) Business Days
undismissed;
(iv) Customer shall take any action to authorize, or in
the furtherance of, any of the foregoing
(n) the guarantee of Customer by any Guarantor shall be terminated
for any reason;
(o) Customer is in default, with or without the passage of time
and/or giving of notice, under any agreement, contract,
document, promissory note or other instrument entered into with
or for the benefit of IBM Credit or if any event shall occur or
condition shall exist under any agreement or instrument relating
to any debt of the Customer and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument if the effect of such nonpayment, other condition or
conditions is to accelerate, or permit the acceleration of the
maturity of such debt, for any reason whatsoever; or
(p) Customer is in default under the terms of any of the Other
Agreements.
6.2 Rights of IBM Credit. IBM Credit agrees to provide notice of an Event of
Default and if Customer fails to cure the default within the time frame
specified by IBM Credit, then IBM Credit may:
(a) declare all or any of the Obligations immediately due and payable
together with all court costs and all costs and expenses of
repossession and collection activity, including, but not limited
to, reasonable attorney's fees;
(b) cease advancing money or extending credit to or for the benefit
of Customer;
(c) exercise any or all of the rights accruing to a secured party,
upon default by a debtor, under the Uniform Commercial Code and
any other applicable law;
(d) sell, lease or otherwise dispose of the Collateral at public or
private sale;
(e) at its sole election and without demand enter, with or without
process of law, any premises where Collateral might be and,
without charge or liability to IBM Credit therefor do one or more
of the following:
(i) take possession of the Collateral and use or store it in
said premises or remove it to such other place or places
as IBM Credit may deem convenient;
21
(ii) take possession of all or part of such premises and the
Collateral and place a custodian in the exclusive control
thereof until completion of enforcement, under the Uniform
Commercial Code or other applicable law, of IBM Credit's
security interest in the Collateral or until IBM Credit's
removal of the Collateral to such other place or places as
IBM Credit may deem convenient;
(iii) remain on such premises and use the same, together with
Customer's materials, supplies, books and records, for the
purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such
Collateral, and
(iv) remove the same to such place or places as IBM Credit may
deem convenient for the purpose of IBM Credit's using the
same in connection with IBM Credit's liquidation and
collection of such Collateral and to conduct and prepare
for the disposition of such Collateral (and Customer
grants IBM Credit a security interest in all Customer's
contract-related material, supplies, books, and records
for such purpose as those described above).
6.3 Customer's Obligations. In an Event of a Default, Customer shall, if IBM
Credit requests, assemble the Collateral and make it available to IBM
Credit at a place or places to be designated by IBM Credit. Customer
recognizes that if Customer fails to perform, observe or discharge any
of its obligations under this Agreement or the Other Agreements no
remedy at law will provide adequate relief to IBM Credit; therefore,
Customer agrees that IBM Credit shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of
proving actual damages. All of IBM Credit's rights and remedies granted
under this Agreement and Other Agreements are cumulative and non-
exclusive.
6.4 Waiver. In an Event of Default, Customer waives and releases: any and
all claims and causes of action which it may now or ever have against
IBM Credit as a result of any possession, repossession, collection or
sale by IBM Credit of any of the Collateral, notwithstanding the effect
of such possession, repossession, collection or sale upon Customer's
business; all rights of redemption from any such sale- and the benefit
of all valuation, appraisal and exemption laws. IBM Credit's only
obligation in respect to its repossession, collection or sale of any of
the Collateral is to act in a commercially reasonable manner. If IBM
Credit seeks to take possession of any of the Collateral by replevin or
other court process Customer hereby irrevocably waives any bonds, surety
and security relating thereto required by any statute, court rule or
otherwise as an incident to such possession and any demand for
possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof.
22
7. MISCELLANEOUS
7.1 Term. This Agreement shall be in effect for a period of thirteen (13)
months beginning on the Closing Date of this Agreement (the "Original
Term") and shall automatically and continuously renew for a successive
additional term of thirteen months (a "Renewal Term") unless terminated
in accordance with Section 7.2.
7.2 Termination. (a) IBM Credit may terminate this Agreement (i) upon the
occurrence of an Event of Default and (ii) at the end of the Original
Term or at the end of any Renewal Terms by giving written notice of such
termination by registered or certified mail addressed to Customer at its
principal place of business as designated in this Agreement no later
than sixty (60) days prior to the Original Term or any successive
Renewal Term.
(b) Customer may terminate this Agreement at any time by giving IBM
Credit written notice of such termination by registered mail or
certified mail addressed to IBM Credit at the address first
above written. Termination by Customer shall be effective sixty
(60) days from the date the written notification is sent by the
terminating party (the "Effective Date of Termination"). If
Customer terminates this Agreement, Customer shall not be
relieved from any Obligations to IBM Credit arising out of IBM
Credit's advances or commitment made before the Effective Date
of Termination.
(c) Upon the termination of this Agreement by IBM Credit or Customer,
all of Customer's Obligations shall be immediately due and
payable in their entirety, even if they are not yet due under
their terms, on the Effective Date of Termination. IBM Credit's
rights under this Agreement and IBM Credit's security interest in
the collateral shall continue after termination of this Agreement
until all of Customer's Obligations to IBM Credit are
indefeasibly paid in full. The covenants, warranties and
representations of this Agreement shall survive termination of
the Agreement.
7.3 Collection. Customer agrees that checks and other instruments delivered
to IBM Credit on account of Customer's Obligations shall constitute
conditional payment until such items are actually paid to IBM Credit.
Customer waives the right to direct the application of any and all
payments at any time or times hereafter received by IBM Credit on
account of Customer's Obligations. Customer agrees that IBM Credit shall
have the continuing exclusive right to apply and reapply any and all
such payments in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and
records.
7.4 Demand, Etc. Customer waives:
(a) demand, protest and all notices of protest, default or dishonor;
23
(b) all notices of payment and non-payment;
(c) all notices required by law; and
(d) except as otherwise specifically provided for in this Agreement,
all notices of default, non-payment at maturity, release,
compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guarantees at any time held by IBM
Credit on which Customer may, in any way, be liable and Customer
hereby ratifies and confirms whatever IBM Credit may do in that
regard.
7.5 Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of Customer, may perform any Obligations of
Customer that Customer shall fail or refuse to perform and IBM Credit
may, at any time or times hereafter, but shall be under no obligation so
to do, pay, acquire or accept any assignment of any security interest,
lien, encumbrance or claim against the Collateral asserted by any
person. All sums paid by IBM Credit in performing in satisfaction or on
account of the foregoing and any expenses, including reasonable
attorney's fees, court costs, and other charges relating thereto, shall
be a part of the Obligations, payable on demand and secured by the
Collateral.
7.6 Indemnification. Customer hereby agrees to indemnify and hold harmless
IBM Credit and each of its shareholders, officers, directors, agents,
assigns and affiliates (collectively, the "Indemnified Persons") against
all loss claims, damages, liabilities or other expenses (including
reasonable attorneys' fees and court costs now or hereinafter arising
from the enforcement of this Agreement, the "Losses") to which any of
them may become subject insofar as such Losses arise out of or are based
upon any event, circumstance or condition occurring or existing on or
before the date of this Agreement or relating, directly or indirectly,
to any of the activities of the Customer or its predecessors in
interest, to the execution, delivery or performance of this Agreement or
the consummation of the transactions contemplated hereby or thereby or
to any of the Collateral. Notwithstanding the foregoing, Customer shall
not be obligated to indemnify IBM Credit for any loss or liability which
is the direct result of IBM Credit's gross negligence or willful
misconduct. The indemnity provided herein shall survive this Agreement.
7.7 Alterations/Waiver. In the event that IBM Credit at any time or from
time to time dispenses with any one or more of the requirements
specified in this Agreement or any of the Other Agreements, such
dispensation may be revoked by IBM Credit at any time and shall not be
deemed to constitute a waiver of any such requirement subsequent
thereto. IBM Credit's failure at any time or times to require strict
performance by Customer of any undertakings, agreements, covenants,
warranties and representations shall not waive, affect or diminish any
right of IBM Credit thereafter to demand strict compliance and
performance. Any waiver by IBM Credit of any default by Customer under
this Agreement or any of the Other Agreements shall not waive or affect
any other default by
24
Customer under this Agreement or any of the Other Agreements, whether
such default is prior or subsequent to such other default and whether of
the same or a different type. None of the undertakings, agreements,
warranties, covenants, and representations of Customer contained in this
Agreement or the Other Agreements and no Default by Customer shall be
deemed waived by IBM Credit unless such waiver is in writing signed by
an authorized representative of IBM Credit and directed to Customer.
7.8 Notices. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or
delivered (i) three (3) Business Days after deposit in the United States
mails, registered or certified return receipt with proper postage
prepaid, (ii) when sent after receipt of confirmation or answerback if
sent by telecopy, or other similar facsimile transmission, (iii) one
Business Day after deposited with a reputable overnight courier with all
charges prepaid, or (iv) when delivered, if hand-delivered by messenger,
all of which shall be properly addressed to the party to be notified and
sent to the address or number indicated as follows:
(i) If to IBM Credit at:
Attention:
Telecopy:
Confirmation
(ii) If to Customer at:
6401 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 988-2036
Confirmation
or to such other address or number as each party designates to the other
in the manner herein prescribed.
7.9 Severability. If any provision of this Agreement or the Other Agreements
or the application thereof to any person or circumstance is held invalid
or unenforceable, the remainder of this Agreement and the Other
Agreements and the application of such provision to other persons or
circumstances will not be affected thereby, the provisions of this
Agreement and the Other Agreements being severable in any such instance.
7.10 One Loan. All loans and advances heretofore, now or at any time or times
hereafter made by IBM Credit to Customer under this Agreement or the
Other Agreements shall constitute one loan secured by IBM Credit's
security interests in the Collateral and by all other security
interests, liens and encumbrances heretofore, now or from TIME to time
hereafter granted by Customer to IBM Credit or any assignor of IBM
Credit. Any termination of this Agreement or the Other Agreements by IBM
Credit, whether in the
25
event of Default or by notice of termination, and any termination of
this Agreement or any of the Other Agreements as permitted therein by
the Customer shall, in the sole discretion of IBM Credit, accelerate
payment of all Obligations.
7.11 Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of
Customer in possession of IBM Credit at any time or times hereafter are
hereby pledged by Customer to IBM Credit as security for the payment of
Customer's Obligations and may be held by IBM Credit (without interest
to Customer) until Customer's Obligations are paid in full or, at any
time or times, applied by IBM Credit on account of Customer's
Obligations. IBM Credit may release to Customer such portions of such
monies, reserves and proceeds as IBM Credit may from time to time
determine, in its sole discretion.
7.12 Offsets. The Obligations hereby secured shall be paid without regard to
any set-offs between Customer and IBM Credit or any intermediate holder
hereof.
7.13 No Merger or Novations. Neither the obtaining of any judgment nor the
exercise of any power of seizure or sale shall operate to extinguish the
Obligations of Customer to IBM Credit secured by this Agreement and
shall not operate as a merger of any covenant in this Agreement, and the
acceptance of any payment or alternate security shall not constitute or
create a novation and the obtaining of a judgment or judgments under a
covenant herein contained shall not operate as a merger of that covenant
or affect IBM Credit's right to interest under this Agreement.
7.14 Time. Time shall be of the essence hereof.
7.15 Entire Agreement. This Agreement, together with the Other Agreements and
any other documents to be delivered pursuant hereto and thereto,
constitutes the entire Agreement between the Customer and IBM Credit
pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral
or written, with respect to the subject matter hereof.
7.16 Paragraph Titles. The Section titles used in this Agreement and the
Other Agreements are for convenience only and do not define or limit the
contents of any Section.
7.17 Binding Effect. This Agreement and the Other Agreements shall be binding
upon and inure to the benefit of IBM Credit and Customer and their
respective successors and assigns but Customer shall have no right to
assign this Agreement or any of the Other Agreements without the prior
written consent of IBM Credit.
7.18 Conditions To Effectiveness. The effectiveness of this Agreement shall b
e conditioned upon the receipt by IBM Credit of the instruments and
other documents specified in Attachment A to this Agreement. In
addition, the extension of credit by IBM Credit to
26
Customer hereunder is contingent upon IBM Credit's receipt of an
agreement, in form and substance satisfactory to IBM Credit, between
Customer and a financial institution acceptable to IBM Credit, which
creates a lockbox account arrangement which is blocked in favor of IBM
Credit so that the only disbursements made against the account shall be
in favor of IBM Credit.
7.19 Submission by Customer. This Agreement and the Other Agreements are
submitted by Customer to IBM Credit (for IBM Credit's acceptance or
rejection thereof) at IBM Credit's place of business specified t the
beginning of this Agreement, as an offer by customer to borrow monies
from IBM Credit and shall not be binding upon IBM Credit or become
effective until and unless accepted in writing by IBM Credit at its said
place of business. If so accepted, this Agreement and the Other
Agreements shall be deemed to have been made at IBM Credit's said place
of business. This Agreement and the Other Agreements and all
transactions pursuant thereto shall be governed and controlled as to
interpretation, enforcement, validity, construction, effect and in all
other respects (including, but not limited to, the legality of the
interest charged to Customer pursuant thereto) by the laws, statutes and
decisions of the state of IBM Credit's said place of business. Customer,
in order to induce IBM Credit to accept this Agreement and the Other
Agreements, agrees that all actions or proceedings arising directly or
indirectly in connection with this Agreement or the Other Agreements may
be litigated, at IBM Credit's sole discretion and election, in courts
having situs within the state where IBM Credit's aforesaid place of
business is located. Customer hereby consents and submits to the
jurisdiction of any local, state or federal court located within such
state. Customer hereby waives any right it may have to transfer or
change the venue of any litigation brought against it by IBM Credit in
accordance with this paragraph.
7.20 LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY
CLAIMS RELATED THERETO.
7.21 JURY WAIVER. EACH OF IBM CREDIT AND CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH
IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, ANY
OTHER AGREEMENT, OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED IN CONNECTION HEREWITH.
27
IN WITNESS WHEREOF, Customer has read this entire Agreement, executed
this Agreement and has caused its duly authorized representatives to execute
this Agreement and has caused its corporate seal to be affixed hereto as of the
date first written above.
(SEAL) ALLSTAR-VALCOM, INC.
(Customer)
By:/s/ JAMES H. LONG
Print Name:JAMES H. LONG
Title:PRESIDENT
ATTEST:
/s/ DON R. CHADWICK
Secretary
ACCEPTED this 6TH day of AUGUST, 1993, at IBM Credit's place of business
specified at the beginning of this Agreement.
IBM Credit Corporation
By:\s\ROBERT W. FLOOD
Print Name: ROBERT W. FLOOD
Title: ACCOUNT OPERATIONS MANAGER
28
SECRETARY'S CERTIFICATE
(Revolving Loan Agreement)
I, DONALD R. CHADWICK, do hereby certify that I am duly elected and
acting Secretary of Allstar-Valcom, Inc., a _______________ corporation, and as
such I ma the keeper of the corporate records and seal of said corporation; that
the following is a true and correct copy of resolutions duly adopted and
ratified by action of the board of directors of said corporation on JULY 28,
1993, as ratified and approved by the stockholders of said corporation by action
of said stockholders on JULY 28, 1993, all in accordance with its by-laws and
articles of incorporation and the laws of its jurisdiction of incorporation; and
that the same have not been modified, repealed, rescinded or withdrawn, are in
full force and effect and do not contravene any provisions of said corporation's
articles of incorporation or by-laws:
"RESOLVED, that the President, each Vice-President, the Secretary, the Treasurer
and each other officer and each agent of this Corporation, or any one or more of
them, be and they are hereby authorized and empowered on behalf of this
corporation: to obtain from IBM Credit Corporation ("IBM Credit") loans in such
amounts and on such terms and conditions as such officers deem proper; to
execute notes and other evidences of this corporation's indebtedness with
respect thereto; to enter into financing and other agreements with IBM Credit
relating to the terms and conditions upon which any such loans may be obtained
and the security to be furnished by this corporation therefore; from time to
time to modify, supplement or amend any such agreements, any such terms or
conditions and any such security- from time to time to pledge, assign, guaranty,
mortgage, consign, grant security interest in and otherwise transfer to IBM
Credit as collateral security for any and all debts and obligations of this
corporation to IBM Credit, whenever and however arising, any and all accounts
and other forms of obligations, receivables, choses in action, inventory,
warehouse receipts, machinery, equipment, land, buildings and other real,
personal or fixed property now or hereafter belonging to or acquired by this
corporation; for said purposes to execute and deliver any and all assignments,
schedules, transfers, endorsements, contracts, debentures, guarantees,
agreements, designations, consignments, deeds of trust, mortgages, instruments
of pledge or other instruments in respect thereof and to make remittances and
payments in respect thereof by checks, drafts or otherwise, and to do and
perform all other acts and things deemed by such officer or agent necessary,
convenient or proper to carry out any of the foregoing- hereby ratifying,
approving and confirming all that any said officers and agents have done or may
do in the premises."
1
Revolving Loan Agreement
I do further certify that the following are the names and specimen signatures of
the officers and agents of said corporation so empowered and authorized, namely:
President:JAMES H. Long /s/ JAMES H. LONG
(Print Name) (Signature)
Vice-President:
(Print Name) (Signature)
Secretary:DONALD R. Chadwick /s/ DONALD R. CHADWICK
(Print Name) (Signature)
Treasurer:
(Print Name) (Signature)
Agent:
(Print Name) (Signature)
Witness my hand and seal of said corporation this 5th day of AUGUST, 1993.
(Attach corporate seal here)
NO SEAL
(Secretary of said corporation)
2
Revolving Loan Agreement ("Agreement")
Attachment A
Attachment A Effective Date: 8/5/93
Customer:ALLSTAR-VALCOM, INC.
1. A/R Revolver Credit Line Fees, Rates and Repayment Terms:
(a) Line of Credit: Seven Million Dollars ($7,000,000.00)
(i) Maximum Product Advances: One Million Dollars
($1,000,000.00)
(b) Borrowing Base: 85% of Eligible Accounts
(c) Other Charges:
(i) Monthly Service Fee: $1,500.00
(ii) One Time Application Processing Fee (as defined in the
Letter of Understanding dated June 30, 1993): $6,000.00
(d) A/R Revolver Financing Charge: Prime Rate plus 1. 875%
(e) Delinquency Fee Rate: Prime Rate plus 6.5%
Revolving Loan Agreement
Attachment A(continued)
2. Documentation Requirements:
As a condition precedent to funding under the terms of the Agreement,
Customer will deliver to IBM Credit:
o Executed Accounts Receivable Revolving Loan Agreement;
o Executed Blocked Account Amendment To A Lockbox Agreement;
o Executed Letter of Direction (which will be prepared by IBM
Credit);
o Executed Letter of Notification (which will be prepared by IBM
Credit);
o Executed Notarized Guarantee of any shareholder owning ten
percent (10%) or greater of the equity of Customer;
1
o A list of:
(a) all creditors providing accounts receivable financing to
Customer ("Lenders"); subject to Section 1.3, all Lenders
will be required to subordinate to IBM Credit or terminate
their filings; and
(b) all creditors having a lien which is superior to IBM
Credit's ("Priority Creditors"); all Priority Creditors
may be required to subordinate to IBM Credit.
o For All Lenders:
Executed Acknowledgment of Termination Letter (which will be
prepared by IBM Credit);
Copies of all subordination agreements executed by Lender or
executed for the benefit of Lender; and
Copies of all Security Agreements between Customer and Lender.
o For All Priority Creditors:
Any and all other documents and/or agreements IBM Credit deems
necessary in its sole discretion.
Customer will be required to assist IBM Credit in obtaining any and all
documents/agreements required by IBM Credit to give IBM a superior lien
on all accounts receivable.
Revolving Loan Agreement
Attachment A(continued)
3. Financial Covenants:
Definitions:The following terms shall have the following respective
meanings in this Attachment A. All amounts shall be determined in
accordance with generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become
cash within the on going twelve months.
Current Liabilities shall mean payment obligations resulting from past
or current transactions (other than obligations under the A/R Revolver)
that require settlement within the on-going twelve month period.
2
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness (other
than indebtedness in respect of loans under the A/R Revolver) which
mature more than twelve months from the ate of determination, or mature
within twelve months from such date but are renewable or extendible at
the option of the debtor to a date more than twelve months from the date
of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products
or services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as
allowed.
Subordinated Debt shall mean Customer's indebtedness to creditors other
than IBM Credit, Customer's payment of which has been subordinated to
IBM Credit by said other creditors in a written and executed agreement
between IBM Credit and said other creditors.
Revolving Loan Agreement
Attachment A(continued)
Tangible Net Worth shall mean:
Total Net Worth plus Subordinated Debt minus;
(a) goodwill, organizational expenses, pre-paid expenses,
research and development expenses, software development
costs, leasehold expenses, trademarks, names, trade names,
copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other
similar intangibles (but not including contract rights)
and other non-current assets;
(b) all deferred charges or unamortized debt, discounts and
expenses;
(c) all accounts receivable from officers, directors and
stockholders; and
(d) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the sum of Current Liabilities, Long Term
Debt and the aggregate outstanding principal amount of loans under the
A/R Revolver.
3
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus the sum of Current
Liabilities plus the aggregate outstanding principal amount of loans
under the A/R Revolver.
Customer will be required to maintain the following financial ratios and
amounts:
(a) Net Profit after Tax to Revenue ratio of greater than or equal
to .50% at all times;
(b) Ratio of Total Liabilities to the sum of Tangible Net Worth
greater than zero and equal to or less than 18.0 as of 9/30/93
and greater than zero and equal to or less than I 1. 0 as of 12/3
1/93 and thereafter.
(c) Revenue (on an annual basis) to Working Capital ratio greater
than zero and equal to or less than 71.0 as of 9/30/93, and
greater than zero and equal to or less than 44.0 as of 12/31/93
and thereafter.
Revolving Loan Agreement
Attachment A(continued)
4. Non-Financial Covenants:
Customer must be in good standing at all times in its state of
incorporation and in each state in which it conducts business.
Customer agrees to provide IBM Credit, no later than the 15th day of
each month, reports in a format and containing information that is
mutually satisfactory, listing Collateral in Customer's possession as of
the close of business on the last day of the immediately preceding
month.
Customer agrees to maintain standard all-risk insurance coverage on all
locations in the amount of at least four million dollars
($4,000,000.00). IBM Credit Corporation must be named as a loss payee.
5. Financial Report Preparation Requirements:
Reports due under the terms of the Revolving Loan Agreement shall be
prepared as follows:
Annual Reports shall be audited by an independent certified public
accountant satisfactory to IBM Credit and delivered to IBM Credit no
later than 90 days after the close of the fiscal year.
Quarterly Reports shall be prepared internally by the Customer and
delivered to IBM Credit no later than 45 days after the quarter close.
4
Revolving Loan Agreement
Attachment A(continued)
6. Lockbox Information
Name:
Address:
Commercial Account Number:
Branch Number:
ALLSTAR-VALCOM, INC.
By: /s/ DONALD R. CHADWICK
Print Name: DONALD R. CHADWICK
Title:CHIEF FINANCIAL OFFICER
IBM CREDIT CORPORATION
By: /s/ ROBERT W. FLOOD
Print Name: ROBERT W. FLOOD
Title: ACCOUNT OPERATIONS MANAGER
5
Revolving Loan Agreement
Attachment B
Attachment B Effective Date: 8/5/93
CUSTOMER ALLSTAR-VALCOM, INC.
1. Locations of Offices, Records and Inventory
(A) Principal Place of Business and Chief Executive Office
6401 Southwest Freeway
Houston, Texas 77074
(B) Locations of Assets, Inventory and Equipment (including
warehouses)
1. 6401 Southwest Freeway, Houston, Texas 77074
2. 14202 Proton Road, Dallas, Texas 75244
3. Harris County Hospital, 726 Gillette
5th Floor, Houston, Texas 77019
4. Rockwell Space Operations, Bay Area Blvd.,
Webster, Texas
5. Apache Operations, 2000 Post Oak Road,
Houston, Texas 77056-4400
6. San Jacinto Savings, 7700 San Felipe,
Houston, Texas 77063
7. Texas Commerce Bank, 600 Travis, Houston, Texas 77002
ALLSTAR-VALCOM, INC.
By: /S/DONALD R. CHADWICK
PrintName: DONALD R. CHADWICK
Title:CHIEF FINANCIAL OFFICER
6
ATTACHMENT A Dated ____________, 1996
TO
REVOLVING LOAN AGREEMENT Dated August 5, 1993
Customer's Name: Allstar Systems, Inc.
1. A/R Revolver Credit Line Fees, Rates and Repayment Terms:
a. Total Line of Credit in the amount of:
Twenty Million Dollars ($20,000,000), which includes Accounts
Receivable Financing governed by the Revolving Loan Agreement and
Inventory Financing governed by the Agreement for Wholesale
Financing.
b. Borrowing Base:
i. Percentage of the invoice amount of Eligible Accounts
Receivable: 85%
ii. Percentage of the invoice amount of Eligible Accounts
Receivable for Returned Merchandise Authorization (RMA)
less than 90 days old;
* due from Inacom: 50% of invoice amount at 85% advance
rate.
* due from other vendors less amount due to vendors:
100% of invoice amount at 85% advance rate.
iii. Valuation Percentage on Approved Inventory based on
Warehouse
Location Logical Whse Num Valuation Percent
----------- ----------------- -----------------
Houston 2 99%
Dallas 3 99%
Trade-Ins 5 99%
RMA Inven 6 99%
Inacom NE 40 99%
Inacom SW 140 99%
* All logical warehouses with alpha-numeric numbers will be valued at 99%,
until 9-1-96, when they will be valued at 0% unless UCC1's are filed and
value will then remain at 99%.
** Logical Warehouse's numbered 4,8,12,13,23,82,83,92,93,98, and 99
are
valued at 0%.
c. Other Charges: $1,500.00;
d. Revolver Financing Charge: Prime Rate plus 2.000%
e. Delinquency Fee Rate: Prime Rate plus 6.50%.
1
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (CONTINUED)
2. Documentation Requirements: (Other Agreements)
o Executed Blocked Account Amendment to a Lockbox
Agreement;
o Executed Notarized Guarantee of any shareholder owning ten
percent (10%) or greater of the equity of Customer,
excluding Jack Coray.
o Executed Notarized Guarantees of companies listed in
Attachment B;
o Executed Subordinations
o A list of:
o all creditors possessing a security interest or lien on
accounts receivable; all creditors will be required to
subordinate to IBM Credit or terminate their filings; and
o all creditors possessing a security interest or lien which is
superior to IBM Credit's in any Collateral; creditor's may be
required to subordinate to IBM Credit.
o Executed Agreement for Wholesale Financing dated August 12,
1993.
o Pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish significant
changes in revenue, gross profit margin, expenses,
operating profit margin and net profit. The Customer's
business strategy, anticipated business climate, and the
headcount that will produce the projected financial results
should also be included. This business narrative to be
provided with pro forma financial statements starting with
fiscal year and 1997, and thereafter.
2
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (CONTINUED)
3. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Letter of Understanding. All amounts shall be determined in accordance with
generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become
cash within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past
or current transactions that require settlement within the on-going
twelve month period. All indebtedness to IBM Credit shall be considered
a Current Liability for purposes of determining compliance with the
Financial Covenants.
Current Ratio shall mean Current Assets divided by Current
Liabilities.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products
or services transferred by an enterprise to its customers for which
said customers have paid or are obligated to pay, plus other income as
allowed.
Revenue on an annual basis shall mean
when Customer is required to meet financial covenants at
all times: as of the end of each calendar month, the
average monthly revenue for the applicable fiscal year
multiplied by twelve.
when Customer is required to meet financial covenants at
the end of each fiscal quarter: as of the end of each fiscal
quarter, the year-to-date revenue during the applicable
fiscal year annualized.
3. Financial Covenants (continued):
3
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (CONTINUED)
Subordinated Debt shall mean Customer's indebtedness to officers or
owners as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit.
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses,
trademarks, trade names, copyrights, patents, patent
applications, privileges, franchises, licenses and
rights in any thereof, and other similar intangibles
(but not including contract rights) and other current
and non-current assets;
(b) all accounts receivable from officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions,
that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
4
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (CONTINUED)
3. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios and amounts
at all times. (Note: Until further notice, which may be given by IBM Credit at
any time, effective April 1, 1996, Customer must meet the following financial
covenants as of the end of each fiscal quarter.
a) * Net Profit after Tax to Revenue ratio equal to or greater
than 0% and equal or greater than .5% on a quarterly basis;
b) * Ratio of Total Liabilities to the sum of Tangible Net Worth
greater than zero and equal to or less than 12.0 on a
quarterly basis;
c) * Revenue on an annual basis to Working Capital
ratio greater than zero and equal to or less than 52.0 on a
quarterly basis.
* IBM Credit may modify a financial ratio by sending a written notification
to Customer. The financial ratio in effect will be as of the date of this
Attachment A or the date of the notification whichever is later.
4. Non Financial Covenants:
Customer must be in good standing at all times in its state of
incorporation and in each state in which it conducts business.
Customer agrees to provide IBM Credit, no later than the 15th day of each
month, reports in a format and containing information that is mutually
satisfactory, listing Collateral in Customer's possession as of the close
of business on the last day of the immediately preceding month.
Customer agrees to maintain standard all-risk insurance coverage on all
locations in the amount of at least six million dollars ($6,000,000.00).
IBM Credit Corporation must be named as a loss payee.
5
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (CONTINUED)
5. Financial Report Preparation Requirements:
Reports due under the terms of the Revolving Loan Agreement shall be
prepared as follows:
Annual reports shall be audited by an independent certified public
accountant satisfactory to IBM Credit and delivered to IBM Credit no later
than 120 days after the close of the fiscal year.
Quarterly Reports shall be prepared internally by the Customer and
delivered to IBM Credit no later than 45 days after the quarter close.
Monthly Reports shall be prepared internally by the Customer and delivered
to IBM Credit no later than 15 days after the month close.
6. Customer's state of incorporation is: Texas
7. Lockbox Information: 6. IBM Credit Account Information:
Bank Name: Charter National Bank Bank Name: First Chicago Bank
Address: 7500 Beechnut Address: 525 W. Monroe
P.O. Box 4525 7th Floor Mailroom
Houston, Texas 77210 Chicago, IL 60661
Attn: Lockbox 93676
8. Uniform Commercial Code:
The Uniform Commercial Code in effect from time to time in the state of
Illinois will apply to this Agreement.
6
ATTACHMENT B Dated ________,1996
TO
REVOLVING LOAN AGREEMENT Dated August 6, 1993
1. The address of IBM Credit's place of business where Notices should
be delivered:
Street Address: 2707 West Butterfield Road, Suite 205
City, State, Zip code: Oak Brook, IL 60521
Attention: Center Manager
Telecopy Number: (708) 573 - 7549
2. The exact corporate name of Customer as it appears in its
certificate of incorporation is as follows:
Allstar Systems, Inc.
3. The address of Customer's principal place of business and chief
executive office:
Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
Attention:
Telecopy Number:
4. The address of Customer's place of business where Notices should be
delivered:
Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
Attention:
Telecopy Number:
5. The following is a list of entities affiliated or related to Customer in any
way and a description of such affiliation and/or relationship OR attach
corporate organization chart to Attachment B:
Stratasoft, Inc.
Allstar Equities
7
Attachment B to
Revolving Loan Agreement (continued)
6. The following are all the locations where Customer maintains any
inventory, equipment or other assets:
a) Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
b) Street Address: 14202 Proton Road
County: Dallas
City, State, Zip code: Dallas, Texas 75344
c) Street Address: Inacom Storage Whse, 13900 Chalco Valley Pwy
County:
City, State, Zip code: Omaha, NE
d) Street Address: Inacom Storage Whse, 502 Birchcreek Road
County:
City, State, Zip code: Swedesboro, NJ
e) Street Address: Apache Operations, 2000 Post Oak, Ste 100
County: Harris
City, State, Zip code: Houston, Texas 77056 - 4400
f) Street Address: Anadarko , 17001 North Chase
County: Harris
City, State, Zip code: Houston, Texas 77060
g) Street Address: Bank of America, 1925 John Carpenter Frwy
County: Harris
City, State, Zip code: Irving, Texas 75039
h) Street Address: Bracewell & Patterson, 711 Louisiana
County: Harris
City, State, Zip code: Houston, Texas 77002
i) Street Address: Nieman Marcus , 1618 Main Street
County: Dallas
City, State, Zip code: Dallas, Texas 75201
j) Street Address: Rockwell, 600 Gemini
County: Harris
City, State, Zip code: Houston, Texas
8
IBM CREDIT CORPORATION STAMFORD, CT 06904
AGREEMENT FOR WHOLESALE FINANCING
(SECURITY AGREEMENT)
TO: IBM CREDIT CORPORATION DATE: 7/28, 1993
In the course of our business, we acquire inventory and want you to finance
our purchase of such inventory under the following terms and conditions:
1. You may in your sole discretion from time to time decide the amount of
credit you extend to us, notwithstanding any prior course of conduct
between us. You may combine all of your advances to make one debt owed by
us.
2. You may in your sole discretion decide the amount of funds, if any, you
will advance on any inventory we may seek to acquire. We agree that any
decision to advance funds on any inventory will not be binding on you until
such time as the funds are actually advanced.
3. All financing provided by you to us will be used exclusively for the
acquisition of inventory bearing certain trademarks or tradenames for which
you have approved us to receive financing pursuant to the terms of this
Agreement (the "Approved Inventory"). From time to time, you will identify
such trademarks and tradenames to us in writing. When you advance funds,
you may send us a Statement of Transactions or other statement if you
choose. If you do, we will have acknowledged the debt to be an account
stated and we will have agreed to the terms of the financing programs
identified on such statement, unless we notify you in writing of any
question or objection within seven (7) days after it is mailed to us.
4. To secure payment of all of our current and future debts to you whether
under this Agreement, any guaranty that we now or hereafter execute, or any
other agreement between us, whether direct or contingent, we grant you a
security interest in all of our inventory, equipment, fixtures, accounts,
contract rights, chattel paper, instruments, reserves, documents of title,
deposit accounts and general intangibles, whether now owned or hereafter
acquired, and all attachments, accessories, accessions, substitutions
and/or replacements thereto and all proceeds thereof. All of the above
assets are defined pursuant to the provisions of Article 9 of the Uniform
Commercial Code and are hereinafter collectively referred to as the
"Goods". This security interest is also granted to secure our debts to all
of your affiliates. We will hold all of the Goods financed by you, and the
proceeds thereof, in trust for you and we will immediately account for and
remit directly to you all such proceeds when payment is required under the
terms of our financing program with you. You may directly collect any
amount owed to us with respect to the Goods and credit us with all sums
received by you. Your title, lien or security interest will not be impaired
by any payments we make to the seller or anyone else or by our failure or
refusal to account to you for proceeds.
5. Our principal place of business is located at: 6401 SOUTHWEST FREEWAY
HOUSTON, HARRIS CO, TEXAS 77074
(Number and Street) (City, County, State, Zip Code)
and we represent that our business is conducted as a [ ] SOLE
PROPRIETORSHIP, [ ] PARTNERSHIP, [ ] CORPORATION (check applicable term). We
will notify you immediately of any change in our identity, name, form of
ownership or management, and of any change in our principal place of business,
or any additions or discontinuances of other business locations. The Goods will
be kept at our principal place of business. We will immediately notify you if
any of the Goods are kept at any other address. We and our predecessors have
done business during the last six (6) months only under the following names:
ALLSTAR-VALCOM, TECHNICOMP CORP. ALLSTAR SERVICES, INC. HITECH, INC.
This paragraph is for informational purposes only, and is not in any
manner intended to limit the extent of your security interest in the Goods.
1
6. We promise that the Goods are and will remain free from all claims and
liens superior to yours and that we will defend the Goods against all other
claims and demands. We will not rent, lease, lend, demonstrate, pledge,
transfer or secrete any of the goods or use any of the Goods for any
purpose other than exhibition and sale to buyers, in the ordinary course of
business, without your prior written consent. We will execute all documents
you may request to confirm or perfect your security interest in the Goods.
We warrant and represent that we are not in default in the payment of any
principal, interest or other charges relating to any indebtedness owed to
any third party, and no event has occurred under the terms of any
agreement, document, promissory note or other instrument, which with or
without the passage of time and/or the giving of notice constitutes or
would constitute an event of default thereunder. Each financial statement
that we submit to you, is and will be correct and will accurately represent
our financial statement that we submit to you in your extension of various
financial accommodations to us.
7. We will pay all taxes, license fees, assessments and charges on the Goods
when due. We will immediately notify you of any loss, theft, or destruction
of or damage to any of the Goods. We will be responsible for any loss,
theft or destruction of Goods. We will keep the Goods insured for their
full insurable value against loss or damage under an "all risk" insurance
policy. We will obtain insurance under such terms and in amounts as you may
specify, from time to time, with companies acceptable to you, with a
loss-payee or mortgagee clause payable to you to the extent of any loss to
the Goods and containing a waiver of all defenses against us that is
acceptable to you. We agree to provide you with written evidence of the
required insurance coverage and loss-payee or mortgagee clause. We assign
to you all amounts owed to us under any insurance policy, and we direct any
insurance company to make payment directly to you to be applied to the
unpaid debt owed you. We further grant you an irrevocable power of attorney
to endorse any checks or drafts and sign and file all of the necessary
papers, forms and documents to initiate and settle any insurance claims
with respect to the Goods. If we fail to pay any of the above-referenced
costs, charges, or insurance premiums, and the amounts paid will be
considered an additional debt owned by us to you.
8. You have the right to enter upon our premises from time to time, as you in
your sole discretion may determined for your sole benefit, and all without
any advance notice to us, to: examine the Goods; appraise them as security;
verify their condition and non-use; verify that all Goods have been
properly accounted for; verify that we have complied with all terms and
provisions of this Agreement; and assess, examine, and make copies of our
books and records. Any collection by you of any amounts we owe under our
financing programs with you at or during your examination of the Goods does
not relieve us of our continuing obligation to pay our indebtedness owed to
you in accordance with the terms of such financing programs.
9. We agree to immediately pay you the full amount of the principal balance
owned you on each item of inventory financed by you at the time such
inventory is sold, lost, stolen, destroyed, or damaged, whichever occurs
first, unless you have agreed in writing to provide financing to us on
other terms. We also agree to provide you, upon your request, an inventory
report which describes all the Approved Inventory in our possession
(excluding any inventory financed by you under the Demonstration and
Training Equipment Financing Option and the Rental Equipment Financing
Option). Regardless of the terms of any scheduled payment financing program
with you, if you determine, after conducting an inspection of all of our
inventory, that the current outstanding indebtedness owed by us to you
exceeds the aggregate wholesale invoice price of the Approved Inventory in
our possession, we agree to immediately pay to you an amount equal to the
difference between such outstanding indebtedness and the aggregate
wholesale invoice price of such inventory. We will make all payments to you
at your appropriate branch office. Any checks or other instruments
delivered to you to be applied against our outstanding obligations will
constitute conditional payment until the funds represented by such
instruments are actually received by you. You may apply payments to reduce
finance charges first and then principal, irrespective of our instructions.
Further, you may apply principal payments to the oldest (earliest) invoice
for the inventory financed by you, but, in any case, all principal payments
will first be applied to such inventory which is sold, lost, stolen,
destroyed, damaged, or otherwise disposed of. If we sign any instrument for
the amount of credit extended, it will be evidence of our obligation to pay
and will not be payment. Any discount, rebate, bonus, or credit for the
inventory granted to us by any third party will not, in any way, reduce the
debt we owe you, until you have received payment in cash.
2
10. During each year or part of a year in which you have extended credit to us,
we will pay you finance charges on the total amount of credit extended to
us in the amount agreed to between us from time to time. The period, during
which any third party provides a finance charge subsidy for us, will be
included in the calculation of the annual percentage rate of the finance
charges. Such finance charges may be applied by you to cover any amounts
expended for your: appraisal and examination of the Goods; maintenance of
facilities for payment; assistance in support of our retail sales; your
commitments to manufacturers or distributors to finance shipments of goods
to us; recording and filing fees; expenses incurred in obtaining additional
collateral or security; and any costs and expenses incurred by you arising
out of the financing you extend to us. We also agree to pay you additional
charges which will include: late payment fees; flat charges; charges for
receiving NSF checks from us; renewal charges; and any other charges
applicable to our financing program with you. Unless we hereafter otherwise
agree in writing, the finance charge and additional charges agreed upon
will be your applicable finance charge and additional charges for the class
of Goods involved, prevailing from time to time at your principal place of
business. You will send us, at monthly or other intervals, a statement of
all charges due on our account with you. We will have acknowledged the
charges due, as indicated on the statement, to be an account stated, unless
we object in writing to you within seven (7) days after it is mailed to us.
This statement may be adjusted by you at any time to conform to applicable
law and this Agreement. If any manufacturer or distributor fails to provide
a finance charge subsidy for us, as agreed, we will be responsible for and
pay to you all finance charges billed to our account.
11. Any of the following events will constitute a default by us under this
Agreement: we breach any of the terms, warranties or representations
contained in this Agreement or in any other agreements between us or
between us and any of your affiliates; any guarantor of our indebtedness to
you under this Agreement or any other agreements breaches any of the terms,
warranties or representations contained in any guaranty or other agreements
between any guarantor and you; any representation, statement, report or
certificate made or delivered by us or any of our representatives,
employees or agents or by any guarantor to you is not true and correct; we
fail to pay any of the liabilities or indebtedness owed to you or any of
your affiliates when due and payable under this Agreement or under any
other agreements between us or between us and any of your affiliates; you
determine that you are insecure with respect to any of the Goods or the
payment of our debt owed to you; we abandon the Goods or any part thereof;
we or any guarantor become in default in the payment of any indebtedness
owed to any third party; a judgment issues on any money demand against us
or any guarantor; an attachment, sale or seizure is issued against us or
any of the Goods; any part of the Goods are seized or taken in execution;
the death of the undersigned if the business is operated as a sole
proprietorship or partnership, or the death of any guarantor; we cease or
suspend our business; we or any guarantor make a general assignment for the
benefit of creditors; we or any guarantor become insolvent or voluntarily
or involuntarily become subject to the Federal Bankruptcy Code, state
insolvency laws or any act for the benefit of creditors; any receiver is
appointed for any of our or any guarantor's assets, or any guaranty
pertaining to our indebtedness to you is terminated for any reason
whatsoever; we lose any franchise, permission, license or right to sell or
deal in any Goods which you finance; we or any guarantor misrepresent our
respective financial condition or organizational structure; or you
determine, in your sole discretion, that the goods, any other collateral
given to you to secure our indebtedness to you, or our or any guarantor's
net worth has decreased in value, and we have been unable, within the time
period prescribed by you, to either provide you with additional collateral
in a form and substance satisfactory to you or reduce our total
indebtedness by an amount sufficient to satisfy you. In the event of a
default:
(a) You may, at any time at your election, without notice or
demand to us do any one or more of the following: declare
all or any part of the indebtedness we owe you immediately
due and payable, together with all court costs and all
costs and expenses of your repossession and collection
activity, including, but not limited to, all attorney's
fees; exercise any or all rights of a secured party under
applicable law; and/or cease making any further financial
accommodations or extending any additional credit to us.
All of your rights and remedies are cumulative.
(b) We will segregate, hold and keep the Goods in trust, in
good order and repair, only for your benefit, and we will
not exhibit, transfer, sell, further encumber, otherwise
dispose of or use for any other purpose whatsoever any of
the Goods.
3
(c) Upon your oral or written demand, we will immediately
deliver the Goods to you, in good order and repair, at a
place specified by you, together with all related
documents; or you may, in your sole discretion and without
notice or demand to us, take immediate possession of the
Goods, together with all related documents.
(d) We waive and release: any claims and causes of action
which we may now or ever have against you as a direct or
indirect result of any possession, repossession,
collection or sale by you of any of the Goods and the
benefit of all valuation, appraisal and exemption laws. If
you seek to take possession of any of the Goods by court
process, we irrevocably waive any notice, bonds, surely
and security relating thereto required by any statute,
court rule or otherwise.
(e) We appoint you or any person you may delegate as our duly
authorized Attorney-In-Fact to do, in your sole
discretion, any of the following: endorse our name on any
notes, checks, drafts or other forms of exchange received
as payment on any Goods for deposit in your account; sell,
assign, transfer, negotiate, demand, collect, receive,
settle, extend or renew any amounts due on any of the
Goods; and exercise any rights we have in the Goods.
If we bring any action or assert any claim against you which arises out of
this Agreement, any other agreement or any of our business dealings, in
which we do not prevail, we agree to pay you all costs and expenses of your
defense of such action or claim including, but not limited to, all
attorney's fees. If you fail to exercise any of your rights or remedies
under this Agreement, such failure will in no way or manner waive any of
your rights or remedies as to any past, current or future default.
12. We agree that if you conduct a private sale of any Goods by soliciting bids
from ten (10) or more other dealers or distributors in the type of Goods
repossession by or returned to you hereunder, any sale by you of such
property in bulk or parcels within 120 days of (a) your taking physical
possession and control of such Goods or (b) when you are otherwise
authorized to sell such Goods, whichever occurs last, to the bidder
submitting the highest cash id therefor, will be deemed to be a
commercially reasonable means of disposing of the same. We agree that
commercially reasonable notice of any public or private sale will be deemed
given to us if you send us a notice of sale at least seven (7) days prior
to the date of any public sale or the time after which a private sale will
be made. If you dispose of any such Goods other than as herein
contemplated, the commercial reasonableness of such sale will be determined
in accordance with the provisions of the Uniform Commercial Code as adopted
by the state whose laws govern this Agreement. We agree that you do not
warrant the goods. We will pay you in full even if the Goods are defective
or fail to conform to any warranties extended by any third party. Our
obligations to you will not be affected by any dispute we may have with any
third party. We will not assert against you any claim or defense we may
have against any third party. We will indemnify and hold you harmless
against any claims or defenses asserted by any buyer of the Goods by reason
of: the condition of any Goods; any representations made about the Goods;
or for any and all other reasons whatsoever.
13. We grant to you a power of attorney authorizing any of your representatives
to: execute or endorse on our behalf any documents, financing statements
and instruments evidencing our obligations to you; supply any omitted
information and correct errors in any documents or other instruments
executed by or for us; do any and every act which we are obligated to
perform under this Agreement; and do any other things necessary to preserve
and protect the Goods and your rights and security interest in the Goods.
We further authorize you to provide to any third party any credit,
financial or other information on us that is in your possession.
14. Time is of the essence in this Agreement. This Agreement will be effective
from the date of its acceptance at your branch office. We acknowledge
receipt of a true copy and waive notice of your acceptance of it. If you
commit to advance funds under this Agreement, you will have accepted it.
This Agreement will remain in force until one of us gives notice to the
other that it is terminated. If we terminate this Agreement, you may
declare all or any part of the indebtedness we owe you due and payable
immediately. If this Agreement is terminated, we will not be relieved from
any obligation to you
4
arising out of your advances or commitments made before the effective date
of termination. Your rights under this Agreement and your security interest
in present and future Goods will remain valid and enforceable until all our
debts to you are paid in full. We agree that we cannot assign this
Agreement without your prior written consent. This Agreement will protect
and bind your and our respective heirs, representatives, successors and
assigns. it can be varied only by a document signed by you rand our
authorized representatives. If any provision of this Agreement or its
application is invalid or unenforceable, the remainder of this Agreement
will not be impaired or affected and will remain binding and enforceable.
If we are a corporation, this Agreement is executed with the authority of
our Board of Directors, and with shareholder approval, if required by the
law. All notices you send to us will be sufficiently given if mailed or
delivered to us at our address shown in paragraph 5.
15. The laws of the State of Illinois will govern this Agreement. We agree that
venue for any lawsuit will be in the State or Federal Court within the
county, parish, or district where your branch office, who provides the
financial accommodations, is located. We hereby waive any right to change
the venue of any action brought against us by you.
16. If we have previously executed any security agreements is relating to the
Goods with you, we agree that this Agreement is intended only to amend and
supplement such written agreements, and will not be deemed to be a novation
or termination of such written agreements. In the event the terms of this
Agreement conflict with the terms of any prior security agreement that we
previously executed with you, the terms of this Agreement will control in
determining the agreement between us. We further agree that the terms of
this Agreement will be read liberally in your favor.
17. We waive all exemptions and homestead laws to the maximum extent permitted
by law. We waive any statutory right to notice or hearing prior to your
attachment, repossession or seizure of the Goods. We further waive any and
all rights of set-off we may have against you. We agree that any proceeding
in which we, or you or any of your affiliates, or our assigns are parties,
as to all matters and things arising directly or indirectly out of this
Agreement, or the relations among the parties listed in this paragraph will
be tried in a court of competent jurisdiction by a judge without a jury. We
hereby waive any right to a jury trial in any such proceeding.
ATTEST:
/s/ D.R. CHADWICK ALLSTAR-VALCOM, INC.
Printed Name: D.R. CHADWICK By: /s/ JAMES H. LONG
Printed Name:JAMES H. LONG
Title: PRESIDENT
(CORPORATE SEAL)
No Seal
5
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary and the official custodian of certain
records, including the certificate of incorporation, charter, by-laws and
minutes of the meeting of the Board of Directors of the corporation named below,
and that the following is a true, accurate and compared extract from the minutes
of the Board of Directors of the corporation adopted at a special meeting
thereof held on due notice, at which meeting there was present a quorum
authorization to transact the business described below, and that the proceedings
of the meeting were in accordance with the certificate of incorporation, charter
and by-laws of the corporation, and that they have not been revoked, annulled or
amended in any manner whatsoever.
Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion: "RESOLVED, That the several officers,
directors and agents of this corporation, or any one or more of them, are hereby
authorized and empowered on behalf of this corporation: to obtain financing from
IBM Credit Corporation ("IBM Credit") in such amounts and on such terms as such
officers, directors or agents deem proper; to enter into security and other
agreements with IBM Credit relating to the terms upon which financing may be
obtained and security to be furnished by this corporation therefor; from time to
time to supplement or amend any such agreements; and from time to time to
pledge, assign, guaranty, mortgage, grant security interest in and, otherwise
transfer to IBM Credit as collateral security for any obligations of this
corporation to IBM Credit and its affiliated companies, whenever and however
arising, any assets of this corporation, whether now owned or hereafter
acquired; hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do in the premises."
IN WITNESS WHEREOF, I have executed and affixed the seal of the corporation
on the date stated below.
Dated: JULY 28 , 1993 /s/D.R. CHADWICK
Secretary
ALLSTAR-VALCOM, INC.
Corporate Name
6
IBM Credit Corporation STAMFORD, CT 06904
GUARANTY
(By Individual)
TO: IBM CREDIT CORPORATION Date: JULY 28, 1993
2707 WEST BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60521
Gentlemen:
In consideration of credit and financing accommodations granted or to be
granted by you to Allstar-valcom, INC. ("Dealer"), and for other good and
valuable consideration received, the undersigned, jointly and severally,
guaranties to you, from property held separately, jointly, or in community, the
prompt and unconditional performance and payment by Dealer of any and all
obligations, liabilities, contracts, mortgages, notes, trust receipts, secured
transactions, inventory financing and security agreements, and commercial paper
on which Dealer is in any manner obligated, heretofore, now, or hereafter owned,
contracted, or acquired by you ("Liabilities"), whether the Liabilities are
individual, joint, several, primary, secondary, direct, contingent or otherwise.
The undersigned also agrees to indemnify you and hold you harmless against any
losses you may sustain and expenses you may incur, suffer or be liable for as a
result of or in any way arising out of, following, or consequential to any
transactions with or for the benefit of Dealer.
If Dealer fails to pay or perform any Liabilities to you when due, all
Liabilities to you shall then be deemed to have become immediately due and
payable, and the undersigned shall then pay upon demand the full amount of all
sums owed to you by Dealer, together with all expenses, including reasonable
attorney's fees, which shall be deemed to be not less than fifteen percent of
the debt or the amount legally permitted if placed with an attorney for
collection.
The liability of the undersigned is direct and unconditional and shall not
be affected by any extension, renewal or other change in the terms of payment of
any security agreement or any other agreement between you and Dealer, or any
change in the manner, place or terms of payment or performance thereof or the
release, settlement or compromise of or with any party liable for the payment or
performance thereof, the release or non-perfection of any security thereunder,
any change in Dealer's financial condition, or the interruption of business
relations between you and Dealer. This Guaranty shall continue for so long as
any sums owing to you by Dealer remain outstanding and unpaid, unless terminated
in the manner provided below. The undersigned acknowledges that its obligations
hereunder are in addition to and independent of any agreement or transaction
between you and Dealer or any other person creating or reserving any lien,
encumbrance or security interest in any property of Dealer or any other person
as security for any obligation of Dealer. You need not exhaust your rights or
recourse against Dealer or any other person or any security you may have at any
time before being entitled to payment from the undersigned.
This Guaranty is assignable, shall be construed liberally in your favor, and
shall inure to the benefit of and bind your and our respective successors,
heirs, personal representatives and assigns, and also benefit any of your
existing or future affiliates that may extend credit to Dealer.
If Dealer hereafter is incorporated, acquired by a corporation, dissolved,
or otherwise undergoes any change in its management, ownership, identity or
organizational structure, this Guaranty shall continue to extend to any
Liabilities of the Dealer or such resulting corporation, dissolved corporation,
or new or changed legal entity or identity to you.
1
The undersigned waives: notice of the acceptance of this Guaranty, and of
presentment, demand and protest; notices of nonpayment, nonperformance, any
right of contribution from other guarantors, and dishonor; notices of amount of
indebtedness of Dealer outstanding at any time; notices of the number and amount
of advances made by you to Dealer in reliance on this Guaranty; notices of any
legal proceedings against Dealer; notice and hearing as to any prejudgment
remedies; and any other demands and notices required by law. The undersigned
further waives all rights of set-off and all counterclaims against you or
Dealer. The undersigned also waives any and all rights in and notices or demands
relating to any collateral now or hereafter securing any of the Liabilities,
including, but not limited to, all rights, notices or demands relating, whether
directly or indirectly, to the sale or other disposition of any or all of such
collateral or the manner of such sale or other disposition. All waivers by the
undersigned herein shall survive any termination or revocation of this Guaranty.
The undersigned authorizes you to sell at public or private sale or otherwise
realize upon the collateral now or hereafter securing any of the Liabilities, in
such manner and upon such terms and conditions as you deem best, all without
advertisement or notice to Dealer, the undersigned, or any third parties. The
undersigned further authorizes you to deal with the proceeds of such collateral
as provided in your agreement with Dealer, without prejudice to your claim for
any deficiency and free from any right or redemption on the part of Dealer, the
undersigned or any third parties, which right or redemption is hereby waived
together with every formality prescribed by custom or by law in relation to any
such sale or other realization.
The undersigned further agrees that all of its right, title and interest in,
to and under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Dealer to the undersigned, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. The
undersigned will not ask, demand or sue for, or take or receive payment of, all
or any part of such loans, notes, debts or any other liabilities or obligations
whatsoever or any security therefor, until and unless all of the Liabilities are
paid, performed and full satisfied.
The undersigned has made an independent investigation of the financial
condition of Dealer and gives this Guaranty based on that investigation and not
upon any representations made by you. The undersigned acknowledges that it has
access to current and future Dealer financial information which will enable the
undersigned to continuously remain informed of Dealer's financial condition. The
undersigned also consents to and agrees that the obligations under this Guaranty
shall not be affected by your: subsequent increases or decreases in the credit
line that you may grant to Dealer; substitutions, exchanges or releases of all
or any part of the collateral now or hereafter securing any of the Liabilities;
sales or other dispositions of any or all of the collateral now or hereafter
securing any of the Liabilities without sales or other dispositions; realizing
on the collateral to the extent you, in your sole discretion, deem proper; or
purchases of all or any part of the collateral for your own account.
This Guaranty and any and all obligations, liabilities, terms and provisions
herein shall survive any and all bankruptcy or insolvency proceedings, actions
and/or claims brought by or against Dealer, whether such proceedings, actions
and/or claims are federal and/or state.
This Guaranty is submitted by the undersigned to you (for your acceptance or
rejection thereof) at your above specified office; as an offer by the
undersigned to guaranty the credit and financial accommodations provided by you
to Dealer. If accepted, this Guaranty shall be deemed to have been made at your
above specified office. This Guaranty and all obligations pursuant thereto,
shall be governed and controlled as to interpretation, enforcement, validity,
construction, effect and, in all other respects by the laws of the state of your
above-specified office. The undersigned, to induce you to accept this Guaranty,
agrees that all actions or proceedings arising directly or indirectly in
connection with, out of, related to or from this Guaranty may be litigated, at
your sole discretion and election, in courts within the state of your
above-specified office. The undersigned consents submits to the jurisdiction of
any local, state or federal court located within that state. The undersigned
waives any right to transfer or change the venue of any litigation brought
against the undersigned by you in accordance with this paragraph.
2
Any delay by you, or your successors, affiliates or assigns, in exercising
any or all rights granted you under this Guaranty shall not operate as a waiver
of those rights. Furthermore, any failure by you, your successors, affiliates or
assigns, to exercise any and all rights granted you under this Guaranty shall
not operate as a waiver of your right to exercise any or all of them later.
This document contains the full agreement of the parties concerning the
guaranty of Dealer's Liabilities and can be varied only by a document signed by
all the parties hereto. The undersigned may terminate this Guaranty by notice to
you in writing, the termination to be effective sixty (60) days after receipt
and acknowledgment thereof by you, but the termination shall in no manner
terminate the undersigneds' guaranty of Liabilities arising prior to the
effective date of termination.
We agree that any action, suit or proceeding relating directly or indirectly
to this Guaranty or the relationship between you and us, will be tried in a
court of competent jurisdiction by a judge without a jury. Thus, we hereby waive
any right to a jury trial in any such action, suit or proceeding.
Guarantor /s/ JAMES H. LONG
(Guarantor's signature)
WITNESS:
/s/ D.R. CHADWICK Print Name JAMES H. LONG
Print Name D.R. CHADWICK Social Security No. ###-##-####
Address 6401 S.W. FREEWAY Home Address: 910 ALKIRE LAKE DRIVE
HOUSTON TX 77074 SUGAR LAND TX 77478
3
Guarantor /s/ JAMES H. LONG
(Guarantor's signature)
WITNESS:
/s/ D.R. CHADWICK Print Name JAMES H. LONG
Print Name Social Security No. ###-##-####
Address Home Address 910 ALKIRE LAKE DR.
SUGAR LAND TX 77478
STATE OF TEXAS )
)SS
COUNTY OF HARRIS )
On this 28TH day of JULY , 1993, before me, the subscriber, a Notary Public in
and for said county, personally appeared JAMES H. LONG known to me to be the
person(s) described in and who executed the above Guaranty (By Individual), and
who acknowledged the execution thereof to be their free act and deed.
/s/ DEBORA ANNE GREENE
Notary Public
My Commission Expires: OCT. 28 , 1993 [SEAL]
4
IBM CREDIT CORPORATION STAMFORD, CT 06904
AGREEMENT FROM NON-GUARANTEEING SPOUSE
THIS AGREEMENT, made this 28TH day of JULY , 1993 , between IBM Credit
Corporation ("IBMCC"), with an office at 2707 West Butterfield Road, Suite 205,
Oak Brook, Illinois 60521, and Rhonda Long an individual residing at 910 ALKIRE
LAKE DR., SUGAR LAND, TEXAS 77478 ("Second Party").
W I T N E S S E T H
WHEREAS, IBMCC may hereafter grant and may have heretofore granted financial
accommodations to Allstar-Valcom, Inc. ("Dealer");
WHEREAS, the financial accommodations that have been granted and may be
granted by IBMCC to Dealer have been and will be of benefit to Second Party; and
WHEREAS, one of the inducements for IBMCC to grant financial accommodations
to Dealer are the assets, both real and personal, held in the name of James H.
Long ("Guarantor"), whether individually, as a joint tenant or as a tenant by
the entireties, who is the spouse of Second Party, and who guaranteed all of the
liabilities and obligations of Dealer to IBMCC and
WHEREAS, IBMCC wishes to ensure that Guarantor's assets on which it has and
shall continue to rely upon in granting financial accommodations to Dealer will
remain in the possession of and owned by Guarantor for so long as Dealer is in
any manner liable to IBMCC, whether directly, indirectly or contingently, and
that such assets shall not be transferred to any other party.
NOW, THEREFORE, in the best interests of the Second Party and in
consideration of the mutual premises contained herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. For so long as Dealer is indebted to IBMCC for any amount and for any reason
whatsoever, Second Party agrees that it shall not, without the prior written
consent of IBMCC, accept the transfer from Guarantor, by sale, gift, pledge,
mortgage, assignment, or any other means, of any of the Guarantor's assets
shown on those certain personal financial statements, heretofore and
hereafter from time to time given to IBMCC and Second Party by Guarantor,
including, but not limited to, the following items:
("Assets").
2. All financial accommodations heretofore and which may hereafter be granted
to Dealer by IBMCC have been and shall be granted by IBMCC in substantial
reliance upon the Assets, and that but for the worth of the Guarantor based
upon such Assets IBMCC would not have previously provided and will not in
the future provide any financial accommodations to Dealer.
1
3. Second Party will indemnify and hold IBMCC harmless from any losses or
damages incurred by IBMCC because of any unauthorized transfer of any Assets
from Guarantor to Second Party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement From
Non- Guaranteeing Spouse all as of the date above written.
WITNESS:
/s/ D. R. CHADWICK /s/ RHONDA LONG
(Second Party)
IBM CREDIT CORPORATION
By:
Print Name:
Title:
STATE OF TEXAS )
)SS.
COUNTY OF HARRIS )
On this 28TH day of JULY , 1993 , before me, personally appeared, Rhonda
Long , known to me to be the person whose name is subscribed to the within
instrument as the Second Party and acknowledged that she executed the same for
the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ DEBORA ANNE GREEN
(Notary Public)
My Commission Expires: [SEAL]
OCT. 28 , 1993
2
EXIBIT 10.4
SUBLEASE AGREEMENT
THE STATE OF TEXAS
COUNTY OF HARRIS
This Sublease Agreement is made and entered into this 2nd day of August,
1996, but made effective as of January 1, 1996, at Houston, Texas, by and
between Allstar Equities, Inc., a Texas corporation, hereinafter called
Sublessor, and Allstar Systems, Inc., a Texas corporation, hereinafter called
Sublessee.
ARTICLE 1.
1.01 DEMISE AND DESCRIPTION. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, that certain property, together with
appurtenances, hereinafter called the Subleased premises, situated in Harris
County, Texas, commonly known as 6401 Southwest Freeway, Houston, Texas, which
Subleased premises are described in Exhibit "A" attached hereto and made a part
hereof for all purposes. Sublessee hereby takes the Subleased premises and all
improvements located thereon, "as is" except as specifically hereinafter set
out.
ARTICLE 2.
2.01 USE. The Subleased premises are to be used and occupied as general
offices for general business purposes. Sublessee agrees to restrict its use to
such purposes and not to use or permit the use of the Subleased premises for any
other purpose without first obtaining the consent in writing of Sublessor.
2.02 PROHIBITION AGAINST ACTIVITIES INCREASING FIRE INSURANCE
RATES. Sublessee agrees not to use the Subleased premises in any manner, even in
its use for the purposes for which the Subleased premises are Subleased, that
will increase risks covered by insurance on the building where the Subleased
premises are located, so as to cause cancellation of any insurance policy
covering the building. Sublessee further agrees not to keep on the Subleased
premises, or permit to be kept, used, or sold thereon, anything prohibited by
the policy of fire insurance covering the Subleased premises. Sublessee agrees
to comply, at its own expense, with all requirements of insurers necessary to
keep in force the fire and public liability insurance covering the premises and
building.
2.03 PROHIBITION AGAINST WASTE, NUISANCE OR UNLAWFUL USE. Sublessee shall
not commit, or allow to be committed, any waste on the premises, create or allow
any nuisance to
1
exist on the Subleased premises, or use or allow the Subleased premises, to be
used for an unlawful purpose.
ARTICLE 3.
3.01 TERM. The term of this Sublease is thirty six (36) months commencing
on January 1, 1996 and ending on December 31, 1998.
3.02 RENT. The total rent of said Sublease is the sum of One Million
Thirty-Four Thousand and No/100 Dollars ($1,134,000.00), payable by the
Sublessee in installments as follows:
a) Commencing on January 1, 1996, and payable on the 1st day of each
month through December, 1996 the sum of Thirty-One Thousand and No/100
Dollars ($31,000.00) each shall be due and payable; and
b) Commencing on January 1, 1997 and payable on the 1st day of each
month through December, 1997 the sum of Thirty-One Thousand Five Hundred
and No/100 Dollars ($31,500.00) each shall be due and payable; and
c) Commencing on January 1, 1998 and payable on the 1st day of each
month through December, 1998 the sum of Thirty-Two Thousand and No/100
Dollars ($32,000.00) each shall be due and payable.
3.03 LATE CHARGE. If rental payments are not received by the 5th day of
the month, a late charge of Two Hundred Fifty No/100 Dollars ($250.00) will be
added to month's rent to defray Sublessor's administrative expense; and such fee
shall not be deemed to be interest or penalty. Provided, however, that in any
twelve (12) month period in which the rental payments are not received by the
fifth (5th) day of the month in two (2) or quarters, Sublessor shall have the
right to terminate this Sublease.
ARTICLE 4.
4.01 POSSESSION. Possession of the Subleased premises shall be on January
1, 1996.
4.02 DELIVERY AND ACCEPTANCE. Sublessor makes no representations or
warranties expressed or implied concerning the Subleased premises, the property
or the improvements, their condition or fitness for their intended use.
Sublessee accepts possession of the Subleased premises "as is" in a good state
of repair and in sanitary condition.
ARTICLE 5.
2
5.01 MAINTENANCE AND REPAIR. Sublessee shall, at its own cost and expense,
throughout the term of this Sublease, and so long as it shall remain in
possession of the demised Subleased premises, keep and maintain in good repair,
all portions of the building located upon the demised Subleased premises
including but not limited to the roof, foundation and structural soundness of
the exterior walls. Sublessee shall keep and maintain in good repair all
windows, window glass, plate glass, doors, fixtures, equipment and air
conditioners, appurtenances and machinery therein. Furthermore, Sublessee shall
keep the plumbing working, closets, pipes and fixtures belonging thereto in good
repair, and keep the water pipes and connections free from ice and all other
obstructions, to the satisfaction of the municipal, police and any other
government authority, during the term of this Sublease. It shall be the
obligation of Sublessee to keep and maintain in good repair, the sidewalks,
parking lots, driveways and curbs, if any, adjoining the demised Subleased
premises, or forming a part thereof. It is specifically understood that
Sublessor shall have no obligation for maintenance and repair of the Subleased
premises and shall incur no liability or expense in regard thereto, against
which Sublessee shall indemnify Sublessor as set out in Article 16.01 herein.
5.02 SURRENDER. Sublessee shall throughout the Sublease term maintain the
building and other improvements constituting the Subleased premises and keep
them free from waste, nuisance and theft and shall deliver up the Subleased
premises at the termination of this Sublease in a clean and sanitary condition
and in good repair and condition, reasonable wear and tear and damage by fire,
tornado, or other casualty excepted. In the event Sublessee should neglect to
reasonably maintain the Subleased premises or replace any stolen property,
Sublessor shall have the right, but not the obligation, to cause repairs,
corrections or replacements to be made, and any reasonable costs therefore shall
be payable by Sublessee to Sublessor as additional rental on the next rental
installment date.
ARTICLE 6.
6.01 UTILITY CHARGES. Sublessee shall pay all utility charges and
3
deposits including but not limited to water, electricity, telephone and gas used
in and about the Subleased premises, all such charges to be paid by Sublessee to
the utility company or municipality furnishing the same, before the same shall
be delinquent.
ARTICLE 7.
7.01 ORDINANCES. Sublessee agrees that it will promptly comply with and
fulfill all ordinances and regulations of the state, county, city and other
governmental agencies applicable to said demised premises, and all ordinances
imposed by the Board of Health, Sanitary and Police Departments for the
correction, prevention and abatement of nuisances in or upon or connected with
said demised premises during the term of this Sublease, at Sublessee's sole
expense and cost.
ARTICLE 8.
8.01 ALTERATIONS. Sublessee shall not make major alteration, additions, or
improvements to the Subleased premises, without the prior written consent of
Sublessor, and after such consent has been given, unless otherwise agreed upon
in writing, all alterations, improvements and additions made by Sublessee upon
the Subleased premises, although at its own cost and expense, shall at the
option of Sublessor, remain upon the Subleased premises at the expiration of
this Sublease and become the property of Sublessor in fee simple, without other
action or process of law, excluding moveable buildings and other structures
moveable in nature and not permanently affixed to said property in such manner
as to permanently alter the Subleased premises. Sublessee shall not allow any
mechanic's or materialman's lien against property and shall furnish release and
payment affidavits from contractors or subcontractors.
ARTICLE 9.
9.01 SUBSUBLEASE BY SUBLESSEE. Sublessee shall have the right to assign or
subsublease the Subleased premises under the same terms and conditions of this
Sublease Agreement except for rent but will remain responsible for the minimum
Sublease payments set out herein. Sublessee shall indemnify and hold harmless
Sublessor from any claims or actions resulting from or arising out of any such
subsublease. See Article 16.
ARTICLE 10.
10.01 FIRE AND CASUALTY LOSS. If the Subleased premises or any portion
thereof shall be damaged by fire or other casualty, resulting from or
contributed to by the fault or negligence of Sublessee, Sublessee's agents,
employees, invitees or visitors, such damage shall be repaired by and at the
expense of Sublessee under the direction and supervision of Sublessor and rent
shall continue without abatement. If the Subleased premises, or any portion
thereof, shall be damaged by fire or other casualty not caused or contributed to
by negligence or fault of Sublessee, Sublessee's
4
agents, employees, visitors or invitees, such that the Subleased premises are
rendered wholly unfit for the normal conduct of Sublessee's business and cannot
be repaired within a reasonable time after the occurrence of such casualty, this
Sublease may be terminated by Sublessee or Sublessor as of the date of such
casualty by written notice of termination given to the other within thirty (30)
days after such casualty. If such damage can be repaired within a reasonable
time after occurrence, Sublessor shall enter and make repairs with reasonable
diligence provided that if the damage is such that the Subleased premises or any
part thereof cannot be occupied while being repaired (and cause of such damage
is not attributable to Sublessee, Sublessee's agents, employees, visitors or
invitees), a proportionate reduction in rental shall be allowed for he period
during which the Subleased premises or a part thereof cannot be occupied by
Sublessee. If the Building is totally destroyed or more than fifty (50%) percent
of the Subleased premises are rendered wholly unfit or occupancy because of
damage, then Sublessor or Sublessee may, at its option, terminate this Sublease
by written notice of termination. In the event of termination, Sublessee shall
pay rent hereunder in proportion to time of such damage and immediately
surrender the Subleased premises to Sublessor. In all cases, due allowance shall
be made for reasonable delay caused by adjustment of insurance loss, strikes,
labor controversies, and any cause reasonably beyond Sublessor's control. In the
event abatement of rentals as set forth herein shall occur, it is agreed between
Sublessee and Sublessor that the term of this Sublease then in effect shall be
extended for an amount of time equal to the period of such rent abatement. For
the purposes hereof, a reasonable t to repair or restore the Subleased premises
shall not be deemed to be less than one hundred eighty (180) days.
Notwithstanding the above, Sublessor shall have no obligation to make repairs or
comply with this provision except to the extent insurance proceeds are actually
received by Sublessor.
ARTICLE 11.
11.01 INSURANCE BY SUBLESSEE. Sublessee agrees to and shall secure from a
good and responsible company or companies doing insurance business in the State
of Texas acceptable to Sublessor, and maintain during the entire term of this
Sublease fire and extended coverage insurance on the building. Sublessor shall
have no obligation to insure for casualty loss personal property or contents of
the Subleased premises whether belonging to Sublessor or Sublessee.
During the entire term of this Sublease, the Sublessee shall, at the
Sublessee's sole cost and expense, but for the mutual benefit of Sublessor and
Sublessee, maintain general public liability insurance against claims for
personal injury, death or property damage occurring in, upon or about the
demised premises and on any sidewalks directly adjacent to the demised premises.
The limitation of liability of such insurance shall be not less than Five
Hundred Thousand Dollars ($500,000.00) in respect to injury or death of one
person, and to the limit of not less than One Million Dollars ($1,000,000.00) in
respect to any one accident and to the limit of not less than Five Hundred
Thousand Dollars ($500,000.00) with respect to property damage. All such
policies of insurance shall be issued in the name of Sublessee and Sublessor and
for the mutual and joint benefit and protection of the parties, and such
policies of insurance or copies thereof shall be delivered to
5
the Sublessor.
11.02 PROTECTION AGAINST CANCELLATION. Sublessee agrees that each of the
policies provided for in this article shall not be canceled or altered without
thirty (30) days prior written notice to Sublessor.
11.03 FAILURE TO SECURE. If Sublessee at any time during the term hereof
should fail to secure or maintain the foregoing insurance, Sublessor shall be
permitted to obtain such insurance in Sublessee's name or as the agent of
Sublessee and shall be compensated by Sublessee for the cost of the insurance
premiums. Sublessee shall pay Sublessor interest on paid insurance premiums at
the rate of ten percent (10%) per annum computed from the date written notice is
received that the premiums have been paid. Sublessor may add the cost of such
insurance to Sublessee's monthly rental payments after giving Sublessee written
notice thereof.
ARTICLE 12.
12. REAL AND PERSONAL PROPERTY TAXES. Sublessor is to pay the real
property taxes on the Subleased property during the entire term of this
Sublease. All personal property taxes from the beginning date of this Sublease
for personal property of Sublessee located on the Subleased premises shall be
paid by Sublessee during the term of this Sublease. It is the intent that all
taxes and assessments involving the contents of the Subleased premises shall be
paid by the
6
Sublessee during the time of this Sublease.
In the event taxes are not paid, Sublessor shall be entitled to pay them
for the account of Sublessee and Sublessee would then be required, upon thirty
(30) days written notice from Sublessor, to reimburse Sublessor.
ARTICLE 13.
13.01 CONDEMNATION. If, during the term hereof, all of the Subleased
premises shall be taken for the public or quasi-public purposes under any
governmental law, ordinance, or regulation, or by right of eminent domain, or
should be sold to the condemning authority under threat of condemnation, this
Sublease shall thereupon terminate and the rent shall be prorated to the date of
said termination; however, if only a part of the building and property be taken
and such partial taking does not interfere with the Sublessee's business, this
Sublease at Sublessee's option shall cease only as to the part of the building
and property so taken and shall continue as to the part not taken and the rent
herein reserved shall be abated in the portion that the value of the portion so
taken bears to the value of the total area of the building and property hereby
Subleased at Sublessee's option. All proceeds from any such taking or
condemnation of the Subleased premises shall be owed and paid to Sublessor,
except for any sum specified for fixtures or other property, if any, Sublessee
has the right to remove upon termination of this Sublease.
ARTICLE 14.
14.01 DEFAULT BY SUBLESSEE. If Sublessee shall allow the rent to be in
arrears more than ten (10) days after written notice of such delinquency, which
notice Sublessor shall only be obligated to give once in any twelve month
period, or shall remain in default under any other condition of the Sublease for
a period of thirty (30) days after written notice from Sublessor, or should any
person other than Sublessee secure possession of the Subleased premises, or any
part thereof, by reason of any receivership and/or bankruptcy proceedings,
Sublessor may, at its option, terminate this Sublease, or in the alternative,
Sublessor may re-enter and take possession of said Subleased premises and remove
all persons and property therefrom, without being deemed guilty of any manner of
trespass, and relet the subleased premises or any part thereof, for all or any
part of the remainder of said term, to a party satisfactory to Sublessor, and at
such rental as Sublessor may with reasonable diligence be able to secure. Should
Sublessor be unable to relet after reasonable efforts to do so, or should such
rental be less than the rental Sublessee was obligated to pay under this
Sublease, then Sublessee shall pay the amount of such deficiency to Sublessor
plus the expense of reletting.
14.02 LIEN. It is expressly agreed that in the event of default by
Sublessee hereunder, Sublessor shall have a lien upon all goods, chattels, or
personal property of any description belonging to Sublessee which are placed in,
or become a part of, the Subleased premises, as security for rent due and to
become due for the remainder of the current Sublease term, which lien shall not
7
be in lieu of or in any way affect the statutory Sublessor's lien given by law,
but shall be cumulative thereto; and Sublessee hereby grants to Sublessor a
security interest in all such personal property placed in said Subleased
premises for such purposes. This shall not prevent the sale by Sublessee of any
merchandise in the ordinary course of business free of such lien to Sublessor.
In the event Sublessor exercise the option to terminate the subleasehold,
reenter and relet the Subleased premises as provided in the preceding paragraph,
then Sublessor may take possession of all of Sublessee's property on the
Subleased premises and sell same at public or private sale after giving
Sublessee reasonable notice of the time and place of any public sale or of the
time after which any private sale is to be made, for cash or on credit, or for
such prices and terms as Sublessor deems best, with or without having the
property present at such sale. The proceeds of such sale shall be applied first
to the necessary and proper expense of removing, storing, and selling such
property then to the payment of any rent due or to become due under this
Sublease with the balance, if any, to be paid to Sublessee. At the Sublessee's
request, Sublessor will in writing subordinate all contractual and statutory
liens upon personal property of Sublessee located in or on the Subleased
premises to all banks or other financial institutions granted or having a lien
on any such personal property.
14.03 RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies of Sublessor
under this Sublease shall be cumulative, and none shall exclude any other rights
or remedy at law. Such rights and remedies may be exercised and enforced
concurrently and whenever and as often an occasion therefore arises.
ARTICLE 15.
15.01 INSPECTION BY SUBLESSOR. At reasonable times during the terms of
this Sublease, Sublessor, upon prior notice to Sublessee, shall have the right,
by itself, its agents and employees, to enter into and upon the Subleased
premises during reasonable business hours for the purpose of examining and
inspecting the same and determining whether Sublessee shall have complied with
all of its obligations hereunder in respect to the care and maintenance of the
Subleased
8
premises, the repair and rebuilding of the improvements thereon when necessary,
and all other terms and conditions hereof.
15.02 SUBLESSOR'S RIGHT TO INSPECT REPAIR AND MAINTAIN PREMISES.
Sublessor reserves the right to perform required maintenance and repair or to
make additions or alterations to any part of the Subleased premises Subleased,
and Sublessee agrees to permit Sublessor to do so. Sublessor may, in connection
with such alterations, additions, or repairs, erect scaffolding, fences, and
similar structures, post relevant notices, and place moveable equipment without
the obligation to reduce Sublessee's rent for the Subleased premises during such
period, and without incurring liability to Sublessee for disturbance of quiet
enjoyment of the Subleased premises, or partial loss of occupation thereof.
ARTICLE 16.
16.01 INDEMNIFICATION AND LIABILITY. Sublessee indemnifies and agrees to
hold Sublessor harmless from and against all fines, suits, claims, demands,
liabilities and actions, including reasonable costs and expenses of defending
against such claims, resulting or alleged to result from any breach, violation
or non-performance of any covenant or condition hereof, by Sublessee,
Sublessee's agents, employees, licensees or invitees, or from the use or
occupancy of the Subleased premises by Sublessee, Sublessee's agents, employees,
licenses or invitees. Sublessor shall not be liable to Sublessee for any damage
to persons or property resulting from act or omission or negligence of any
co-tenant, visitor or other occupant of the Building, except those which are
caused by Sublessor's sole negligence. Sublessee's use and occupancy of the
Subleased premises, the Building and garage, is at Sublessee's sole risk and
Sublessee hereby releases Sublessor, its agent or employees, from all claims or
damages or injury to the full extent permitted by law. Sublessee waives and no
party shall have any right or claim against Sublessor, its agents or employees,
by way of subrogation or assignment, for property damage, whether same may be
caused by negligence or the condition of the Building.
ARTICLE 17.
17.01 SIGNAGE. Sublessee agrees that it will not construct or place, or
permit to be constructed or placed, signs, awnings, marquees, or other
structures projecting from the exterior of the Subleased premises without
Sublessor's written consent thereto. Sublessee further agrees to remove, signs,
displays, advertisements or decorations it placed, or permitted to be placed, on
the Subleased premises, which, in Sublessor's opinion, are offensive or
otherwise objectionable. If Sublessee fails to remove such signs, displays,
advertisements, or portions within fifteen (15) days after receiving written
notice from Sublessor to remove the same, Sublessor reserves the right to enter
the Subleased premises and remove them, at Sublessee's expense.
ARTICLE 18.
9
18.01 PARTIAL INVALIDITY. If any term, covenant, condition provision of
this Sublease is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of provisions hereof shall remain in full force
and effect and all in no way be affected, impaired or invalidated thereof.
ARTICLE 19.
19.01 HOLDING OVER. If Sublessee should remain in possession of the
Subleased premises after expiration of the term of this Sublease, without
execution by Sublessor and Sublessee of a new Sublease, then Sublessee shall be
deemed to be occupying the Subleased premises as a tenant at deference on a
day-to-day basis subject to all of the covenants obligations of this Sublease;
provided, however, rental for each holdover period shall be a sum equal to the
base rent provided by the number of days in the term hereof multiplied by three
(3). No holding over by Sublessee after the term of this Sublease shall operate
to extend the Sublease and in the event of any authorized holding over,
Sublessee shall indemnify Sublessor of any and claims for damages by other
tenants to whom Sublessor may have all or any portion of the Subleased premises.
Any holding over with the consent of Sublessor in writing shall thereafter
constitute this a Sublease from day-to-day.
ARTICLE 20.
20.01 SUBORDINATION, ATTORNMENT. Upon request of the Sublessor, Sublessee
will in writing subordinate its rights hereunder to the lien any first mortgage,
or first deed of trust, to any bank, insurance company or other lending
institution, now or hereafter in force against the land and building of which
the demised premises are a part, and to all advances made or hereafter to be
made upon the security thereof.
ARTICLE 21.
MISCELLANEOUS PROVISIONS
21.01 AMENDMENT. This Sublease may not be altered, changed amended, except
by instrument in writing, signed by all parties.
21.02 WAIVER OF RIGHTS. Failure or Sublessor or Sublessee to declare any
default immediately upon the occurrence thereof, or delay in taking any action
in connection therewith or acceptance or rental after same is due, shall not
waive such default, but Sublessor shall have the right to declare any such
default at any time, and take such action as may be lawful or authorized
hereunder, there at law or in equity.
21.03 FORCE MAJEURE. Neither Sublessor or Sublessee shall be required to
perform any term, condition or covenant in this Sublease as long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, strikes, lock outs, material, labor shortages,
10
restrictions by governmental authority, civil riots, floods and any other cause
not reasonably within the control either Sublessor or Sublessee, and which, by
the exercise of due diligence, Sublessor or Sublessee would be unable, wholly or
in part, to avoid or overcome.
21.04 APPLICABLE LAW. As used herein, the masculine or neuter genders
shall be deemed to include all genders and the regular the plural and vice
versa, except where any such instruction would be unreasonable. This Sublease
shall be construed under and in accordance with the laws of the State of Texas
and all obligations of the parties hereunder are performable in Harris County,
Texas. The headings are inserted for convenience only and shall not in any way
the provisions they identify. If any provision of this Sublease or any
application thereof shall be valid, illegal or unenforceable in any respect, the
validity, quality or enforceability of the remaining provisions hereof and her
applications hereof, shall not in any way be affected or impaired thereby.
21.05 COVENANTS. All agreements, obligations and undertakings of the
parties shall be deemed to be covenants whether not so denominated.
21.06 NOTICES. Except as may be otherwise specifically provided herein,
all notices required or permitted hereunder shall in writing and shall be deemed
to be delivered when delivered personally or when deposited with the United
States Postal Service, postage prepaid, registered or certified mail, return
receipt requested, addressed to the parties at the respective addresses set
forth hereunder or at such other address as may have been heretofore specified
by written notice delivered in accordance herewith.
Sublessor: ALLSTAR EQUITIES, INC.
Attn: Mr. James H. Long, President
6401 Southwest Freeway
Houston, TX 77074
Sublessee: ALLSTAR SYSTEMS, INC.
Attn.: Mr. Donald R. Chadwick, Chief Financial Officer
6401 Southwest Freeway
Houston, TX 77074
21.07 NOTICE TO MORTGAGEE. If the Subleased premises are at any time
subject to a mortgage or deed of trust, then in any instance in which Sublessee
gives notice to Sublessor alleging default by Sublessor hereunder, Sublessee
will also simultaneously give a copy of such notice to Sublessor's mortgagee
which shall have the right (but not the obligation) to cure or remedy such
default during the period that is permitted to Sublessor hereunder, plus an
additional period of thirty (30) days, and Sublessee will accept such curative
or remedial action, if any, taken by Sublessor's mortgagee, with the same effect
as if such action had been taken by Sublessor.
11
21.08 PARTNERSHIP DISCLAIMER. Nothing contained in this Sublease shall be
construed as creating a partnership or joint venture between Sublessor and
Sublessee, or cause Sublessor to be responsible for any debts or obligations of
Sublessee.
21.09 ATTORNEY'S FEES. In the event either party makes default in the
performance of any of the terms, covenants, agreements or conditions contained
in this Sublease, the defaulting party agrees to pay the non-defaulting party's
attorney's fees which are incurred in enforcement of this Sublease, collection
of rental or recovery of possession of the Subleased premises. In case Sublessor
shall be made party to any litigation commenced by or against Sublessee then
Sublessee shall protect and hold Sublessor harmless and shall, pay all costs,
expenses and reasonable attorney's fees incurred or paid by Sublessor in
connection with such litigation.
21.10 ASSIGNABILITY. This Sublease and Sublessor's interests hereunder are
specifically assignable in whole or in part.
21.11 CONSENT TO ACTION. Sublessor or Sublessee shall not unreasonably
withhold any consent required or requested by the other party hereto.
21.12 BENEFITS. This Sublease Agreement shall be binding upon and
inure to the benefit of the parties hereto, their respective successors,
permitted assigns, heirs and legal representatives, as the case may be. This
Sublease is executed in counterparts, and each of such counterparts shall for
all purposes be deemed to be an original and this Agreement supersedes any prior
understandings or written or oral agreements between the parties respecting the
written subject matter.
DATED this 2nd day of August, 1996, but made effective as of January 1,
1996.
"SUBLESSOR"
ALLSTAR EQUITIES, INC., a Texas Corporation
By /s/ JAMES H. LONG
James H. Long, President
"SUBLESSEE"
ALLSTAR SYSTEMS, INC., a Texas Corporation
By /s/ DONALD R. CHADWICK
Donald R. Chadwick, Chief Financial Officer
12
EXHIBIT 10.5
MANAGEMENT EMPLOYMENT AGREEMENT
THIS MANAGEMENT EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Allstar Systems, Inc., a Texas corporation ("OLD ALLSTAR"), and
[*Name], a resident of [*City, County, State] ("EMPLOYEE") on this ______ day of
____________, 1996.
W I T N E S S E T H:
WHEREAS, Old Allstar intends to reincorporate in Delaware by merging into
a new Delaware corporation to be named Allstar Systems, Inc. ("NEW ALLSTAR");
WHEREAS, upon consummation of the merger of Old Allstar into New Allstar
(the "MERGER"), New Allstar would succeed to the business and assets of Old
Allstar, including, without limitation, Old Allstar's rights and obligations
under this Agreement;
WHEREAS, the Merger would be consummated to facilitate a pending, initial
registered public offering of New Allstar's common stock, par value $.01 per
share (the "COMMON STOCK"), pursuant to applicable federal and state securities
laws (the "OFFERING"); and
WHEREAS, in connection with the pending Merger and Offering, the parties
hereto desire to memorialize the terms and conditions of the employment
relationship between Employer and Employee, the term "EMPLOYER" meaning Old
Allstar before the Merger and New Allstar upon and after the Merger.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Employer hereby agrees to employ Employee and Employee hereby accepts
employment with Employer for a term beginning on the date first above written
and continuing in effect until Employee's employment hereunder is terminated in
accordance with Article 5 (the "EMPLOYMENT PERIOD").
1.2 PRINCIPAL DUTIES. Employee's employment hereunder shall be in the
capacity of [__________]. In such capacity, Employee shall perform such duties
as are prescribed for such office in the Employer's Bylaws and as may from time
to time be prescribed by Employer's Board of Directors or management more senior
than Employee and which are reasonably related or incidental to the capacity in
which Employee serves Employer. Employee shall perform diligently and to the
best of his ability his duties hereunder in accordance with any lawful
instructions, rules, regulations or policies made or adopted by Employer's Board
of Directors, including those applicable to Employer's employees
- 1 -
generally. During
the Employment Period, Employee shall devote his full time, and best efforts and
skills to the business and interests of Employer during Employer's normal
working hours, do his utmost to further enhance and develop Employer's best
interests and welfare, and endeavor to improve his ability and knowledge of
- 2 -
Employer's business, particularly as it relates to his duties hereunder, in an
effort to increase the value of his services for the mutual benefit of the
parties hereto. At all times during the term of this Agreement, Employee shall
project a positive and professional image on behalf of Employer.
1.3 ACCOUNTING AND FIDELITY BOND. Employee shall truthfully and accurately
make, maintain and preserve all records and reports that Employer may from time
to time request or require. Employee shall fully account for all money, records,
goods, wares and merchandise or other property belonging to Employer or its
"AFFILIATES" (as that term is defined in Rule 405 under the Securities Act of
1933, as amended) of which he may have custody and will pay over and deliver the
same promptly whenever and however he may be directed to do so. Employee also
shall make available to Employer any and all information of which he has
knowledge that is relevant to Employer's business, and will make all suggestions
and recommendations which he feels will be of benefit to Employer. Employee
shall, upon Employer's written request, furnish all information and take any
other steps necessary to enable Employer to obtain a fidelity bond conditioned
on the rendering of a true account by Employee of all moneys, goods or other
property which may come into the custody, charge or possession of Employee
during the Employment Period. The surety company issuing the bond and the amount
of the bond must be acceptable to Employer in its sole discretion. Employer
shall pay all premiums on any such bond.
1.4 EMPLOYEE DISHONESTY. If at any time Employee becomes aware or believes
that any other employee of the Employer is or appears to be (i) removing or
using the property or funds of Employer or its Affiliates for the benefit of
anyone other than Employer or its Affiliates, or (ii) providing Confidential
Information (as defined in Section 3.2) to any Person (defined below) not
authorized by Employer to receive such Confidential Information (any such
employee described in (i) or (ii) being referred to as a "DISHONEST EMPLOYEE"),
Employee shall immediately communicate his knowledge or belief as to such
matters to Employer's Board of Directors. As used in this Agreement, "PERSON"
means any individual or corporation, company, partnership, joint venture, firm,
syndicate, trust, estate, association, business, organization, governmental
authority or any other incorporated or unincorporated entity.
1.5 FIDUCIARY DUTIES OF EMPLOYEE. The obligations of Employee expressed in
this Agreement shall be in addition to any obligations imposed upon Employee as
an employee or officer of Employer or its Affiliates by the law of the State of
Texas applicable to employees, the General Corporation Law of the State of
Delaware applicable to corporate officers while New Allstar is Employer, the
Texas Business Corporation Act applicable to corporate officers while Old
Allstar is Employer, or federal law applicable to employees or corporate
officers, including all such Texas, Delaware or federal laws which limit the
activities of any employee or corporate officer to those which would not
threaten, impair or usurp the goodwill, trade secrets, intellectual property,
business opportunities, or business relations of his employer.
1.6 PERFORMANCE. The execution, delivery and performance of this Agreement
will not breach any contract or other obligation of Employee, and Employee knows
of no circumstances which will prevent his performance hereunder. Employee shall
perform his duties hereunder at the principal executive offices of Employer in
[*insert location], at such other place where Employer's principal executive
offices subsequently may be located, or at any other place as may be directed by
Employer in order to enable Employee to discharge his duties hereunder;
provided, however, that Employee shall have no obligation to permanently
relocate to any location which is more than 90 miles from said offices. Employee
acknowledges and agrees that Employer may require Employee to travel and render
services in different locations from time to time incident to the performance of
his duties hereunder.
- 3 -
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Employee of the services,
terms, conditions, covenants and agreements contained in this Agreement,
Employer shall pay to Employee at the times, in the amounts and in the manner
herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for Employee's
performance of his duties hereunder during the Employment Period, Employee shall
be entitled to receive as base compensation from Employer a salary of not less
than [$*Insert] per month (the "BASE SALARY"), which shall be prorated for any
partial Employment Period and payable in the manner and on the timetable in
which Employer's payroll is customarily handled, or at such more frequent
intervals as Employer and Employee may hereafter agree to from time to time. No
overtime compensation shall be payable under this Agreement. Employer's Board of
Directors or a duly authorized committee thereof shall review Employee's
performance at least annually and shall make any adjustments to Employee's
compensation which it deems, in its sole discretion, appropriate, provided that
at no time during the Employment Period shall Employee's compensation be
adjusted to an amount below the Base Salary in effect immediately before any
such adjustment. Employer shall be entitled to withhold from all amounts of
compensation payable under this Agreement such amounts on account of payroll
taxes and similar matters as are required by any applicable law, rule, or
regulation of any appropriate governmental authority. Such compensation shall
continue to be paid during any period of physical or mental incapacity unless
and until Employee's employment is terminated as herein provided.
2.2 CASH PAYMENT [AND OPTION GRANT]. In addition to the other
consideration being given by Employer to Employee under this Agreement, as
independent and valuable consideration for Employee's performance of his
obligations under Articles 3 and 4 of this Agreement, [(i)] Old Allstar shall
pay Employee $[*insert amount] upon execution of this Agreement by both parties
hereto[.] [, (ii) New Allstar shall, upon consummation of the Offering, grant to
Employee a non-qualified option exercisable for [*insert number] shares of
Common Stock at a per share price equal to the initial public offering price per
share of Common Stock in the Offering, such option grant being made under and
subject to the terms and conditions of New Allstar's 1996 Incentive Stock Plan
pursuant to a written agreement substantially in the form attached as an exhibit
thereto, and (iii) if either (1) Employee's employment hereunder is terminated
(with or without Cause or Employee Cause, as defined below) before the Offering
is consummated or (2) the Offering is not consummated before November 16, 1996,
then no later than the earlier of the date of such employment termination or
November 15, 1996, Employer shall pay Employee an additional $1,500.] Employee
hereby acknowledges and agrees that such payment[(s) and/or opportunity to
participate in New Allstar's 1996 Incentive Stock Plan] is reasonable, adequate
and valuable independent consideration to support the performance of his
obligations under Articles 3 and 4 of this Agreement (whether or not his
employment is terminated, with or without Cause or Employee Cause), and that no
other or additional consideration is necessary to support Employee's obligations
under such Articles. [Employee further acknowledges that if he resigns or his
employment hereunder is otherwise terminated (with or without Cause or Employee
Cause) before the vesting of all or any part of such option, such independent
valuable consideration would not fail or become inadequate or unreasonable to
support the continued full performance of his obligations under Articles 3 and 4
as hereinafter provided, it being agreed that the independent valuable
consideration for his obligations under Articles 3 and 4 is the
- 4 -
opportunity to participate in New Allstar's 1996 Incentive Stock Plan, not the
subsequent economic benefit, if any, to Employee thereunder.]
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and other
consideration described in Sections 2.1 and 2.2, Employer shall provide Employee
with the following during the Employment Period:
(a) any bonus if, when and based upon or subject to such terms and
conditions as Employer's Board of Directors, in its sole and absolute
discretion, may determine to grant to Employee;
(b) participation in any present or future disability, medical,
health, dental, insurance, pension, profit-sharing, thrift, and retirement
plans on the same terms generally available to all of Employer's employees
generally; and
(c) payment or reimbursement, as the case may be, of substantiated
reasonable business expenses (within limits that may be established by
Employer's Board of Directors or management more senior than Employee)
incurred in connection with the performance of his duties hereunder, such
expense payment or reimbursement being subject to, and made in accordance
with Employer's policies and procedures on employee expense payment or
reimbursement in effect from time to time.
2.4 VACATION. During the Employment Period, Employee shall accrue paid
vacation time in such amounts and at such times as determined by Employer's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Employee shall be entitled shall be no less
than that to which he is entitled as an Old Allstar employee at the time of the
Merger. Unless Employer's Board of Directors determines otherwise, no unused
vacation time shall be accrued and added to the vacation time for any succeeding
year and there shall be no compensation payable in lieu thereof.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EMPLOYEE. For purposes of this Article 3,
all references to Employer shall mean and include its Affiliates. To the extent
necessary to perform his duties hereunder, Employer will give Employee access to
pertinent Confidential Information (defined below) of Employer. In addition,
because of the nature of Employee's duties and responsibilities to Employer,
Employee from time to time will have access or be exposed to certain
Confidential Information of Employer. Employee hereby acknowledges, understands
and agrees that all Confidential Information, whether developed by Employee or
others employed by or in any way associated with Employee or Employer, is the
exclusive and confidential property of Employer and shall be at all times
regarded, treated and protected as such in accordance with this Agreement.
Failure to mark any writing confidential shall not affect the confidential
nature of such writing or the information contained therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall mean information, whether or not originated by Employee, which is used in
Employer's business and (1) is proprietary to, about or created by Employer; (2)
gives Employer some competitive business advantage,
- 5 -
the opportunity of obtaining such advantage, or the disclosure of which might be
detrimental to the interests of Employer; (3) is not typically disclosed by
Employer to, or known by, Persons who are not employed by Employer; or (4) is
designated as Confidential Information by Employer, known by the Employee to be
considered confidential by Employer, or from all the relevant circumstances
considered confidential by Employer, or from all the relevant circumstances
should reasonably be assumed by Employee to be confidential and proprietary to
Employer. Such Confidential Information includes, but is not limited to, the
following types of information and other information of a similar nature
(whether or not reduced to writing or designated as confidential):
(a) Work product resulting from or related to work or projects performed
or to be performed for Employer or for customers or clients of
Employer, including but not limited to data bases, draft and other
non-public written documents, the interim and final lines of
inquiry, hypotheses, research and conclusions related thereto and
the methods, processes, procedures, analyses, techniques and audits
used in connection therewith;
(b) Computer software of any type or form in any stage of actual or
anticipated research and development, including but not limited to
programs and program modules, routines and subroutines, processes,
algorithms, design concepts, design specifications (design notes,
annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming,
program patches and system designs;
(c) Information relating to Employer's proprietary rights prior to any
public disclosure thereof, including but not limited to the nature
of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details
of research and development of products and services, and
information regarding acquiring, protecting, enforcing and licensing
proprietary rights (including, without limitation, patents,
copyrights and trade secrets);
(d) Internal Employer personnel and financial information, lists or
other documents which identify vendor names and other vendor
information (including vendor characteristics, services and
agreements), information concerning the identification and nature of
goods or services provided by vendors, purchasing and internal cost
information, internal service and operational manuals, and the
manner and methods of conducting Employer's business;
(e) Business, marketing and development plans, price and price
discounting policies and practices, price and cost data, price and
fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts
and forecast assumptions and volumes, and future plans and potential
strategies of Employer which have been or are being discussed;
(f) Names, lists or compilations of customers or clients and their
representatives, contracts and their contents and parties, customer
or client services, and the type, quantity, specifications and
contents of products and services purchased, leased, licensed or
received by customers or clients of Employer;
- 6 -
(g) Information provided to Employer by any actual or potential
customer, client, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
(h) Contracts with, or developed by Employer for use with, customers,
agents or vendors of or to Employer, including, without limitation,
the terms and conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "Confidential Information"
shall not include information publicly known other than as a result of a
disclosure by Employee in breach of this Article 3, and the general skills and
experience gained during Employee's work with Employer which Employee reasonably
could have been expected to acquire in similar work with another company. The
phrase "publicly known" shall mean readily accessible to the public in a written
publication and shall not include information which is only available by a
substantial searching of the published literature or information the substance
of which must be pieced together from a number of different publications and
sources, or by focused searches of literature guided by Confidential
Information. The burden of proving that information or skills and experience are
not Confidential Information shall be on the party asserting such exclusion.
3.4 COVENANTS OF EMPLOYEE. As a consequence of Employee's acquisition or
anticipated acquisition of Confidential Information, Employee will occupy a
position of trust and confidence with respect to Employer's affairs and
business. Employee acknowledges that Employer's Confidential Information are
valuable, special and unique assets of Employer, which Employer uses in its
business to obtain competitive advantage over the Employer's competitors which
do not know or use such information. In view of the foregoing and of the
consideration being provided to Employee, Employee agrees that it is reasonable
and necessary that Employee make the following covenants. Employee does hereby
covenant and agree as follows:
(a) At any time during or after the termination of the Employment
Period, Employee will not disclose Confidential Information to any
Person, either inside or outside of Employer, other than as
necessary in carrying out his duties on behalf of Employer, without
obtaining Employer's prior written consent (unless such disclosure
is compelled pursuant to court order or subpoena, and at which time
Employee gives prompt prior notice of such proceedings to Employer),
and Employee will take all reasonable precautions to prevent
inadvertent disclosure of such Confidential Information. This
prohibition against Employee's disclosure of Confidential
Information includes, but is not limited to, disclosing the fact
that any similarity exists between the Confidential Information and
information independently developed by another Person, and Employee
understands that such similarity does not excuse Employee from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the Employment
Period, Employee will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on
behalf of Employer, without first obtaining Employer's prior written
consent, and will take all reasonable precautions to prevent
inadvertent use, copying or transfer of such Confidential
Information. This prohibition against Employee's use, copying, or
transfer of Confidential Information includes, but is not limited
to, selling, licensing or otherwise exploiting, directly or
indirectly, any products or services (including data bases, written
documents and software in any form) which embody or are derived from
Confidential
- 7 -
Information, or exercising judgment in performing analyses based
upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Employee shall turn over to Employer
all originals and copies of materials containing Confidential Information in the
Employee's possession, custody, or control upon request or upon termination of
the Employee's employment with Employer. Employee agrees to attend a termination
interview with Employer's Board of Directors or a committee thereof to confirm
turnover of such materials and to discuss any questions the undersigned may have
about his continuing obligations under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, servicemarks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or resulting
from work performed by Employee (alone or in conjunction with others, during
regular hours of work or otherwise) while he is employed by Employer and which
may be directly or indirectly useful in, or related to, the business of Employer
(including, without limitation, research and development activities of
Employer), or which are made using any equipment, facilities, Confidential
Information, materials, labor, money, time or other resources of Employer, shall
be promptly disclosed by Employee to Employer's Board of Directors or executive
management more senior than Employee, shall be deemed Confidential Information
for purposes of this Agreement, and shall be Employer's exclusive property.
Employee shall, upon Employer's request, execute any documents and perform all
such acts and things which are necessary or advisable in the opinion of Employer
to cause issuance of patents to, or otherwise obtain recorded protection of
rights to intellectual property for, Employer with respect to Inventions that
are to be Employer's exclusive property under this Section 3.6, or to transfer
to and vest in Employer full and exclusive right, title and interest in and to
such Inventions; provided, however, that the expense of securing any such
protection of right to Inventions shall be borne by Employer. In addition,
Employee shall, at Employer's expense, assist Employer in any proper manner in
enforcing any Inventions which are to be or become Employer's exclusive property
hereunder against infringement by others. Employee shall keep confidential and
will hold for Employer's sole use and benefit any Invention that is to be
Employer's exclusive property under this Section 3.6 for which full recorded
protection of right has not been or cannot be obtained.
3.7 SURVIVAL OF COVENANTS. The covenants and agreements of Employee set
forth in this Article 3 are of a continuing nature and shall survive the
expiration, termination or cancellation of this Agreement and Employee's
employment with Employer regardless of the reason of such termination or
cancellation.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EMPLOYEE ACTIVITIES. Employee agrees that except in the
ordinary course of his employment hereunder during the Employment Period,
Employee shall not during the Employment Period and subject to Section 4.2, for
a period of 18 months thereafter (all references to Employer shall mean and
include its Affiliates):
(a) directly or indirectly, engage or invest in, own, manage, operate,
control or participate in the ownership, management, operation or
control of, be employed by, associated or in any
- 8 -
manner connected with, or render services or advice to, any
Competing Business (as defined below) PROVIDED, HOWEVER, that the
Employee may invest in the securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if
such securities are listed on any United States national or regional
securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934, provided that Employee and his
Affiliates combined do not purchase or hold (directly or indirectly)
an aggregate equity interest of more than five percent (5%) in any
such enterprise; or
(b) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer,
advisor (whether paid or unpaid), stockholder, partner or in any
other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other Person solicit,
divert or take away, any Persons who (1) are customers or clients of
Employer or (2) at any time during the 18-month period before the
date of Employee's termination of employment with Employer, were
customers or clients of Employer.
"COMPETING BUSINESS" means any Person or any Affiliate of any Person which at
any time in the Employment Period or for a period of 18 months thereafter
engages in the business of reselling to end-users computers, computer-related
products, computer-related services, telephone systems or telephone-related
services (in each case insofar, but only insofar, as such business is reasonably
competitive with that of Employer during the same period) in or into any county
or parish in which Employer has a sales or executive office and counties or
parishes adjacent thereto.
4.2 POST-EMPLOYMENT. During the 18 months after termination of Employee's
employment with Employer, Employee shall be bound by Section 4.1 under any of
the following circumstances:
(a) if Employee is terminated by Employer for Cause (as defined in
Section 5.1),
(b) if Employee resigns for no reason or any reason except
Employee Cause (as defined in Section 5.2), or
(c) if within 10 days after the effective date of such
termination, Employer delivers written notice to Employee that
Employer elects to continue to pay Employee on a monthly basis
during such 18-month period an amount equal to the greater of
(i) 75% of his Base Salary as of the termination date or (ii)
75% of the quotient of (y) the sum of his Base Salary and cash
bonus paid in respect of the 12 months of Employer's fiscal
year ended immediately before the termination date, divided by
(z) 12. Any such payment which Employer elects to make shall
be payable in the manner and on the timetable specified in
Section 2.1 or sooner at Employer's election, including in one
or more advance lump sum payments.
4.3 NON-SOLICITATION. Employee agrees that during the Employment Period
and for a period of 18 months thereafter Employee shall not, directly or
indirectly, either as principal, agent, independent contractor, consultant,
director, officer, employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of any other Person,
either (a) hire, attempt to hire, contact or solicit with respect to hiring any
employee of Employer or its Affiliates, (b) induce or otherwise counsel, advise
or encourage
- 9 -
any employee of Employer or its Affiliates to leave the employment of Employer
or any of its Affiliates, or (c) induce any distributor, vendor, representative
or agent of Employer or its Affiliates to terminate or modify its relationship
with Employer or any of its Affiliates.
4.4 NECESSITY AND REASONABLENESS OF ARTICLE 4. Employee hereby
specifically acknowledges, agrees, and represents to Employer as a material
inducement for Employer to enter into this Agreement (all references to Employer
shall mean and include its Affiliates):
(a) Employer has expended and will continue to expend substantial
time, money and effort in developing (i) its business in which
the designs, plans, manuals and specifications are valuable
trade secrets, and (ii) a valuable list of customers, clients
and agents, and information about their technical problems and
needs, purchasing habits, idiosyncracies and internal
purchasing procedures;
(b) Employee has been and will be personally entrusted with and
exposed to the Confidential Information of Employer;
(c) Employer, during the term of this Agreement and after its
termination, will be engaged in its highly competitive
business in which many firms, including Employer, compete;
(d) Employer will, during the course of Employee's employment by
Employer, provide Employee with valuable training and
experience;
(e) Employer, pursuant to acquiring certain patents, copyrights,
technology and associated trade secrets and know-how, will
further develop its business;
(f) Employee could, after having access to Employer's Confidential
Information or after receiving further training by and
experience with Employer, and after obtaining Confidential
Information, become a competitor;
(g) Employer will suffer great loss and irreparable harm if
Employee terminates his employment and enters directly or
indirectly, into competition with Employer;
(h) the temporal and other restrictions contained in this Article
4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Employer;
(i) the enforcement of this Agreement, particularly this Article
4, will not work an undue or unfair hardship on Employee or
otherwise be oppressive to him; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the
public.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Employee set
forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of this
- 10 -
Agreement and Employee's employment with Employer regardless of the reason for
such termination or cancellation.
ARTICLE 5
TERMINATION
5.1 TERMINATION BY EMPLOYER FOR CAUSE AND CERTAIN OTHER EVENTS.
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, this Agreement and
Employee's employment hereunder shall terminate upon his
death, and Employer shall have the right, in its sole and
absolute discretion, to terminate this Agreement and
Employee's employment at any time by giving him written notice
of such termination (i) for Cause (as defined below), (ii) if
Employee shall fail to qualify for the fidelity bond described
in Section 1.3 within sixty (60) days from the date of the
Employer's written request thereunder, or (iii) if Employee
shall suffer a Disability (as defined below).
(b) "CAUSE" shall mean any of the following events:
(1) Employee's conviction or the entry of a plea of guilty
or nolo contendere or equivalent plea in a court of
competent jurisdiction of any crime or offense involving
moral turpitude or any felony;
(2) Employee's commission of an act of fraud upon Employer,
any of its Affiliates or any customers or suppliers of
Employer or any of its Affiliates;
(3) Employee's gross negligence or willful misconduct in the
performance of his duties and services required of him
under this Agreement, or Employee's willful
misappropriation of funds or property of Employer or any
of its Affiliates;
(4) Employee's knowing engagement, without prior written
approval by Employer's Board of Directors, in any
conflict of interest with Employer or any of its
Affiliates, or in any other activity which might result
in substantial injury to Employer's business or
financial condition;
(5) Employee's failure or refusal to perform his duties
under, or other breach by Employee of Article 1 of this
Agreement which remains uncorrected 30 days after
Employer has given written notice of such breach to
Employee describing such breach in reasonable detail;
(6) Employee's breach of Section 1.4 or Articles 3 or 4 of
this Agreement; or
- 11 -
(7) Employee's use of alcohol or drugs which, in the
reasonable opinion of Employer, substantially impairs
the performance of Employee's duties.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which, in the reasonable opinion of
Employer: (i) is of a nature that cannot reasonably be
controlled by Employee, (ii) significantly inhibits or impedes
Employee's ability to perform the services required under this
Agreement, and (iii) is likely to be either long-lasting in
duration or recurring from time to time.
5.2 TERMINATION BY EMPLOYEE. Notwithstanding any other provision of this
Agreement, at any time during the Employment Period, Employee shall have the
right to terminate his employment under this Agreement by giving written notice
of such termination at least 30 days prior to its effective date, for any of the
following reasons, provided that Employee is not in breach of this Agreement:
(a) the failure of Employer to elect or appoint Employee to the office described
in Section 1.2; or (b) a material breach by Employer of any provision of this
Agreement which remains uncorrected for 30 days following written notice to
Employer of such breach, which notice shall describe in reasonable detail each
event or condition considered to be in breach of this Agreement. Employee's
rightful termination under this Section 5.2 is referred to herein as "EMPLOYEE
CAUSE."
5.3 TERMINATION BY EITHER PARTY. In addition to termination under Sections
5.1 or 5.2, Employer or Employee may at any time terminate Employee's employment
hereunder without regard to any reason for such termination. Each of Employer's
and Employee's option to terminate employment under this Agreement pursuant to
this Section 5.3 shall be exercised by delivery of a written notice to Employee
or Employer, as applicable, specifying the effective date of such termination
which in no event shall be sooner than expiration of thirty (30) calendar days
following delivery of such written notice.
5.4 EFFECT OF TERMINATION.
(a) Upon termination of Employee's employment with Employer,
Employee shall have no right to receive any compensation or
benefits for any period after the effective date of such
termination ("EFFECTIVE DATE"), or for any period before the
Effective Date which have not been earned or vested as of the
Effective Date. If Employee is employed hereunder during a
period for which a bonus contemplated by Section 2.3(a) is
payable, such bonus shall, for purposes of this Agreement, be
deemed vested as of the Effective Date in respect of that
portion of such period during which Employee is so employed;
provided, however, that no such vesting shall occur and no
such bonus shall be payable if Employer terminates Employee
for Cause. If Employer elects to pay Employee under Section
4.2(c), the amounts payable thereunder shall, for purposes of
this Agreement, be deemed vested as of the Effective Date.
(b) Employer's right of termination shall be in addition to and
shall not affect Employer's rights and remedies under Articles
3 and 4 and Section 6.1 of this Agreement, and such rights and
remedies shall survive termination of Employee's employment
with Employer. Articles 3, 4 and 6 shall survive termination
of this Agreement and Employee's employment with Employer.
- 12 -
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of Employer's assets
and business, the business to be conducted by Employer and further developed by
Employer therewith, and the confidential and proprietary information relating
thereto, including the Confidential Information, Employee acknowledges,
understands and agrees that Employer will suffer immediate and irreparable harm
if Employee fails to comply with any of his obligations under Articles 3 or 4 of
this Agreement, and that monetary damages will be inadequate to compensate
Employer for such breach. Accordingly, Employee agrees that Employer shall, in
addition to any other remedies available to it at law or in equity, be entitled
to temporary, preliminary, and permanent injunctive relief and specific
performance to enforce the terms of Articles 3 or 4 without the necessity of
proving inadequacy of legal remedies or irreparable harm, or posting bond. This
Section 6.1 does not, and shall not be construed to constitute a waiver of the
parties rights and obligations under Section 6.9 with respect to arbitration of
disputes other than those relating to the enforcement of Employee's
confidentiality, non-competition and non-solicitation covenants of Articles 3
and 4.
6.2 INDEMNIFICATION. Employer shall indemnify Employee in the same manner
and to the same extent that Employer is obligated to indemnify its directors
pursuant to Employer's Certificate of Incorporation and Bylaws, as each may be
amended or restated from time to time.
6.3 ACTION BY AND CONSENT OF EMPLOYER. All rights and remedies of Employer
hereunder shall be exercised by the Employer solely by and through the
Employer's Board of Directors or a committee thereof.
6.4 NOTICES. Any notice, instruction, authorization, request, demand or
waiver required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Employer at the address indicated beneath its signature on the execution page of
this Agreement, and also to Employee at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any waiver
of any terms or conditions hereof shall be made only by a written instrument
executed and delivered by the party waiving compliance. Any waiver granted by
Employer shall be effective only if executed and delivered by a duly authorized
executive officer of Employer other than Employee. The failure of any party at
any time to require performance of any terms or conditions hereof shall in no
manner effect the right to enforce the same. No waiver by any party of any terms
or conditions, or the breach of any terms or conditions contained in this
Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such
- 13 -
term or condition or breach or a waiver of any other term, condition or breach
of any other term or condition.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall bind, be enforceable by,
and inure to the benefit of, the parties hereto, but this Agreement and the
rights and obligations hereunder shall not be assignable or delegable by any
party; provided, however, that this Agreement and Employer's rights and
obligations hereunder may be assigned or delegated by it to any of its
Affiliates and shall be binding upon and inure to the benefit of, any of its
successors or permitted assigns, but such assignment or delegation by Employer
shall not relieve it of any of its obligations hereunder.
6.7 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this Agreement,
each parenthetically or quoted capitalized term in the introduction, recitals
and other Sections of this Agreement shall have the meaning so ascribed to it.
Unless otherwise specified, all references herein to days, weeks, months or
years shall be to calendar days, weeks, months or years. Whenever the context
requires, the gender of all words used herein shall include the masculine,
feminine and neuter, and the number of all words shall include the singular and
plural. References to Articles or Sections are to Articles or Sections of this
Agreement unless otherwise specified. The headings and captions used in this
Agreement are solely for convenient reference and shall not affect the meaning
or interpretation of any article, section or paragraph herein, or this
Agreement. The terms "hereof," "herein" or "hereunder" shall refer to this
Agreement as a whole and not to any particular article, section or paragraph.
The terms "including" or "include" are used herein in an illustrative sense and
not to limit a more general statement. When computing time periods described by
a number of days before or after a stated date or event, the stated date or date
on which the specified event occurs shall not be counted and the last day of the
period shall be counted.
6.8 GOVERNING LAW. This Agreement has been executed and delivered in
Texas. The validity, interpretation, construction, and performance of this
Agreement shall be governed by the internal law, and not the law of conflicts,
of the State of Texas, except to the extent that the General Corporation Law of
the State of Delaware or federal law is explicitly made applicable by Section
1.5. Each party hereto hereby acknowledges and agrees that it has had the
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that of
the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the rule
of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement.
6.9 DISPUTE RESOLUTION; SEVERABILITY; JUDICIAL MODIFICATION. Except as
otherwise contemplated by Section 6.1 (enforcement of Articles 3 and 4), the
parties expressly intend, desire and agree that any dispute arising out of, or
in connection with any term or provision of this Agreement or Employee's
employment with Employer shall be resolved by binding arbitration in Houston,
Texas in accordance with the Commercial Rules of the American Arbitration
Association then in effect; that judgment on the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction; and that if
any such dispute is pending in any court, the parties agree to move that the
court refer the matter to such arbitration. The location of such arbitration in
Houston, Texas shall be selected by Employer in its sole discretion. All costs
and expenses, including attorneys' fees, relating to the resolution of any such
dispute shall be borne by the party incurring such costs and expenses. If any
term, provision, covenant, or restriction of this Agreement (including any
arbitration provision of this Section 6.9) is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of this
Agreement and the other
- 14 -
terms, provisions, covenants and restrictions hereof shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed this Agreement had the terms, provisions, covenants and
restrictions which may be hereafter declared invalid, void, or unenforceable not
initially been included herein. If a court of competent jurisdiction determines
that the length of time or any other restriction or portion thereof, set forth
in Articles 3 or 4 is overly restrictive and unenforceable, the court may reduce
or modify such restrictions to those which it deems reasonable and enforceable
under the circumstances, and the parties agree to request the court to exercise
such power, and, as so reduced or modified, the parties hereto agree that the
restrictions of Article 3 and 4 shall remain in full force and effect, shall be
enforceable and shall be enforced.
6.10 EXPENSES. Each party hereto shall pay all of its respective fees and
expenses of attorneys, accountants and other Persons employed by it in
connection with the resolution of any dispute between the parties hereto arising
out of or relating to this Agreement, except for any indemnification obligations
of Employer pursuant to Section 6.2.
6.11 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this Agreement.
This Agreement supersedes and cancels any prior agreement, arrangement or
understanding entered into between Employer and Employee relating to the subject
matter hereof, except any agreement entered into pursuant to New Allstar's 1996
Incentive Stock Plan as contemplated by Section 2.2 of this Agreement.
6.12 COUNTERPARTS. The parties may execute this Agreement in any number of
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
- 15 -
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
EMPLOYER:
ALLSTAR SYSTEMS, INC.
By:_____________________________________________
------------------------------------------------
Printed Name and Title
Address: 6401 Southwest Freeway
Houston TX 77478
Telecopy No.
Attention: Board of Directors
EMPLOYEE:
-----------------------------------------------
-----------------------------------------------
Printed Name
Address:________________________________________
Telecopy No.
[ACKNOWLEDGMENTS FOLLOW]
- 16 -
EMPLOYER ACKNOWLEDGMENT
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
Before me, the undersigned authority, on this date personally appeared
____________________, ____________________ of Allstar Systems, Inc., a Texas
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as the
act and deed of said corporation.
Given under my hand and seal this ____ day of _______________, 1996.
------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires:______________
EMPLOYEE ACKNOWLEDGMENT
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
Before me, the undersigned authority, on this date personally appeared
____________________, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed.
Given under my hand and seal this ____ day of _____________________, 1996.
------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires:______________
- 17 -
EXHIBIT 10.8
August 29, 1996
Shabbir Ali
Allstar Systems
6401 Southwest Fwy
Houston, TX 77074
Dear Microsoft Solution Provider:
Business never slows down and neither do you. Wouldn't it be nice to have just a
little more time to get things done?
How about three months?
MICROSOFT HAS EXTENDED THE MICROSOFT SOLUTION PROVIDER (MSP) RENEWAL
PERIOD UNTIL DECEMBER 31, 1996. NOW YOU HAVE THREE EXTRA MONTHS AT NO
CHARGE TO RENEW YOUR MSP MEMBERSHIP. AND YOU CAN DO IT ALL ONLINE.
Microsoft is always looking for innovative ways to help our MSPs. That's why
we've:
o MOVED THE MSP PROGRAM TO A FISCAL-YEAR CALENDAR. The MSP program now
begins January 1 and runs until December 31. This business-cycle format
lets you plan effectively and allocate resources efficiently.
o CREATED A WEB-BASED APPLICATION AND RENEWAL PROCESS FOR THE MSP PROGRAM.
The MSP renewal process has never been easier. During the renewal period,
just point your Internet browser to our web site and follow the
instructions. You'll fill out this application only once--for future
renewals, you'll simply return the MSP invoice with your payment. And you
can update your MSP profile AT ANY TIME to maximize your MSP program
benefits.
o EXTENDED YOUR MSP PROGRAM BENEFITS UNTIL DECEMBER 31ST AT NO COST. You'll
continue to receive the monthly mailings, MSDN, TechNet, and beta CDs,
compliments of Microsoft. Any unused Microsoft Product Support incidents
can be used during this time, as well.
In October, you'll receive information about renewal and when to apply. To
ensure the quality for which the MSP Program is known, you'll also need to
provide the names of at least (2) two Microsoft Certified Professionals when you
renew. Next year's program will be better than ever, but one thing that won't
change is the price - the annual fee will remain the same. For more information,
please refer to the MSP web site. You'll find it at
http://www.microsoft.com/msp/
So what do you need to do? For the moment, nothing. For once, you've got time on
your side.
This letter is your official record of the extension of benefits for the
Microsoft Solution Provider program. If you do NOT want your program benefits
extended, then please Microsoft Fax Services at 1-800-727-3351 and request
document #98-66416, sign and return it. If we do not receive a countersigned
letter from you, then you are continuing to agree to meet all the obligations
and responsibilities as stated in your Microsoft Solution Provider agreement.
Sincerely,
Microsoft Solution Provider Team
Microsoft Solution Provider Agreement
MEMBER LEVEL
SP COMPANY NAME: ALLSTAR SYSTEMS
THIS AGREEMENT ("AGREEMENT") IS BETWEEN MICROSOFT CORPORATION ("MICROSOFT"), A
WASHINGTON CORPORATION, LOCATED AT ONE MICROSOFT WAY, REDMOND, WA 96052, AND THE
MICROSOFT SOLUTION PROVIDER ("SP") NAMED ABOVE WHOSE PRINCIPAL PLACE OF BUSINESS
APPEARS AT THE END OF THIS AGREEMENT. DO NOT ALTER OR AMEND THIS AGREEMENT IN
ANY MANNER: SUCH ALTERATIONS, WITHOUT MICROSOFT WRITTEN ACCEPTANCE, WILL VOID
THIS AGREEMENT.
1. PURPOSE
SP desires to provide comprehensive computer solutions to certain of its
customers, which may include the supply of computer hardware and software and
the provision of product support and training. Microsoft desires to supply
Microsoft software and provide services and support on Microsoft products to
assist SP in providing its customers with such solutions.
2. APPOINTMENT
Microsoft hereby appoints SP as a non-exclusive Microsoft Solution Provider at
the Member level in the Territory defined in the attached Details Annex, with
authority to promote its goods and services, in association with Microsoft, in
accordance with the terms of this Agreement.
3. TERM AND TERMINATION
This Agreement shall take effect on the date of its acceptance by Microsoft
("Effective Date"), and unless terminated earlier as provided herein, shall
continue until September 30, 1996. (Acceptance is date indicated in the
confirmation letter from Microsoft to SP, indicating acceptance into the SP
program.) Either party shall have the right to terminate this Agreement at any
time, without cause and without the intervention of the courts, on the giving of
thirty (30) days' prior written notice. Neither party shall be responsible to
the order for any costs or damages resulting from the termination of this
Agreement. Upon expiration or termination of this Agreement, all rights and
benefits granted by this Agreement shall revert to Microsoft and SP shall
immediately cease use of all internal use and training licenses, MSDN and
TechNet licenses and the Solution Provider logo, and shall cease to represent
itself as a Microsoft Solution Provider.
4. PAYMENT
The fee for the appointment as a Microsoft Solution Provider under this
Agreement consists of a basic fee of $1,995 U.S. per year. This fee includes a
$795 U.S. fixed charge for product support benefits and a quarterly pro-rated
fee of $300 U.S. SP agrees to pay the fixed basic fee to Microsoft at time of SP
signature on this Agreement.
5. SP RIGHTS AND OBLIGATIONS
(A)TRADEMARKS
The appropriate trademark symbol (either "TM" [standard trademark] or (R)
[registered trademark] in a superscript following the product name) shall be
used whenever a Microsoft product name is mentioned in any advertisement,
brochure, or material circulated or published in any form whatsoever by SP. The
appropriate trademark symbol must be used in conjunction with, at least, the
first reference to each Microsoft product in all SP's circulations or
publications. Microsoft reserves the right to amend any Microsoft trademark,
service mark or logo and agrees to notify SP of any such amendments that are
relevant to SP's business. SP agrees to ensure that its use of any such mark
and/or logo is amended accordingly.
(B)SALES AND SERVICES REPORTING
When requested by Microsoft, Sales and Service reports shall be completed by SP
and forwarded to the Microsoft address indicated on the reporting template. Such
reports shall be substantially in the format of the reporting template provided
to SP from time to time. Frequency of Sales and Service reporting is expected to
be no more than quarterly. SP warrants that such reports are true and correct to
the best of its knowledge and belief.
(C)MEMBERSHIP APPLICATION AND PROFILE REPORT
SP represents and warrants that all the information provided on its Membership
Application and/or Profile Report is, in all material respects, true and correct
to the best of its knowledge and belief, and warrants that the information will
continue to be so during the term of this Agreement. Should there be any changes
in such information during the course of this Agreement, SP agrees to promptly
inform Microsoft in writing, giving details of such changes.
(D)MICROSOFT CERTIFIED PROFESSIONAL PERSONNEL
SP warrants that at least one (1) full-time member of its staff is qualified as
a Microsoft Certified Professional ("MCP") at SP's principal place of business
at all times during this Agreement. Further, SP shall have one additional MCP on
staff by January 1, 1996, for a total of two (2) MCPs for the duration of the
Agreement.
(E)SERVICE/SALES ESTIMATE
SP's best estimate is that more than 15% of its revenues are generated from
provision of technical services (custom development, integration, consulting,
training and technical support) to its customers. This estimate shall not
include those services, support, training, etc. provided to SP or any of SP's
Affiliates, subsidiaries, branches, divisions, or other related third parties.
6. SOLUTION PROVIDER FEATURES
(A)IDENTIFY/LOGO USAGE
SP shall have the right to identify itself as a "Microsoft Solution Provider"
provided that (i) SP continues to comply with Section 5 (d) above (Microsoft
Certified Professional personnel); (ii) SP complies with the then current
Guidelines for Using the Microsoft Solution Provider Logo (available from
Microsoft); and (iii) SP is in full compliance with the terms and conditions of
this Agreement. In the event that any of the above provisions are not met, SP
will immediately cease identifying itself as a Microsoft Solution Provider.
Microsoft reserves the right to amend the Microsoft Solution Provider logo and
any other Microsoft trademark, service mark or logo and agrees to notify SP of
any such amendments that are relevant to SP's business. SP agrees to ensure that
its use of the Microsoft Solution Provider logo and related trademarks, service
marks and logos is amended accordingly.
(B)LICENSE GRANT INTERNAL AND MARKETING USE
Microsoft hereby grants SP a non-exclusive, non-transferable, royalty-free,
terminable license to make and use a total of ten (10) copies of Window 95, ten
(10) copies of Windows NT Workstation, ten (10) copies of Microsoft Office
Professional, and BackOffice Server Products [up to five (5) server licenses of
any server product in the BackOffice suite (Windows NT Server, SQL Server, SMS,
SNA Server, Mail Server)] in any combination for a total of no more than five
(5) individual server products, fifty (50) BackOffice client licenses, one (1)
license for Visual Basic Professional and one (1) license for Visual C++. These
copies may be used for internal purposes and for marketing demonstrations only.
Upgrades to these products will be provided through the term of the Agreement.
SP is also eligible to acquire various Microsoft products under the Microsoft
Internal Use Product Program. Any products acquired thereby are governed by the
terms and conditions of this paragraph, as well as any terms and conditions
contained on the Microsoft Internal Use Product Order Form.
In all cases, use of the copies is subject to the additional terms of the End
User License Agreement for the corresponding product except that the copies
shall not be resold or transferred to a third party. SP is permitted to use the
copies for marketing demonstrations at the premises of customers provided that
following any demonstrations, the copies, and license to use them, are not
assigned to the customer. The limited warranty, including liability limitation,
contained in the End User License Agreement for each Microsoft product shall
also apply. The terms of the End User License Agreements vary among different
Microsoft products. Microsoft reserves the right to change the Microsoft
products (and number of copies) licensed for internal and marketing use, and as
may be provided through the Microsoft Internal Use Product Program, from time to
time, in its sole discretion.
Upon termination or expiration of this Agreement, the rights granted in this
section shall revert to Microsoft and SP shall immediately cease use of all
internal and marketing use licenses, and any licenses provided through the
Microsoft Internal Use Product Program.
(C)TRAINING USE LICENSES
SP may offer training to customers on Microsoft products which are the subject
of this Agreement. SP is solely responsible for all costs and expenses
associated with training. Microsoft hereby grants SP permission to reproduce a
Microsoft product for up to one hundred (100) workstations at a time, for the
sole purpose of providing training on said Microsoft products. Training use of a
Microsoft product is held subject to the following conditions: (i) SP agrees to
destroy all copies at such time as SP is no longer a Microsoft SP; (ii) SP
agrees to destroy all copies used outside of SP location upon completion of
on-site training; (iii) SP may only reproduce Microsoft products for which SP
conducts training classes; (iv) SP agrees to be bound by the terms of the
Microsoft End User License Agreement for each copy, except that these Microsoft
products shall neither be resold nor transferred to a third party, and will
strictly control use of said copy in accordance with the End User License
Agreement; and (v) all copies of the Microsoft product shall be true and
complete copies, including all copyright and trademark notices.
(D)PRODUCT SUPPORT
(I)SP agrees to provide details of SP's network configuration as requested by
Microsoft. Microsoft may determine at any time that SP's network configuration
and topology are not supportable, in which case Microsoft is under no obligation
to provide the product support. Any subsequent changes to network configuration
and topology must be sent to Microsoft in writing, and Microsoft may redetermine
supportability.
(II) The Microsoft support telephone number and other product support materials
will be provided to SP, and SP's product support will be activated, at the
earliest opportunity after the Effective Date.
(III)Limited Warranty: Microsoft warrants that the teleprocessing services and
support provided hereunder shall reasonably accord with the service and support
description given in the relevant product support materials available from
Microsoft. THIS WARRANTY IS THE ONLY WARRANTY MADE BY MICROSOFT FOR PRODUCT
SUPPORT AND TELEPROCESSING SERVICES, AND IS IN LIEU OF ALL OTHER WARRANTIES AND
CONDITIONS. SP HEREBY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. It is understood that the provision of teleprocessing services
hereunder is dependent upon the continuous availability of communications
facilities to Microsoft and that Microsoft cannot warrant such availability. In
addition, Microsoft makes no guarantee of problem resolution and does not
warrant that the support will be uninterrupted or error-free. SP agrees to take
adequate precautions against damage to its operation that could be caused by
such interruption or errors, including making appropriate data backups.
Microsoft cannot be held responsible for any loss of SP's data.
(E)MSDN AND TECHNET LICENSES
Microsoft hereby grants SP a non-exclusive, non-transferable, royalty-free,
terminable license for one (1) TechNet server license, ten (10) MSDN Development
Library licenses, and one (1) MSDN Development Platform license. SP will be
provided with updates to one (1) non-transferable set of CDS to facilitate this.
These licenses may be used for internal use and marketing demonstrations only.
This grant amends the End User License Agreements of MSDN and TechNet; however,
the provisions of such End User License Agreements where unamended remain in
full force and effect.
(F)PROMOTIONAL MATERIALS
Microsoft may, in its sole discretion, reference SP in advertising and
promotional materials in connection with the sale and promotion of Microsoft
products. Uses of SP's name include but are not limited to: lists of SP's for
customer information, advertising of SP program containing SP's name, etc. When
a specific advertisement or promotion containing only SP's name is planned,
Microsoft will obtain SP's written permission before such use. Microsoft shall
also obtain SP's written permission before use of any logo of SP.
(G)CHANGES IN SP AGREEMENT FEATURES
SP understands that Microsoft may expand, change the scope or contents of,
and/or delete, any features offered under the Solution Provider program. In the
event that Microsoft adversely changes any program features, and should SP be
dissatisfied with those changes, SP may terminate this Agreement in accordance
with Section 3 and will have no other recourse against Microsoft.
7. CONFIDENTIALITY
Each party expressly undertakes to retain in confidence all information and
know-how transmittal to the other that the disclosing party has identified as
being proprietary and/or confidential or that, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
proprietary and/or confidential, and expressly undertakes to make no use of such
information and know-how except under the terms and during the existence of this
Agreement (or a subsequent Solution Provider Agreement). However, neither party
shall have an obligation to maintain the confidentiality of information that (i)
it received rightfully from a third party prior to its receipt from the
disclosing party; (ii) the disclosing party has disclosed to a third party
without any obligation to maintain such information in confidence; or (iii) is
independently developed by the obligated party. Further, either party may
disclose confidential information as required by governmental or judicial order,
provided such party gives the other party prompt written notice prior to such
disclosure and complies with any protective order (or equivalent) imposed on
such disclosure. Each party shall treat all Microsoft product adaptation
materials as confidential information and shall not disclose, disseminate, or
distribute such materials to any third party without the other's prior written
permission. Each party shall treat the terms and conditions of this Agreement as
confidential; however, SP may disclose such information in confidence to its
immediate legal and financial consultants as required in the ordinary course of
its business. Each party's obligation under this Section shall extend to the
earlier of such time as the information protected hereby falls into the public
domain through no fault of the obligated party or five (5) years following
termination or expiration of this Agreement.
8. NEW PRODUCTS
Notwithstanding any other provisions of this Agreement, Microsoft may elect at
any time during the term of the Agreement to announce new Microsoft products to
which the terms and conditions of this Agreement may not apply. New versions,
updates, and maintenance releases of existing titles are not considered new
Microsoft products.
9. WARRANTIES/LIMITED WARRANTIES
Microsoft warrants all Microsoft products provided to SP under the terms of this
Agreement on the terms set out in the written limited warranty document
accompanying each such product. THESE LIMITED WARRANTIES ARE IN LIEU OF ALL
OTHER WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ALL
IMPLIED. WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
OF ALL OTHER OBLIGATIONS, CONDITIONS, OR LIABILITIES ON MICROSOFT'S PART EXCEPT
AS OTHERWISE PROVIDED BY APPLICABLE LAW.
10.LIMITATION OF LIABILITY
Subject to applicable law, neither Microsoft nor anyone else who has been
involved in the creation, production, or delivery of the products or services
that are the subject of this Agreement shall be liable for any direct, indirect,
consequential or incidental damages (including damages for loss of business
profits, business interruption, loss of business information, and the like)
arising out of the use of or inability to use the Microsoft products, or
provision of, or failure to provide, support, even if Microsoft has been advised
of the possibility of such damages. Because some jurisdictions do not allow the
exclusion or limitation of consequential or incidental damages, the above
limitation may not apply. In any event, except as otherwise provided by law, the
liability of Microsoft or its suppliers, whether for negligence, breach of
contract, breach of warranty, or otherwise, shall, in the aggregate, not exceed
the amount paid to Microsoft by SP hereunder.
11.GENERAL
(a)All notices, authorizations, and requests in connection with this Agreement
shall be deemed given two (2) business days after they are sent by registered
mail, and addressed as follows:
SP: (name and address as set forth at the end of this Agreement)
Microsoft: (name and address as set forth in the Details Annex)
Attn.: Microsoft Solution Provider Program, Program Marketing Manager
cc: Legal Department
or to such other address as the party to receive the notice so designates by
written notice to the other.
(b)This Agreement and the Details Annex constitute the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous communications including all prior and current Solution
Provider Agreements. It shall not be modified except by a written agreement
dated subsequent to the Effective Date of this Agreement and signed on behalf of
SP and Microsoft by their respective duly authorized representatives.
(c)If a particular provision of this Agreement is terminated or held by a court
of competent jurisdiction to be invalid, illegal, or unenforceable, this
Agreement shall remain in full and effect as to the remaining provisions.
(d)No waiver of any breach of any provisions of this Agreement shall constitute
a waiver of any prior, concurrent, or subsequent breach of the same or any other
provisions hereof, and no waiver shall be effective unless made in writing and
signed by an authorized representative of the waiving party.
(e)Neither this Agreement, nor any terms and conditions contained herein, shall
be construed as creating a partnership, joint venture, franchise or agency
relationship.
(f)SP agrees that it shall inform its customers that SP is an independent
business from Microsoft, and shall not hold itself out as an agent of Microsoft,
or attempt to bind Microsoft to any third-party agreement. SP shall defend,
indemnify, and hold harmless Microsoft from and against all liabilities, claims,
costs, fines, and damages of any type (including attorney's fees) arising out of
or in any way related to SP's delivery of training services and/or product
support to its customers.
(g)This Agreement, and any rights or obligations hereunder, shall not be
assigned or sublicensed by SP, without Microsoft's prior written consent.
(h)This Agreement shall be governed by the laws of the State of Washington and
SP consents to jurisdiction and venue in the state and federal courts sitting in
the State of Washington. If either Microsoft or SP employs attorneys to enforce
any rights arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable costs and attorney's fees.
ACCEPTED:
SP
Company Name: ALLSTAR SYSTEMS
Signature: /s/ SHABBIR K. ALI
Name (printed) SHABBIR K. ALI
Job title: VICE PRESIDENT
Address: 6401 SOUTHWEST FREEWAY
HOUSTON, TX 77074
Microsoft Solution Provider Agreement
MEMBER LEVEL
DETAILS ANNEX
1.TERRITORY
For the purposes of this Agreement, the Territory shall be 1) the USA, excluding
U.S. territories, U.S. possessions, and Puerto Rico, and 2) Canada.
2.FEE
BASIC FEE
Basic Solution Provider fee is $1,995 U.S. per year or $795 U.S. per year plus
$300 U.S. per quarter.
The following fee schedule applies to all new and renewing Solution Providers
(and applies to each SP Affiliate as well, as applicable) and provides program
membership through September 30, 1996.
RENEWALS
United States Canada
(GST included)
August 1995 $1,995 U.S. $2,989 CDN
NEW ENROLLMENT
If we receive your completed United States Canada
application between (GST Included)
August 1, 1995 - December 31,
1995 $1,995 U.S. $2,989 CDN
January 1, 1996 - March 31,
1996 $1,695 U.S. $2,539 CDN
April 1, 1996 - June 30,
1996 $1,395 U.S. $2,090 CDN
July 1, 1996 - September 30,
1996 $1,095 U.S. $1,640 CDN
In British Columbia and Ontario Canada, add PST.
3.SUPPORT
A Priority Comprehensive 10 pack is a non-optional feature of the SP Program and
is included in the Basic Fee for $795 U.S.
EXHIBIT 10.9
N O V E L L
March 10, 1993
James H. Long
Allstar-Valcom
6401 Southwest Freeway
Houston, TX 77074
Dear Mr. Long:
Congratulations on becoming a Novell Platinum Reseller. We appreciate the effort
you have taken to become a platinum reseller and look forward to working with
you to make sure your sales efforts are successful.
One of the benefits to being Platinum Authorized is our lead referral system.
Novell's Reseller Referral System allows for the intelligent selection of a
dealer for a given end user. End-user leads will be pre-qualified to match
network needs to resellers with industry-specific expertise. You will begin
receiving leads generated from our corporate offices in Provo, Utah. Leads are
distributed to platinum resellers automatically through the mail, on a random
basis.
In order to receive a faster response to your technical support questions,
please call 1-800-638-9273 (800-NETWARE). You should then dial a 1 and use
access code 208. A Platinum Support Group has been created to provide you with a
faster response to your technical support questions. Please note that the only
employee(s) with access to the Platinum Support Group are those with CNE status
at your location.
Please remember that your new access number is V928-3505P. You will need this
number when ordering. Novell products through your distributor.
We wish you a profitable year and appreciate your continued support of Novell
and its products.
Sincerely,
Novell, Inc.
NOVELL, INC.
122 EAST
1700 SOUTH
PROVO, UTAH
84606-0194
801 329-7000
800 453-4267
NOVELL AUTHORIZED RESELLER MARKETING AGREEMENT
1. Your authorization at a Novell Authorized Reseller is based on meeting
training and demo system requirements and complying with the following
product marketing and support guidelines. Authorization is granted for a
one year time period, effective from the date on which the Novell
Authorized Reseller Application is accepted by a duly authorized
representative of Novell, and will automatically renew if there is no
lapse in meeting the authorization requirements.
2. You agree that the geographical area designated by Novell in which you
are authorized to resell products is the fifty United States and the
District of Columbia, Puerto Rico and the U.S. Virgin Islands.
3. You are authorized to purchase Novell products only from Novell
Authorized Distributors and/or Novell Authorized National Retail Chains.
You agree to market Novell products only to end user customers. "End
user" means an entity which acquires the products for internal use. End
user does not include an entity which resells, sells, licenses, rents or
leases the product to other parties in the regular course of business.
4. No title to or ownership of software or proprietary technology in
hardware acquired as an Authorized Reseller is transferred to you.
Novell, or the licensors through which Novell obtained the rights to
distribute the products, owns and retains all title and ownership of all
intellectual property rights in the products, including all software,
firmware, software master diskettes, copies of software, documentation
and released materials and, all modifications to and derivative works
from software acquired as an Authorized Reseller which are made by you,
Novell or any third party. Novell does not transfer any portion of such
title and ownership, or any of the associated goodwill to you, and the
agreement shall not be construed to grant you any right or license,
whether by implication, estoppel or otherwise, except as expressly
provided. You agree to be bound by and observe the proprietary nature of
the products acquired as an Authorized Reseller. You agree to take
appropriate action by instruction or agreement with your employees,
agents, contractors and sublicensees who are permitted access to the
products to fulfill your obligations under the agreement.
5. You agree not to de-compile, reverse engineer, reverse compile, modify
or perform any similar type of operation on any software, firmware or
hardware acquired as an Authorized Reseller in any fashion or for any
purpose whatsoever, without the prior written consent of Novell. You
also agree that any such works are derivative works and as such are the
sole and exclusive property of Novell or its licensors. The products
that you are authorized to market by virtue of this agreement are all
Novell products except those with additional specific certification
requirements as identified by Novell.
6. The products you market as an Authorized Reseller are technically
complex and require high-quality, individualized pre-sale and post-sale
support. This support is necessary to achieve and maintain high end user
satisfaction. You agree that high end user satisfaction is a condition
of your continued authorization by Novell.
7. You agree not to market the products directly or indirectly through mail
order. In addition, and in order to assume high end user satisfaction,
you agree to:
7.1. Ensure that each product marketed to the end user is appropriate to the
end user's requirements;
7.2. Verify the successful operation of the product before or after
installation;
7.3. Report promptly to Novell all suspected and actual problems with any
product;
7.4. Maintain an End User Report for each product sold/licensed (each End
User Report will include the name and address of the end user, date of
the sale, the products sold/licensed, and the product's serial number,
if applicable;
7.5. Retain all End User Reports for five years after the date of sale, and
assist Novell in tracing a product through you to and end user to
distribute critical product information, locate a product for safety
reasons, or to discover unauthorized marketing or infringing acts. You
agree to allow Novell to examine your records to determine compliance or
noncompliance with the agreement;
7.6. Conduct business in a manner which reflects favorably at all times on
the products, goodwill and reputation of Novell;
7.7. Avoid deceptive, misleading or unethical practices which are or might be
detrimental to Novell or its products;
7.8. Refrain from making any false or misleading representations with regard
to Novell or its products;
7.9. Refrain from making any representations, warranties, or guarantees to
customers or to trade with respect to the specifications, features, or
capabilities of products that are inconsistent with the literature
distributed by Novell.
8. You are authorized to use the Novell trademarks applicable to the Novell
products marketed under the agreement, but only in accordance with
Novell policies and only while this agreement is in effect. You are not
authorized to use any Novell trade names without the prior written
consent of Novell. Upon expiration of the agreement, you agree to cease
all display, advertising and use of any and all Novell trade names and
marks. You agree not to alter, erase or overprint any notice provided by
Novell and not to attach any additional trademarks without the prior
written consent of Novell or affix any Novell trademarks to any
non-Novell product. You recognize Novell's ownership and title to the
trade names and trademarks and the goodwill attaching to the trade names
and trademarks. You agree that any goodwill which accrues because of
your use of the trade names and/or trademarks,
will become Novell's property. You agree not to contest Novell's
trademarks or trade names, or make application for registering any
Novell trademarks or trade names without Novell's prior written consent.
You agree not to use, employ or attempt to register any trademarks or
trade names which are confusingly similar to Novell's trademarks or
trade names.
9. NOVELL'S ENTIRE LIABILITY AND YOUR EXCLUSIVE REMEDY FOR ANY CLAIMS
CONCERNING THIS AGREEMENT AND PRODUCTS ACQUIRED UNDER THE AGREEMENT ARE
SET FORTH IN THIS SECTION.
9.1. HARDWARE. In all situations involving performance or non-performance of
hardware acquired under this agreement, your remedy is the adjustment or
repair of the hardware or replacement of parts of the hardware by
Novell. If after repeated efforts, Novell is unable to place the
hardware in good working order, all as warranted, you will be entitled
to recover actual damages to the limits set forth in this Section. For
any other claim concerning performance or non-performance by Novell in
any way related to, or arising from, the agreement, or any purchase
order under the agreement, you will be entitled to recover actual
damages to the limits set forth in this Section.
9.2. AGGREGATE LIABILITY. Novell's liability for actual damages to you for
any cause whatsoever, except as otherwise stated in this Section, and
regardless of the form of action, will be limited to the greater of 1)
$25,000 or 2) the price, less discount, of the product that caused the
damages or gave rise to the cause of action. This limitation does not
apply to claims by you for personal injury or damage to real property or
tangible personal property caused by Novell's negligence.
9.3. SOFTWARE. Novell's liability and your exclusive remedy for software
acquired under the agreement are set forth in the applicable Software
License Agreement. The Software License Agreement which applies is the
Software License Agreement in effect at the time when the even occurs
which causes the damage.
10. GENERAL PROVISIONS.
10.1. This agreement shall in all respects be governed by and construed in
accordance with the laws of the State of Utah.
10.2. No waiver of any rights or remedy on one occasion by either party shall
be deemed a waiver of such right or remedy on any other occasion.
10.3. The agreement shall not be supplemented or modified by any course of
dealing or using of trade. Variance from or addition to the terms and
conditions of the agreement in any purchase order or other written
notification from you will be of no effect, unless otherwise expressly
provided in the agreement.
10.4. The agreement is not asignable by you, in whole or in part, without
Novell's prior written consent. Notwithstanding, Novell shall not
unreasonably withhold consent to an assignment of the agreement or any
part of the agreement to a parent, subsidiary or affiliate. Any
attempted assignment without Novell's written consent shall be null and
void.
10.5. You acknowledge that both parties in the agreement are independent
contractors and that you will not, except in accordance with the
agreement, represent yourself as an agent or legal representative of
Novell.
10.6. You shall comply, at your own expense, with all statutes, regulations,
rules, ordinances, and orders of any governmental body, department or
agency which apply to or result from obligations under the agreement.
You agree to not export products directly or indirectly, separately or
as part of a system, without first obtaining proper authority to do so
from the appropriate governmental agencies or entities, as may be
required by law.
11. Authorization may be revoked upon 30 days written notice that
requirements are not being met. Authorization may also be revoked by
Novell for convenience upon 30 days written notice.
12. Any modifications to this agreement will render it null and void, Novell
will not be obligated in any way to the extent that such modifications
have been made.
I have read the Novell Authorized Marketing Agreement and agree to be bound by
the terms and conditions set forth.
By:
Technicomp Corporation dba
Company: ALLSTAR COMPUTER PRODUCTS
Authorized Signature: /s/ JAMES H. LONG
Name (Please Print): JAMES H. LONG
Title: PRESIDENT
Date: 1-25-89
Accepted by:
Novell, Inc.
Authorized Signature: /s/ DP MCCURRAY
Name: DAVID P. MCMURRAY
Title: NATIONAL RESELLER CHANNEL MANAGER
Date: FEB 22 1989
EXHIBIT 10.10
PROMISSORY NOTE
Effective Date: July 1, 1996
1. PARTIES
"Borrower" means James H. Long, and the person's successors and assigns.
"Lender" means Allstar Systems, Inc. and its successors and assigns.
2. BORROWER'S PROMISE TO PAY; INTEREST
In return for a loan received from Lender, Borrower promises to pay the
principal sum of ONE HUNDRED SEVENTY THREE THOUSAND, TWO HUNDRED SIXTY EIGHT
DOLLARS. (U.S. $173,268.00), plus interest, to the order of the Lender. Interest
will be charged on the unpaid principal, from the date hereof, at the rate nine
percent (9%) per annum until the full amount of the principal has been paid.
Such interest shall be computed on the basis of a 360 day year consisting of
twelve thirty day months.
3. MANNER OF PAYMENT
(A) TIME
Borrower shall make five equal payments of principal and interest to
lender on July 1st, 1997, 1998, 1999, 2000, and 2001. July 1, 2001 shall be the
"Maturity Date"
(B) PLACE
Payment shall be made at ALLSTAR SYSTEMS, INC., 6401 SOUTHWEST FREEWAY,
HOUSTON, TEXAS 77074 or such other place as Lender may designate in writing by
notice to the Borrower.
4. BORROWER'S RIGHT TO PREPAY
Borrower has the right to pay the debt evidenced by this Note, in whole or
in part, without charge or penalty, on the first day of any month.
5. BORROWER'S FAILURE TO PAY
(A) LATE CHARGE FOR OVERDUE PAYMENTS
If Lender has not received the full monthly payment required by the Security
Instrument, as described in Paragraph 3 of this Note by the end of the fifteen
calendar days after the payment is due, Lender may collect a late charge in the
amount of FIVE PER CENT (5%) of the overdue amount of each payment.
(B) DEFAULT
If Borrower defaults by failing to pay in full any monthly payment, then
Lender may require immediate payment in full of the principal balance remaining
due and all accrued interest. Lender may choose not to exercise this option
without waiving its rights in the event of any subsequent default
(C) PAYMENT OF COSTS AND EXPENSES
If Lender has required immediate payment in full, as described above,
Lender may require Borrower to pay costs and expenses including reasonable and
customary attorney's fees for enforcing this Note. Such fees and costs shall
bear interest from the date of disbursement at the same rate as the principal of
this Note.
6. WAIVERS
Borrower and any other person who has obligations under this Note waive
the rights of presentment and notice of dishonor. "Presentment" means the right
to require Lender to demand payment of amounts due. "Notice of dishonor" means
the right to require Lender to give notice to other persons that amounts due
have not been paid.
9. GIVING OF NOTICES
Unless applicable law requires a different method, any notice that must
be given to Borrower under this Note will be given by delivering it or mailing
it by first class mail to Borrower at the property
1
address above or at a different address if Borrower has given Lender a notice of
Borrower's different address.
Any notice that must be given to Lender under this Note will be given by
first class mail to Lender at the address stated in Paragraph 4(B) or at a
different address if Borrower is given a notice of that different address.
10. OBLIGATIONS OF PERSONS UNDER THIS NOTE
If more than one person signs this Note, each person is fully
responsible and personally obligated to keep all of the promises made in this
Note, including the promise to pay the full amount owed. Any person who is a
grantor, surety or endorser of this Note is also obligated to do these things.
Any person who takes over these obligations, including the obligations of a
guarantor, surety or endorser of this Note, is also obligated to keep all of the
promises made in this Note. Lender may enforce its rights under this Note
against each person individually or against all signatories together. Any one
person signing this Note may be required to pay all of the amounts owed under
this Note.
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants
contained in this Note.
/s/ D.R. CHADWICK /s/ JAMES H. LONG
D.R. Chadwick James H. Long
Witness Signature Borrower Signature
D. R. CHADWICK JAMES H. LONG
Witness Name Borrower Name
8/6/96 8-6-96
Date Date
2
EXHIBIT 10.11
ALLSTAR SYSTEMS, INC.
1996 INCENTIVE STOCK PLAN
1. PURPOSE OF THE PLAN
This ALLSTAR SYSTEMS, INC. 1996 Incentive Stock Plan is intended to
provide a means through which the Company and its Subsidiaries may attract able
persons to enter into the employ of the Company or its Subsidiaries, and to
promote the interests of the Company by providing the employees of the Company
or any Subsidiary corporation, who are largely responsible for the management,
growth and protection of the business of the Company, with a proprietary
interest in the Company, thereby strengthening their concern for the welfare of
the Company and their desire to remain in its employ.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of ALLSTAR
SYSTEMS, INC.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of the
Participant's employment by the Company by reason of (i) the conviction of the
Participant by a court of competent jurisdiction as to which no further appeal
can be taken of a crime involving moral turpitude; (ii) the proven commission by
the Participant of an act of fraud upon the Company; (iii) the willful and
proven misappropriation of any funds or property of the Company by the
Participant; (iv) the willful, continued and unreasonable failure by the
Participant to perform duties assigned to him and agreed to by him; (v) the
knowing engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board of Directors of the
Company, in any activity which competes with the business of the Company or
which would result in a material injury to the Company; or (vii) the knowing
engagement in any activity which would constitute a material violation of the
provisions of the Company's Policies and Procedures Manual, if any, then in
effect.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash pursuant
to Section 10 hereof.
(d) "Change in Control" shall mean:
(i) a "change in control" of the Company, as that term is
contemplated in the federal securities laws; or
1
(ii) the occurrence of any of the following events:
(1) any Person becomes, after the effective date of this Plan,
the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act), directly or indirectly, of securities of the
Company representing or more of the combined voting power of the
Company's then outstanding securities; provided, that the Board of
Directors (as constituted immediately prior to such person becoming
such a beneficial owner) may determine, in its sole discretion, that
a Change in Control has not occurred; and provided further, that the
acquisition of additional voting securities, after the effective
date of this Plan, by any Person who is, as of the effective date of
this Plan, the beneficial owner, directly or indirectly, of or more
of the combined voting power of the Company's then outstanding
securities, shall not constitute a "Change in Control" of the
Company for purposes of this Section 2(d).
(2) a majority of individuals who are nominated by the Board
of Directors for election to the Board of Directors on any date,
fail to be elected to the Board of Directors as a direct or indirect
result of any proxy fight or contested election for positions on the
Board of Directors; or
(3) the Board of Directors determines in its sole and absolute
discretion that there has been a change in control of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any Section of the Code shall be deemed
to include any amendments or successor provisions to any Section and any
treasury regulations thereunder.
(f) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan.
(g) "Common Stock" shall mean the Company's common stock, par value $.01
per share.
(h) "Company" shall mean ALLSTAR SYSTEMS, INC., a Texas corporation, and
its successors.
(i) "Employee" shall mean any person who is an employee of the Company or
any Subsidiary within the meaning of Section 3401(c) of the Code and the
applicable interpretive authority thereunder.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
2
(k) the "Fair Market Value" of a share of Common Stock on any date shall
be (i) the closing sales price on the immediately preceding business day of a
share of Common Stock as reported on the principal securities exchange on which
shares of Common Stock are then listed or admitted to trading or (ii) if not so
reported, the average of the closing bid and asked prices for a share of Common
Stock on the immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers' OTC Bulletin Board System. If
the price of a share of Common Stock shall not be so reported, the Fair Market
Value of a share of Common Stock shall be determined by the Committee in its
absolute discretion.
(l) "Incentive Award" shall mean an Option, a share of Restricted Stock, a
share of Phantom Stock, a Stock Bonus or Cash Bonus granted pursuant to the
terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and which is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(n) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 7(d) hereof.
(o) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified Stock Option
in the agreement by which it is evidenced.
(p) "Option" shall mean an option to purchase shares of Common Stock of
the Company granted pursuant to Section 6 hereof. Each Option shall be
identified as either an Incentive Stock Option or a Non-Qualified Stock Option
in the agreement by which it is evidenced.
(q) "Parent" shall mean a "parent corporation" of the Company, whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(r) "Participant" shall mean an Employee who is eligible to participate in
the Plan and to whom an Incentive Award is granted pursuant to the Plan, and,
upon his death, his successors, heirs, executors and administrators, as the case
may be, to the extent permitted hereby.
(s) "Person" shall mean a "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, and the rules and regulations in effect from time
to time thereunder.
3
(t) a share of "Phantom Stock" shall represent the right to receive in
cash the Fair Market Value of a share of Common Stock of the Company, which
right is granted pursuant to Section 8 hereof and subject to the terms and
conditions contained therein.
(u) "Plan" shall mean the ALLSTAR SYSTEMS, INC. 1996 Incentive Stock Plan,
as it may be amended from time to time.
(v) a share of "Restricted Stock" shall mean a share of Common Stock which
is granted pursuant to the terms of Section 7 hereof and which is subject to the
restrictions set forth in Section 7(c) hereof for so long as such restrictions
continue to apply to such share.
(w) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(x) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Common Stock pursuant to Section 9 hereof.
(y) "Subsidiary" or "Subsidiaries" shall mean any and all corporations in
which at the pertinent time the Company owns, directly or indirectly, stock
vested with more than 50% of the total combined voting power of all classes of
stock of such corporations within the meaning of Section 424(f) of the Code.
(z) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
3. STOCK SUBJECT TO THE PLAN
Under the Plan, the Committee may grant to Participants: (i) Options; (ii)
shares of Restricted Stock; (iii) shares of Phantom Stock; (iv) Stock Bonuses;
and (v) Cash Bonuses.
The Committee may grant Options, shares of Restricted Stock, Performance
Awards, shares of Phantom Stock and Stock Bonuses under the Plan with respect to
a number of shares of Common Stock that in the aggregate at any time does not
exceed 417,500 shares of Common Stock, subject to adjustment pursuant to Section
11 hereof. The grant of a Cash Bonus shall not reduce the number of shares of
Common Stock with respect to which Options, shares of Restricted Stock, shares
of Phantom Stock or Stock Bonuses may be granted pursuant to the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Common Stock that may be subject to Incentive Awards granted to any
one individual during any calendar year shall be 100,000 shares of Common Stock,
subject to adjustment under Section 11 hereof. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated in connection with the exercise of Options to constitute "qualified
performance-based compensation" for purposes of Section 162(m) of the Code,
including, without limitation, counting
4
against such maximum number of shares, to the extent required under Section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to Options that are canceled or repriced.
If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan. If any shares of
Restricted Stock or Phantom Stock, or any shares of Common Stock granted as a
Stock Bonus are forfeited or canceled for any reason, such shares shall again be
available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either newly issued or
treasury shares, at the discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be both (i) a
"non-employee director" within the meaning of Rule 16b-3 promulgated under
Section 16 of the Exchange Act and (ii) an "outside director" within the meaning
of Section 162(m) of the Code and applicable interpretive authority thereunder.
The Committee shall from time to time designate the key Employees who shall be
granted Incentive Awards and the amount and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate the date on
which any Option granted under the Plan becomes exercisable, (ii) extend the
date on which any Option granted under the Plan ceases to be exercisable, (iii)
accelerate the Vesting Date or Issue Date, or waive any condition imposed
pursuant to Section 7(b) hereof, with respect to any share of Restricted Stock
granted under the Plan and (iv) accelerate the Vesting Date or waive any
condition imposed pursuant to Section 8 hereof, with respect to any share of
Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion, grant
Incentive Awards to Participants on the condition that such Participants
surrender to the Committee for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies. Notwithstanding Section 3 hereof, Incentive Awards
granted on the condition of surrender of outstanding Incentive Awards shall not
count against the limits set forth in such Section 3 until such time as such
Incentive Awards are surrendered.
5
Except as provided in Section 6(e)(4) hereof, whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee in its absolute
discretion.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be those Employees who are largely responsible for the
management, growth and protection of the business of the Company or any
Subsidiary (including officers of the Company, whether or not they are directors
of the Company).
6. OPTIONS
The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
(a) IDENTIFICATION OF OPTIONS
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) EXERCISE PRICE
The exercise price of any Option granted under the Plan shall be such
price as the Committee shall determine on the date on which such Option is
granted; PROVIDED, that such price shall be not less than 100% of the Fair
Market Value of a share of Common Stock on the date on which such Option is
granted, subject to (i) the restrictions provided in Section 6(d) hereof and
(ii) the adjustments provided in Section 11 hereof.
6
(c) TERM AND EXERCISE OF OPTIONS
(i) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted and
set forth in the agreement evidencing the Option; PROVIDED, HOWEVER, that
(A) subject to the restrictions provided in Section 6(d) hereof, no Option
shall be exercisable after the expiration of ten years from the date such
Option was granted and (B) each Option shall be subject to earlier
termination, expiration or cancellation as provided in the Plan.
(ii) Each Option shall be exercisable in whole or in part with
respect to whole shares of Common Stock. The partial exercise of an Option
shall not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an Option, the
agreement evidencing such Option shall be returned to the Participant
exercising such Option together with the delivery of the certificates
described in Section 6(c)(5) hereof.
(iii) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no fewer
than five business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the agreement evidencing the
Option, shall specify the number of shares of Common Stock with respect to
which the Option is being exercised and the effective date of the proposed
exercise, and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to the
Participant. Payment for shares of Common Stock purchased upon the
exercise of an Option shall be made on the effective date of such exercise
either (i) in cash, by certified check, bank cashier's check or wire
transfer, (ii) subject to the approval of the Committee, in shares of
Common Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, (iii) subject to the
approval of the Committee, in the form of a "cashless exercise" (as
described below) or (iv) subject to the approval of the Committee, in any
combination of the foregoing. Any payment in shares of Common Stock shall
be effected by the delivery of such shares to the Secretary of the
Company, duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents and evidences as the
Secretary of the Company shall require from time to time.
The cashless exercise of an Option shall be pursuant to procedures
whereby the Participant by written notice, directs (i) an immediate market
sale or margin loan respecting all or a part of the shares of Common Stock
to which he is entitled upon exercise pursuant to an extension of credit
by the Company to the Participant of the exercise price, (ii) the delivery
of the shares of Common Stock directly from the Company to a brokerage
firm and
7
(iii) delivery of the exercise price from the sale or the margin loan
proceeds from the brokerage firm directly to the Company.
(iv) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer
has received from the Participant or the Company a duly endorsed agreement
evidencing such Option and instructions signed by the Participant
requesting the Company to deliver the shares of Common Stock subject to
such Option to the broker-dealer on behalf of the Participant and
specifying the account into which such shares should be deposited, (ii)
adequate provision has been made with respect to the payment of any
withholding taxes due upon such exercise and (iii) the broker-dealer and
the Participant have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220.
(v) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the
effective date on which the Option is exercised; PROVIDED, HOWEVER, that
such delivery shall be effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United
States mail, addressed to the Participant.
(vi) During the lifetime of a Participant each Option granted to him
shall be exercisable only by him or a broker-dealer acting on behalf of
such Participant pursuant to Section 6(c)(4) hereof. No Option shall be
assignable or transferable otherwise than by will or by the laws of
descent and distribution.
(d) LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS
(i) The aggregate Fair Market Value of shares of Common Stock with
respect to which "incentive stock options" (within the meaning of Section
422 without regard to Section 422(d) of the Code) are exercisable for the
first time by a Participant during any calendar year under the Plan (and
any other stock option plan of the Company, or of its Parent or any
Subsidiary) shall not exceed $100,000. Such Fair Market Value shall be
determined as of the date on which each such Incentive Stock Option is
granted. If such aggregate Fair Market Value of shares of Common Stock
underlying such Incentive Stock Options exceeds $100,000, then Incentive
Stock Options granted hereunder to such Participant shall, to the extent
and in the order required by regulations promulgated under the Code (or
any other authority having the force of such regulations), automatically
be deemed to be Non-Qualified Stock Options, but all other terms and
provisions of such Incentive Stock Options shall remain unchanged. In the
absence of such regulations promulgated under the Code (and authority), or
if such regulations (or authority) require or permit a designation of the
options which shall cease to constitute Incentive Stock Options,
8
Incentive Stock Options shall, to the extent of such excess and in the
order in which they were granted, automatically be deemed to be
Non-Qualified Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
(ii) No Incentive Stock Option may be granted to an individual if,
at the time of the proposed grant, such individual owns stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, unless (i) the
exercise price of such Incentive Stock Option is at least 110% of the Fair
Market Value of a share of Common Stock at the time such Incentive Stock
Option is granted and (ii) such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock
Option is granted.
(e) EFFECT OF TERMINATION OF EMPLOYMENT
(i) If the employment of a Participant with the Company shall
terminate for any reason other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) or the
death of the Participant (i) Options granted to such Participant, to the
extent that they were exercisable at the time of such termination, shall
remain exercisable until the expiration of one month after such
termination, on which date they shall expire, and (ii) Options granted to
such Participant, to the extent that they were not exercisable at the time
of such termination, shall expire at the close of business on the date of
such termination; PROVIDED, HOWEVER, that no Option shall be exercisable
after the expiration of its term.
(ii) If the employment of a Participant with the Company shall
terminate as a result of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) or the death of the Participant
(i) Options granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable
until the expiration of one year after such termination, on which date
they shall expire, and (ii) Options granted to such Participant, to the
extent that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such termination;
PROVIDED, HOWEVER, that no Option shall be exercisable after the
expiration of its term.
(iii) In the event of the termination of a Participant's employment
for Cause, all outstanding Options granted to such Participant shall
expire at the commencement of business on the date of such termination.
(iv) A Participant's employment with the Company shall be deemed
terminated if the Participant's leave of absence (including military or
such leave or other bona fide leave of absence) extends for more than 90
days and the Participant's continued employment with the Company is not
guaranteed by contract or statute.
9
(f) ACCELERATION OF EXERCISE DATE UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.
7. RESTRICTED STOCK
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of shares
of Restricted Stock shall comply with and be subject to the following terms and
conditions:
(a) ISSUE DATE AND VESTING DATE
At the time of the grant of shares of Restricted Stock, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates
with respect to such shares. The Committee may divide such shares into classes
and assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 7(c) and 7(f) hereof, upon the occurrence of the Issue Date
with respect to a share of Restricted Stock, a share of Restricted Stock shall
be issued in accordance with the provisions of Section 7(d) hereof. Provided
that all conditions to the vesting of a share of Restricted Stock imposed
pursuant to Section 7(b) hereof are satisfied, and except as provided in
Sections 7(c) and 7(f) hereof, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 7(c) hereof shall cease to apply to such share.
(b) CONDITIONS TO VESTING
At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Restricted Stock, that (i) the Participant or the Company achieve certain
performance criteria, such criteria to be specified by the Committee at the time
of the grant of such shares and (ii) prohibiting an election by the Participant
under Section 83(b) of the Code.
(c) RESTRICTIONS ON TRANSFER PRIOR TO VESTING
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
10
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) ISSUANCE OF CERTIFICATES
(i) Except as provided in Sections 7(c) or 7(f) hereof, reasonably
promptly after the Issue Date with respect to shares of Restricted Stock,
the Company shall cause to be issued a stock certificate, registered in
the name of the Participant to whom such shares of Restricted Stock were
granted, evidencing such shares; PROVIDED, HOWEVER, that the Company shall
not cause to be issued such a stock certificate unless it has received a
stock power duly endorsed in blank with respect to such shares. Each such
stock certificate shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND
CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER)
CONTAINED IN THE ALLSTAR SYSTEMS, INC. 1996 INCENTIVE STOCK PLAN AND
AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH
SHARES AND ALLSTAR SYSTEMS, INC. A COPY OF THE PLAN AND AGREEMENT IS
ON FILE IN THE OFFICE OF THE SECRETARY OF ALLSTAR SYSTEMS, INC.,
6401 SOUTHWEST FREEWAY, HOUSTON, TEXAS 77074.
Such legend shall not be removed from the certificate evidencing such
shares until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section 7(d)(1) hereof,
together with the stock powers relating to the shares of Restricted Stock
evidenced by such certificate, shall be held by the Company. The Company
shall issue to the Participant a receipt evidencing the certificates held
by it which are registered in the name of the Participant.
(e) CONSEQUENCES UPON VESTING
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 7(c) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 7(d)(1) hereof, together with any
other property of the Participant held by Company pursuant to Section 11(a)
hereof; PROVIDED, HOWEVER, that such delivery shall be effected for all purposes
when the Company shall have deposited such certificate and other property in the
United States mail, addressed to the Participant.
11
(f) EFFECT OF TERMINATION OF EMPLOYMENT
(i) If the employment of a Participant with the Company shall
terminate for any reason other than Cause prior to the vesting of shares
of Restricted Stock granted to such Participant, a portion of such shares,
to the extent not forfeited or canceled on or prior to such termination
pursuant to any provision hereof, shall vest on the date of such
termination. The portion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such shares of
Restricted Stock and may be based on the achievement of any conditions
imposed by the Committee with respect to such shares pursuant to Section
7(b) hereof. Such portion may equal zero.
(ii) In the event of the termination of a Participant's employment
for Cause, all shares of Restricted Stock granted to such Participant
which have not vested as of the commencement of business on the date of
such termination shall immediately be forfeited.
(g) EFFECT OF CHANGE IN CONTROL
Upon the occurrence of a Change in Control, all shares of Restricted Stock
which have not theretofore vested (including those with respect to which the
Issue Date has not yet occurred) shall immediately vest.
8. PHANTOM STOCK
The Committee may grant shares of Phantom Stock pursuant to the Plan. Each
grant of shares of Phantom Stock shall be evidenced by an agreement in such form
as the Committee shall from time to time approve. Each grant of shares of
Phantom Stock shall comply with and be subject to the following terms and
conditions:
(a) VESTING DATE
At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date for each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 8(c) hereof are satisfied, and except
as provided in Section 8(d) hereof, upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.
(b) BENEFIT UPON VESTING
Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 90 days of the date on which such share
vests, an amount in cash in a lump sum equal
12
to the sum of (i) the Fair Market Value of a share of Common Stock of the
Company on the date on which such share of Phantom Stock vests and (ii) the
aggregate amount of cash dividends paid with respect to a share of Common Stock
of the Company during the period commencing on the date on which the share of
Phantom Stock was granted and terminating on the date on which such share vests.
(c) CONDITIONS TO VESTING
At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve certain performance
criteria, such criteria to be specified by the Committee at the time of the
grant of such shares.
(d) EFFECT OF TERMINATION OF EMPLOYMENT
(i) If the employment of a Participant with the Company shall
terminate for any reason other than Cause prior to the vesting of shares
of Phantom Stock granted to such Participant a portion of such shares, to
the extent not forfeited or canceled on or prior to such termination
pursuant to any provision hereof, shall vest on the date of such
termination. The portion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such shares of
Phantom Stock and may be based on the achievement of any conditions
imposed by the Committee with respect to such shares pursuant to Section
8(c) hereof. Such portion may equal zero.
(ii) In the event of the termination of a Participant's employment
for Cause, all shares of Phantom Stock granted to such Participant which
have not vested as of the date of such termination shall immediately be
forfeited.
(e) EFFECT OF CHANGE IN CONTROL
Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested shall immediately vest.
9. STOCK BONUSES
The Committee may, in its absolute discretion, grant Stock Bonuses in such
amounts as it shall determine from time to time. A Stock Bonus shall be paid at
such time and subject to such conditions as the Committee shall determine at the
time of the grant of such Stock Bonus. Certificates for shares of Common Stock
granted as a Stock Bonus shall be issued in the name of
13
the Participant to whom such grant was made and delivered to such Participant as
soon as practicable after the date on which such Stock Bonus is required to be
paid.
10. CASH BONUSES
The Committee may, in its absolute discretion, grant in connection with
any grant of Restricted Stock or shares of Common Stock granted as a Stock Bonus
or at any time thereafter, a cash bonus, payable promptly after the date on
which the Participant is required to recognize income for federal income tax
purposes in connection with such Restricted Stock or Stock Bonus, in such
amounts as the Committee shall determine from time to time; PROVIDED, HOWEVER,
that in no event shall the amount of a Cash Bonus exceed the Fair Market Value
of the related shares of Restricted Stock or shares of Common Stock issued
pursuant to the grant of a Stock Bonus on such date. A Cash Bonus shall be
subject to such conditions as the Committee shall determine at the time of the
grant of such Cash Bonus.
11. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) OUTSTANDING RESTRICTED STOCK AND PHANTOM STOCK
Unless the Committee in its absolute discretion otherwise determines, if a
Participant receives any securities or other property (including dividends paid
in cash) with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split recapitalization,
merger, consolidation, combination, exchange of shares or otherwise, such
securities or other property will not vest until such share of Restricted Stock
vests, and shall be held by the Company pursuant to Section 7(d)(2) hereof as if
such securities or other property were unvested shares of Restricted Stock.
The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, any shares of Common
Stock upon the grant of any grant of shares of Phantom Stock, to reflect any
dividend, stock split, recapitalization, merger, consolidation, combination,
exchange of shares or similar corporate change as the Committee may deem
appropriate to prevent the enlargement or dilution of rights of Participants
under the grant.
(b) STOCK SUBJECT TO PLAN, OUTSTANDING OPTIONS, INCREASE OR DECREASE IN
ISSUED SHARES WITHOUT CONSIDERATION
Subject to any required action by the stockholders of the Company, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the
14
shares of Common Stock), or any other increase or decrease in the number of such
shares effected without receipt of consideration by the Company, the Committee
shall proportionally adjust (i) the number of shares of Common Stock for which
Incentive Awards may be granted under the Plan and (ii) the number of shares and
the exercise price per share of Common Stock subject to each outstanding Option.
(c) OUTSTANDING OPTIONS, CERTAIN MERGERS
Subject to any required action by the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall entitle the Participant to
acquire upon exercise the securities which a holder of the number of shares of
Common Stock subject to such Option would have received in such merger or
consolidation.
(d) OUTSTANDING OPTIONS, CERTAIN OTHER TRANSACTIONS
In the event of a dissolution or liquidation of the Company, a sale of all
or substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation or a
merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether or
not then exercisable), and, in full consideration of such cancellation,
pay to the Participant to whom such Option was granted an amount in cash,
for each share of Common Stock subject to such Option equal to the excess
of (A) the value, as determined by the Committee in its absolute
discretion, of the property (including cash) received by the holder of a
share of Common Stock as a result of such event over (B) the exercise
price of such Option; or
(ii) provide for the exchange of each Option outstanding immediately
prior to such event (whether or not then exercisable) for an option on
some or all of the property for which such Option is exchanged and,
incident thereto, make an equitable adjustment as determined by the
Committee in its absolute discretion in the exercise price of the option,
or the number of shares or amount of property subject to the option or, if
appropriate, provide for a cash payment to the Participant to whom such
Option was granted in partial consideration for the exchange of the
Option.
15
(e) OUTSTANDING OPTIONS, OTHER CHANGES
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 11(b),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(f) NO OTHER RIGHTS
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option.
12. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 11
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
13. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
16
14. SECURITIES MATTERS
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding
anything herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
any securities exchange on which shares of Common Stock are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of shares
of Common Stock pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
granted hereunder. During the period that the effectiveness of the exercise of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
(c) It is intended that the Plan and any grant of an Incentive Award made
to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3 promulgated thereunder. If any provision of the Plan
or any such Incentive Award would disqualify the Plan or such Incentive Award
under, or would otherwise not comply with, Rule 16b-3, such provision or
Incentive Award shall be construed or deemed amended to conform to Rule 16b-3 to
the extent permitted by applicable law and deemed advisable by the Board of
Directors.
15. QUALIFIED PERFORMANCE-BASED COMPENSATION
It is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options granted hereunder
with an exercise price not less than Fair Market Value of a share of Common
Stock on the date of grant shall constitute "qualified performance based
compensation" within the meaning of such Section and the interpretive authority
thereunder. If any provision of the Plan would disqualify the Plan or would not
otherwise permit the Plan to comply
17
with Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section 162(m) to the
extent permitted by applicable law and deemed advisable by the Board of
Directors; provided that no such construction or amendment shall have an adverse
effect on the economic value to a Participant of any Incentive Award previously
granted hereunder.
16. WITHHOLDING TAXES
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock or the payment of a Stock Bonus, the Company shall have the
right to require the Participant to remit to the Company in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise, occurrence or payment prior to the delivery
of any certificate or certificates for such shares. In addition, upon the grant
of a Cash Bonus or the making of a payment with respect to a share of Phantom
Stock, the Company shall have the right to withhold from any cash payment
required to be made pursuant thereto an amount sufficient to satisfy the
federal, state and local withholding tax requirements, if any, attributable to
such exercise or grant.
17. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever, PROVIDED, HOWEVER, that without
approval of the stockholders no revision or amendment shall (i) except as
provided in Section 11 hereof, increase the number of shares of Common Stock
that may be issued under the Plan, (ii) except as provided in Section 11 hereof,
increase the maximum number of shares of Common Stock that may be subject to an
Incentive Award granted to any one individual for any calendar year, (iii)
materially increase the benefits accruing to individuals holding Incentive
Awards granted pursuant to the Plan, (iv) materially modify the requirements as
to eligibility for participation in the Plan or (v) extend the term of the Plan.
18. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
19. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or
18
the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award.
20. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
21. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part as the
Committee, in its absolute discretion, may determine.
22. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors and approved by the
stockholders effective September 30, 1996. No Incentive Award may be granted
under the Plan after September 29, 2006. Notwithstanding anything herein
contained to the contrary, this Plan shall only be effective upon the
reincorporation of the Company as a Delaware corporation and the subsequent
closing of the initial public offering by the Company of its common stock.
19
EXHIBIT 10.12
ALLSTAR SYSTEMS, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. This Allstar Systems, Inc. 1996 Non-Employee
Director Stock Option Plan (the "PLAN") is adopted for the benefit of the
directors of the Allstar Systems, Inc., a Texas corporation (the "COMPANY") who,
at the time of their service, are not employees of the Company or any of its
subsidiaries (the "NON-EMPLOYEE DIRECTORS"), and is intended to advance the
interests of the Company by providing the Non-Employee Directors with additional
incentive to serve the Company by increasing their proprietary interest in the
success of the Company.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Compensation Committee, which
Compensation Committee shall consist of not less than two members of the Board
of Directors of the Company (the "BOARD".) For the purposes of this Plan, a
majority of the members of the Compensation Committee shall constitute a quorum
for the transaction of business, and the vote of a majority of those members
present at any meeting shall decide any question brought before that meeting. No
member of the Compensation Committee shall be liable for any act or omission of
any other member of the Compensation Committee or for any act or omission on his
own part, including (without limitation) the exercise of any power or discretion
given to him under this Plan, except those resulting from his own gross
negligence or willful misconduct.
(b) The Compensation Committee shall have full authority to administer the
Plan, including authority to interpret and construe any provision of the Plan
and the terms of any option ("OPTION") granted under it and to adopt such rules
and regulations for administering the Plan as it may deem necessary. Decisions
of the Compensation Committee shall be final and binding on all parties.
Notwithstanding the above, the selection of Non-Employee Directors to whom
Options are to be granted, the number of shares subject to any Option, the
exercise price of any Option and the ten-year maximum term of any Option shall
be as hereinafter provided, and the Compensation Committee shall have no
discretion as to such matters.
3. STOCK RESERVED FOR THE PLAN. The total number of shares of the
Company's common stock, par value $.01 per share (the "COMMON STOCK"), with
respect to which Options may be granted under the Plan, shall not exceed the
aggregate of 100,000 shares; PROVIDED, that the class and aggregate number of
shares which may be subject to the Options granted hereunder shall be subject to
adjustment in accordance with the provisions of Section 14 of this Plan. Such
shares may be treasury shares or authorized but unissued shares. The Company
shall reserve for issuance pursuant to this Plan such number of shares of Common
Stock as may from time to time be subject to Options granted hereunder. If any
Option expires or is canceled prior to its exercise in full, the shares
theretofore subject to such Option may again be made subject to an Option under
the Plan. All Options granted under the Plan will constitute non-qualified
options ("NQO").
1
4. GRANT OF OPTIONS.
(a) NON-EMPLOYEE DIRECTORS ELECTED AFTER THE EFFECTIVE DATE OF THIS PLAN:
INITIAL GRANT. For so long as this Plan is in effect and shares are available
for the grant of NQOs hereunder, each person who is elected as a Non-Employee
Director of the Company after the effective date of this Plan and who is (A) not
appointed or elected to the Board in connection with or as a result of the
completion of a financing or acquisition transaction in which the appointment or
election of such person, or the execution of an agreement obligating the parties
thereto to vote in favor of the appointment or election of such person, is a
condition to the obligation of any party to the transaction to complete the
transaction and (B) not otherwise an employee of the Company or any of the
Company's subsidiaries (as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended (the "CODE") (a "NEW DIRECTOR") (New Directors are
hereinafter sometimes referred to herein as "ELIGIBLE DIRECTORS") shall be
granted a one-time NQO to purchase 5,000 shares of Common Stock at a per share
exercise price equal to the Fair Market Value (defined below) of a share of
Common Stock on such date (subject to the adjustments provided in Section 15
hereof). This Section 4(a) shall only apply to a Non-Employee Director the first
time he or she is elected a director of the Company after the effective date of
this Plan. Persons elected to be a director for a second or any subsequent term
shall be granted NQOs in accordance with Section 4(b) below.
(b) ANNUAL OPTION GRANT TO NON-EMPLOYEE DIRECTORS: SUBSEQUENT GRANT. For
so long as this Plan is in effect and there are shares available for the grant
of NQOs hereunder (beginning with those Eligible Directors reelected at the
Company's 1997 annual meeting of stockholders), each Eligible Director who shall
be reelected a Non-Employee Director for his or her second or any subsequent
term after the effective date of this Plan, shall be granted an NQO to purchase
2,000 shares of Common Stock at a per share exercise price equal to the Fair
Market Value (defined below) of a share of Common Stock on such date (subject to
the adjustments provided in Section 15 hereof). This Section 4(b) shall only
apply to an Eligible Director on his or her second or any subsequent election to
the Company's Board of Directors.
(c) For the purposes of this Section 4, the "FAIR MARKET VALUE" as of any
particular date shall mean (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading or (ii) if not so reported, the average of the closing bid and asked
prices for a share of Common Stock on the immediately preceding business day as
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or (iii) if not quoted on NASDAQ, the average of the closing
bid and asked prices for a share of Common Stock as quoted by the National
Quotation Bureau's "Pink Sheets" or the National Association of Securities
Dealers' OTC Bulletin Board System. If the price of a share of Common Stock
shall not be so reported, the Fair Market Value of a share of Common Stock shall
be determined by the Compensation Committee in its absolute discretion.
5. OPTION AGREEMENT. Each NQO granted under the Plan shall be evidenced by
an agreement, in a form approved by the Compensation Committee, which shall be
subject to the terms and conditions of the Plan. Any agreement may contain such
other terms, provisions and conditions as may be determined by the Compensation
Committee and that are not inconsistent with the Plan.
2
6. VESTING AND TERM OF OPTIONS. Each NQO granted under this Plan shall
vest in full on the date of grant; PROVIDED, HOWEVER, that such NQO shall be
subject to termination as provided in Section 8 hereof. Each option agreement
shall provide that the NQO shall expire ten years from the date of grant, unless
sooner terminated pursuant to Section 8 hereof.
7. EXERCISE OF OPTIONS. NQOs shall be exercisable at any time after the
date of grant, subject to termination as provided in Section 8 hereof. NQOs
shall be exercised by written notice to the Company setting forth the number of
shares with respect to which the NQO is being exercised and specifying the
address to which the certificates representing such shares are to be mailed.
Such notice shall be accompanied by cash or certified check, bank draft, or
postal or express money order payable to the order of the Company, for an amount
equal to the product obtained by multiplying the exercise price of the NQO by
the number of shares of Common Stock with respect to which the NQO is then being
exercised. As promptly as practicable after receipt of such written notification
and payment, the Company shall deliver to the Eligible Director a certificate or
certificates representing the number of shares of Common Stock with respect to
which such NQO has been so exercised, issued in the Eligible Director's name;
PROVIDED, HOWEVER, that such delivery shall be deemed effected for all purposes
when the Company's transfer agent shall have deposited such certificates in the
United States mail, addressed to the Eligible Director, at the address specified
pursuant to this Section 7.
Any NQO granted under the Plan may be exercised by a broker-dealer acting
on behalf of an Eligible Director if (i) the broker-dealer has received from the
Eligible Director or the Company a duly endorsed agreement evidencing such NQO
and instructions signed by the Eligible Director requesting the Company to
deliver the shares of Common Stock subject to such NQO to the broker-dealer on
behalf of the Eligible Director and specifying the account into which such
shares should be deposited and (ii) the broker-dealer and the Eligible Director
have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part
220.
8. TERMINATION OF OPTIONS.
Except as may be otherwise expressly provided in this Plan or otherwise
determined by the Compensation Committee, each NQO, to the extent it shall not
have been exercised previously, shall terminate on the earliest of the
following:
(a) On the last day of the three-month period commencing on the date on
which the Eligible Director ceases to be a member of the Board for any reason
other than the death of the Eligible Director, during which period the Eligible
Director shall be entitled to exercise all NQOs held by the Eligible Director on
the date on which the Eligible Director ceased to be a member of the Board that
could have been exercised on such date; or
(b) Ten years after the date of grant of such NQO.
9. ASSIGNABILITY OF OPTIONS. During the term of an NQO, the NQO shall not
be assignable or otherwise transferable except by will or by the laws of descent
and distribution. Each NQO shall be exercised during the Eligible Director's
lifetime only by the Eligible Director.
3
10. NO RIGHTS AS STOCKHOLDER. No Eligible Director shall have any rights
as a stockholder with respect to shares covered by an NQO until the date of
issuance of a stock certificate or certificates representing such shares. Except
as provided in Section 14 hereof, no adjustment for dividends or otherwise shall
be made if the record date therefor is prior to the date of issuance of
certificates representing shares of Common Stock purchased pursuant to exercise
of this NQO.
11. EXTRAORDINARY CORPORATE TRANSACTIONS. If the Company effects a merger,
consolidation, acquisition, separation, reorganization, liquidation or similar
transaction, the Company may substitute new options for the NQOs outstanding
under the Plan or a corporation other than the Company, including (without
limitation) a parent or subsidiary of the Company, may assume the Company's
duties as to NQOs outstanding under the Plan. In the event such corporation or
parent or subsidiary of the Company does not substitute new and substantially
equivalent option rights for, or assume, the NQOs then outstanding under the
Plan, all such outstanding NQOs shall be canceled, immediately prior to the
effective date of such extraordinary corporate transaction, and in full
consideration of such cancellation, the Eligible Director to whom the NQO was
granted shall be paid an amount in cash equal to the excess of (i) the value, as
determined by the Compensation Committee in its absolute discretion, of the
property (including cash) received by the holder of a share of Common Stock as a
result of such event less (ii) the exercise price of the NQO.
Except as otherwise expressly provided in this Plan, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either on
direct sale or on the exercise of rights or warrants to subscribe therefor, or
on conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock then subject to outstanding NQOs.
12. INVESTMENT REPRESENTATIONS. If the shares issuable on exercise of an
NQO are not registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Company may imprint on the certificate representing such
shares the following legend or any other legend that counsel for the Company
considers necessary or advisable to comply with the Securities Act:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT
UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
The Company may, but shall in no event be obligated to, register any securities
covered under this Plan pursuant to the Securities Act and, if any shares are so
registered, the Company may remove any legend on certificates representing such
shares. The Company shall not be obligated to take any other affirmative action
to cause the exercise of an NQO or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
4
13. AMENDMENT OR TERMINATION. The Board may amend, modify, revise or
terminate this Plan at any time and from time to time. All NQOs granted under
this Plan shall be subject to the terms and provisions of this Plan and any
amendment, modification or revision of this Plan shall be deemed to amend,
modify or revise all NQOs outstanding under this Plan at the time of such
amendment, modification or revision. If this Plan is terminated by action of the
Board, all outstanding NQOs may be terminated.
14. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding NQOs shall not affect in any way the right or power of the Company
or its stockholders to make or authorize the dissolution or liquidation of the
Company, any sale or transfer of all or any part of the Company's assets or
business, any reorganization or other corporate act or proceeding, whether of a
similar character or otherwise, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or prior preference stock senior to or affecting the
Common Stock or the rights thereof; PROVIDED, HOWEVER, that if (a) the
outstanding shares of Common Stock of the Company shall be subdivided into a
greater number of shares or (b) the outstanding shares of Common Stock shall be
combined a smaller number of shares thereof, then (x) the number of shares of
Common Stock available for the grant of NQOs under the Plan shall be
proportionally adjusted to equal the product obtained by multiplying such number
of available shares remaining by a fraction, the numerator of which is the
number of outstanding shares of Common Stock after giving effect to such
combination or subdivision and the denominator of which is that number of
outstanding shares of Common Stock prior to such combination or subdivision, (y)
the exercise price of any NQO then outstanding under the Plan shall be
proportionately adjusted to equal the product obtained by multiplying such
exercise price by a fraction, the numerator of which is the number of
outstanding shares of Common Stock prior to such combination or subdivision and
the denominator of which is that number of outstanding shares of Common Stock
after giving effect to such combination or subdivision, and (z) the number of
shares of Common Stock issuable on the exercise of any NQO then outstanding
under the Plan or thereafter granted under the Plan shall be proportionately
adjusted to equal the product obtained by multiplying such number of shares of
Common Stock by a fraction, the numerator of which is the number of outstanding
shares of Common Stock after giving effect to such combination or subdivision
and the denominator of which is that number of outstanding shares of Common
Stock prior to such combination or subdivision.
15. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of NQOs thereunder, and the obligation of the Company to sell and
deliver shares acquirable on exercise of such NQOs, shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any governmental or regulatory agency or national securities exchange as may
be required. The Company shall not be required to sell or issue any shares on
exercise of any NQO if the issuance of such shares shall constitute a violation
by the Eligible Director or the Company of any provisions of any law or
regulation of any governmental authority. Each NQO granted under this Plan shall
be subject to the requirement that, if at any time the Board or the Compensation
Committee shall determine that (i) the listing, registration or qualification of
the shares subject thereto on any securities exchange or under any state or
federal law of the United States or of any other country or governmental
subdivision thereof, (ii) the consent or approval of any governmental regulatory
body, or (iii) the making of investment or other representations, are
5
necessary or desirable in connection with the issue or purchase of shares
subject thereto, no such NQO may be exercised in whole or in part unless such
listing, registration, qualification, consent, approval or representation shall
have been effected or obtained, free of any conditions not acceptable to the
Compensation Committee. Any determination in this connection by the Compensation
Committee shall be final, binding and conclusive.
16. INDEMNIFICATION OF COMPENSATION COMMITTEE AND BOARD OF DIRECTORS. The
Company shall, to the fullest extent permitted by law, indemnify, defend and
hold harmless any person who at any time is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) in any way relating
to or arising out of this Plan or any NQOs granted hereunder by reason of the
fact that such person is or was at any time a director of the Company or a
member of the Compensation Committee against judgments, fines, penalties,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding. This
right of indemnification shall inure to the benefit of the heirs, executors and
administrators of each such person and is in addition to all other rights to
which such person may be entitled by virtue of the bylaws of the Company or as a
matter of law, contract or otherwise.
17. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective, subject
to stockholder approval, on September 30, 1996. No NQO shall be granted pursuant
to this Plan on or after September 29, 2006. Notwithstanding anything contained
herein to the contrary, this Plan and any grants made hereunder will only become
effective upon the reincorporation of the Company as a Delaware corporation and
the subsequent closing of the initial public offering of the Company's Common
Stock.
6
EXHIBIT 10.15
TECH DATA CORPORATION
VOLUME PURCHASE AGREEMENT (TDElect)
THIS AGREEMENT ("Agreement") is effective as of the 1st day of November, 1995
("Effective Date") by and between Tech Data Corporation, a Florida corporation,
having its principal offices at 5350 Tech Data Drive, Clearwater, Florida 34620
("Tech Data") and the undersigned reseller, Allstar Systems, a Texas
corporation, having its principal offices at 6401 Southwest Freeway, Houston,
Texas 77074 ("Reseller").
BACKGROUND:
Tech Data is a national distributor of microcomputers, related hardware and
software, and has established a national network of customers with varying
requirements for purchases of products. In order to develop programs to satisfy
the requirements of the volume purchasers, Tech Data has initiated the TDElect
Program set forth in this Agreement. Reseller has demonstrated an ability and
desire to purchase products from Tech Data in sufficient quantities and volume
to justify qualifying for Tech Data's TDElect Program. Based upon the foregoing,
in consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:
1. PRODUCTS.
Tech Data and Reseller agree that Reseller's purchases from Tech Data of the
products listed on Exhibit A attached hereto (the "Products") shall be pursuant
to the terms of this Agreement and Tech Data's standard terms and conditions of
sale as stated on the Tech Data invoice from time to time. In the event of any
conflict, the terms of this Agreement shall control.
2. PRICING.
In consideration for Reseller's complying with this Agreement, Tech Data agrees
that the purchase price for the Products shall be as set forth on Exhibit B
attached to this Agreement. The pricing stated does not include any applicable
taxes, duties, or other charges, which will be the responsibility of Reseller.
Tech Data reserves the right to change prices, or the basis upon which prices
are calculated, from time to time, at Tech Data's discretion.
3. SHIPMENT AND DELIVERY.
Delivery will be made F.O.B. Destination, within the continental United States,
freight paid in accordance with Tech Data's standard freight policy in effect at
the time of shipment. Tech Data will comply with all reasonable shipping and
handling instructions received prior to shipment. In the event Reseller requests
shipment not in accordance with Tech Data's Standard Freight Policy, delivery
will be made F.O.B. Origin. C.O.D. and other shipping and handling charges may
apply to individual orders.
4. CREDIT.
All purchases by Reseller of the Products identified on Exhibit A as Category A
or B products shall be prepaid. Reseller may arrange prepayment for these
Products through the use of various Tech Data approved floorplan financing
options that may be available to Reseller. Tech Data will advise Reseller, upon
request, of the floorplan financing companies that have been approved for use in
connection with this Agreement. Reseller will comply with any and all reasonable
requirements and documentation requests of Tech Data or any approved financing
company. Reseller shall furnish to Tech Data all financial information
reasonably requested by Tech Data from time to time for the purpose of
establishing or continuing Reseller's credit limit, it being understood that
Tech Data shall have the right to decline to extend credit to Reseller and to
require that payment be made prior to shipment. Tech Data shall have the right
from time to time, without notice, to change or revoke Reseller's credit limit
on the basis of changes in Tech Data's credit policies or Reseller's financial
condition and/or payment record.
5. RESELLER COVENANTS.
5.1 ELECTRONIC ORDERING. Upon request of Tech Data, Reseller shall place
substantially all of its Product orders via Tech Data Online or other Tech Data
specified electronic ordering system. At the time Tech Data requests the
Reseller to use an electronic ordering system, Tech Data and Reseller shall
agree to a mutually acceptable implementation process to transition Reseller's
ordering to the specified system.
5.2 VOLUME COMMITMENT. The pricing stated on Exhibit B is based upon Reseller's
annual volume commitment. Tech Data will review Reseller's quarterly purchasing
and returns volumes and shall adjust the pricing accordingly, based upon Exhibit
B.
6. MARKETING PROGRAMS AND PRICE PROTECTION.
Tech Data will administer price protection and marketing program funding claims
of Reseller. Reseller acknowledges that Tech Data is acting solely as an
administrator of these programs and has not assumed any responsibility or
liability to the Reseller. Any credits issued to Reseller are conditioned upon
the acceptance by the manufacturer or publisher of the Reseller's request.
7. STOCK BALANCING.
7.1 Subject to Tech Data's approval prior to returning Products and the
limitations stated in Sections 7.2 and 7.3 of this Agreement, Reseller may
return Products purchased from Tech Data within one hundred twenty (120) days
after invoice date for a credit equal to the lower of the returned Product's
invoice price or Tech Data's current selling price for the returned Product.
Credits for returns may only be used against future purchases by Reseller. All
Products returned must be new, undamaged, in the manufacturer's original
packaging and in resalable condition.
7.2 Tech Data reserves the right to not accept Products if the manufacturer has
placed restrictions upon the return of Products. Tech Data also reserves the
right not to accept Products which are not longer in production or which are
being produced or published by a manufacturer which is insolvent or which has
declared bankruptcy. Reseller shall pay all costs and bear all risks of loss
when returning Products to Tech Data. Returns shall be shipped FOB Tech Data's
returns warehouse.
7.3 The total credit for all Products returned to Tech Data under Sections 7 and
8 of this Agreement in any Tech Data fiscal quarter shall not exceed five
percent (5%) of the total purchase price of all Products purchased and paid for
by Reseller during the immediately prior fiscal quarter.
8. DEFECTIVE RETURNS.
Within sixty (60) days after the date of purchase by Reseller, Reseller may
return to Tech Data for replacement or credit any Product found to be defective;
provided that, Reseller shall obtain Tech Data's approval prior to returning the
defective Product. Tech Data reserves the right to require Reseller to return
defective Products directly to the Product's manufacturer for replacement
according to the manufacturer's defective Products return policy.
9. RESALE ONLY.
All Products delivered to Reseller hereunder are for resale only and shall not
be used for the internal business purposes of Reseller, or any parent company,
subsidiary, or affiliate of Reseller.
10. CONFIDENTIALITY.
Reseller shall maintain at all times the confidentiality of the terms and
conditions of this Agreement, the Product pricing, Tech Data's business methods
and systems, and any other information provided to Reseller which has been
marked confidential or which Reseller has been advised in confidential (all such
information to be defined as "Confidential Information"). Reseller agrees that
it shall disclose any Confidential Information only to such of its employees who
require such information to operate Reseller's business. In the event of a
breach or threatened breach of this Section, Tech Data shall be entitled to seek
injunctive relief in order to prevent or restrain any such breach, in addition
to any other rights, remedies or damages available to Tech Data at law or in
equity. Any breach of this Section 10 shall be grounds for immediate termination
of this Agreement by Tech Data.
11. TERM AND TERMINATION.
11.1 TERM. The term of this Agreement will begin on the Effective Date and shall
continue for a period of one (1) year, unless terminated as provided in Section
11.2. At the end of the initial term and each subsequent renewal term, this
Agreement shall renew automatically for an additional one (1) year term, unless
terminated as provided in Section 11.2.
11.2 TERMINATION. Either party may terminate this Agreement, with or without
cause, by giving written notice of termination not less than thirty (30) days
prior to the date of termination stated in such notice.
12. GENERAL PROVISION.
12.1 FLORIDA LAW. This Agreement shall be interpreted in accordance with and
governed by the laws of the State of Florida and Tech Data and Reseller hereby
consent to the jurisdiction of the state or federal courts located in Pinellas
or Hillsborough County, Florida.
12.2 NOTICES. All notices, requests, demands and other communications called for
or contemplated hereunder shall be in writing and shall be deemed to have been
duly given when delivered or three (3) days after mailing by U.S. certified or
registered first-class mail, prepaid, and addressed to the other party at the
address set forth below the parties' signatures on this Agreement.
12.3 ASSIGNMENT. Reseller shall not assign any order or any interest therein
without the written consent of Tech Data. Any such actual or attempted
assignment without Tech Data's prior written consent shall entitle Tech Data to
cancel such order upon written notice to Reseller.
12.4 SEVERABILITY. A judicial determination that any provision hereunder is
invalid in whole or in part shall not affect the enforceability of any other
provisions of this Agreement.
12.5 ENTIRE AGREEMENT. The Terms and conditions contained in this Agreement and
Tech Data's standard terms and conditions of sale as stated on Tech Data's
invoice are the entire agreement between Tech Data and Reseller and supersede
any and all other terms and conditions of any other agreements between the
parties or any purchase orders submitted by Reseller. Not terms and conditions
of any purchase order or other document submitted by Reseller to Tech Data shall
be deemed to modify or amend the terms and conditions of this Agreement and the
standard terms and conditions unless Tech Data provides Reseller with a written
acceptance document signed by the Senior Vice President of Sales. Any changes or
modification to this Agreement shall be effective only if in writing and signed
by an authorized officer of both parties.
12.6 INDEPENDENT PARTIES. The parties agree that each operates as a business
independent of the other. Both parties agree that neither of them will hold
itself out to be the agent, partner or related party of the other.
Agreed as of the Effective Date.
Tech Data Corporation, a Florida
corporation ("Tech Data")
By: Michael J. Attuella By: /s/ ANTHONY ADAME
/s/ MICHAEL J. ATTUELLA
Its: V.P. OF SALES OPERATIONS Its: V.P. SALES
Date: 10/31/95 Date: 10/19/95
5350 Tech Data Drive 6401 Southwest Freeway
Clearwater, Florida 34620 Houston, Texas 77074
Attention: Sales Contract Administration
EXHIBIT "A"
CATEGORY A PRODUCTS
NEC CPUs, IBM CPUs and Monitors, AST, Zenith, Digital, TI CPUs, ZDS, Toshiba,
DEC CPUs and Compaq, Unisys and Apple*
CATEGORY B PRODUCTS
Hewlett Packard CPUs, ALR, Acer and Apple**
CATEGORY C PRODUCTS
All other Products currently being offered for sale by Tech Data and not
included in Category A or B above, as modified from time to time in its sole
discretion.
*Notes Tech Data named as primary source for Apple dealers.
**Notes Tech Data not primary source for Apple dealers. Notes all distributor
authorized VARs.
EXHIBIT "B"
(Purchase Price for Products)
<TABLE>
<CAPTION>
Annual Volume Levels Product Pricing
- ------------------------------- ----------------------------------------------------------
Category A* Category B* Category C
<S> <C> <C> <C>
$8,000,000 3.5% 4.0% Platinum
- ------------------------------- ---------------------------------------- -------------------
</TABLE>
* Percentages shown for Category A and Category B are percentage above Tech
Data's landed cost for the Products in those categories without regard to
supplier rebates or other funds available to Tech Data from Supplier, including
but not limited to funds based upon volume of purchase or sales or services
provided by Tech Data to the Supplier.
** REBATE: Tech Data will credit Purchaser a one percent (1%) quarterly
purchasing rebate based on total net purchases (purchases less returns) less
floorplan purchases when Tech Data incurs a financing fee, when and only when
Purchaser achieves $1,500,000 quarterly. Purchases made below contract pricing
and through flooplanning will count towards the volume goal but will not be
eligible for rebate.
*** Quarters for this Agreement shall mean Tech Data fiscal year quarters:
February-April "Q1", May-July "Q2", August-October "Q3" and November- January
"Q4".
EXHIBIT 10.19
COMPAQ COMPUTER CORPORATION 205555 SH 240
PO BOX 692000 HOUSTON, TX 77070-2690
HOUSTON, TX 77269-2000 TEL 713-370-0070
COMPAQ
August 6, 1996
Anthony Adame
c/o Allstar Systems
6401 Southwest Freeway
Houston, TX 77074
To Whom it May Concern:
As of August 6, 1996, Allstar Systems is and has been recognized by Compaq
Computer Corporation as a Compaq Authorized Reseller and Service Provider.
Allstar Systems currently operates two Compaq Authorized Reseller locations, one
in Houston, Texas (Compaq Dealer ID# D1557), and the other in Dallas, Texas
(D1557-1).
Please let this letter serve as official confirmation of Allstar Systems'
current Compaq Authorized Reseller status.
Thank you,
Compaq Computer Corporation
/s/ Chris Cooley
Christopher S. Cooley
Reseller Sales Manager
1
EXHIBIT 10.20
HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED SECOND TIER RESELLERS
SIGNATURE PAGE
ICN # 2582
LEGAL BUSINESS NAME ALLSTAR/VALCOM COMPUTER CENTER
ADDRESS 6401 SOUTHWEST FREEWAY
CITY, STATE, ZIP HOUSTON TX 77074
PHONE, FAX (713)795-2000
DBA(S)
THE DOCUMENTS BELOW GOVERN THE RELATIONSHIP BETWEEN HP AND YOU FOR PURCHASE AND
RESALE OF HP PRODUCTS.
AGREEMENT:
X U.S. Second Tier Reseller
ADDENDUM:
X U.S. Second Tier Reseller
AMENDMENT:
X U.S. DAVAR Sales
APPLICATION:
__ U.S. Networking Products QD Application
EXHIBITS:
__ EXHIBIT L Approved Locations
__ EXHIBIT STR Second Tier Reseller Products
1
STATEMENT OF OWNERSHIP:
Form of Organization: (i.e. Corporation, General Partnership, Limited
Partnership, Sole Proprietor): CORPORATION
For a Corporation, specify whether: Publicly Held: ____ Privately Held: _X_
State of Incorporation/Organization: TEXAS
Identify Company ownership and management structure as follows (attach
additional pages if necessary):
o Sole Proprietor: Identify all owners, officers and ownership percentages
held.
o Trust: Identify Trustees Administrators and Beneficiaries of Trust.
o Partnership: Identify all General Partners, Limited Partners, Officers and
ownership percentages held. Specify dollar investment of limited partners.
o Privately Held Corporation Identify all shareholders with class and
percentage ownership, Officers and Board of Director Members.
o Publicly Held Corporation Identify owners of 20% or more of each class of
shares with class and percentage ownership, Officers and Board of Director
Members.
NAMES TITLES OWNERSHIP INTEREST
Type of Ownership
Percentage Ownership Interest
(Dollar Investment in (Assets, Common or
Limited Partners) Preferred Shares)
JAMES H. LONG PRESIDENT 79% COMMON
- ------------- --------- ------- ---------
JACK B. COREY STOCKHOLDER 20% COMMON
- ------------- ----------- ------- ---------
ANTHONY ADAME V.P. - SALES 1% COMMON
- ------------- ------------ ------- ---------
If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:
- --------------------------------------------------------------------------------
Parent/Owner (including DBA's)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip Telephone
- --------------------------------------------------------------------------------
State of Parent/Owner's Incorporation Fax
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
2
/s/ JAMES H. LONG /s/ SUSAN WEATHERMAN
Authorized Signature Susan Weatherman
Reseller Contracts Manager
JAMES H. LONG_________________
Typed Name
PRESIDENT_____________________ 3-13-95 FEBRUARY 28, 1996
Title Effective Date Expiration Date
3
February 6, 1996
ALLSTAR SYSTEMS
6401 SOUTHWEST FREEWAY
HOUSTON TX 77074
Customer ICN: 2582
Dear Hewlett-Packard Second Tier Reseller,
This is to advise you that your Second Tier Reseller Agreement and Addendum are
being automatically extended until February 28, 1997. Your current agreement
number and ICN# will remain the same.
In HP's quest to simplify the contracting and negotiating process, your 1996 HP
Agreement and Addendum is based substantially on your 1995 Agreement and
Addendum. In Fact, the text of the 1995 Agreement, Addendum and Exhibit L as
negotiated between HP and you is carried forward and repeated in 1996, except
for those modifications indicated in this letter.
Included with this letter are the new companion documents which for a part of
your 1996 Agreement, the Product Acquisition and Resale Categories and Product
Lists.
AMENDMENTS TO YOUR U.S. SECOND TIER AGREEMENT:
SECTION 2.A.3
Status Change: Modify to read as follows:
"Undergo a merger, acquisition, consolidation or other reorganization with the
result that any entity controls 50% or more of Second Tier Reseller's capital
stock or assets after such transaction; or
SECTION 15
Second Tier Reseller Record Keeping: Modify to read as follows:
"HP or HP's designate will be given prompt access DURING NORMAL BUSINESS HOURS,
either on sight or through other means specified by HP to Second Tier Reseller's
customer records of account SPECIFICALLY RELATED TO HP PRODUCTS as HP believes
are reasonably necessary to verify and audit Second Tier Reseller's compliance
with this Agreement".
All other terms and conditions of your 1995 Agreement remain unchanged.
HEWLETT-PACKARD COMPANY
- --------------------------
Sue Weatherman
Reseller Contracts Manager
5
U.S. SECOND TIER RESELLER
TABLE OF CONTENTS
U.S. SECOND TIER RESELLER AGREEMENT
1. APPOINTMENT
2. STATUS CHANGE
3. INTENTIONALLY OMITTED
4. INTENTIONALLY OMITTED
5. INTENTIONALLY OMITTED
6. INTENTIONALLY OMITTED
7. PRICES
8. INTENTIONALLY OMITTED
9. INTENTIONALLY OMITTED
10. SOFTWARE
11. TRADEMARKS
12. WARRANTY
13. LIMITATION OF REMEDIES AND LIABILITY
14. INTELLECTUAL PROPERTY INDEMNITY
15. SECOND TIER RESELLER RECORDKEEPING
16. AMENDMENTS
17. TERMINATION OF AGREEMENT
18. RELATIONSHIP
19. POLICIES & PROGRAMS
20. GENERAL CONDITIONS
21. NOTICES
U.S. SECOND TIER RESELLER ADDENDUM
1. APPOINTMENT
3. SECOND TIER RESELLER RESPONSIBILITIES
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
23. DEFECTIVE UNITS AND CUSTOMER
SATISFACTION RETURNS
6
U.S. SECOND TIER RESELLER AGREEMENT
1. APPOINTMENT
Hewlett-Packard Company ("HP") appoints Second Tier Reseller as an
authorized, non-exclusive Second Tier Reseller for marketing the HP
Products listed on the Product Exhibits and purchased from the First
Tier Reseller of record. Second Tier Reseller's appointment is subject
to the terms of this U.S. Second Tier Reseller Agreement and the
associated Addenda, Product Exhibits and HP Product Acquisition and
Resale Categories ("Product Categories") (collectively, "Agreement") for
the period from the effective date through the expiration date of this
Agreement. Second Tier Reseller accepts appointment on these terms.
2. STATUS CHANGE
A. If Second Tier Reseller wishes to:
1. Change its name or that of any approved location;
2. Add, close or change an approved location;
3. Undergo a merger, acquisition, consolidation or other
reorganization with the result that any entity controls
50% or more of Second Tier Reseller's capital stock or
assets after such transaction; or
4. Undergo a significant change in control or management of
Second Tier Reseller operations;
then Second Tier Reseller shall notify HP in writing prior to the
intended date of change.
B. HP agrees to promptly notify Second Tier Reseller changes prior
to any obligation of HP to perform under this Agreement with
Second Tier Reseller as changed.
C. HP must approve proposed Second Tier Reseller changes prior to
any obligation of HP to perform under this Agreement with Second
Tier Reseller as changed.
7. PRICES
Upon request from Second Tier Reseller, at its discretion HP may grant
special pricing for particular end-user customer transaction. In good
faith, HP may retract the special pricing at any time before acceptance
by the end-user customer. HP may extend the pricing on an exclusive or
non-exclusive basis and may condition the pricing on a pass-through of
all or part of the non-standard offering extended by HP.
10. SOFTWARE
7
Second Tier Reseller is granted the right to distribute software
materials supplied by HP only in accordance with the license terms
supplied with these materials. Second Tier Reseller may alternatively
acquire the software materials from HP for its own demonstration
purposes in accordance with the terms for use in those license terms.
11. TRADEMARKS
A. From time to time, HP may authorize Second Tier Reseller to
display one or more designated HP trademarks. Second Tier
Reseller may display the trademarks solely to promote HP
Products. Any display of the trademarks must be in good taste,
in a manner that preserves their value as HP trademarks, and in
accordance with standards provided by HP for their display.
Second Tier Reseller will not use any name or symbol in a way
which may imply that Second Tier Reseller is an agency or branch
of HP; Second Tier Reseller will discontinue any such use of a
name or mark as requested by HP. Any rights or purported rights
in any HP trademarks acquired through Second Tier Reseller's use
belong solely to HP.
B. Second Tier Reseller grants HP the non-exclusive, royalty free
right to display Second Tier Reseller's trademarks in
advertising and promotional material solely for directing
prospective purchasers of HP Products to Second Tier Reseller's
Selling Locations. Any display of the trademarks must be in good
taste, in a manner that preserves their value as Second Tier
Reseller's trademarks, and in accordance with standards provided
by Second Tier Reseller for their display. Any rights or
purported rights in any Second Tier Reseller trademarks acquired
through HP's use belong solely to Second Tier Reseller.
12. WARRANTY
A. HP Product User Warranties are described on the Product Exhibits
and apply only to end-user purchasers of HP Products. HP
revisions to the User Warranties will be effective on the date
specified by HP. Copies of User Warranties will be supplied with
HP Products. Second Tier Reseller must provide a copy of the
associated User Warranty for an HP Product to each end-user
prior to sale.
B. HP Product Warranty begins upon purchase by the Reseller's
end-user customer and shall be verified by proof of acquisition
by the end-user or via HP's electronic warranty verification
system.
C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING
HP PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR
ORAL, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
D. Some HP Products may contain selected remanufactured parts
equivalent to new in performance.
13. LIMITATION OF REMEDIES AND LIABILITY
A. The remedies provided in this Agreement are Second Tier
Reseller's sole and exclusive remedies against HP.
8
B. HP will be liable for damage to tangible property, bodily injury
or death to the extent a court of competent jurisdiction
determines that an HP Product sold under this Agreement is
defective and has directly caused such damage, injury or death,
provided that HP's liability for damage to tangible property
will be limited to $300,000 per incident.
C. HP will be liable to Second Tier Reseller for any net credits
due from HP pursuant to the express provisions of this
Agreement. In no event will HP be liable for loss of data, for
indirect, special, incidental or consequential damages
(including lost profits) or for any other damages whether based
on contract, tort, or to other legal theory.
14. INTELLECTUAL PROPERTY INDEMNITY
A. HP will defend any claim against Second Tier Reseller that any
HP Product infringes a patent, utility model, industrial design,
copyright, mask work or trademark in the country where Second
Tier Reseller acquires or sells the Product from HP, provided
that Second Tier Reseller:
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants Hp sole authority to
control the defense and any related settlement.
HP will pay the cost of such defense or settlement and any costs
and damages finally awarded by a court against Second Tier
Reseller.
B. HP's indemnity shall extend to Second Tier Reseller's customers
and end- users under this Agreement provided they comply with
the obligations above.
C. HP may procure for Second Tier Reseller, its customers and
end-users the right to continued sale or use, as appropriate, of
the Product or HP may modify or replace the Product. If a court
enjoins the sale or use of the Product and HP determines that
none of the above alternatives is reasonably available, HP will
accept return of the Product and refund its depreciated value.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or
instructions of Second Tier Reseller;
2. Modification of the Product by Second Tier Reseller or a
third party;
3. Use of the Product in a way not specified by HP; or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability to Second Tier
Reseller and its customers and end-users for infringement.
9
15. SECOND TIER RESELLER RECORD-KEEPING
A. For contract compliance verification, product safety
information, operational problem correction and the like, Second
Tier Reseller must maintain records of customer purchases of
printers, faxes, plotters, scanners and computers for one year.
Records must include customer name, address, phone number,
ship-to address, serial number and date of sale of the above
products. HP may require monthly reporting incorporating the
previous month's data for each approved location.
B. HP may require Second Tier Reseller to provide HP or HP's
designate with Hp Product inventory and sales data including,
but not limited to, information such as total units of selected
HP Products sold and held in all inventory by month for each
approved location, in a format specified by HP. HP may require
monthly reporting incorporating the previous month's data for
each approved location.
C. In addition, Second Tier Reseller must comply with any reporting
requirements for HP programs.
D. At HP's discretion and upon notice to Second Tier Reseller, HP
or HP's designate will be given prompt access during normal
business hours, either on site or through other means specified
by HP, to Second Tier Reseller's customer records, inventory
records and other books and records of account of HP Products as
Hp believes are reasonably necessary to verify and audit Second
Tier Reseller's compliance with this Agreement.
E. Failure to promptly comply with HP's request will be considered
a repudiation of this Agreement justifying HP's termination of
this Agreement on 15 days' notice without further cause.
F. HP may recover all reasonable actual costs associated with
compliance verification procedures from Second Tier Reseller's
Advantage Program Funds, rebate funds or any other Hp accrued
funds due Second Tier Reseller by HP.
G. HP may debit First Tier Reseller and/or Second Tier Reseller for
all wrongfully claimed discounts, rebates, promotional
allowances or other amounts determined as a result of HP's
audit.
16. AMENDMENTS
A. From time to time, HP may add products to or delete them from
the Product Exhibits, or implement or change Hp policies or
programs, at HP's discretion after reasonable notice to Second
Tier Reseller.
Additionally, HP may give Second Tier Reseller written
notice of any other amendment to this Agreement upon at least 30
days' advance notice.
B. Any amendment will automatically become a part of this Agreement
on the effective date specified in the notice.
10
C. Each party agrees that the other has made no commitments
regarding the duration or renewal of this Agreement beyond those
expressly stated in this Agreement.
17. TERMINATION OF AGREEMENT
A. Either party may terminate this Agreement without cause at any
time upon 30 days' written notice or with cause at any time upon
15 days' written notice to the other party.
B. This Agreement shall terminate immediately if Second Tier
Reseller ceases to have a buying relationship with First Tier
Reseller or if First Tier Reseller undergoes any of the types of
status changes described in Section 2 of this Agreement which
are not approved by HP.
C. This Agreement shall terminate immediately if HP's Agreement
with First Tier Reseller terminates.
D. Upon termination or expiration of this Agreement for any reason,
Second Tier Reseller will immediately cease to be an authorized
HP Reseller and will refrain from representing itself as such
and from using any HP trademark or trade name.
E. Upon any termination or expiration, either party may require
that HP purchase and Second Tier Reseller sell to HP any HP
Products sold to Second Tier Reseller by First Tier Reseller
under this Agreement that are on HP's then current Product
Exhibits and which are in their unopened, original packaging and
marketable as new merchandise. Hp will pay Second Tier Reseller
the lower of HP's then current not First Tier Reseller price or
First Tier Reseller's original purchase price less any
promotional or other discounts or credit extended to First Tier
Reseller for the Product, whichever is lower. Second Tier
Reseller should contact its HP sales representative for
information about the items eligible for repurchase and
instructions for their return at HP's expense.
F. Upon termination of this Agreement or expiration without renewal
all rights to any accrued Advantage Program or other promotional
funds will automatically lapse.
G. The indemnities provided in this Agreement will survive
termination or expiration of this Agreement.
18. RELATIONSHIP
A. Second Tier Reseller's relationship to HP will be that of an
independent contractor. Second Tier Reseller and HP agree that
this Agreement does not establish a franchise, joint venture or
partnership. Hp shall not be deemed a party to any agreement
between First Tier Reseller and Second Tier Reseller.
B. Unless expressly authorized by Hp in writing in advance, any
commitment made by Second Tier Reseller to its customers with
respect to price, quantities, delivery, specification,
warranties, modification, interfacing capability or suitability
will
11
be Second Tier Reseller's sole responsibility, and Second Tier
Reseller will indemnify HP from liability for any such
commitment by Second Tier Reseller.
C. List prices are suggested prices for resale to end use
customers. Second Tier Reseller has the right to determine its
own resale prices, and no HP representative will require that
any particular resale price be charged by Second Tier Reseller
or grant or withhold any treatment to Second Tier Reseller based
on Second Tier Reseller's resale pricing policies. Second Tier
Reseller agrees that it will promptly report any effort by HP
personnel to interfere with its pricing policies directly to an
HP officer of manager.
D. This Agreement applies only to the HP Products listed on the
Product Exhibits (U.S. versions only). Second Tier Reseller
acknowledges that Hp may market other products, including
products in competition with those listed on the Product
Exhibits without making them available to Second Tier Reseller.
HP reserves the right to advertise, promote and sell any
product, including HP Products on the Product Exhibits, in
competition with Second Tier Reseller.
E. Nothing contained in this Agreement shall prevent a Second Tier
Reseller from purchasing individually, on its own credit and
account directly from HP should it elect to do so, but nothing
shall obligate HP to sell directly to Second Tier Reseller or
any DAVAR.
19. POLICIES & PROGRAMS
From time to time, HP may offer or change HP policies and
programs, such as but not limited to the Advantage Program and
Premier Support program, participation in which will be on the
current terms and conditions of the policies & programs.
20. GENERAL CONDITIONS
A. Neither party may assign any rights or obligation in this
Agreement without the prior written consent of the other party.
Any attempted assignment will be deemed void.
B. Neither party's failure to enforce any provision of this
Agreement will be deemed a waiver of that provision or of the
right to enforce it in the future.
C. This Agreement, including the attached Addenda, associated
Product Exhibits and Product Categories contains the entire
understanding between the parties relating to its subject
matter. HP hereby hives notice of objection to any additional or
inconsistent terms set forth in any purchase order or other
document issued by Second Tier Reseller. Except as provided in
paragraphs 16A and 16B of this Agreement, no modification of
this Agreement will be binding on either party unless made in
writing and signed by both parties.
D. No U.S. Government procurement regulations will be deemed
included in this Agreement or binding on either party unless
specifically accepted in writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of
California.
12
F. If any clause of this Agreement is held invalid, the remainder
of the Agreement will continue unaffected.
21. NOTICES
All notices and demands issued under the terms of this Agreement
shall be in writing, delivered by fax, personal service, first
class mail postage prepaid or by registered mail to a location
set forth in this Agreement or to HP at 5301 Stevens Creek
Boulevard, P.O. Box 58059, Santa Clara, California 95052-8059 or
to the assigned local HP Sales Representative.
13
U.S. SECOND TIER RESELLER ADDENDUM
1. APPOINTMENT
HP appoints Reseller as a Second Tier Reseller.
3. SECOND TIER RESELLER RESPONSIBILITIES
A. Second Tier Reseller will advertise, promote and sell HP
Products only through the company name(s) and approved
Selling Locations listed on Exhibit L and only to
end-users or to resellers as permitted in the Product
Categories.
B. Second Tier Reseller agrees to:
1. Advertise, promote, demonstrate and sell HP
Products on a face-to-face basis and provide
pre-sales support and post-sales technical
support to all customers.
2. Maintain at each approved Selling Location, a
facility in which HP Products are displayed or
demonstrated on a regular basis to end-user
customers.
3. Use catalogs and telemarketing sales techniques
only in conformity with current Hp policies and
only as a complement to face-to- face sales
activity unless nationwide advertising for the
HP Product is permitted in the Product
Categories.
4. Ensure that no sale, advertising, promotion,
display or disclosure of any features,
availability or price of any new HP product
takes place before HP's public announcement of
that Product.
5. Identify and Keep current a primary and
secondary support contact for both marketing
communications and post-sales technical support
at each approved Selling Location.
6. Report promptly to Hp all suspected defects in
HP Products.
7. Assist its customers in obtaining warranty
repairs for HP Products by either referring the
customer to HP or an approved Hp repair
provider, or returning the HP Product to HP. If
the Second Tier Reseller elects to provide
warranty repair services to its customers, the
Second Tier Reseller will comply with the terms
and conditions outlined in the HP Premier
Support Program Guide.
8. Ensure that its employees complete any required
training courses and certification programs
designated by HP.
C. Without HP's prior written consent, Second Tier Reseller
will not export HP Products to any customer outside the
U.S., nor will Second Tier Reseller sell HP Products for
export outside the U.S.
14
D. Except for sales to resellers as permitted in the
Product Categories, Second Tier Reseller may not sell HP
Products to or buy them from other Resellers for stock
balancing or any other reason.
9. ORDERS; SHIPMENTS' CANCELLATIONS AND CHANGES
A. Minimum resale shipments for 12 months from each selling
location are $100,000 of HP Products measured by First
Tier Reseller's net price from HP.
B. As of 5 months after the effective date of this
Addendum, minimum resale shipments for each selling
location are $35,000.
C. Second Tier Reseller's approved locations are listed on
Exhibit L. All Second Tier Reseller's sales, advertising
and promotional activities for HP Products must be
conducted from approved Selling Locations. Second Tier
Reseller must own more than 50% of its business at each
approved location.
23. DEFECTIVE UNITS AND CUSTOMER SATISFACTION RETURNS
A. Second Tier Reseller must return all defective and
customer satisfaction Products through First Tier
Reseller.
15
HP PRODUCT ACQUISITION AND RESALE CATEGORIES
HP Manufactures and distributes a large number of personal computer and
peripheral products to multiple market places through a varied set of first and
second tier resellers and retailers.
This diversity leads to a broad set of sourcing and distribution rules
designed to best allow HP resellers of all types to reach targeted
customers of each HP Product in the most efficient and profitable
manner.
The Product Categories below describe restrictions HP places on
resellers selling to customers in the United States. In particular, the
Product Categories describe the restrictions HP places on HP Product
sourcing and resale for both First Tier Resellers and Distributors on
the one hand and Second Tier Reseller and direct buying Resellers on the
other hand.
FIRST TIER RESELLER/DISTRIBUTOR PRODUCT CATEGORIES
Presented from controlled to open forms of distribution, HP Products on the
Product Exhibits may be sourced and distributed ONLY as indicated below:
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE RESALE CUSTOMERS
Q QD PRODUCTS
Purchased from HP To HP authorized QD Resellers.
W SINGLE SOURCED
Purchased from HP To those HP authorized Resellers who
have elected you as their sole
Distributor (and to your HP
authorized Second Tier Reseller if
you are a First Tier Reseller).
X MULTI-SOURCE
Purchased from HP Can be sold to any HP authorized
DVAR or CAD/Specialty VAR.
Otherwise, these products can be
sold only to resellers for which
Distributor is specifically
authorized.
Y LIMITED RESELLER SALES
Purchased from HP To any reseller whether or not
authorized by HP, except for
membership/warehouse clubs, military
base PX's and HP Campus Resellers
and educational institutions
Z UNLIMITED RESELLER SALES
Purchased from HP Purchased from HP To any reseller
whether or not authorized by HP.
O OPEN
Purchased from Hp or To any U.S. Customer (reseller or
any Reseller end-user).
16
SECOND TIER RESELLERS, DEALERS, VARS, RETAILERS, MASS MERCHANDISER, ETC.
Presented from controlled to open forms of distribution, HP Products on the
Product Exhibits may be sourced and distributed ONLY as indicated below:
PRODUCT CATEGORY PERMISSIBLE SOURCE PERMISSIBLE RESALE CUSTOMERS
C CONTROLLED
HP, your elected Sole End-user customers within your
Distributor or your MTA. Reseller may not sell, rent
First Tier Reseller or lease Controlled Products to
rental companies or leasing com-
panies for their subsequent rental
or lease.
B UNLIMITED END USER SALES
HP, your elected Sole End-user customers nationwide.
Distributor or your
First Tier Reseller
A MULTI-SOURCED
HP or any HP authorized End-user customers nationwide.
Distributor or First
Tier Reseller
Q QD PRODUCTS
HP or any HP authorized End-user customers nationwide.
Distributor or First Reseller may not sell, rent or lease
Tier Reseller QD Products to rental companies or
leasing companies for their sub-
sequent rental or lease.
O OPEN
HP or any reseller End-user customers resellers
nationwide.
DIFFERENTIATED PRODUCT POLICY
Differentiated Products:
Hewlett-Packard has designed and introduced a number of products which are
intended to be sold exclusively in certain but not all channels. Some products
are currently designated as either Retail Exclusive or Commercial Exclusive
products. Additional restrictions apply to these two product categories and are
defined as follows:
Retail Exclusive:
Products designated as Retail Exclusive are authorized to be sold by the
Reseller only by an inbound sales force through face-to-face sales
efforts. Retail Exclusive products must be sold in retail stores only.
Outbound catalog and telemarketing sales techniques are permitted only
as a complement to face-to-face sales activity, unless nationwide
advertising for the HP Product is permitted in the Product Categories.
Retail Exclusive products are not permitted to be sold through either
the Reseller's outbound sales force or through outbound sales activities
to commercial accounts.
17
Commercial Exclusive:
Products designated as Commercial Exclusive are authorized to be sold by
the Reseller only through its outbound sales force or outbound sales
activities to commercial accounts. These products are not permitted to
be sold through the Reseller's retail stores.
Differentiated HP Products will be classified at the time of product
announcement to the Reseller. HP will provide Reseller with current Retail
Exclusive and Commercial Exclusive Product Lists as differentiated products are
introduced or obsoleted through the contract year.
EXPLANATION OF TERMS USED
MTA
For Hp Products with MTA restrictions, the following provisions apply:
MTAs are Major Trading Areas (as defined by Rand McNally's Commercial Atlas and
Marketing Guide) in which your approved Selling Locations are situated. If an
approved Selling Location is situated within 30 miles of the boundary of an
adjoining Major Trading Area, the trading area for that Selling Location will
also encompass the adjoining Major Trading Area.
1. Advertising, promotion, telemarketing, selling and catalog distribution
for HP Products is limited exclusively to your Major Trading Areas. You
may advertise nationwide if you have approved Selling Locations in 40 or
more Major Trading Areas.
2. You must either ship to customer addresses within your Major Trading
Area or invoice customers within the Major Trading Area, except you may
sell HP Products to:
a. Any U.S. post-secondary educational institutions, and
b. The State Government of the State in which your approved Selling
Location is situated, but only if you provide dedicated on-line
support personnel for such sales and face-to-face support if
needed for any customer problems, regardless of the customer's
location.
NON-MTA ADVERTISING RESTRICTION
1. Advertising for non-MTA Products may not mention any HP Products for
which MTA Restrictions apply; and
2. Advertising for non-MTA Products may not mention that you are an
authorized reseller (Dealer, Retailer, Second Tier Reseller, etc.) for
any HP Product for which MTA restrictions apply.
MEMBERSHIP/WAREHOUSE CLUBS
1. Membership Warehouse Clubs such as Price/Costco, Sams/Pace, and Smart
and Final are generally characterized by the following profile:
a. Sometimes require customers to acquire a membership in order to
buy from any of their locations.
18
b. Sell primarily to small businesses / home office end-users,
rather than other resellers.
c. Maintain Selling Locations of approximately 100,000 square feet
or greater.
d. Offer an SKU base of 3,500 or more.
e. Inventory product on the sales floor, usually stacked or stored
near their respective categories.
f. Provide a diversified product offering including food, general
merchandise and consumer products such as tires, clothing, and
sporting goods.
g. Change merchandise mix often.
HP CAMPUS RESELLER
An HP Campus Reseller is a reseller authorized by the HP Campus Reseller Program
to resell HP personal computing products to eligible students, faculty, staff
and dependents. An HP Campus Reseller is typically an on-campus bookstore
technology center serving that campus' academic community.
MILITARY BASE PX'S (MBPX)
A military Base PX is a reseller authorized by HP to resell HP personal
computing products to active duty personnel, retirees, reservists and their
dependents. Military PX's are typically on a military reservation serving that
reservation's military community. THERE ARE NO MTA RESTRICTIONS ASSOCIATED WITH
PRODUCTS SOLD BY MILITARY BASE PX'S.
EDUCATIONAL INSTITUTIONS
Educational Institutions are non-profit, tax exempt, public or private, full
time schools, colleges or universities. Their primary purpose is to provide
instruction to an enrolled student body through a full time faculty that leads
to the granting of a degree diploma or certificate and are accredited by the
State Board of Education.
19
EXHIBIT 10.21
ASSOCIATE AGREEMENT
WHEREAS, NEC AMERICA, INC. ("NECAM"), with offices at 1555 Walnut Hill Lane,
Irving, Texas 75038, and ALLSTAR SYSTEMS, ("ASSOCIATE") with offices at 6401 S.
W. FREEWAY, HOUSTON, TX 77074, desire to enter into an agreement to govern the
purchase and sale of telecommunications products,
NOW, THEREFORE, in consideration of the mutual promises contained herein, NECAM
and ASSOCIATE agree as follows:
GENERAL TERMS & CONDITIONS APPLICABLE TO ALL PRODUCTS
AND SERVICES
1. PRODUCTS; SERVICES; TERRITORY; DISCOUNT
(a) "PRODUCTS" and "SERVICES" as used herein shall mean products and services
listed in the PRODUCTS and SERVICES Appendices attached hereto and made a part
of this AGREEMENT. The "PRODUCTS" shall be limited to the versions of hardware
and software for the products specified in such PRODUCTS Appendices.
Notwithstanding anything contained herein to the contrary, NECAM may refuse to
accept orders from ASSOCIATE for PRODUCTS which are the subject of such
Appendices herein unless and until ASSOCIATE can demonstrate to NECAM's
reasonable satisfaction that ASSOCIATE shall be able to provide installation,
maintenance and support services to Associate's customers for such PRODUCTS in
accordance with NECAM's standards, either by utilizing its own employees who
have successfully completed applicable NECAM training as provided herein, or by
utilizing the services of third parties who are authorized and certified by
NECAM (or a combination of both).
(b) Proprietary models of the PRODUCTS developed by NECAM and/or its affiliates
for third parties shall not be subject to sale to ASSOCIATE pursuant to this
agreement. As used herein, the term "proprietary" shall mean models of the
products developed by NECAM and/or its affiliates, based upon unique and/or
special design or cosmetic specifications.
(c) In its sole discretion, NECAM may add additional types or enhanced versions
of PRODUCTS or SERVICES to the scope of this AGREEMENT.
(d) NECAM reserves the right to:
(1) discontinue the manufacture or distribution of particular models
of various types of PRODUCTS, or
1
(2) change or modify specifications, features, models, housings,
and/or other aspects of PRODUCTS
upon written notice to ASSOCIATE.
(e) TERRITORY means the geographic area designated in each PRODUCT Appendix.
(f) DISCOUNT means the discount designated in the applicable PRODUCT
Appendix.
2. AGREEMENT TO SUPPLY
(a) NECAM hereby appoints the ASSOCIATE as an NEC America, Inc., ASSOCIATE to
sell and otherwise distribute PRODUCTS to end-user customers and to provide
installation, repair, maintenance, training and related services solely in the
TERRITORY designated on the applicable PRODUCT Appendix. The ASSOCIATE agrees to
aggressively promote the sale and distribution of PRODUCTS within the TERRITORY
in accordance with the minimum purchase requirements which may be set forth in
applicable PRODUCT Appendices. The ASSOCIATE further agrees to provide
first-class installation, maintenance, repair and related services for such
PRODUCTS as set forth herein in accordance with highest industry standards.
(b) When ordering PRODUCTS, ASSOCIATE shall fill out and include with such of
its orders as NECAM may designate, a Customer Software License, Exhibit C, or
such other form, such as NEC Leasing Services Product Appendix, Exhibit B, as
NECAM, in its sole discretion, shall require.
(c) ASSOCIATE shall not sell, distribute, install or maintain PRODUCTS outside
of the TERRITORY defined in the applicable PRODUCTS Appendices without the prior
written consent of NECAM.
3. PURCHASE ORDERS; ORDER ACCEPTANCE; CREDIT
(a) Each purchase order submitted by ASSOCIATE shall specify model types and
quantities and shall specify accessories and options or supplies (if
applicable). In addition, such orders shall include:
(1) A description of the ordered PRODUCTS, inclusive of any
numerical/alphabetical identification referenced in NECAM's
respective brochures, manuals or publications regarding such
PRODUCTS.
2
(2) The requested delivery date.
(3) The applicable price (reflecting any applicable discount).
(4) The location to which such PRODUCTS are to be shipped.
(5) A Customer Software License or such other form as may be
required pursuant to Section 2 (b) herein.
(6) If ordering PRODUCTS intended to be subject to government
contract provisions, the conspicuous notice required by Section
29 (b) of this AGREEMENT.
(b) NECAM may accept Purchase Orders by electronic data exchange provided the
ASSOCIATE agrees in writing to the attached Electronic Data Interchange
Agreement, Exhibit A.
(c) The terms and conditions of this AGREEMENT shall apply to all orders placed
by ASSOCIATE for PRODUCTS described herein. In the event of conflict between the
terms or conditions of this AGREEMENT and terms or conditions which may appear
on the face or reverse side of the ASSOCIATE's orders from or NECAM's
acknowledgment form, including but not limited to price or discount terms or
conditions, the terms and conditions of this AGREEMENT shall control. NECAM
hereby expressly rejects any additional terms or conditions contained in
ASSOCIATE's order form, regardless of any language contained in ASSOCIATE's
order form stating that NECAM's acceptance of the order constitutes NECAM's
acceptance of the inclusion of such additional terms or conditions. If this
AGREEMENT is silent as to a particular subject, ASSOCIATE hereby agrees that the
terms and conditions which appear on the reverse side of NECAM's acknowledgment
shall control over the terms and conditions which appear in the ASSOCIATE's
order form.
(d) Orders for PRODUCTS shall be considered accepted upon acknowledgment by
NECAM; PROVIDED, HOWEVER, that
(1) NECAM may revoke or alter its acknowledgment and acceptance at
any time within five (5) days after NECAM's acknowledgment, or
(2) NECAM may withhold shipment of PRODUCTS to ASSOCIATE at any
time,
3
if ASSOCIATE has failed to make timely payment for any previous NECAM invoice
for PRODUCTS or SERVICES.
(e) Nothing in this AGREEMENT shall be deemed to have established, or have
prevented the establishment of, suitable credit arrangements between NECAM and
ASSOCIATE. Such credit arrangements and/or limitations shall be as reasonable
determined by NECAM from time to time, in its sole discretion.
4. PAYMENT; SERVICE CHARGES FOR PAYMENT DELINQUENCY
(a) Payment for PRODUCTS and SERVICES is due sixty (60) days from date of
invoice.
(b) Payments received by NECAM after their due dates will be subject to a
monthly service charge, which service charge will accrue against the sum of all
late payments for such month, plus outstanding amounts due from previous months
(if applicable). The rate at which the service charge will be computed will be:
(1) 2% above the Chase Manhattan Bank preferred lending rate in
existence as of the close of business on the last day of the
month for which NECAM's statement is rendered, compounded
monthly, or
(2) the highest interest rate permitted by applicable law, whichever
is less.
(c) Any payment by the ASSOCIATE which is less than
(1) the sum of all amounts owed by ASSOCIATE to NECAM for the
purchase of PRODUCTS and SERVICES, plus
(2) the total of all outstanding service charges may be applied by
NECAM within its sole discretion, to ASSOCIATE's account
chronologically, by invoice date. For each such invoice, payment
may be applied first to the relevant service charge and then to
the principal amount of the invoice itself, regardless of
contrary instructions received from the ASSOCIATE. Service
charges are due and payable upon NECAM's issuance of a service
charge invoice.
4
(d) In addition to NECAM's remedy concerning late payment(s) provided in Section
4(b), NECAM may withhold or delay shipment(s) of the ASSOCIATE's order(s) for
PRODUCTS and SERVICES until any payment owed by the ASSOCIATE to NECAM which is
overdue is made in full.
5. SECURITY AGREEMENT
(a) In order to secure payment of ASSOCIATE's payment obligations under this
AGREEMENT, ASSOCIATE grants to NECAM a security interest in the following:
(1) the PRODUCTS which ASSOCIATE purchases from NECAM,
(2) the proceeds of the sale, lease, installation, servicing, repair
or maintenance of all such PRODUCTS (including, but not limited
to, the related accounts)
(3) contract rights related to the sale or lease of any of the
PRODUCTS, and
(4) the list of all customers to whom ASSOCIATE has sold or leased
NEC PRODUCTS or provided related installation, servicing, repair
or maintenance services.
(b) If ASSOCIATE defaults in its payment obligations to NECAM, NECAM may, in its
discretion, declare all such payment obligations immediately due and payable,
and in such event NECAM shall have all the rights and remedies of a secured
party under the UCC.
(c) Also, in such event, ASSOCIATE shall cooperate fully with NECAM's exercise
of its rights under this Security Agreement, including but not limited to the
turnover of all information required by NECAM to enforce its security interests
hereunder, including all accounts receivable and customer records, and the
notification of customers directing that payments on accounts receivable be sent
directly to NECAM or its designee.
(d) ASSOCIATE agrees to promptly sign and return to NECAM all documents which
are deemed by NECAM to be necessary or prudent to perfect or otherwise protect
the priority, validity and continuity of the security interest granted by
ASSOCIATE to NECAM in Section 5(a). Such documents may include (but not
necessarily be limited to) an appropriate UCC-1 form. In the event ASSOCIATE
fails to execute such document(s), then, to the extent permitted by law, NECAM
may file such documents without obtaining
5
ASSOCIATE's signature, as ASSOCIATE's attorney-in-fact (but only for this
limited purpose).
6. TERM
(a) This AGREEMENT will commence on the date signed by an authorized
representatives of NECAM, and will continue until June 30, 1997 unless
terminated in accordance with the provisions of this AGREEMENT.
(b) This AGREEMENT shall automatically renew each year, for an additional one
(1) year period, after the original term, unless written notice of nonrenewal is
provided by either party at least thirty (30) days prior to the anniversary
date. The discounts applicable to the PRODUCTS listed on the Appendices shall be
adjusted effective on the renewal date based on the discount schedules set forth
on such Appendices.
(c) NECAM reserves the right to revise the terms of this Agreement, including
but not limited to product listings or the minimum purchase requirements on the
PRODUCTS Appendices or to redefine the TERRITORY designated therein effective
upon such renewal by providing written notice of such deletion, revision or
redefinition at least thirty (30) days prior to the anniversary date.
7. PRICES; PRICE CHANGES
(a) Prices for PRODUCTS and/or SERVICES to which discounts shall apply (if such
discounts are applicable, as provided for herein) shall be as published and/or
quoted by NECAM.
(b) NECAM shall be entitled to change prices for PRODUCTS or SERVICES upon
thirty (30) days prior written notice to ASSOCIATE, PROVIDED, HOWEVER, that such
price changes shall not be applicable to PRODUCTS or SERVICES for which a
written price quotation had been issued prior to the date of NECAM's notice of
such price change, and such written quotation offered to maintain the quoted
price available for a time period longer than the time period between the date
of NECAM's notice of price change and the effective date of such price change.
8. TRANSPORTATION
NECAM shall ship from NECAM's facility capable of supplying ASSOCIATE
via the best way as arranged by NECAM, unless otherwise instructed by ASSOCIATE.
6
Transportation charges shall be prepaid by NECAM and added to the invoice to be
paid by ASSOCIATE as a separate item.
9. INSPECTION AND ACCEPTANCE
(a) All PRODUCTS ordered pursuant to this AGREEMENT shall be subject to
inspection by ASSOCIATE after delivery to determine their conformity with the
identification of material set forth in ASSOCIATE's purchase order. If the
PRODUCTS delivered are not listed on such purchase order, ASSOCIATE shall have
the right to reject such PRODUCTS. ASSOCIATE shall have a period of twenty (20)
days following placement of the PRODUCTS within possession of the carrier within
which to inspect the PRODUCTS for conformity with ASSOCIATE's purchase order and
to provide NECAM with written notice of acceptance or rejection. Unless such
written rejection is communicated to NECAM within such time period, ASSOCIATE
shall be deemed to have accepted the PRODUCTS. In the event written notice of
rejection is given, NECAM will promptly undertake to remedy the delivery in a
manner deemed by NECAM to be appropriate under the circumstances. No PRODUCTS
may be returned to NECAM without its consent.
(b) Loss or damage to PRODUCTS which occurred during delivery of PRODUCTS shall
not be a permissible basis upon which to reject PRODUCTS' the provisions of
Section 11, "F.O.B., & RISK OF LOSS" shall be applicable.
(c) Defects in PRODUCTS shall not be a permissible basis upon which to reject
PRODUCTS; ASSOCIATE shall invoke the provisions of the applicable "WARRANTY"
section herein to remedy such defects.
10. SHIPPING AND BILLING
For Orders placed hereunder, NECAM shall:
(1) At the ASSOCIATE's direction, ship to the ASSOCIATE's warehouse or to the
Customer's address specified on the Customer Software License or such other form
as may be required under Section 2(b).
(2) Remit invoices, statements and notices to the address designated in Section
34 unless advised otherwise agreed to by NECAM.
11. F.O.B.; TITLE & RISK OF LOSS
7
(a) Shipments of all products sold to ASSOCIATE hereunder shall be made F.O.B.
NECAM's warehouse(s) or F.O.B. Port of entry, whichever is applicable in
accordance with NECAM's prevailing policies for various types of PRODUCTS.
(b) Title to PRODUCTS and risk of loss or damage to PRODUCTS shall pass to
ASSOCIATE when PRODUCTS are placed in the possession of the carrier at the
respective F.O.B. points of shipment. ASSOCIATE shall be responsible for
assertion of claims against carriers for loss or damage to PRODUCTS; such loss
or damage will not relieve ASSOCIATE of its obligation to pay NECAM for the
PRODUCTS.
12. SHIPPING INTERVAL
(a) Lead times for delivery of PRODUCTS applicable to each Order will be
determined by system size and specific configurations required, and typical lead
times shall be quoted by NECAM upon ASSOCIATE's request.
(b) No firm delivery date for PRODUCTS shall be binding upon NECAM unless such
date is explicitly agreed to in a writing signed by an officer or authorized
representative of NECAM.
13. ASSOCIATE'S SERVICES
(a) NECAM's appointment of ASSOCIATE was and will continue to be predicated upon
ASSOCIATE's commitment to provide installation, maintenance, repair and customer
training services in accordance with highest industry standards. As a minimum
requirement to meet the above commitment, ASSOCIATE agrees to:
1) Maintain an adequate number of service centers in the TERRITORY
as reasonably determined by NECAM, equipped with adequate
numbers and types of spare parts, technical and engineering
manuals, product brochures and other similar items relating to
PRODUCTS; keep NECAM notified of the locations(s) of such
service center(s), and permit NECAM to inspect such location(s),
without advance notice, during normal business hours.
2) Staff such service center with engineering and repair personnel
sufficient in number and skill, and provide them with the means
to be able to reach by ground transportation any place within
the TERRITORY to perform prompt repair services for PRODUCTS
within a period of two (2) hours of receipt of a telephone call
from a customer requesting such repair service.
8
3) Permit NECAM personnel to inspect the quality of the ASSOCIATE's
installation, maintenance and repair services on the site of any
installed PRODUCT during normal business hours. The ASSOCIATE
agrees to use its best efforts to secure the customer's consent
for NECAM personnel to visit the installation site, when such
consent is required.
4) Offer full maintenance services for PRODUCTS to all of the
ASSOCIATE's customers.
5) Offer appropriate customer training services for PRODUCTS sold
or otherwise distributed by the ASSOCIATE to all of the
ASSOCIATE's customers. Such customer training shall include
training in the use of PRODUCTS and is the sole responsibility
of the ASSOCIATE.
6) From time to time, as reasonably requested by NECAM, cause an
appropriate number of the ASSOCIATE's personnel to attend
training sessions conducted by NECAM, concerning PRODUCTS in
accordance with Section 14. NECAM reserves the right to
establish criteria, including but not limited to successful
completion of such training sessions for the issuance of
Technician Identification Numbers identifying those employees of
ASSOCIATE who are certified with respect to particular products.
No employee of ASSOCIATE shall install, maintain or service
PRODUCTS until such employee is certified by NECAM with respect
to the particular PRODUCT. Technical support will be provided by
NECAM only to those ASSOCIATE employees possessing valid
Technician Identification Numbers. Technician identification
Numbers will be suspended or terminated immediately upon the
termination of said technician's employment with the ASSOCIATE
or upon termination or non-renewal of this AGREEMENT.
7) Conduct business in a manner that reflects favorably at all
times on the Products and the good name, goodwill and reputation
of NECAM; (ii) avoid deceptive, misleading or unethical
practices that are or might be detrimental to NECAM, the
Products, end-users or the public, including but not limited to
disparagement of NECAM or Products; (iii) make no false or
misleading representations with regard to NECAM or the Products;
(iv) not publish or employ or cooperate in the publication or
employment of any misleading or deceptive advertising material
and; (v) to make no representations, warranties or guarantees to
customers or to the trade with respect to the specifications,
features or capabilities of Products that are inconsistent with
the literature distributed by NECAM, including all warranties
and disclaimers contained in such literature, if any.
9
8) In order to support the above commitment, ASSOCIATE agrees to
comply with other reasonable requests by NECAM from time to time
which are designed to promote ASSOCIATE's adherence to the
highest industry standards. Failure of the ASSOCIATE to comply
with any of the requirements of this Section shall subject the
ASSOCIATE to possible termination under Section 16, and shall
entitle NECAM to immediately invoke one or more of the remedies
set forth in Section 6 (c).
14. TRAINING
NECAM may make available to ASSOCIATE training courses for ASSOCIATE's
personnel in marketing, installation, operation and maintenance according to
published schedules. Non-refundable registration fees, training fees, and
training materials fees (if applicable) will be charged at NECAM's prevailing
rates. No discounts shall apply to such rates. ASSOCIATE shall bear the cost of
transportation, meals, lodging and any other incidental expenses of ASSOCIATE's
personnel to, from and during such training. If mutually agreed upon by NECAM
and ASSOCIATE, training may be held at an off-site location (i.e., not at
NECAM's headquarters facility) designated by ASSOCIATE. In such a case, in
addition to the above mentioned charges, ASSOCIATE shall bear the cost of
transportation, meals and lodging for NECAM's instructor(s) as well as all costs
and expenses incurred in the handling and transportation of necessary
demonstration equipment.
15. REPORTS
(a) In order to assist NECAM in its efforts to monitor ASSOCIATE's performance
hereunder, ASSOCIATE will, as may be required by NECAM:
1) Meet with NECAM's representative at the ASSOCIATE's principal place
of business, as frequently as may be reasonably required by NECAM, for a
review of the market conditions in the TERRITORY and ASSOCIATE's
performance under this AGREEMENT, including its achievement of
applicable PRODUCT purchases. Purchases of PRODUCTS for resale outside
the TERRITORY are not permitted without NECAM's prior written consent
and shall not be considered in adjusting ASSOCIATE's discount pursuant
to Section 6(b).
2) Submit to NECAM on a quarterly basis an estimate of the ASSOCIATE's
PRODUCT needs for the next two succeeding quarters in the form required
by NECAM.
3) Submit to NECAM on or before the twentieth (20th) business day
following the end of each quarter, a written report in the form required
by NECAM stating the
10
ASSOCIATE's sales of PRODUCTS within the TERRITORY during the preceding
calendar quarter and the ASSOCIATE's stocks on hand of PRODUCTS as of
the last day of the preceding quarter.
4) Submit to NECAM audited copies (or unaudited copies, if the
ASSOCIATE's financial statements are not audited) of the ASSOCIATE's
latest financial statements within sixty (60) days following the end of
the ASSOCIATE's fiscal year, and if financial statements are also
prepared quarterly on an unaudited basis, also such unaudited quarterly
statements, within sixty (60) days following the end of each calendar
quarter or sooner if requested by NECAM.
5) Submit to NECAM on a quarterly basis a list of all current employees
certified by NECAM to perform installation, maintenance and repair
services for each of the PRODUCTS listed on the PRODUCT Appendices.
16. TERMINATION
(a) This AGREEMENT may be terminated, in full or in part, effective immediately,
without liability for said termination, upon the occurrence of any of the
following events:
1) a party files a voluntary petition in bankruptcy,
2) a party is adjudged a bankrupt,
3) a court assumes jurisdiction of the assets of a party under a federal
reorganization act,
4) a trustee or receiver is appointed by a court for all or a
substantial portion of the assets of a party,
5) a party becomes insolvent or suspends its business,
6) a party makes an assignment of its assets for the benefit of its
creditors except for the company's line of credit from its lender in the
normal course of business,
7) the identity of a party or the nature of its business is materially
changed by bulk transfer of assets, sale of its business, transfer of
control of its outstanding stock, merger, or otherwise,
11
8) ASSOCIATE fails to make payment for any NECAM invoice for PRODUCTS
within thirty (30) days of the due date for payment of such invoice,
9) any other AGREEMENT between ASSOCIATE and NECAM terminates or
expires, pursuant to the terms and conditions of such agreement,
10) ASSOCIATE breaches any of the terms and conditions of Section 36
governing the use of NECAM's trade names or trademarks,
11) ASSOCIATE sells PRODUCTS to any other resellers (including but not
limited to NECAM Distributors),
12) ASSOCIATE sells, installs, maintains or services PRODUCTS outside of
its authorized territory, without NECAM's prior written consent, or
13) ASSOCIATE subcontracts without NECAM's prior written consent to an
entity other than Authorized ASSOCIATE,
14) ASSOCIATE assigns any of its rights or responsibilities hereunder
except as permitted herein or with NECAM's prior written consent, or
15) ASSOCIATE breaches the terms of Section 13(a)(7).
(b) The entire AGREEMENT or portions thereof relating to specific types of
PRODUCTS may be terminated by NECAM, in the event that:
(1) ASSOCIATE fails to provide any purchasing forecast required by
Section 15 of this AGREEMENT relating to such specific type or PRODUCTS,
or
(2) ASSOCIATE knowingly provides false information on a "Customer
Software License", or
(3) ASSOCIATE fails to provide installation, maintenance, repair and
support services in accordance with NECAM's and industry standards for
such specific type of PRODUCTS.
(c) In the event of any default or failure on the part of a party in the
performance of any of its duties, obligations or responsibilities under this
AGREEMENT, the non-defaulting party may terminate this AGREEMENT, provided that
with respect to defaults susceptible
12
of immediate cure, the defaulting party had been given fifteen (15) days' prior
written notice of the default and failed to cure the default within such fifteen
(15) day period.
(d) Except in those cases where ASSOCIATE has been terminated because of a
breach of its obligations under Section 13, NECAM may complete any order for
PRODUCTS accepted by NECAM prior to termination and will accept and complete any
order for PRODUCTS where ASSOCIATE, prior to the effective date of termination,
has entered into a binding contract for the resale of such PRODUCTS to an
end-user. Notwithstanding the foregoing, NECAM may condition acceptance and
completion of such orders on reasonable conditions which NECAM may impose,
including but not limited to prior payment in full for these and any other
previous orders, proof of a binding contract with an end-user customer, and/or
subcontracting of service obligations to an Authorized ASSOCIATE.
(e) Upon any termination of this AGREEMENT, the parties shall have all of the
remedies of a seller and buyer under the applicable UCC, to the extent such
remedies have not been limited or otherwise modified by this AGREEMENT.
(f) ASSOCIATE will not be entitled to compensation for loss of its ASSOCIATE
appointment if termination was accomplished in accordance with the termination
or nonrenewal provisions of this AGREEMENT, or was otherwise legally justified.
17. CANCELLATION OF PURCHASE ORDERS; REVOCATION OF
ACKNOWLEDGMENTS
(a) In the event that NECAM shall fail to deliver material within ten (10) days
of a firm delivery date established pursuant to Section 12 (b), then ASSOCIATE
shall have the right to cancel such Order.
(b) In the event that ASSOCIATE shall be in material breach or default of any
terms, conditions or covenants of this AGREEMENT (including, but not limited to,
timely payment for PRODUCTS purchased), then (in addition to all other rights
and remedies contained herein, or at law, equity or otherwise) NECAM shall have
the right to suspend delivery of PRODUCTS on all outstanding Orders, or revoke
its acknowledgment of any such Order.
18. NON-EXCLUSIVE MARKET RIGHTS
(a) NECAM reserves its right to:
(1) directly or through its subsidiaries, affiliates, agents or any other type
of distribution entity market, sell, license or distribute any type of
telecommunications products whether
13
or not listed in the PRODUCTS Appendices or provide installation, repair,
maintenance and related SERVICES for any such telecommunications products,
wherever NECAM deems necessary or appropriate.
(2) directly, or through its subsidiaries, affiliates, agents or any other type
of distribution entity distribute, install, license and/or maintain (directly or
indirectly) any such telecommunications products,
(3) utilize the customer identification information contained on the Customer
Software License or such other form as NECAM shall require, to conduct surveys
or perform other marketing functions, as NECAM deems necessary or appropriate.
19. INFRINGEMENT
(a) NECAM represents and warrants to the ASSOCIATE that no patent, copyright,
trade secret, trademark, trade name or other proprietary right has been or will
be infringed by reason of the manufacture, purchase, sale, delivery, or use of
PRODUCTS which are manufactured by NECAM or its affiliates.
(b) If such infringement is alleged, has occurred or does occur, NECAM shall
defend ASSOCIATE against any and all claims arising from such allegations of
findings of infringement, except where such infringement or alleged infringement
arises by reason of designs for such PRODUCTS originally furnished to NECAM by
ASSOCIATE, and shall, at its expense and sole decision, as the sole remedy to
which ASSOCIATE shall be entitled
1) procure for the ASSOCIATE the right to use such PRODUCTS, or
2) replace such PRODUCTS with comparable, non-infringing
business telephone product, or
3) modify such PRODUCTS as to be non-infringing, or
4) accept the return of the PRODUCTS and refund to the ASSOCIATE
the ASSOCIATE's cost of such PRODUCTS.
20. HARDWARE WARRANTY
(a) As to any hardware PRODUCTS purchased by the ASSOCIATE in accordance with
the terms of this AGREEMENT, NECAM warrants that the hardware PRODUCTS:
14
(1) will conform to the applicable specifications for such hardware PRODUCTS
published by NECAM at the time of sale, and
(2) will be free from defects in material and workmanship, under normal use and
service when correctly installed and maintained, for a period of fourteen (14)
months from date of shipment to ASSOCIATE. NECAM reserves the right to modify
such warranty period on written notice to ASSOCIATE.
(b) NECAM's liability for any hardware PRODUCT which is shown to be defective
during its warranty is limited to:
(1) replacing the hardware PRODUCT or part thereof with a functionally
equivalent hardware PRODUCT or part,
(2) repairing the hardware PRODUCT, or
(3) issuing credit for the hardware PRODUCT
(c) NECAM shall select which of the above warranty remedies to utilize
concerning any particular hardware PRODUCT.
(d) In the event that any hardware PRODUCT is shown to be defective during the
warranty period, the ASSOCIATE, or such Authorized ASSOCIATE as may be providing
service to the end-user to whom such PRODUCT has been sold or leased, shall:
(1) notify NECAM promptly in writing of any claims,
(2) provide NECAM with an opportunity to inspect and test the hardware PRODUCTS
claimed to be defective, and
(3) if repair or replacement of the hardware PRODUCT is selected by NECAM,
return the hardware PRODUCT to NECAM only in accordance with NECAM's prevailing
Material Return Authorization ("MRA") policy and procedures, which are
incorporated herein by reference and are subject to change by NECAM from time to
time.
(e) The above warranty excludes coverage for hardware PRODUCTS which were
installed, repaired or maintained by an unauthorized service provider or which
were subjected to misuses, abuse, improper installation or application, improper
maintenance or repair, alteration, accident or negligence in use, improper
temperature, humidity or other
15
environmental condition (including, but not limited to, lightning or water
damage), storage, transportation or handling, unless caused by NECAM or its
authorized representative.
(f) NECAM's hardware PRODUCTS warranty extends only to ASSOCIATE and ASSOCIATE
is not authorized to assign this warranty to its customers or to any other
party. Rather, the ASSOCIATE agrees to extend a hardware PRODUCTS warranty to
its end-user customers which is no greater in substance and scope than that
extended by NECAM to ASSOCIATE, and which shall incorporate the warranty
exclusions and liability limitations provided in Sections 20 (e), 20 (h) and 30.
(g) All hardware PRODUCTS warranty claims must be forwarded to NECAM by an
Authorized ASSOCIATE. NECAM will accept no hardware PRODUCTS warranty claims
from former ASSOCIATES whose ASSOCIATE AGREEMENTS have expired or been
terminated, or directly from ASSOCIATE's customers.
(h) THE HARDWARE PRODUCTS WARRANTY CONTAINED IN THIS AGREEMENT IS IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING (BUT NOT LIMITED TO) ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, INCLUDING BUT
NOT LIMITED TO PREVENTION, DETECTION OR DETERRENCE OF TOLL FRAUD, COMPUTER
VIRUSES OR OTHER UNAUTHORIZED OR IMPROPER USE OF THE HARDWARE PRODUCTS.
21. SOFTWARE LICENSE AND SOFTWARE WARRANTY
(a) As to any software PRODUCTS licensed to the ASSOCIATE in accordance with the
terms of this AGREEMENT, NECAM warrants that the software PRODUCTS:
(1) will conform to the published specifications for such software PRODUCTS,
applicable at the time of licensing and
(2) will be free from defects in material and workmanship, under normal use and
service when correctly installed and maintained, for fourteen (14) months from
date of shipment to ASSOCIATE. NECAM reserves the right to modify such warranty
period on written notice to ASSOCIATE.
(b) NECAM's liability for any software PRODUCT which is shown to be defective
during its warranty period is limited to:
16
(1) replacing the PRODUCT or part thereof with a functionally equivalent
software PRODUCT or part,
(2) repairing the PRODUCT, or
(3) issuing credit for the software PRODUCT
The choice of which of the above warranty remedies to utilize concerning any
particular software PRODUCT shall be NECAM's.
(c) In the event that any software PRODUCT is shown to be defective during the
warranty period, the ASSOCIATE or such authorized ASSOCIATE as may be providing
service to the end-user to whom such software PRODUCT has been licensed shall:
(1) notify NECAM promptly in writing of any claims,
(2) proved NECAM with an opportunity to inspect and test the software PRODUCTS
claimed to be defective, and
(3) (if repair or replacement of the software PRODUCTS is selected by NECAM)
return the software PRODUCTS to NECAM only in accordance with NECAM's prevailing
Material Return authorization policy and procedures, which are incorporated
herein by reference and are subject to change by NECAM from time to time.
(d) Unless caused by NECAM or its authorized third party representatives, the
above warranty excludes coverage for software PRODUCTS which were installed,
repaired or maintained by an unauthorized service provider or which were
subjected to misuse, abuse, improper installation or application, improper
maintenance or repair, alteration, accident or negligence in use, improper
temperature, humidity or other environmental condition (including, but not
limited to, lightning or water damage), storage, transportation or handling.
(e) Except as otherwise provided in writing, NECAM's software PRODUCTS warranty
extends only to ASSOCIATE and ASSOCIATE is not authorized to assign this
warranty to its customers. Rather, the ASSOCIATE agrees to extend a software
PRODUCTS warranty to its customers which is no greater in substance and scope
than that extended by NECAM to ASSOCIATE, and which shall incorporate the
warranty exclusions and liability limitations provided in Section 21(d), 21(g)
and 30. NECAM shall not be liable for software PRODUCTS warranty terms extended
by the ASSOCIATE to its customers which are different from or greater than those
set forth above.
17
(f) Except as otherwise provided in writing, all software PRODUCTS warranty
claims must be forwarded to NECAM by an Authorized ASSOCIATE. NECAM will accept
no software PRODUCTS warranty claims from former ASSOCIATES whose ASSOCIATE
AGREEMENTS have expired or been terminated or directly from ASSOCIATE's
customers.
(g) THE SOFTWARE PRODUCTS WARRANTY CONTAINED IN THIS AGREEMENT IS IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING (BUT NOT LIMITED TO) ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, INCLUDING BUT
NOT LIMITED TO PREVENTION, DETECTION OR DETERRENCE OF TOLL FRAUD, COMPUTER
VIRUSES OR OTHER UNAUTHORIZED OR IMPROPER USE OF THE SOFTWARE PRODUCTS.
(h) NECAM hereby grants to ASSOCIATE a non-exclusive license in the following
rights in software PRODUCTS, which licensed rights may be exercised by ASSOCIATE
only when related to the resale by ASSOCIATE within the TERRITORY or otherwise
with NECAM's consent of related hardware PRODUCTS purchased directly from NECAM:
(1) the rights to distribute the software PRODUCTS,
(2) the right to use the software PRODUCTS for demonstration, testing,
installation, maintenance and repair of related hardware PRODUCTS,
(3) the right to reproduce and preserve, for back-up purposes only, one (1) copy
of each software PRODUCTS acquired by ASSOCIATE from NECAM, and
(4) the right to grant sublicenses to end-users for the following rights only:
(i) the right of the end-user to use the software PRODUCTS, but only in
conduction with related hardware PRODUCTS sold by an authorized ASSOCIATE to the
end-user,
(ii) the right of the end-user to make one (1) copy of the software
PRODUCTS for archival/back-up purposes,
(iii) the right of the end-user to transfer the end-user's software
PRODUCTS rights to a third party who acquires title to the end-user's related
hardware PRODUCTS, provided such transferee assents in writing to the conditions
and limitations of the sublicense and pays any applicable transfer fee.
18
(i) The above license may be exercised by ASSOCIATE with respect to specific
software PRODUCTS only upon payment by ASSOCIATE OF ANY APPLICABLE LICENSING
FEE.
(j) NECAM reserves all other rights, title and interest to the software
PRODUCTS, and neither ASSOCIATE nor its end-user customers shall acquire any
rights, title or interest in the software PRODUCTS other than a specifically set
forth in this Section.
(k) ASSOCIATE AND ASSOCIATE's customers may not:
(1) sublicense or distribute the software PRODUCTS except as authorized by this
Section, or
(2) reverse compile, disassemble, alter, add to, delete from, or otherwise
modify the software PRODUCTS, Except to the extent that such modification
capability is an intended feature of the software PRODUCTS.
(l) ASSOCIATE agrees to notify NECAM promptly in the event any of ASSOCIATE's
end-user customers violates the conditions of its sublicense.
(m) ASSOCIATE hereby agrees to execute (and secure end-users' execution of ) any
additional documents relating to software PRODUCTS as reasonable required by
NECAM from time to time, to protect the respective rights, title and licensing
interest of NECAM or third parties to the software PRODUCTS. ASSOCIATE agrees to
utilize standard sublicensing forms, if provided by NECAM, for the purpose of
licensing or sublicensing software PRODUCTS to its end-user customers.
(n) ASSOCIATE's license shall continue in effect unless terminated by NECAM due
to:
(1) a breach by the ASSOCIATE of the terms of this Section,
(2) mutual agreement, or
(3) termination or expiration of this AGREEMENT,
provided, however, that termination of such licenses shall not act to rescind
sublicenses granted by the ASSOCIATE in accordance with the terms of this
AGREEMENT prior to termination of the ASSOCIATE's license.
19
(o) ASSOCIATE agrees to use best efforts to protect software PRODUCTS from
reproduction, modification or distribution except as specifically authorized by
this AGREEMENT and to notify NECAM promptly if the ASSOCIATE learns of any
attempt to do so.
THE SOFTWARE LICENSE PROVISIONS CONTAINED IN THIS SECTION APPLY ONLY TO SOFTWARE
OWNED BY NECAM OR ITS AFFILIATES. IN THE EVENT THAT NECAM PROVIDES SOFTWARE
OWNED (IN WHOLE OR IN PART) BY A THIRD PARTY, NECAM MAY BE REQUIRED TO OBTAIN
ASSOCIATE'S ASSENT TO DIFFERING OR ADDITIONAL TERMS AND CONDITIONS IN ORDER TO
LAWFULLY GRANT A LICENSE TO ASSOCIATE FOR SUCH SOFTWARE. THEREFORE, NECAM
RESERVES THE RIGHT TO WITHHOLD PROVISION OF SUCH SOFTWARE UNTIL ASSOCIATE'S
ASSENT IS OBTAINED.
22. REPAIR OR REPLACEMENT OF PRODUCTS NOT COVERED UNDER WARRANTY
(a) NECAM agrees, at its option, to repair PRODUCTS no longer under warranty, or
to replace such PRODUCTS with functionally equivalent PRODUCTS, for a period of
no less than five (5) years after such PRODUCT has been
manufacturer-discontinued. PRODUCTS to be repaired or replaced under this
Section are to be returned by an authorized ASSOCIATE to a location designated
by NECAM.
(b) If a PRODUCT is returned to NECAM for repair as provided in this Section,
and is determined to be beyond repair, NECAM may, at its option (i) return such
PRODUCT to the ASSOCIATE at ASSOCIATE's expense or (ii) offer to sell to
ASSOCIATE replacement PRODUCTS at NECAM's then current prices.
(c) Replacement and repaired PRODUCTS shall be warranted as set forth in Section
20. The repaired PRODUCT hardware warranty period shall be six (6) months from
the date of repair, or such other period as NECAM may specify in writing.
(d) All transportation charges for, and risk of in-transit loss or damage to,
out-of- warranty PRODUCTS returned to NECAM for repair will be borne by
ASSOCIATE. All transportation charges associated with the return of such
repaired and replaced PRODUCTS to ASSOCIATE shall be borne by ASSOCIATE and
shall be prepaid by NECAM and listed as a separate item on NECAM's invoice for
repair. ASSOCIATE shall bear the risk of in- transit loss and damage for
shipments of repaired or replaced.
20
(e) Prices for out-of-warranty repairs made pursuant hereto shall be NECAM's
prevailing charges. Discounts do not apply to such repair charges.
(f) ASSOCIATE hereby agrees to comply with NECAM's Material Return Authorization
("MRA") procedures, as may be amended by NECAM from time to time.
23. TECHNICAL SUPPORT
(a) ASSOCIATE shall be entitled to ongoing technical support, including field
service and assistance, provided, however, that the availability or performance
of this technical support service shall not be construed as altering or
affecting NECAM's warranty obligations as set forth in this AGREEMENT.
(b) Ongoing technical support via telephone will be available to ASSOCIATE from
NECAM at NECAM's then current charges. NECAM's field service technical support
shall be available to ASSOCIATE, including emergency (service effecting)
twenty-four (24) hour technical assistance as determined by NECAM. Such field
service technical support shall be subject to availability of NECAM's technical
support personnel. Charges, if any, for such field service technical support
will be NECAM's then prevailing charges. No discounts shall apply to such
charges.
24. DOCUMENTATION
From time to time, NECAM may make available to ASSOCIATE various types of
documentation. Certain types of documentation may be made available to ASSOCIATE
via electronic media. charges, if any, for documentation will be NECAM's
prevailing charges.
25. ADVERTISING AND PROMOTION
Under the provisions of NECAM's applicable cooperative Advertising
program, ASSOCIATE may be eligible to accrue funds in an account to be used for
advertising, media and/or promotion efforts utilized to promote the sale of
PRODUCTS. These funds will be made available based upon the terms and conditions
of NECAM's Cooperative Advertising program, as may be amended from time to time,
the provisions of which are hereby incorporated by reference as if fully set
forth herein.
26. FORCE MAJEURE
NECAM shall not be responsible for any losses resulting if the
fulfillment by NECAM of any terms or provisions of this AGREEMENT or any order
is delayed or
21
prevented by revolution or other disorders, war, acts of enemies, strikes,
fires, floods, transpiration delays or shortages, labor disputes, riots,
insurrections, accidents, storms, inability to obtain materials or supplies,
excessive demand for PRODUCTS over the available supply, customs duties or
surcharges, any interruption for any reason in the manufacture of PRODUCTS by
NECAM's suppliers, and act of God, the action of any government, or other cause
not within NECAM's control, whether of the class of causes set forth above or
not.
27. ASSIGNMENT
(a) Except as otherwise provided herein, the rights and obligations of the
parties hereunder shall not be assigned, subcontracted, delegated or otherwise
transferred without the prior written consent of the other party, PROVIDED THAT
NECAM may assign or delegate its rights and obligations hereunder, in whole or
in part, to its parent or subsidiary upon prior written notice to the ASSOCIATE.
(b) The limitation on assignment does not apply to an assignment confined solely
to monies due or to become due under this AGREEMENT, provided ASSOCIATE or NECAM
is given thirty (30) calendar days prior written notice of such assignment.
Assignment of monies shall be void to the extent that it attempts to impose upon
ASSOCIATE or NECAM obligations to the assignee additional to the payment of such
monies, or to preclude ASSOCIATE or NECAM from dealing solely and directly with
the other in all matters pertaining hereto, including negotiation of amendments
or settlement of amounts due.
28. TAX
Prices for PRODUCTS are exclusive of the following taxes, which shall be
added by NECAM to its invoice and payable by ASSOCIATE, unless ASSOCIATE
provides proof to NECAM of a valid exemption from the applicability of such
tax(es): Federal Manufacturers' and Retailers' Excise Taxes, State and Local
Sales Taxes, and/or Use Taxes.
29. GOVERNMENT CONTRACT
(a) The parties hereby acknowledge that NECAM typically has not sold certain
types of PRODUCTS which are included within the scope of the AGREEMENT for
resale under government contracts. Accordingly, notwithstanding any other
provision(s) of this AGREEMENT, and without incurring any liability to ASSOCIATE
or third party, NECAM hereby reserves the right to reject any ASSOCIATE Order
for PRODUCTS to which government contract provisions will apply.
22
(b) In the event that ASSOCIATE orders PRODUCTS to which Government contract
provisions are intended to apply, ASSOCIATE'S order must conspicuously state
such fact on its face, for the purpose of notifying NECAM and permitting NECAM
the opportunity to consider whether to accept or reject such order. If such
order fails to have such fact conspicuously stated on its face, then
(notwithstanding Section 3 (a)(6) or any other provision of this AGREEMENT)
NECAM shall be AUTOMATICALLY deemed to have rejected such order, and any
acknowledgment which NECAM may have issued for such order shall be deemed void
and of no effect.
(c) If the software PRODUCTS will be supplied to a unit or agency of the United
States government by ASSOCIATE, pursuant to a contract in which the United
States government is paying to have any type of custom development or
customization work performed which the software PRODUCT is a part, then
ASSOCIATE agrees to ensure that:
(1) if the software PRODUCT is supplied to the Department of Defense
(DoD), the government will agree, in writing, that the software PRODUCT
will be classified as "Commercial Computer Software" and that the
government is acquiring only "restricted rights" in the software PRODUCT
as the term is defined in Clause 252.227-7013 (c) (1) DFARS, and
(2) if the software PRODUCT is supplied to any unit or agency of the
United States government other than DoD, the government agrees, in
writing, that the government's rights in the software PRODUCT will be as
defined in Clause 52.227- 19 (c) (2) of the FAR.
30. LIMITATION OF LIABILITY
NECAM's liability for PRODUCT malfunction shall be limited to performing
one of the remedies under the hardware or software PRODUCT warranties, provided
that the malfunctioning PRODUCT is covered by the applicable warranty. NECAM and
ASSOCIATE hereby agree that if such limitation is declared invalid by a court of
competent jurisdiction, then NECAM's liability shall be limited solely to a U.S.
dollar amount equal to the cost of the malfunctioning PRODUCT to the ASSOCIATE.
THESE REMEDIES SHALL BE EXCLUSIVE AND SHALL BE THE ASSOCIATE'S SOLE REMEDIES
AGAINST NECAM OR ANY OF ITS AFFILIATES FOR PRODUCT MALFUNCTION.
IN NO EVENT SHALL NECAM BE LIABLE FOR CONSEQUENTIAL, SPECIAL, INCIDENTAL OR
SIMILAR DAMAGES, SUCH AS (BUT NOT LIMITED TO) "DOWNTIME", EXCESS COSTS OR LOST
BUSINESS REVENUES RESULTING FROM NECAM'S BREACH OF ANY OF THE PROVISIONS OF THIS
23
AGREEMENT, NECAM'S TORTIOUS CONDUCT IN OR RELATED TO THE PERFORMANCE OF ITS
OBLIGATIONS HEREUNDER, A PRODUCT MALFUNCTION OR FROM UNAUTHORIZED OR IMPROPER
USE OF PRODUCTS INCLUDING BUT NOT LIMITED TO TOLL FRAUD OR COMPUTER VIRUSES.
31. LIMITATION OF TIME CONCERNING CAUSES OF ACTION
Any cause of action based upon an alleged breach of this AGREEMENT or
otherwise related to the parties' rights, obligations and/or performance
therunder must be commenced within one (1) year of the accrual of the cause of
action.
32. CHOICE OF LAW; JURY WAIVER
The construction, interpretation and performance of this AGREEMENT shall
be governed by and construed in accordance with the domestic laws of the State
of New York.
Each of the parties waives trial by jury and the right to trial by jury in any
and all actions or proceedings in any court between them or to which they may be
parties, whether arising out of, under or by reason of this AGREEMENT, or any
acts or transactions, hereunder to the interpretation or validity thereof, or
under, or by reason of any other contract, agreement, loan, or transaction of,
any kind between them, or to which they may be parties, of any kind, nature, or
description whatsoever.
33. SEVERABILITY
If any of the provisions of this AGREEMENT shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire AGREEMENT, but rather the entire AGREEMENT shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of NECAM and ASSOCIATE
shall be construed and enforced accordingly.
34. NOTICES
All communications and notices required by or relating to this AGREEMENT
shall be deemed to have been duly given upon receipt in writing by the addressee
directed to the attention of the individuals signing this agreement at the
address specified in the preamble hereto.
24
The addresses to which notices or communications may be given by either
party may be changed by written notice given by such party to the other pursuant
to this Section.
35. LICENSES
Except as specifically set forth herein, or unless otherwise expressly
agreed in writing, no licenses, expressed or implied, under any patents,
copyright, trade names or trade secrets are granted by one party to the other.
36. TRADEMARKS
(a) Other than as set forth below, ASSOCIATE acquired no right, title or
interest in any trademark, tradename or other intellectual property right of
NECAM or its affiliates.
(b) So long as this AGREEMENT remains in effect, ASSOCIATE may use the trade
names and trademarks specified by NECAM on a non-exclusive basis for advertising
and promotion of the PRODUCTS consistent with reasonable guidelines established
by NECAM.
(c) ASSOCIATE shall not remove any trade name or trademark of NECAM or its
affiliates from any PRODUCT without NECAM's prior express written consent.
37. NON-WAIVER
No course of dealing or failure of either party to strictly enforce any term,
right or conditions of this AGREEMENT shall be construed as a waiver of such
term, right or condition.
38. SURVIVAL OF OBLIGATIONS
The respective parties' obligations under this AGREEMENT which by their
nature would continue beyond the termination, cancellation or expiration of the
AGREEMENT, shall survive such termination, cancellation or expiration of this
AGREEMENT.
39. SHORTAGES
NECAM will endeavor to fully satisfy ASSOCIATE's specific requirements
for respective types of PRODUCTS at all times, and to ship Orders which NECAM
has accepted within customary respective shipment time periods. However, in the
event of PRODUCTS shortage(s), NECAM reserves the right to allocate the supply
of, and/or assign priorities to the shipment of, NECAM's then-available stock of
such PRODUCTS based upon all of the
25
circumstances and NECAM's assessment of the respective order requirements and
respective shipping date requirements of all purchasers of PRODUCTS.
40. LIMITATION OF AUTHORITY
It is expressly understood that this AGREEMENT does not give ASSOCIATE
any right or authority to act for or represent NECAM or its affiliates or to
pledge their credit or contract any liability whatsoever on their behalf. It is
understood that this AGREEMENT does not confer upon ASSOCIATE any authority to
warrant any PRODUCTS sold hereunder, or to make any adjustments on NECAM's
behalf in connection with PRODUCTS without NECAM's express consent.
41. ENTIRE AGREEMENT
This AGREEMENT constitutes the entire understanding between NECAM and
the ASSOCIATE and replaces and supersedes any prior agreements between NECAM and
the ASSOCIATE, and/or any prior agreements between either of them and the
other's predecessor(s) concerning any of the subject matters contained herein.
In the event of any conflict between the "General Terms & Conditions Applicable
to All Products" and the terms and conditions set forth in a Product Appendix,
the terms and conditions of such product Appendix shall control.
This AGREEMENT may not be changed, modified or amended except as
provided for herein or by an instrument in writing signed by both NECAM and the
ASSOCIATE.
WHEREFORE, the parties hereto have executed this AGREEMENT through their
authorized representative.
NEC AMERICA, INC.
By: /s/ DOUG WONSON
Name: DOUGLAS P. WONSON
Title: ASSISTANT G. M. & SALES V.P.
Date: 5/23/96
26
EXHIBIT 10.22
MITEL (R) ELITE DEALER AGREEMENT
INTRODUCTION. This Mitel Elite Dealer Agreement (which together with all
Schedules attached hereto, is hereinafter referred to as the "Agreement")
entered into this day of , 199 , by and between MITEL, INC., a Delaware
Corporation, which its corporate headquarters located at 205 Van Buren Street,
Suite 400, Herndon, Virginia 22070-5536 (hereinafter referred to as "Mitel")
and, a (corporation, partnership, sole proprietorship), with its principal place
of business located at (herein- after referred to as "Elite Dealer").
PURPOSE CLAUSE. Mitel is continually engaged in the research and development of
state of the art telecommunications customer premises equipment (CPE) as well as
computer telephony equipment (CTI), and it desires to appoint certain quality
dealerships to market, sell, install, and maintain certain of its leading edge
products in a way that meets Mitel's highest standards in order to enhance the
goodwill of the Mitel name and product lines in the industry.
NOW THEREFORE, in consideration of the mutual covenants flowing by and between
the parties hereto, the parties, intending to bound, hereby agree, in writing,
as follows:
1. APPOINTMENT OF MITEL ELITE DEALER.
a) Mitel hereby appoints Elite Dealer to market, sell, lease, install, and
maintain the CPE and CTI telecommunications equipment and systems listed on
Schedule A (hereinafter "Schedule A Products") attached hereto and incorporated
by reference herein, subject to the terms and conditions of this Agreement.
b) Elite Dealer also shall have the right to market, sell, lease, install,
and maintain Mitel's other CPE and CTI telecommunications products (hereinafter
"other Mitel products") sold through Mitel Authorized Wholesalers, and Elite
Dealer agrees that purchases of those other Mitel products (not listed on
Schedule A), as well as remanufactured Mitel product purchases, also shall be
governed by this Agreement to the extent of Elite Dealer's obligations to Mitel
as listed in Paragraphs 5, 6, 7, and 8 hereinbelow.
c) Elite Dealer agrees to sell Schedule A Product and other Mitel products
only to end-user customers for installation and use in the United States of
America ("U.S.") as further limited hereinbelow; likewise, Elite Dealer agrees
not to export Schedule A Product and other Mitel products from the U.S. or sell
(or transship) to wholesalers or other dealers (Elite Dealers, Mitel Dealers or
otherwise) of such telecommunications equipment and systems without the prior
express written consent of a Corporate Officer of Mitel.
d) This appointment by Mitel is non-exclusive, and Mitel expressly
reserves the right, in its reasonable discretion, to appoint other Elite Dealers
and/or Mitel Dealers, as well as to sell direct, as it sees fit, from time to
time hereafter. Mitel also reserves the right, in its reasonable discretion, to
hereafter develop new channels of distribution through which certain CTI
products may be best sold (e.g., Mitel is in the process of developing two such
channels which are currently contemplated to be named Enterprise Elite Dealers
and Mitel Alliance program Dealers). Access to such channels will be based on
meeting certain standards as set by Mitel from time to time in its reasonable
discretion.
e) Elite Dealer agrees to use its best efforts to ethically promote the
marketing, sale, installation, service, and maintenance of all Mitel products in
its assigned territory.
2. TERM. This Agreement shall commence upon execution and expire on March 31,
1997, unless Mitel shall mail notice of renewal to Elite Dealer on or before
March 1, 1997 in which event the Agreement shall expire on March 31, 1998. This
Agreement also may be terminated in accordance with the provisions of paragraph
number 14 entitled "Termination" found hereinbelow. Unless otherwise stated
herein, "year end" or "fiscal year end" shall be March 31st and a number of
"days" shall be considered as calendar days.
3. TERRITORY.
a) Elite Dealer's Primary Area of Responsibility (hereinafter "PAR") for
the distribution and support of Schedule A Products shall be as listed on
1
Schedule B attached to and made a part of this Agreement. Elite Dealer's PAR
includes one or more designated geographical area(s) (hereinafter "PAR
Group[s]") and Metropolitan Statistical Areas as defined by the U.S. Department
of Commerce within PAR Group(s) (hereinafter "PAR Segment[s]"). Mitel may
authorize, in its reasonable discretion, distribution of Schedule A Products by
Elite Dealer outside of Elite Dealer's PAR on a case by case basis. Elite Dealer
is required to obtain prior written permission from Mitel, however, before
attempting to make such a sale of Mitel, however, before attempting to make such
a sale of Mitel product outside its PAR, and Elite Dealer must assure Mitel that
the proposed sale will be installed, supported and maintained in strict
accordance with Mitel standards and in conjunction with, if reasonably
necessary, an authorized Mitel Elite Dealer or Mitel subsidiary operating in the
area where the product is to be installed and maintained.
b) Elite Dealer agrees not to market, sell or install Schedule A Products
outside of the territorial limits of Elite Dealer's PAR except as authorized by
Mitel. In the event of unauthorized sales outside of the PAR, said sales do not
count towards Elite Dealer's Minimum Purchase Requirement or Sales Performance
Target, as hereinafter defined. Mitel may declare a default or material breach
under this Agreement if Elite Dealer disregards the requirements in a) and b) of
this paragraph.
c) Elite Dealer understands and agrees that Mitel may, in its reasonable
discretion, appoint other Elite Dealers within the Elite Dealer's PAR (to
overlap same in whole or in part) and also may, in its discretion, sell direct
(including through its subsidiaries, its National Account Program, its Mitel
Government Systems division including "set-aside" sales with Mitel Dealer who
qualify (e.g., SBA/8A program or otherwise within an Elite Dealer's PAR. Elite
Dealer understands and agrees that Mitel may, among other factors, consider the
overall potential for Mitel sales in an PAR or grouping of PARs and whether or
not Elite Dealers, jointly or severally, are achieving their Sales Performance
Targets in determining the appropriate number of Elite Dealers to have in a
particular PAR or grouping of PARs. Mitel may also, in its reasonable
discretion, appoint Mitel Dealers within the territorial boundaries of such PAR
as well as other CTI oriented dealers (see paragraph 1.d) above).
4. MITEL'S OBLIGATIONS TO ELITE
DEALER.
a) MATERIALS/DOCUMENTATION. Mitel agrees to provide Elite Dealer with a
reasonable number of copies of instructions concerning ordering procedures,
installation and technical manuals, customer training, and promotional material
related to Mitel's Schedule A Products at Mitel's then current price. Mitel
hereby grants Elite Dealer the right to reproduce written materials provided by
Mitel even if said written materials are copyrighted, but Elite Dealer agrees to
comply with Mitel's written copyright specifications and only to use such
reproduced materials for a Mitel authorized purpose.
b) MANUFACTURE AND SUPPLY MITEL PRODUCTS ACCESSORIES, AND SPARE PARTS.
Mitel agrees to use its best efforts to provide Elite Dealer with Mitel Schedule
A Products in sufficient quantities to facilitate Elite Dealer's reasonable
needs. Mitel will supply certain Schedule A Products direct to Elite Dealer and
will supply certain other Schedule A Products as well as its other Mitel
products through its Authorized Wholesalers, subject to the right to change its
method of distribution as it deems appropriate from time to time.
c) ACCESS TO TECHNICAL TRAINING PROGRAMS. Mitel agrees to provide Elite
Dealer personnel with access to training courses in order that Elite Dealer may
meet the minimum certification standards regarding training, as hereinafter
described in paragraph 5 (sub-paragraphs "h" and "m").
d) ACCESS TO MITEL TRADEMARKS, LOGOS, AND INSIGNIA. Mitel agrees to
provide Elite Dealer with current specifications of Mitel trademarks, logos, and
insignia in the form of advertising and promotional materials supplied by Mitel
for use by Elite Dealer in advertising and promotion of Mitel Schedule A
Products. Elite Dealer is permitted to state it is a Mitel Elite Dealer in the
promotion of such products, but Elite Dealer shall not use the name Mitel or any
of its brand names or trademarks in its own name and/or tradename (actual or
fictitious and including in an "800" number) without the prior express written
consent of Mitel, and Elite Dealer, likewise, agrees to conform to the Lanham
Act as well as Federal Trademark and Copyright Law as well as the published
MITEL GRAPHIC STANDARDS MANUAL in utilizing Mitel marks and copyrighted material
in order to preserve and enhance the goodwill associated with Mitel's name and
marks.
e) NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Mitel agrees to use its
best efforts to prevent the disclosure of or unauthorized use of any proprietary
information provided to Mitel by Elite Dealer in compliance with the terms of
this Agreement.
f) PRODUCT WARRANTY. Mitel agrees to provide Elite Dealer with, and Elite
Dealer agrees to extend to its end-user, its standard Mitel U.S. Product
Warranty (including the CPE and CTI components thereof), as published from time
to time in the MITEL U.S. PRICE LIST, subject to its terms and conditions,
disclaimers, and limitations of liability; the current version of such Warranty
is attached hereto and incorporated by reference herein as Schedule C.
Procedures and policies for both in and out-of- warranty repair services and the
Repair Price List shall also be as described in the then current MITEL U.S.
PRICE LIST, as aforesaid. Mitel also agrees to provide Elite Dealer with a
separate Software Warranty and License with regard to the SX-2000(R) product
line, which Elite Dealer agrees to extend to end-user and adhere to itself; a
true copy of such Agreement is attached hereto and incorporated by reference
herein as Schedule D.
g) ONGOING TECHNICAL SUPPORT AND FIELD SERVICES. Mitel agrees to provide
ongoing technical support, including necessary field services, to Elite Dealer
at then current rates, plus reasonable costs for transportation, lodging, and
meals. From time to time, Mitel may introduce Release Levels of software which
upgrade the capability of and/or disseminate generic corrections to Mitel
software. When these new Release Levels are made commercially available, they
shall be provided at nominal (shipping and handling) cost to Elite Dealer if the
new Release Level is of a corrective nature. If, however, new features are
incorporated in addition to operational corrections and/or if the Release
consists solely of new features or functionality, then Elite Dealer still will
be provided with the corrections as aforesaid, but said new features or
functionality will be made available to Elite Dealer at the then current Elite
Dealer price for such new features or functionality. Mitel reserves the right to
give ninety (90) days prior written notice that it will no longer support a
particular Release Level.
h) BID AND PERFORMANCE BONDING/UTILIZATION OF RFP RESPONSE CENTER. Mitel,
in its reasonable discretion, will provide Elite Dealer Bid and Performance
Bonding services. It is agreed that Elite Dealer will reimburse Mitel (or Mitel
may set-off against any credits owed Elite Dealer) for fifty percent (50%) of
the reasonable costs for such services (including bond premiums). Elite Dealer
agrees to timely follow Mitel RFP Response Center rules and regulations in
applying for such bonding. Mitel also shall, at its discretion, allow Elite
Dealer to utilize certain Mitel RFP Response Center services (including Mitel
Sales Engineering), subject to a charge for reasonable and actual costs
incurred, as aforesaid, and in accordance with the rules and regulations of the
RFP Response Center in order to promote the goodwill inherent in the Mitel
product line.
i) RIGHT TO MANUFACTURER'S GUARANTEE AND/OR ELITE DEALER COMFORT LETTER.
Mitel, in its reasonable discretion, shall provide Elite Dealer's end-user with
a Manufacturer's Guarantee and/or Elite Dealer Comfort Letter, in conformity
with a reasonable and customary request (according to industry practice) from an
end-user or its telecommunications consultant. Manufacturer's Guarantee letters,
however, will only be issued to the extent Elite Dealer has followed the RFP
Response Center's rules and regulations regarding prior review of RFP
submittals.
j) DEDICATED ACCOUNT EXECUTIVE. Mitel will assign a specific Mitel Account
Executive to Elite Dealer to assist it, on a part-time best efforts basis, in
promoting the sale of Schedule A Products within its PAR.
k) PROTECTED PRODUCT DISTRIBUTION. Elite Dealer will be provided Schedule
A Products on a quasi-exclusive basis in its PAR (subject to rights of other
Elite and/or Enterprise Elite Dealers whose PAR may overlap Elite Dealer's PAR
in whole or in part and subject to Mitel's right to sell direct, as stated in
paragraph 3 above) for a period of time after product introduction. Mitel
reserves the right to reclassify Schedule A Products from time to time and allow
such to be distributed as "other Mitel products" by regular Mitel Dealers, as
well as by Mitel Elite Dealers. Mitel also reserves the right to add products to
Schedule A as same are developed from time to time, and Mitel agrees to give
Elite Dealer thirty (30) days prior written notice before adding such to
Schedule A or deleting such from Schedule A.
l) FREQUENT BUYER CREDITS. Elite Dealer will be entitled to receive
Frequent Buyer Credits and/or Discounts pursuant to the terms and conditions of
Schedule E attached hereto and incorporated by reference herein for purchasing
Mitel products. In addition to the other duties and/or obligations that Elite
Dealer agrees to perform and/or meet for Mitel as per paragraph 5 hereinbelow,
Elite Dealer, in order to be eligible for the Frequent Buyer Credits and/or
Discounts, also agrees to the following:
(i) participate in Field Trials of the Schedule A Products as
requested from time to time by Mitel;
(ii) participate in the controlled introduction (market trial) of
the Schedule A Products as requested by Mitel from time to time;
(iii) provide consultation/recommen dation to Mitel with regard to
the Schedule A Products in terms of effectiveness, technological issues,
etc.;
(iv) assist Mitel in the dissemination of information
(promotional/advertising) regarding the Schedule A Products in an effort
to properly launch new products; and
(v) assist Mitel in the introduction/ implementation of new software
loads that are disseminated to the field from time to time;
2
m) PRE-SALE ENGINEERING. Mitel Sales Engineering and a dedicated Mitel
Account Executive will assist Elite Dealer in configuring special system
applications. Mitel will provide Elite Dealer with Applications Engineering
Bulletins and Technical Account Bulletins, as they are published (or posted on
electronic bulletin boards) from time to time.
n) COMPETITIVE ANALYSIS. Elite Dealer will be provided access to the most
current information developed by Mitel, but Elite Dealer agrees not to
redistribute same without first obtaining Mitel's prior written permission.
o) ADVERTISING SUPPORT MATERIAL. Elite Dealer will receive certain
materials from Mitel to enable it to generate print advertising, including, but
not limited to, prepared ad slicks for reproduction, a proposed "Yellow Page" ad
and black and white negatives of the Schedule A Products. Elite Dealer agrees
not to refer to a Mitel competitor in any advertising using such Mitel supplied
materials (including, but not limited to, tradename/logo and/or brandname).
p) TECHNICAL TRAINING. Mitel will offer Elite Dealer one (1) free seat
(tuition) in a training class of the Elite Dealer's choice during the initial
term of this Agree ment and likewise one (1) seat if the Agreement is renewed.
Mitel will also offer certain other free training (e.g. self- study courses) as
Mitel may, in its reasonable discretion, offer from time to time, all as more
completely explained in the Elite Dealer Benefit Handbook (see subparagraph "u",
below).
q) SALES TRAINING. Mitel will offer Elite Dealer reasonable access to
sales training on new products and/or on skills development classes that Mitel
might offer from time to time at no charge to Elite Dealer; Elite Dealer agrees
to pay all expenses associated with participation in such Sales Training
classes.
r) ELITE DEALER EXPO. Elite Dealer will be invited to participate in the
Mitel Elite Dealer Expo; the Elite Dealer Expo is described in the Elite Dealer
Benefit Handbook (see sub-paragraph "u", below).
s) ACHIEVEMENT LEVEL BENEFITS. Elite Dealer shall be entitled to the
following additional benefits to the extent it meets or exceeds its agreed upon
Sales Perfor mance Target (SPT) as reflected in Schedule F, attached hereto and
incorporated by reference herein:
1. CO-OP ADVERTISING. Mitel agrees to contribute advertising monies
and/or credit into an account for Elite Dealer to be earned and utilized
in accordance with the rules and regulations of the Co-Op Advertising
Program (as stated in the Elite Dealer Benefit Handbook -- see sub-
paragraph "u", below) to assist Elite Dealer in accomplishing pre-approved
Mitel advertising that it desires to engage in.
2. TECHNICAL TRAINING. Mitel will provide Elite Dealer with an
additional free training seat during the initial term of this Agreement
and likewise one (1) additional seat if the Agreement is renewed and Elite
Dealer meets or exceeds its SPT during the renewal term.
3. ACHIEVEMENT LEVEL ELITE DEALER COUNCIL. The top performing
Achievement Level Elite Dealers will be asked to participate in the Elite
Dealer Council; Mitel also reserves the right to invite those Elite
Dealers who have demonstrated exceptional strategic initiatives in
advancing their dealership through the introduction of emerging Mitel
technologies into their respective portfolios. The selection process shall
be in Mitel's reasonable discretion with respect to each Mitel Elite
Dealer Council appointee. Mitel requests that each such appointee will
provide input on and receive information regarding product direction,
market needs, and other similar matters of mutual interest.
4. EXCLUSIVE MITEL SALES REPRESENTATIVE. Elite Dealer will be
entitled to an additional two percent (2%) in Frequent Buyer Credits
and/or Discounts on net sales of Schedule A Products that are directly
made by an exclusive Mitel sales representative employed by Elite Dealer.
Such representative must exclusively sell Mitel products for dealer on a
full time, best efforts basis subject to the rules and regulations of the
program, as published by Mitel from time to time (as described in the
Elite Dealer Handbook - see sub-paragraph "u", below) including, but not
limited to, the fact that such an exclusive Mitel sales. representative
must be pre-approved by the Mitel V.P. of Sales before enrollment in the
program and, once approve, must attend and participate in, at Elite
Dealer's expense, all product training and sales skills development
classes offered by Mitel from time to time.
t) Elite Dealer shall be eligible to participate in the Mitel Extended
Hardware Warranty Program as well as the Mitel Software Assurance Program (both
are currently available on the SX-2000 only but may be expanded to other
products in the future) in accordance with the terms and conditions as stated in
the Elite Dealer Benefit Handbook--see sub-paragraph "u", below.
u) ELITE DEALER BENEFIT HANDBOOK. Sub-para graphs (a) through (t), above,
shall be augmented further and explained, to the extent not inconsistent
herewith, by an
3
Elite Dealer Benefit Handbook, a true copy of which is attached hereto and
incorporated by reference herein as Schedule G. Mitel reserves the right to
amend, revise or modify the benefits offered to Elite Dealer as described in
Paragraph 4, sub-paragraphs (a) through (t) above, as well as described in the
Elite Dealer Benefits Handbook, but Mitel agrees not to make a material change
to such without giving Elite Dealer at least thirty (30) days advance written
notice of same. Should Elite Dealer object to the change, it may elect, within
thirty (30) days of receipt of notice of the change, to terminate this Agreement
upon the giving of thirty (30) days advance written notice to Mitel.
5. ELITE DEALER'S OBLIGATIONS TO
MITEL.
a) MINIMUM PURCHASE REQUIREMENT/SALES PERFORMANCE TARGET. Elite Dealer
agrees to use its best efforts to purchase from Mitel a minimum dollar amount of
Mitel products (based on Mitel's list price regarding Authorized Wholesale sales
and/or net invoices from Mitel regarding direct sales and not including taxes
and shipping charges) for the PAR it has been assigned; Elite Dealer, likewise,
agrees to use its best efforts to attempt to achieve its agreed upon Sales
Performance Target as stated in Schedule F. Mitel reserves the right to adjust
and/or modify the Minimum Purchase Requirement including, but not limited to,
amount and product mix) and/or Sales Performance Target, if this Agreement is
renewed, by giving Elite Dealer at least thirty (30) days written notice of such
before March 31, 1997.
b) PAYMENT. Elite Dealer agrees to timely pay for Mitel products ordered
under the Agreement; terms of payment shall be net thirty (30) days from date of
invoice and shipment by Mitel. All amounts which are more than fifteen (15) days
past due shall accrue interest from the due date at a rate equal to the lesser
of two percent (2%) per month or any part of a month (twenty-four percent [24%]
per annum) or the highest rate allowed by applicable state law.
c) FEATURE MITEL PRODUCT. Elite Dealer agrees to feature Mitel products to
its customers and further agrees to certify to Mitel (on or before May 1, 1997)
that Mitel Schedule A Product and/or other Mitel products comprised no less than
sixty percent (60%) of all new CPE equipment, applications and peripherals
purchased by Elite Dealer from anyone during the term of the Agreement and
likewise if the Agreement is renewed (based on net invoice dollars). Elite
Dealer agrees to supply true copies of such invoices within twenty (20) days of
a written request by Mitel for such information. This requirement to feature
Mitel products only applies in situations where Mitel offers a competing
product.
d) PURSUE SALES LEADS. Elite Dealer agrees to timely act on sales leads
originating from Mitel and to exclusively offer Mitel product with respect to
such referrals.
e) MAINTAIN CUSTOMER SATISFACTION. Elite Dealer agrees to maintain a
customer satisfaction rating that is acceptable to Mitel in its reasonable
discretion; Mitel shall employ an independent third-party to conduct surveys of
Elite Dealer's customer base in order to ascertain the degree of customer
satisfaction Elite Dealer has attained, and Elite Dealer agrees to cooperate
with such third-party to enable it to conduct such surveys.
f) CUSTOMER SERVICE AND SUPPORT REQUIREMENTS. Elite Dealer agrees to
comply with the Mitel Customer Service and Support Requirements attached hereto
and incorporated by reference herein as Schedule H as well as with the usual and
customary standards within the telecommunications and/or computer telephony
industry. Elite Dealer agrees to attempt, in good faith, to resolve customer
complaints, and Mitel undertakes to work with Elite Dealer, where appropriate,
to help Elite Dealer accomplish same.
g) FOLLOW PUBLISHED PRACTICES. Elite Dealer agrees to install, maintain,
and service Mitel Schedule A Product and/or other Mitel products in strict
accordance with the terms of this Agreement and with those practices published
from time to time by Mitel. Mitel agrees to provide Elite Dealer with copies of
its published practices on a regular basis. In the event Elite Dealer fails to
perform its obligations to its customers, as per paragraphs "e" and "f', above,
and Mitel is made aware of such, Elite Dealer agrees that Mitel shall have the
right to either provide such assistance itself and charge the Elite Dealer for
same or refer the said end-user to another qualified Mitel Elite Dealer. Before
so proceeding, however, Mitel agrees to give Elite Dealer prior notice of the
problem and a reasonable opportunity to correct the matter itself.
h) USE ONLY CERTIFIED TECHNICIANS. Elite Dealer agrees that each and every
installation of Mitel product shall be directly supervised and approved by a
qualified technician employed by Elite Dealer. Elite Dealer agrees that such
technician shall be certified by Mitel (at Elite Dealer's expense) as meeting
the minimum standards necessary to install and maintain such product in
accordance with Mitel conducted installation and maintenance courses in order
that the goodwill inherent in the Mitel name and product line is not harmed.
Elite Dealer likewise also agrees to send its technicians, at its own expense,
to Mitel courses regarding new products and/or new software releases so that its
technicians will maintain the requisite proficiency level. Elite Dealer also
agrees to employ an acceptable number (in Mitel's
4
reasonable discretion) of trained (Mitel certified) technicians to support Elite
Dealer's installed base of Mitel product.
i) LIMIT CLAIMS TO WRITTEN SPECIFICATIONS. Elite Dealer agrees to limit
its claims and representations concerning Mitel Schedule A Product and/or other
Mitel products to those in conformity with Mitel's published written
specifications and/or Mitel produced marketing collaterals.
j) SECURITY INTEREST/SET-OFF. Elite Dealer hereby grants to Mitel a
purchase money security interest in all Mitel products for which Mitel has not
been timely paid either now possessed by Elite Dealer or hereafter acquired by
Elite Dealer pursuant to this Agreement (the "collateral"). Elite Dealer hereby
authorizes Mitel to sign for it, as its attorney-in-fact, and to file U.C.C.1
Financing Statements with respect to the collateral after giving five (5) days
prior written notice to Elite Dealer but only in instances where Mitel feels
insecure regarding the extension of credit. Elite Dealer, likewise, grants a
right of set-off to Mitel regarding any monies owed by Mitel to Elite Dealer.
k) PRODUCT DEMONSTRATION CENTER. Elite Dealer agrees to establish and
maintain a Product Demonstration Center, within each assigned PAR, that
prominently displays and promotes Mitel products. Mitel agrees to provide
special pricing and terms to Elite Dealer from time to time to enable it to
equip its Product Demonstration Center with current Schedule A Products.
l) TRAINING. Elite Dealer agrees to have acceptable levels of its
personnel participate in Mitel offered sales, customer service/support,
installation, and maintenance training classes in order that the goodwill
inherent in the Mitel name and product line is not harmed. Elite Dealer agrees
to pay the tuition costs and associated expenses for participation in these
courses.
m) SUPPLY SUMMARY FINANCIAL INFORMATION. Elite Dealer agrees to provide
summary financial infor mation (balance sheet/profit and loss statement) to
Mitel upon application to become an Elite Dealer and on a periodic basis as
requested by Mitel from time to time.
n) PROTECT PROPRIETARY INFORMATION. Elite Dealer agrees to protect Mitel
proprietary and/or confi dential information and not to disclose such to others
or use such except for the purposes of this Agreement. Upon termination Elite
Dealer likewise agrees not to utilize such information in a way that is not in
the best interests of Mitel.
o) EXTEND MITEL WARRANTY. Elite Dealer agrees to extend Mitel's U.S.
Product Warranty, attached hereto and incorporated by reference herein as
Schedule C, to and in favor of its customer(s), subject to the terms and
conditions, disclaimers and limitations of liability stated thereon. Elite
Dealer agrees to incorporate said warranty along with the material terms,
disclaimers, and limitations of liability of said warranty in its written
agreement with its customer(s). Elite Dealer agrees to provide its customers, at
no charge to Mitel, with the warranty service inherent in honoring the aforesaid
Mitel warranty and/or in providing the services as stated in paragraph 4. 1 (i)
- - (v), above.
p) INSURANCE. Elite Dealer agrees to insure Mitel product purchased
hereunder from the point of receipt by carrier at Mitel plant or U.S. port of
entry until an accepted installation at customer's site has been achieved,
against loss by fire, theft or other casualty, as well as to maintain product
and public casualty liability insurance covering the sale and installation of
the Mitel product. Such insurance shall be in amounts acceptable to Mitel, and
Elite Dealer agrees to provide Mitel with a true copy of a certificate of
insurance evidencing such coverage upon Mitel's request.
q) INDEMNIFICATION. Elite Dealer agrees to indemnify, defend, and hold
Mitel harmless from any and all costs, expenses, damages or liabilities arising
to it as a result of a material breach of this Agreement by Elite Dealer or as a
result of negligent acts or omissions of Elite Dealer in performing hereunder.
Mitel likewise agrees to indemnify Elite Dealer for liability to it arising from
a material breach by Mitel of the terms and conditions of the Mitel U.S. Product
Warranty or the SX-2000 Software Warranty and License Agreement.
r) HCI/MITAI RUNTIME LICENSE. Elite Dealer agrees to enter into the
attached Tri-Party HCI/MiTAI RunTime License Agreement with Mitel and Elite.
Dealer's customer(s) in instances where Elite Dealer is providing to its
customer(s) a software application program that requires Mitel's HCI/MiTAI
interface to enable the said program to be run in conjunction with certain Mitel
SX-200 and/or SX-2000 PABXs (see a true copy of such Agreement at Schedule I ).
6. PRICE, ORDER ENTRY AND SHIPMENT
TERMS AND CONDITIONS.
a) Prices for certain Mitel Schedule A Products that are sold directly to
Elite Dealer by Mitel shall be as set by he MITEL ELITE DEALER PRICE LIST
published periodically by Mitel. The current such list containing prices for
Schedule A Products is attached hereto and incorporated by reference herein as
Schedule J. Mitel
5
reserves the right to make any desired changes to said list by giving thirty
(30) days prior written notice to Elite Dealer. Prices for the remaining
Schedule A Products and other Mitel products that are purchased by Elite Dealer
from a Mitel Authorized Wholesale Distributor shall be as set from time to time
by such wholesale distributor.
b) Elite Dealer agrees to place orders on Mitel by written Purchase Order
for all Mitel products to be ordered hereunder and to complete and abide by the
Mitel Software Application Form, a true copy of which is attached hereto and
incorporated by reference herein as Composite Schedule K when ordering Mitel
Software. Mitel reserves the right to reject any Purchase Order, in whole or in
part, or fail to ship an accepted order should it feel insecure in Elite
Dealer's ability to pay. Mitel also reserves the right to impose a minimum
purchase amount per order of Two Hundred and 00/100 Dollars ($200.00) before
taxes and net of all discounts or reductions.
c) Mitel will transmit an acknowledgment of the Purchase Order by
electronic means. The acknow ledgment incorporates by reference Mitel's standard
Sales Acknowledgment, a true copy of which is attached hereto and incorporated
by reference herein as Schedule L. Elite Dealer agrees that the terms and
conditions of sale of the electronic acknowledgment and Schedule M shall take
precedence over the Purchase Order in the event of a conflict, and that this
Agreement shall prevail in the event of a conflict between it and either the
Purchase Order or said Sales Acknowledgment.
d) Mitel shall issue invoices to Elite Dealer for Mitel product shipped to
it hereunder which shall be due and payable thirty (30) days from their date.
Elite Dealer shall pay to Mitel the full amount of the invoice on or before its
due date. Elite Dealer's obligation to pay and Mitel's right to receive same
shall be absolute and unconditional and not subject to reduction, set-off or
abatement. If, at any time, in Mitel's judgment Elite Dealer's financial
condition and/or payment record makes Mitel feel insecure, Mitel may deny the
further extension of credit.
e) Elite Dealer shall notify Mitel within twenty (20) days from receipt of
invoice of any errors on the invoice. Mitel may grant an extended payment term
of ten (10) business days on the portion of the invoice which is in dispute; the
remainder of the invoice shall be timely paid notwithstanding the extension.
f) Mitel reserves the right to refuse to accept or process Purchase Orders
from Elite Dealer when its account with Mitel is in arrears, and Elite Dealer
hereby grants unto Mitel a lien on any product being repaired for it by Mitel
until the account is brought current.
g) Elite Dealer shall pay all taxes, levies or duties now or hereafter
imposed on the importation and/or sales of goods or rendering of services with
respect to Mitel products or services unless it has first provided Mitel with a
tax exemption certificate, which then must be referenced on all Purchase Orders.
h) Elite Dealer shall have the right, in Mitel's reasonable discretion, to
return unused Mitel product, if that type of product is still in production,
subject to a reasonable restocking charge at Mitel's then current rate (which is
currently twenty percent [20%] of list).
i) Elite Dealer recognizes and agrees that all prices shall be F.O.B.
Mitel plant or U.S. port of entry. All prices are exclusive of any taxes or
charges for insurance or freight, all of which are the obligation of Elite
Dealer. Nevertheless, risk of loss and title, respectively, shall remain with
Mitel until delivery to the named destination (with regard to risk of loss) and
until payment by Elite Dealer (with regard to transfer of title) for the purpose
of classifying this as a destination contract under the Uniform Commercial Code.
7. SHIPMENT, DELIVERY, TITLE, RISK OF
LOSS, INSPECTION, AND CANCELLATION.
a) Mitel shall use its best efforts to meet any reasonable delivery date,
but Mitel does not guarantee delivery by that date; and Mitel shall not be
liable to Elite Dealer or any third-party (including, but not limited to,
customer) for any loss or damage, whether direct, special, collateral,
incidental, consequential or otherwise arising from any failure to ship any
Mitel products, or any delay or errors in such shipment regardless of notice to
Mitel of the possibility of such loss. Each shipment shall be considered an
independent and separate transaction, and payment, therefore, shall be made
accordingly.
b) Risk of loss for all purposes shall pass to Elite Dealer upon delivery
of the Mitel products to Elite Dealer at its U.S. destination. Elite Dealer
agrees to pursue any claim for damaged product against the insurer and/or
carrier as the case may be on Mitel's behalf. Mitel shall offer reasonable
support of Elite Dealer in its pursuit of same. Title to Mitel product shall not
pass to Elite Dealer until Elite Dealer has paid Mitel in full for such product.
c) Within thirty (30) days following date of shipment or fifteen (15) days
following the date of receipt by Elite Dealer, whichever expires first, Elite
dealer agrees to inspect the Mitel products ordered and shall promptly notify
Mitel, in writing, of any discrepancies or damages. Failure to so timely notify
Mitel shall be conclusive proof that the Mitel products were received by Elite
Dealer as ordered and in good condition.
6
d) Elite Dealer may cancel any or all portions of a Purchase Order upon a
minimum of thirty (30) days prior written notice to Mitel in advance of the
requested order date. In the event Mitel ships any or all portions of a Purchase
Order prior to receipt of the cancellation notice, then the purported
cancellation notice shall have no force or effect. No cancellations are allowed
on Purchase Orders within thirty (30) days of requested ship date. In the event
Elite Dealer cancels any or all portions of a Purchase Order, Elite Dealer
agrees to pay a cancellation charge equal to twenty percent (200%) of the Elite
Dealer's cost of the item(s) canceled, as liquidated damages, which shall
constitute the entire liability of Elite Dealer to Mitel with respect to the
cancellation.
8. PRODUCT WARRANTY. Mitel agrees to provide Elite Dealer, on all Mitel
manufactured products ordered hereunder, with its express limited product
warranty published in its then current Mitel U.S. PRICE LIST (see Schedule J,
attached, for the current version), subject to the conditions, disclaimers, and
limitations of liability stated therein. Mitel also agrees to provide Elite
Dealer with the current Mitel Software Warranty and License (see Schedule D,
attached), but said warranty only pertains to sales of the SX-2000(R) product
line, and likewise, said warranty is offered subject to its terms and
conditions. Mitel also agrees to pass through to Elite Dealer and honor in all
respects any warranty provided by a third-party on products ordered hereunder
that are not manufactured by Mitel; such product warranties shall likewise be
subject, at a minimum, to the conditions, disclaimers, and limitations of
liability as stated in the Mitel U.S. Product Warranty. Elite Dealer accepts
said express limited Warranties as its sole and exclusive remedy for defects in
Mitel product and agrees to the terms and conditions, disclaimers, and
limitations of liability thereof.
9. PRODUCT SPECIFICATION CHANGES/MANUFACTURER DISCONTINUANCE. Mitel
reserves the right to make changes in the design or construction of any of its
products as it deems necessary or desirable. Mitel will make a reasonable effort
to provide prior notification to Elite Dealer of said changes. Elite Dealer
agrees than Mitel shall incur no obligation to make any changes whatsoever on
product previously sold hereunder nor shall any changes create any implications
whatsoever that any part manufactured or furnished without such changes is in
any way defective. Mitel agrees to provide reasonable notice of its intent to
discontinue manufacture of a Mitel product and Elite Dealer understands and
agrees that Mitel may do so in its discretion.
10. SOFTWARE LICENSE. Mitel hereby grants to Elite Dealer a non-exclusive,
paid-up license to use Mitel copyrighted software subject to the terms and
conditions concerning restrictions on use of software as stated on Schedule C,
attached, and Elite Dealer agrees to abide by the terms and conditions of such.
Elite Dealer also agrees to enter into a written sub-license with its customer
regarding the use of Mitel copyrighted software; said sub-license shall
incorporate the essential material terms and conditions of this Mitel software
license and is subject to prior approval by Mitel. A pre-approved example of
such that Elite Dealer may choose to use is attached hereto as Schedule M.
11. PATENT AND TRADEMARK
INFRINGEMENT.
11.1 MITEL'S RESPONSIBILITIES TO DEFEND. Mitel shall indemnify, defend and
otherwise hold Elite Dealer harmless from all cost, loss, damage or liability
(excluding consequential damages) arising from any proceeding brought against
Elite Dealer, to the extent such proceedings are based on a claim that the
product furnished by Mitel under this Agreement constitutes an infringement of
any U.S. or Canadian patent, trademark or copyright or which is alleged to be a
trade secret of a third party. Mitel shall defend any suit alleging such
infringement which is brought against Elite Dealer or any of its customers, and
shall pay all costs and expenses incurred and satisfy all judgments and decrees
against Elite Dealer in such actions or suits, if Elite Dealer notifies Mitel,
in writing, within ten (10) business days of the date any such claim becomes
known to Elite Dealer and Elite Dealer provides such assistance and cooperation
to Mitel as is reasonably requested.
11.2 MITEL'S OPTIONS. In the event Elite Dealer or its customers are
enjoined from their use of Mitel products due to a proceeding based upon any
infringement of any U.S. or Canadian patent, trademark, copyright or trade
secret, Mitel shall have the following options:
(i) Promptly render the Mitel product non-infringing and capable of
providing services as intended; or
(ii) Procure for Elite Dealer the right to continue using the Mitel
product; or
(iii) Replace the product with noninfringing goods capable of
providing services as intended; or
(iv) In the event that none of the foregoing options is available,
remove the Mitel product and refund the purchase price thereof less
depreciation for use, if any.
7
11.3 LIMIT OF MITEL'S LIABILITIES. The foregoing constitutes the entire
liability of Mitel with respect to infringement of patents, trademarks,
copyrights, and trade secrets for Mitel products purchased pursuant to this
Agreement. Such liability does not include conse quential, special or punitive
damages, such as, without limitation, loss of actual or prospective profits, or
loss of use, all of which are hereby expressly disclaimed.
12. INDUSTRIAL AND TRADE SECRETS.
12.1 ELITE DEALER ACKNOWLEDGMENT. Elite Dealer acknowledges that Mitel has
developed and used valuable technical and nontechnical information, patents,
copyrights, trade secrets, confidential information, and the like in the
development of the Mitel products. Elite Dealer shall use its best efforts to
ensure that neither it nor any of its employees will convert to their own use or
to the use of any other party any industrial secrets, copyrights, trade secrets,
patents, manufacturing or other processes (confidential information) or the
like, owned by Mitel, that is obtained by Elite Dealer by reason of this
Agreement or otherwise. Elite Dealer agrees to use the same degree of care in
protecting such information as it would use in protecting its own trade secrets.
12.2 ELITE DEALER'S RESPONSI BILITIES & LIMITATIONS. Any confidential
informa tion of a proprietary character, as aforesaid, shall be clearly and
conspicuously marked by each party as proprietary information. Neither party
shall be liable to the other for disclosure or use of such information marked as
proprietary information as provided above which:
(i) Is or becomes legally available to the public from a source
other than Mitel before or during the period of this Agreement;
(ii) Is released in writing by Mitel to the general public;
(iii) Is at any time developed by the other party completely
independent of any such disclosure or disclosures.
12.3 NO LICENSE IMPLIED. Except as expressly stated in this Agreement, no
license is granted to Elite Dealer from Mitel by merely entering into this
Agreement.
13. INDEPENDENT CONTRACTORS. Elite Dealer's officers, employees or agents shall
not be deemed to be officers, employees or agents of Mitel, and Elite Dealer
shall not represent that its relationship with Mitel is other than that of an
independent contractor. Nothing in this Agreement shall create in either party
any right or authority to incur any obligations on behalf of, or to bind in any
respect, the other party. The parties hereto agree that the arrangement created
by this Agreement is not in the nature of a franchise or agency. Elite Dealer
agrees that there is no required payment to become A Mitel dealer and the
purchase of any offering from Mitel is solely to promote and/or for the resale
of Mitel products.
14. TERMINATION.
14.1 ACKNOWLEDGMENT OF MITEL'S MARKETING NEEDS. Elite Dealer fully
understands the business necessity for Mitel to retain flexibility in Mitel's
methods of selling, marketing, distributing, installing, maintaining, and
servicing its products as well as the need to maintain the good will of Mitel.
Accordingly, Elite Dealer expressly recognizes the valid business need for, and
agrees to, the termination provisions set forth below.
14.2 TERMINATION PROVISIONS. This Agreement may be terminated by Mitel in
its entirety with ten (10) business days prior written notice by U.S. certified
mail in the event:
14.2.1 INSOLVENCY OR GENERAL ASSIGNMENT FOR CREDITORS. Elite Dealer files
a petition declaring bankruptcy, becomes insolvent or makes a general assignment
for the benefit of creditors. The term insolvent shall mean any one of the
following: inability of Elite Dealer to pay its bills as they mature, or total
liabilities exceed total assets. All calculations shall be determined in
accordance with generally accepted accounting principles; or
14.2.2BREACH OF REPRESENTATIONS AND WARRANTIES. Elite Dealer breaches any
of its material representations and warranties or any other essential and
reasonable covenant, undertaking, term or obligation of this Agreement and fails
to cure such within thirty (30) days of receiving written notice from Mitel
regarding same; or
14.2.3FAILURE TO PAY. Elite Dealer fails to pay in full all amounts due
Mitel within sixty (60) days of invoice (not including invoices about which
there is a reasonable dispute) except as expressly provided for under the terms
and conditions of this Agreement; or
14.2.4ATTEMPT TO ASSIGN OR TRANS FER. Elite Dealer attempts to assign or
transfer its rights or delegate, transfer or sub-contract its obligations under
this Agreement to a third party without the prior written consent of Mitel; or
14.2.5CHANGE OF BUSINESS NATURE, 9 OWNERSHIP OR CONTROL. Elite Dealer
notifies Mitel or Mitel becomes aware there is a sale of all or substantially
all of the assets of Elite Dealer or that Elite Dealer has merged with another
entity or otherwise consolidated or there is a change in the nature, control or
8
ownership of Elite Dealer or its parent during the term of this Agreement
including, but not limited to, any change in which a competitor of Mitel becomes
financially involved in the business of Elite Dealer; or
14.2.6FAILURE TO ACHIEVE MINIMUM PURCHASE REQUIREMENTS (MPR). Elite Dealer
fails to meet the minimum Purchase Requirement of this Agreement on a pro rata
basis during any quarterly period of this Agreement (April 1 through March 31)
or renewal hereof Mitel also reserves the right, in its discretion, to cancel
the assignment of specific PAR Segments, when the MPR has not been achieved
there, instead of terminating the entire Agreement); or
14.2.7TERMINATION FOR CONVENIENCE. Either party may, upon the giving of
sixty (60) days prior written notice, terminate this Agreement for its
convenience without incurring any liability to the other except the obligation
to meet all duties arising prior to said termination as well as adhere to those
obligations which by their inherent nature are intended to survive termination.
14.3 POST TERMINATION SALES. The acceptance by Mitel of any Purchase Order
from Elite Dealer or the sale of any Mitel products by Mitel to Elite Dealer
after the termination of this Agreement shall not be construed as a renewal or
an extension, or as a waiver of termination of this Agreement; but, in the
absence of a new written Agreement, all such transactions shall be specifically
governed by the provisions of this Agreement with regard to the obligations of
Elite Dealer to Mitel as stated in paragraphs 5, 6, 7, and 8 above.
14.4 POST TERMINATION RIGHTS & RESPONSIBILITIES. Termination under this
Agreement shall not affect the rights and obligations of the parties concerning
orders accepted by Mitel prior to the effective date of the termination.
14.5 LIMITATION OF POST TERMINATION LIABILITIES. Mitel shall not, by
reason of the expiration, termination or non-renewal of the Elite Dealer
Agreement hereby created, be liable to Elite Dealer for recoupment,
compensation, reimbursement or damages on the account of the loss of prospective
profits on anticipated sales, or on account of expenditures, investments, leases
or commitments in connection with the business or goodwill of Elite Dealer.
Elite Dealer shall likewise have no such liability to Mitel.
14.6 OBLIGATIONS AFTER TERMINA TION.
14.6.1 PAYMENT TO MITEL/SURVIVAL OF OBLIGATIONS. Termination of this
Agreement shall not relieve Elite Dealer of any obligations to pay Mitel for any
amount payable for transactions prior to or after termination, or of the duty to
perform as agreed with regard to paragraphs 5, 6 or 7 above, with reference to
Mitel products (Schedule A or other Mitel products) sold by Elite Dealer to its
end-user customers.
14.6.2 FULFILLMENT OF ORDERS. Mitel shall have no obligation to fill any
orders for complete systems placed by Elite Dealer after the date of termination
of this Agreement, whether previously quoted or otherwise.
14.7 POST TERMINATION SUPPORT SERVICES. In the event of the termination
expiration and/or non-renewal of this Agreement, for reasons other than Elite
Dealer's material breach, bankruptcy or insolvency, Mitel shall make available
to Elite Dealer, for a period of seven (7) years from the date of such
termination, expiration and/or non-renewal that information and the hardware,
software, and other elements of support materials (together herein referred to
as "support materials") generally available to Mitel's Elite Dealers which would
enable said former Elite Dealer to maintain and support its Mitel installed base
as such base existed (site and system) as of the date of termination,
expiration, and/or non-renewal. These support materials will be made available
at the Mitel Elite Dealer List Price and in accordance with Mitel's then
standard terms and conditions, but Frequent Buyer Credits and/or Discounts will
not be given nor will Entry Level Benefits (see Paragraph 4, sub-paragraphs a
through s, above) or Achievement Level Benefits (see Paragraph 4, sub-paragraph
t, above) be afforded. This provision does not give Elite Dealer a right to
purchase new products (including new software releases) added to Schedule A
after the termination, expiration and/or non-renewal of this Elite Dealer
Agreement.
15. MISCELLANEOUS.
15.1 FORCE MAJEURE. Neither Mitel nor Elite Dealer shall be deemed to be
in default of any provision of this Agreement for a failure in performance
resulting from acts of God or events beyond their reasonable control; such acts
shall include accidents, civil disturbances, strikes, lightning, fires, floods
or other natural catastrophes, or other force majeure events beyond the
reasonable control of such non-performing party.
15.2 GOVERNING LAW/VENUE. This Agreement shall be governed by the
substantive laws of the Commonwealth of Virginia, and venue is agreed to be in
Fairfax County, Virginia.
15.3 SEVERABILITY. The provisions of this Agreement shall be deemed
severable. If any provision of this Agreement shall be held to be unenforceable
by any court of competent jurisdiction the remaining provisions shall
nevertheless remain in full force and effect.
15.4 MERGER. All understandings and agreements heretofore made between the
parties, whether written or oral, are merged into this Agreement which alone
fully and completely expresses the Agreement of the parties with respect to the
subject matter hereof
15.5 AMENDMENT. This Agreement shall not be amended or modified except in
writing and signed by an officer of each of the parties hereto.
9
15.6 HEADINGS. All headings and captions contained herein are for
convenience and ease of reference only, and are not to be considered in the
construction or interpretation of any provision of this Agreement.
15.7 PARAGRAPHS. Numbered or lettered paragraphs, sub-paragraphs, and
schedules contained in this Agreement refer to paragraphs, sub-paragraphs, and
schedules of this Agreement.
15.8 NOTICES. Any notices required to be sent or given to Elite Dealer or
Mitel shall be sent by first class U.S. mail, addressed to the President of the
other party at its principal place of business as indicated in this Agreement.
15.9 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and both of which, taken together,
shall constitute the same instrument.
15.10 WAIVER. Any failure by either party to enforce any right hereunder
shall not constitute a waiver of such right. Each party may waive its rights
hereunder only by execution of a written instrument expressly waiving such
right.
15.11 INTENT. It is the intent of the parties to create a binding, legally
enforceable contract as to all items discussed herein.
15.12 GOVERNMENT COMPLIANCE. Each party agrees to comply with the
provisions of the Fair Labor Standards Act of 1938, as amended, the Federal
Occupational Safety and Health Act (OSHA), as amended, the Federal/Hazardous
Substances Act and with any other Federal, State, County or Municipal rules,
regulations, and codes, including those pertaining to packing and shipping, and
to obtain any and all required licenses, permits and certificates. Each party
agrees to indemnify the other for any loss or damage sustained because of their
respective noncompliance with this representation.
15.13 CONSEQUENTIAL DAMAGES. In no event shall either party be liable to
the other or to any third party for special, incidental, indirect, or
consequential damages (including, but not limited to, loss of use, loss of
profits or downtime), whether Mitel products sold hereunder are still in
warranty or are out of warranty, when the dispute arises. The parties hereto
acknowledge a good faith duty to work with each other to help solve legitimate
end-user problems.
15.14 PUBLICITY. Any publicity regarding this Agreement shall be achieved
only by mutual consent of the parties. Any such publicity shall be in the form
of a general announcement only. The specific terms shall be held in strict
confidence.
15.15 CONFIDENTIALITY. The parties hereto agree to maintain the absolute
confidentiality of the terms and conditions of this Agreement.
15.16 AUTHORIZATION OF EXECUTION. The party signing on behalf of Elite
Dealer represents and warrants that he/she has all necessary corporate authority
to legally bind Elite Dealer to this Agreement. At the request of Mitel, Elite
Dealer shall provide a Board of Directors' Resolution authorizing execution of
this Agreement. This Agreement shall not be binding on Mitel unless signed by a
corporate officer of Mitel.
15.17 TOLL FRAUD DISCLAIMER/WARN ING. Mitel disclaims any express or
implied warranty that its equipment is technically immune from or prevents
fraudulent intrusions into and/or unauthorized use of the system (including its
interconnection to the long distance network). Elite Dealer is hereby warned
that fraudulent use of the system, including but not limited to DISA, auto
attendant, voice mail, 800 and 900 service and 10XXX, is possible, and Elite
Dealer agrees to warn its customers of such.
15.18 INVASION OF PRIVACY DISCLAIMER/ WARNING. Mitel hereby disclaims any
express or implied warranty that its equipment is technically immune from or
prevents unlawful and/or unauthorized utilization that may result in invasion of
one's right to privacy. Mitel hereby warns Elite Dealer that such is possible,
and Elite Dealer agrees to warn its customers of such.
15.19 LOSS OR THEFT OF DATA. Mitel hereby disclaims any express or implied
warranty that its equipment is technically immune from or prevents improper,
unlawful and/or unauthorized utilization that may result in the loss of or theft
of electronic data. Mitel hereby warns Elite Dealer that such is possible, and
Elite Dealer agrees to warns its customers of such.
5.20 NO INTENT TO CREATE THIRD PARTY BENEFICIARY STATUS. The parties
understand and agree that this Agreement is for their own respective benefit
only, and it is not intended to and does not create third-party beneficiary
status on any other person or entity whatsoever, including, but not limited to,
customer (end user).
10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed hereinbelow by their respective duly authorized representatives on the
date first appearing above.
MITEL, INC. ALLSTAR SYSTEMS, INC.
(Elite Dealer's Name)
By: /s/ G. SPIERKEL By: /s/ JAMES H. LONG
JAMES H. LONG
Title: PRESIDENT Title: CEO
ATTEST/WITNESS: ATTEST/WITNESS:
/s/SIGNATURE ILLEGIBLE /s/ D.R. CHADWICK
Corporate Secretary Corporate Secretary
(SEAL) (SEAL)
11
EXHIBIT 10.26
CONSULTING AGREEMENT
AGREEMENT dated the 2nd day of August, 1996 by and between ALLSTAR
SYSTEMS, INC., a corporation incorporated in the State of Texas, and having it
principal office at Houston, Texas (hereinafter referred to as "Allstar"), and
Jack B. Corey, an individual residing in Pinehurst, Montgomery County, Texas
("Corey")
W I T N E S S E T H:
WHEREAS, Allstar desires to retain and make secure for itself the vast
experience, outstanding abilities and services of Corey in the future; and
WHEREAS, Allstar and Corey desire to enter into a consulting agreement;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. CONSULTING PERIOD AND CONSULTING SERVICES TO BE PERFORMED: Allstar
agrees to and does hereby retain Corey, who agrees to provide Allstar with
consulting services for a period (the "Consulting Period"), commencing on the
effective date of this Agreement and continuing until (i) such time as all
65,625 shares of stock of Allstar owned by Corey have been purchased according
to Section 3 of the Shareholder Agreement between Corey and the principal
shareholder of Allstar dated the same date as this Consulting Agreement and made
a part hereof or Section 1 of Insurance Proceeds Agreement of even date herewith
between Corey and Allstar calling for a purchase of all of Corey's stock upon
the death of such principal shareholder or (ii) at such time that Allstar has
issued and sold stock to the general public pursuant to an offering registered
under the Securities Act of 1933.
2. COMPENSATION: Allstar shall pay to Corey for his services during the
Consulting Period, compensation of $25,000.00 on August 15, 1996, and November
15, 1996 and $30,000.00 on March 15, August 15 and November 15 of each year
thereafter for the remainder of the Consulting Period. Any partial period
created by the Consulting Period ending in accordance with paragraph one (1)
above shall be paid on a pro-rata basis. The payments made to Corey shall be
subject to a set-off of any amounts which may be owned by Corey to Allstar as of
the date the payment is due.
3. PERFORMANCE OF DUTIES: Allstar and Corey agree to perform all acts and
duties incident to their consulting arrangement.
4. OTHER BUSINESS: Corey shall be allowed to pursue any other business
endeavors separate, distinct, and independent of Allstar.
5. SUCCESSORS: This Agreement shall inure to the benefit of and be binding
upon the Allstar, its successors and assigns, including, without limitation, any
person, partnership, company or corporation which may acquire substantially all
of the business of Allstar
6. NO WAIVER: The failure of either party to insist in any one or more
instances upon performance of any terms or conditions of this Agreement shall
not be construed a waiver of future performance of any such term, covenant or
condition but the obligations of either party with respect thereto shall
continue in full force and effect.
7. NOTICES: Any notice given hereunder shall be in writing and be
delivered or mailed by Registered or Certified Mail, Return Receipt Requested.
(a) James H. Long
c/o Allstar Systems, Inc.
6401 Southwest Freeway
Houston, Texas
(b) Jack B. Corey
P.O. Box 525
Pinehurst, Texas 77362
Any party may, by notice given as aforesaid, designate a different
address. Any notice given hereunder shall be effective on the date of receipt.
8. ENTIRE AGREEMENT: This Agreement supersedes all previous agreements
between the parties and contains the entire understanding and agreement between
the parties with respect to the subject matter hereof and cannot be amended,
modified or supplemented in any respect except by subsequent written agreement
entered into by all parties.
9. CAPTIONS: The captions herein are for the convenience of the parties
and are not to be construed as part of the terms of this Agreement.
10. APPLICABLE LAW: This Agreement shall be governed in all respects by
the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ALLSTAR SYSTEMS, INC.
By: /s/ JAMES H. LONG
James H. Long, President
/s/ JACK B. COREY
Jack B. Corey
EXHIBIT 10.27
ACKNOWLEDGEMENT, WAIVER AND AMENDMENT TO
REVOLVING LOAN AGREEMENT
This Acknowledgement, Waiver and Amendment ("Amendment") to the Revolving
Loan Agreement is made as of August 2, 1996 by and between Allstar Systems,
Inc., a Texas corporation ("Customer") and IBM Credit Corporation, a Delaware
corporation ("IBM Credit").
RECITALS:
A. Customer and IBM Credit have entered into that certain Agreement for
Wholesale Financing ("AWF") dated July 28, 1993, and the Revolving Loan
Agreement ("RLA") dated August 5, 1993 (both as amended, supplemented or
otherwise modified from time to time, the "Agreement").
B. Customer (a) is in default of one or more of its financial covenants
contained in the Agreement and (b) has been in default of other terms and
conditions of the Agreement (as more specifically explained in Section 2
hereof).
C. IBM Credit is willing to waive such defaults subject to the
conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
Section 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Agreement.
Section 2. Acknowledgement.
(A) Customer acknowledges that the financial covenants set forth in
Attachment A to the RLA are applicable to the financial results of Customer.
Customer was required to maintain such financial covenants at all times, and for
the financial reviews completed for the quarters ending March 1995, June 1995
and fiscal year ending December 31, 1995, the Customer is not in compliance of
some of these financial covenants. Customer further acknowledges its most recent
actual attainment for the fiscal year ending December 31, 1995 was as follows:
Covenant Covenant Requirement Actual
- -------- -------------------- ------
(a) Net Profit after Tax Equal to or
to Revenue greater than 0.50 0.57
(b) Revenue on an annual Greater than zero and equal
basis to Working to or less than 35.00 43.93
Capital
(c) Total Liabilities to Greater than zero and equal
Tangible Net Worth to or less than 12.00 12.70
Page 1 of 5
(B) In addition, Customer acknowledges that the following defaults
occurred:
Term Requirement Default
- ---- ----------- -------
(a) Ineligible As required in Section To the extent Customer
Accounts 3.7 subsections (d), included accounts of
wholly owned
subsidiary, StrataSoft
and an unaffiliated
company named Mintech
in the Borrowing Base
(b) Ineligible As required in Section To the extent Customer
Accounts 3.7 subsection (h) included Accounts
arising from sales to
end users who may have
had right of off-set in
the Borrowing Base
(c) Ineligible As required in Section To the extent Customer
Account 3.7 subsection (j) included Accounts
arising from the sale
of demonstrators and
loaners to end users in
the Borrowing Base
(d) Ineligible As required in Section To the extent Customer
Accounts 3.7 subsection (q) included Accounts in
the Borrowing Base that
may have been
ineligible due to a
compromise or
settlement
(e) Collections As required in Section Checks were picked up
3.10 by Customer's sales
representatives
(f) Continuing As required in Section Customer did not
Requirements 3.13 subsections (b), (d) notify/inform IBM
and (f) Credit as required
(g) Continuing As required in Section Customer at times
Requirements 3.13 subsection (c) reached settlements
with account debtors
(h) Continuing As required in Section Customer commingled
Requirements 3.13 subsection (g) returns with other
inventory
Page 2 of 5
(i) Warranties, As required in Section To the extent Customer
Reps. and 5.1 subsection (i) did not disclose to IBM
Covenants Credit the $1.7M sales
tax liability in Texas,
the 401K plan
irregularities, the
lawsuits by a former
employee and end user
(j) Warranties, As required in Section Collateral report was
Reps. and 5.1 subsection (p) 3) not received on time on
Covenants an on-going basis
(k) Warranties, As required in Section 3/96 Quarterly
Reps. and 5.1 subsection (p) 2) Financial Report not
Covenants received on 5/23/96
(l) Warranties, As required in Section 12/95 Annual Financial
Reps. and 5.1 subsection (p) 1) Report not received
Covenants until 6/01/96
(m) Negative As required in Section Customer did not obtain
Covenants 5.2 subsection (c) IBM Credit's express
prior written consent
to its merger with
AllStar Services, Inc.
and R. Cano, Inc.
(n) Negative As required in Section Customer did not obtain
Covenants 5.2 subsection (f) IBM Credit's express
prior written consent to
its guarantee of the lease
obligations of Allstar
Equities to Jakascki
Customer did not obtain IBM
Credit's express prior
written consent to its loan
of $157K to J. Long,
(increasing to $175K), the
$75K consultant fee paid to
R. Corey annually and the
payment of the
(o) Negative As required in Section operating expenses of
Covenants 5.2 subsection (k) StrataSoft
Page 3 of 5
Section 3. Waivers to Agreement. IBM Credit hereby waives, through the earlier
of November 15, 1996 or the day after the closing of the stock sale of the
initial public offering referred to in Section 4 of this Amendment, the defaults
of Customer with the terms of the Agreement to the extent such defaults are set
forth in Section 2 hereof.
Section 4. IBM Credit Consent. IBM Credit hereby consents to the reincorporation
of Customer in Delaware by way of the merger with Allstar Systems, Inc., a
Delaware corporation, and to the filing of the initial public offering.
Section 5. Amendment. The Agreement is hereby amended as follows:
Attachment A to the RLA is hereby amended by deleting such Attachment A in
its entirety and substituting, in lieu thereof, the Attachment A attached
hereto. Such new Attachment A shall be effective as of the date specified in the
new Attachment A. The changes contained in the new Attachment A include, without
limitation, the following:
(a) Customer shall pay to IBM Credit a waiver fee equal to Ten Thousand Dollars
($10,000.00) billed on or prior to May 31, 1996. Such waiver fees payable to IBM
Credit hereunder shall be non-refundable and shall be in addition to any other
fees IBM Credit may charge to Customer in the normal course of business;
(b) Customer shall provide to IBM Credit for fiscal year-end 1996 and for each
fiscal year-end thereafter financial statements audited by an independent
certified public accountant satisfactory to IBM Credit within one hundred and
twenty (120) days from end of each fiscal year;
(c) Customer shall meet the following financial covenants at all times (Note:
Until further notice, which may be given by IBM Credit at any time, effective
April 1, 1996, Customer must meet the following financial covenants as of the
end of each fiscal quarter.)
Covenant Covenant Requirement
- -------- --------------------
(a) Net Profit after Tax to Revenue Equal to or greater than 0.50
(b) Revenue on an annual basis Greater than zero and equal to
to Working Capital or less than 56.00, until 12/31/1996,
and greater than zero and equal to or
less than 52.00 thereafter.
(c) Total Liabilities to Greater than zero and equal to
Tangible Net Worth or less than 12.00
Page 4 of 5
Section 6. Additional Requirements. The Agreement is hereby amended by
inserting therein the following new section:
Additional Covenant.
Customer agrees to negotiate in good faith with the intent to execute an
Revolving Loan Agreement ("RLA") within 60 days from the date IBM Credit
delivered a draft of such RLA on July 30, 1996.
Section 7. Rights and Remedies. Except to the extent specifically waived herein
IBM Credit reserves any and all rights and remedies that IBM Credit now has or
may have in the future with respect to Customer, including the assessment of
charges, fees or acceleration of debt and termination of Customer's credit line
as a result of Customer's failure to comply with its financial covenants or
other non-financial covenants to IBM Credit. Except to the extent specifically
waived herein neither this Amendment, any of IBM Credit's actions or IBM
Credit's failure to act shall be deemed to be a waiver of any such rights or
remedies.
Section 8. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws which govern the Agreement.
Section 9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
officers of the undersigned as of the day and year first above written.
Allstar Systems, Inc. IBM Credit Corporation
By: /s/ D.R.CHADWICK By:/s/ BRIAN G. WHITFIELD
Name:D. R. CHADWICK Name:BRIAN G. WHITFIELD
Title:CHIEF FINANCIAL OFFICER Title:CENTER OPERATIONS MANGER
ATTEST: ATTEST:
/s/ JAMES H. LONG /s/ GREG NESTLER
Printed Name: JAMES H. LONG Printed Name: GREG NESTLER
Page 5 of 5
ATTACHMENT A Dated AUGUST 2, 1996
TO
REVOLVING LOAN AGREEMENT Dated August 5, 1993
Customer's Name: Allstar Systems, Inc.
1. A/R Revolver Credit Line Fees, Rates and Repayment Terms:
(a) Total Line of Credit in the amount of:
Twenty Million Dollars ($20,000,000), which includes Accounts
Receivable Financing governed by the Revolving Loan Agreement and
Inventory Financing governed by the Agreement for Wholesale Financing.
(b) Borrowing Base:
(i) Percentage of the invoice amount of Eligible Accounts
Receivable: 85%;
(ii) Percentage of the invoice amount of Eligible Accounts Receivable
for Returned Merchandise Authorization (RMA) less than 90 days
old; * due from Inacom: 50% of invoice amount at 85% advance
rate.
* due from other vendors less amount due to vendors:
100% of invoice amount at 85% advance rate.
(iii) Valuation Percentage on Approved Inventory based on
Warehouse
Location Logical Whse Num Valuation Percent
-------- ---------------- -----------------
Houston 2 99%
Dallas 3 99%
Trade-Ins 5 99%
RMA Inventory 6 99%
Inacom NE 40 99%
Inacom SW 140 99%
* All logical warehouses with alpha-numeric numbers will be valued at 99%,
until 9-1-96, when they will be valued at 0% unless UCC1's are filed and
value will then remain at 99%.
** Logical Warehouse's numbered 4,8,12,13,23,82,83,92,93,98, and 99 are
valued at 0%.
(c) Other Charges: $1,500.00;
(d) Revolver Financing Charge: Prime Rate plus 2.000%
(e) Delinquency Fee Rate: Prime Rate plus 6.50%.
Page 1 of 9
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (Continued)
2. Documentation Requirements: (Other Agreements)
o Executed Blocked Account Amendment to a Lockbox
Agreement;
o Executed Notarized Guarantee of any shareholder owning ten
percent (10%) or greater of the equity of Customer, excluding
Jack Corey.
o Executed Notarized Guarantees of companies listed in
Attachment B;
o Executed Subordinations
o A list of:
o all creditors possessing a security interest or lien on
accounts receivable; all creditors will be required to
subordinate to IBM Credit or terminate their filings; and
o all creditors possessing a security interest or lien which is
superior to IBM Credit's in any Collateral; creditors may be
required to subordinate to IBM Credit.
o Executed Agreement for Wholesale Financing dated August, 12
1993.
o Pro forma income statement, balance sheet and cash flow
statement for the next 12 months or through the current fiscal
year; and
o business narrative that at a minimum should include an
explanation on how Customer plans to accomplish
significant changes in revenue, gross profit margin,
expenses, operating profit margin and net profit. The
Customer's business strategy, anticipated business
climate, and the headcount that will produce the
projected financial results should also be included.
This business narrative to be provided with pro forma
financial statements starting with fiscal year end 1997,
and thereafter.
Page 2 of 9
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (Continued)
3. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Letter of Understanding. All amounts shall be determined in accordance with
generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become
cash within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past
or current transactions that require settlement within the on-going
twelve month period. All indebtedness to IBM Credit shall be considered
a Current Liability for purposes of determining compliance with the
Financial Covenants.
Current Ratio shall mean Current Assets divided by Current
Liabilities.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or mature
within twelve months from such date but are renewable or extendible at
the option of the debtor to a date more than twelve months from the date
of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products
or services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as
allowed.
Revenue on an annual basis shall mean
o when Customer is required to meet financial covenants at
all times: as of the end of each calendar month, the
average monthly revenue for the applicable fiscal year
multiplied by twelve.
o when Customer is required to meet financial covenants at the
end of each fiscal quarter: as of the end of each fiscal
quarter, the year-to-date revenue during the applicable fiscal
year annualized.
Page 3 of 9
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (Continued)
3. Financial Covenants (continued):
Subordinated Debt shall mean Customer's indebtedness to officers or
owners as evidenced by an executed Notes Payable Subordination Agreement
in favor of IBM Credit.
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses,
trademarks, trade names, copyrights, patents, patent
applications, privileges, franchises, licenses and
rights in any thereof, and other similar intangibles
(but not including contract rights) and other current
and non-current assets;
(b) all accounts receivable from officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions,
that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
Page 4 of 9
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (Continued)
3. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios and amounts
at all times. (Note: Until further notice, which may be given by IBM Credit at
any time, effective April 1, 1996, Customer must meet the following financial
covenants as of the end of each fiscal quarter.
a) * Net Profit after Tax to Revenue ratio equal to or greater
than 0% and equal or greater than .5% on a quarterly basis;
b) * Ratio of Total Liabilities to the sum of Tangible Net Worth
greater than zero and equal to or less than 12.0 on a
quarterly basis;
c) * Revenue on an annual basis to Working Capital ratio greater than
zero and equal to or less than 56.0 on a quarterly basis, until
12/31/1996; and ratio greater than zero and equal to or less than
52.0 on a quarterly basis, thereafter.
* IBM Credit may modify a financial ratio by sending a written notification
to Customer. The financial ratio in effect will be as of the date of this
Attachment A or the date of the notification whichever is later.
4. Non Financial Covenants:
Customer must be in good standing at all times in its state of
incorporation and in each state in which it conducts business.
Customer agrees to provide IBM Credit, no later than the 15th day of each
month, reports in a format and containing information that is mutually
satisfactory, listing Collateral in Customer's possession as of the close
of business on the last day of the immediately preceding month.
Customer agrees to maintain standard all-risk insurance coverage on all
locations in the amount of at least six million dollars ($6,000,000.00).
IBM Credit Corporation must be named as a loss payee.
Page 5 of 9
ATTACHMENT A TO
REVOLVING LOAN AGREEMENT (Continued)
5. Financial Report Preparation Requirements:
Reports due under the terms of the Revolving Loan Agreement shall be
prepared as follows:
Annual reports shall be audited by an independent certified public
accountant satisfactory to IBM Credit and delivered to IBM Credit no later
than 120 days after the close of the fiscal year.
Quarterly Reports shall be prepared internally by the Customer and
delivered to IBM Credit no later than 45 days after the quarter close.
Monthly Reports shall be prepared internally by the Customer and delivered
to IBM Credit no later than 15 days after the month close.
6. Customer's state of incorporation is: Texas
7. Lockbox Information: 6. IBM Credit Account Information:
Bank Name: Charter National Bank Bank Name: First Chicago Bank
Address: 7500 Beechnut Address: 525 W. Monroe
P.O. Box 4525 7th Floor Mailroom
Houston, Texas 77210 Chicago, IL 60661
Attn: Lockbox 93676
8. Uniform Commercial Code:
The Uniform Commercial Code in effect from time to time in the state of
Illinois will apply to this Agreement.
Page 6 of 9
ATTACHMENT B TO
REVOLVING LOAN AGREEMENT (Continued)
ATTACHMENT B Dated AUGUST 2, 1996
TO
REVOLVING LOAN AGREEMENT Dated August 6, 1993
1. The address of IBM Credit's place of business where Notices should
be delivered:
Street Address: 2707 West Butterfield Road, Suite 205
City, State, Zip code: Oak Brook, IL 60521
Attention: Center Manager
Telecopy Number: (708) 573 - 7549
2. The exact corporate name of Customer as it appears in its
certificate of incorporation is as follows:
Allstar Systems, Inc.
3. The address of Customer's principal place of business and chief
executive office:
Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
Attention:
Telecopy Number:
4. The address of Customer's place of business where Notices should be
delivered:
Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
Attention:
Telecopy Number:
5. The following is a list of entities affiliated or related to Customer in any
way and a description of such affiliation and/or relationship OR attach
corporate organization chart to Attachment B:
Stratasoft, Inc.
Allstar Equities
Page 7 of 9
ATTACHMENT B TO
REVOLVING LOAN AGREEMENT (Continued)
6. The following are all the locations where Customer maintains any
inventory, equipment or other assets:
a) Street Address: 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, Texas 77074
b) Street Address: 14202 Proton Road
County: Dallas
City, State, Zip code: Dallas, Texas 75344
c) Street Address: Inacom Storage Whse, 13900 Chalco Valley Pwy
County:
City, State, Zip code: Omaha, NE
d) Street Address: Inacom Storage Whse, 502 Birchcreek Road
County:
City, State, Zip code: Swedesboro, NJ
e) Street Address: Apache Operations, 2000 Post Oak, Ste 100
County: Harris
City, State, Zip code: Houston, Texas 77056 - 4400
f) Street Address: Anadarko , 17001 North Chase
County: Harris
City, State, Zip code: Houston, Texas 77060
g) Street Address: Bank of America, 1925 John Carpenter Frwy
County: Harris
City, State, Zip code: Irving, Texas 75039
h) Street Address: Bracewell & Patterson, 711 Louisiana
County: Harris
City, State, Zip code: Houston, Texas 77002
i) Street Address: Nieman Marcus , 1618 Main Street
County: Dallas
City, State, Zip code: Dallas, Texas 75201
j) Street Address: Rockwell, 600 Gemini
County: Harris
City, State, Zip code: Houston, Texas
Page 8 of 9
ATTACHMENT B TO
REVOLVING LOAN AGREEMENT (Continued)
k) Street Address: Solvay, 1230 Battle G
County:
City, State, Zip code:
l) Street Address: Solvay Management, 3333 Richmond
County: Harris
City, State, Zip code: Houston, TX 77098
m) Street Address: Stratasoft 6401 Southwest Freeway
County: Harris
City, State, Zip code: Houston, TX 77074
n) Street Address: Unocal, 14141 Southwest Freeway
County: Harris
City, State, Zip code: Houston, TX 77478
7. The following are all the places of business of Customer not
identified above:
a) Street Address:
County:
City, State, Zip code:
Collateral Located Here (Yes) (No)
If Yes, identify Collateral
b) Street Address:
County:
City, State, Zip code:
Collateral Located Here (Yes) (No)
If Yes, identify Collateral
c) Street Address:
County:
City, State, Zip code:
Collateral Located Here (Yes) (No)
If Yes, identify Collateral
Page 9 of 9
EXHIBIT 10.28
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of August 5, 1996 by and between
Deutsche Financial Services Corporation ("DFS") and Allstar
Systems, Inc., a Texas corporation ("Allstar").
RECITALS
A. Allstar and DFS are parties to that certain Agreement for Wholesale
Financing dated as of September 20, 1993 (along with any and all amendments and
addenda thereto, the "AWF"). As described in that certain letter to DFS dated as
of August 2, 1996 (the "Letter"), a copy of which is attached hereto and
incorporated herein, Allstar has requested DFS' waiver of Dealer's compliance
with certain terms and conditions of the AWF and certain amendments thereto.
B. As described in a Draft Form S-1 Registration Statement under the
Securities Act of 1933 (herein, the "S-1") and certain other communications to
DFS, Allstar is undertaking an initial public offering of its common stock
(herein, the "IPO"). As described in the S-1, in connection with the IPO,
Allstar will be engaging in the "Restructuring" (as defined below). Allstar has
also requested the consent of DFS to the Restructuring and the IPO. (Capitalized
terms used but not defined herein shall have the meanings given them in the
AWF.)
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements herein and after set forth, the parties hereto agree as follows:
1. WAIVERS. In the attached copy of the Letter, each listed
"Term or Condition in AWF" has been given a number for ease of
reference herein. Subject to the terms and conditions hereof, DFS
hereby waives compliance by Dealer with the AWF as follows:
(a) ITEM 1. DFS hereby waives Allstar's compliance with Section 4 of the
AWF concerning: (i) the changes of Allstar's name from Allstar-Valcom, Inc., to
Allstar Systems, Inc., and then to Allstar Systems, Inc., (ii) the merger of
Allstar Services, Inc. and R. Cano, Inc., with and into Allstar, with Allstar as
the survivor thereof, (iii) the formation of the wholly-owned subsidiary
Stratasoft, Inc., a Texas corporation, and (iv) the issuance of stock to Anthony
Adame and Jack Corey. DFS hereby waives Allstar's compliance with Section
1
4 of the AWF concerning only the new locations for Collateral described in Item
1 of the Letter as of the date of the Letter, only to the extent that DFS' first
priority lien in any such Collateral has not been and shall not in any material
way be impaired by reason thereof.
(b) ITEM 2. DFS hereby waives Allstar's compliance with Section 5 of the
AWF concerning the matters described in Item 2 of the Letter, but (i) only to
the extent that any such lease, rental, loan, or demonstration of the Collateral
was done in the ordinary course of Allstar's business, and (ii) only to the
extent, and Allstar hereby represents and warrants to DFS, that such actions did
not have a material adverse effect on the financial condition or properties of
Allstar, its business, or the Collateral.
(c) ITEMS 3-7. DFS hereby waives Allstar's compliance with the AWF
concerning the matters described in Items 3-7 of the Letter, but only to the
extent, and Allstar hereby represents and warrants to DFS, that such actions did
not have a material adverse effect on the financial condition or properties of
Allstar, its business, or the Collateral.
(d) ITEM 8. DFS hereby waives compliance by Dealer with the AWF to the
extent that (i) Dealers's ratio of Debt to Tangible Net Worth plus Subordinated
Debt for the month ending June 30, 1996 was 9.18 to 1.0, and the AWF requires
that such ratio for such period not exceed 8.0 to 1.0.
(e) ITEM 9. The matters described in Item 9 of the Letter are
addressed in Section 3 of this Agreement.
2. TEMPORARY AMENDMENT. For the period commencing on the date of this
Agreement and ending on the earlier to occur of the date of the IPO or November
15, 1996 (the "Amendment Termination Date"), the AWF shall be amended to require
that Dealer's ratio of Debt to Tangible Net Worth plus Subordinated Debt not
exceed 9.5 to 1.0. On and after the Amendment Termination Date, such covenant
shall revert to the previous requirement of not more than 8.0 to 1.0.
3. IPO; RESTRUCTURING. Allstar has explained to DFS that in connection
with the IPO, Allstar will incorporate a new Delaware corporation as a
wholly-owned subsidiary (herein, "Newco"), into which Allstar shall be merged,
with Newco as the survivor (such transaction being referred to herein as the
"Restructuring"). DFS hereby consents to the Restructuring and the IPO, subject
to the
2
following terms and conditions having been satisfied on or before the Amendment
Termination Date, as determined by DFS in its reasonable discretion:
(a) Upon consummation of the Restructuring, Newco shall assume, pursuant
to an agreement in form and substance acceptable to DFS, all of Allstar's
obligations (herein, collectively the "Obligations") arising out of or in any
way related to the AWF and any of the other documents, instruments and
agreements executed in connection therewith (collectively, the "Loan
Documents"), and shall be bound by all of the terms and conditions thereof, as
amended from time to time;
(b) The security interest of DFS in and to the Collateral shall not in any
way be impaired by reason of the Restructuring or the IPO, Allstar acknowledging
that all Collateral now or hereafter acquired by Newco is and shall remain
subject to DFS' first priority lien therein in accordance with the terms and
provisions of the Loan Documents;
(c) Allstar and Newco shall have executed and delivered to DFS such
documents, instruments and agreements, all in form and substance satisfactory to
DFS and its counsel, as are necessary to ensure the continuance of DFS' valid
first lien in the Collateral, including but not limited to: (i) new financing
statements and/or amendments to existing financing statements, and (b) such
other documents, instruments, certificates and agreements as DFS may require to
further perfect and evidence the security interests and priority thereof of DFS
in the Collateral;
(d) DFS shall have received evidence that the financing statements and
other documents described above have been filed in the appropriate filing
locations;
(e) DFS' shall have reviewed the documents pursuant to which the
IPO and the Restructuring were ultimately consummated;
(f) Newco shall have executed and delivered to DFS loan documents, in form
and substance similar to the existing Loan Documents;
(g) DFS shall have received guarantees of Newco's obligations to DFS from
the existing guarantors of Allstar, in form and substance similar to any
existing guarantees given to DFS;
3
(h) DFS shall have received confirmations from the suppliers of inventory
to Allstar that the terms of DFS' repurchase agreements with such suppliers will
be supported and continued for applicable inventory of Newco; and
(i) DFS shall have received revised and/or replacement insurance
certificates and lender loss payee endorsements concerning Newco, in compliance
with those currently required of Allstar under the Loan Documents.
4. NO CLAIMS. Allstar acknowledges that there are no existing claims,
defenses (personal or otherwise) or rights of setoff or recoupment whatsoever
with respect to the Loan Documents. Allstar agrees that this Agreement in no way
acts as a release or relinquishment of any liens, security interests or other
rights in favor of DFS.
5. MISCELLANEOUS. The waivers contained in Sections 1(a) through 1(c) of
this Agreement are only for the time period from September 20, 1993, through the
Amendment Termination Date and these waivers are not intended to apply to any
other time period or any other default now existing or hereafter arising. The
waivers contained in Section 1(d) of this Agreement are only for the time period
covered by Section 1(d) and these waivers are not intended to apply to any other
time period or any other default now existing or hereafter arising. Each waiver
is expressly conditioned upon the accuracy of the financial statements and other
information submitted by Allstar. To the extent of any inaccuracy of such
financial statements or other information, DFS reserves all of its rights and
remedies, including but not limited to recision of this Agreement. Except to the
extent specifically waived herein, all terms and conditions of the Loan
Documents are hereby ratified and reaffirmed and shall remain in full force and
effect. DFS reserves all of its rights and remedies under the Loan Documents.
6. FURTHER ASSURANCES. Allstar hereby agrees to execute and deliver such
other and further documents and instruments as DFS may request to implement the
provisions of this Agreement and to perfect and protect the liens and security
interests created by the Loan Documents, or any successor thereto.
7. AMENDMENTS. No provision of this Agreement may be amended,
modified or waived, except by an instrument in writing signed by DFS.
8. COUNTERPARTS; FAX SIGNATURES. This Agreement may be
executed in one or more counterparts and by different parties on
different counterparts, each of which shall be deemed an original
instrument and all of which taken together shall constitute one and
4
the same agreement. A signature of a party delivered by telecopy or other
electronic communication shall constitute an original signature of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date specified at the beginning hereof.
ALLSTAR SYSTEMS, INC.
By: /s/ JAMES LONG
Name: JAMES LONG
Title: PRESIDENT
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By: /s/ BOB POWELL
Name: BOB POWELL
Title: REGIONAL BRANCH MGR
CONSENT AND ACKNOWLEDGMENT
Each undersigned Guarantor hereby acknowledges and consents to the terms
of the foregoing Agreement, and does hereby ratify and confirm its Guaranty in
all respects.
/s/ JAMES LONG
James Long
Rhonda Long
5
EXHIBIT 10.29
September 12, 1996
Mr. Jack B. Corey
P.O. Box 525
Pinehurst, Texas 77362
Dear Jack:
I am writing on behalf of Allstar Systems, Inc. (the "Company"), Allstar
Equities, Inc., and myself, individually. As you know, the Company is
undertaking an initial public offering of its common stock (the "Offering") and
has filed a registration statement covering the Offering (the Registration
Statement") with the Securities and Exchange Commission ("the SEC"). The
Offering is proposed to be underwritten on a firm commitment basis by a
syndicate of underwriters of which Rauscher Pierce Refsnes, Inc. and Sutro & Co.
Incorporated will act as the representatives of the several underwriters
(collectively, the "Underwriters"). It is also anticipated that the Offering
will include the sale by you of all shares of Allstar's common stock owned by
you. Enclosed with this letter is a copy of the Registration Statement filed by
the Company on August 8, 1996. The purpose of this letter agreement is to
commemorate the various agreements between you, Jakascki Corporation, Allstar
Equities, Inc., the Company, and James H. Long relating to the Offering and the
sale of your shares of the Company's common stock in the Offering.
Those agreements are set forth below.
1. The Company will endeavor to include in the Offering, and you agree
to sell, all shares of the Company's common stock owned by you at the same price
received by the Company in the Offering for the shares sold by it. All costs of
the Offering will be borne by the Company except the underwriting discounts,
fees and other compensation of the Underwriters which will be borne by you and
the Company in proportion to the number of shares sold by you and the Company in
the Offering. Any other expenses incurred by you in connection with the
Offering, including your legal counsel, will be paid by you. Upon pricing of the
Offering with the Underwriters, the Company and you will enter into an
underwriting agreement with the Underwriters containing usual terms, conditions,
representations and indemnities. The form of Underwriting Agreement proposed by
the Underwriters is enclosed. The Underwriters will also require that you enter
into a Custody Agreement and a Power of Attorney to insure delivery of your
shares at closing and you hereby agree to do so. This is a typical selling
shareholder arrangement. Copies of the proposed Custody Agreement and Power of
Attorney are enclosed.
2. You agree to cooperate with the Company, its legal counsel and its
independent auditors and the Underwriters in connection with their preparation
of the Registration Statement and their related "due diligence" inquiries. They
will, for example, need your assistance in assuring that business arrangements
between you and the Company are correctly described and in preparing and
executing curative minutes for the Company. The Underwriters and the Company's
securities counsel will need for you to complete a questionnaire for their due
diligence purposes, a copy of which is enclosed. Please complete and return the
questionnaire as soon as possible to the Company's securities counsel, Porter &
Hedges, L.L.P., 700 Louisiana, 35th Floor, Houston, Texas 77002, Attention: Nick
D. Nicholas, (713) 226-0637.
3. To facilitate the Offering, it is hereby agreed that certain
contracts will be terminated or modified. Upon closing of the Offering (the
"Closing"), the following agreements, and all rights arising out of or in
connection with the agreements, will be terminated: (i) the Stock Purchase
Agreement executed March 22, 1994 (the "Stock Purchase Agreement"); (ii) the
Shareholders Agreement executed August 2, 1996 (the "Shareholders Agreement");
(iii) the Insurance Proceeds Agreement dated August 2, 1996; and (iv) the
Consulting Agreement executed August 2, 1996 (the "Consulting Agreement"). The
next payment that would otherwise be due following the Closing under the
Consulting Agreement will be prorated through the Closing. Upon the Closing, the
Guaranty to Lease between Jakascki Corporation and Allstar Equities, Inc. dated
August 2, 1996 (the "Lease Guaranty"), will be automatically modified to exclude
the Company as a guarantor. Additionally, the Indemnity Agreement entered into
by Allstar Equities, Inc., the Company and James H. Long dated August 2, 1996
(the "Indemnity Agreement"), will be automatically modified upon the Closing to
exclude the Company as an indemnitor.
4. You also agree to waive any right to prior notice of the proposed
Offering to which you would otherwise be entitled, including rights to notice
of, and to participate in, the Offering that may arise under the Stock Purchase
Agreement and the Shareholders Agreement. Any preemptive rights or rights of
first refusal you may have with respect to purchases and sales of the Company's
common stock are also hereby waived by you, including without limitation, any
such rights in connection with respect to shares to be issued in the Offering.
5. To enable you to sell all your shares of the Company's common stock
in the Offering, the Company and James H. Long will need to waive certain
contractual provisions that otherwise would limit the amount of net proceeds to
be receivable by you from the sale of shares by you in the Offering.
Accordingly, for purposes of the Offering, (i) the Company hereby waives the
limitations set forth in paragraph 2(b) of the Stock Purchase Agreement, and
(ii) James H. Long hereby waives the limitations set forth in paragraph 2(b) of
the Shareholders Agreement.
6. You and Jakascki Corporation agree that as of the Closing any
liabilities or obligations of the Company, Allstar Equities, Inc., or James H.
Long arising under or in connection with the following agreements and
instruments, whether now existing or hereafter arising, will be automatically
waived and released: (i) the Lease Guaranty; (ii) the Indemnity Agreement; (iii)
the now superseded Lease Agreement dated June 26, 1991, between Jakascki
Corporation and Allstar Equities, Inc.; (iv) the now superseded Guaranty to
Lease dated June 26, 1991, between the Company, Jakascki Corporation, Allstar
Equities, Inc., and James H. Long; (v) the now superseded Agreement Among
Shareholders effective as of December 31, 1993, between you and James H. Long;
and (vi) the now superseded Sublease between Allstar Equities, Inc. and the
Company dated August 1, 1991.
7. On August 2, 1996, Jakascki Corporation executed an Unsecured
Promissory Note in the principal amount of $150,000 naming the Company as payee
which included an attached Guaranty by you (collectively, the "Erroneous Note").
All parties have agreed, however, that the Company was mistakenly named as the
payee of the Erroneous Note, and the correct payee is Allstar Equities, Inc.
Therefore, in order to correct the mistake, it is hereby agreed that Jakascki
Corporation shall within five days execute and deliver to the Company a
corrected form of Unsecured Promissory Note and related Guaranty of Jack B.
Corey copies of which are enclosed (collectively, the "Corrected Note"). The
Company hereby agrees to return the Erroneous Note to Jakascki Corporation
marked "void" upon received of the properly executed Corrected Note. Prior to
the execution of this letter, certain parties to this letter have entered into
various instruments and agreement that referred to the Erroneous Note. Those
instruments and documents (including, without limitation, that certain Lease
Agreement between Jakascki Corporation and Allstar Equities, Inc.) are hereby
amended by substituting references to the Corrected Note for all references to
the Erroneous Note.
8. As previously discussed, you confirm and agree that you do not wish
to become a director of the Company as contemplated by paragraph 7 of the
Shareholders Agreement. Accordingly, you hereby agree to waive the provisions of
paragraph 7(a) of the Shareholders Agreement until through the first to occur of
the completion of the Offering or its abandonment. You also agree to waive the
provisions of paragraph 7(b) of the Shareholders Agreement insofar as it would
apply to restrict the activities of James H. Long necessary or appropriate to
prepare for and complete the Offering.
9. As a preliminary step to the Offering, we plan to reincorporate the
Company under the laws of the State of Delaware, as described in the
Registration Statement under the captions "Business--History and
Reincorporation" and "Description of Capital Stock." The Company's legal counsel
will prepare the reincorporation documents which will be filed prior to the
effective date of the Registration Statement. Drafts of the reincorporation
documents are enclosed. As a shareholder of the Company, you agree to execute a
unanimous consent of shareholders necessary to authorize the reincorporation.
All agreements and references in this agreement pertaining to the Company (which
is presently a Texas corporation) shall also be binding upon and inure to the
benefit of the Delaware corporation into which the Company will be merged to
complete the reincorporation.
If the foregoing correctly sets forth our agreements, please sign and
return to me the enclosed copy of this letter.
Very truly yours,
ALLSTAR SYSTEMS, INC.
By:
James H. Long, President
ALLSTAR EQUITIES, INC.
By:
James H. Long, President
James H. Long, Individually
AGREED TO THIS _____ DAY
OF SEPTEMBER, 1996
- -------------------------
Jack B. Corey, Individually
AGREED TO THIS _____ DAY
OF SEPTEMBER, 1996
JAKASCKI CORPORATION
By:_______________________
Jack B. Corey, President
EXHIBIT 10.30
[IBM LETTERHEAD]
IBM Credit Corporation 290 Harbor Drive
P.O. Box 10399
Stamford, Ct. 04-2399
203/973-5100
September 10, 1996
Dear Mr. Chadwick:
IBM Credit is pleased to announce our 1996 Credit Line Uplift Program for
AllStar and other qualifying remarketers.
50 percent September 1, 1996 - February 28, 1977
40 percent March 1, 1997 - March 31, 1997
25 percent April 1, 1997 - April 30, 1997
This program will be in effect for you as long as you remain in good standing
with IBM Credit.
Our 1996 uplift program is designed to help Flexible Payment Plan customers like
you process additional year-end business and is spread out over a longer period
of time so outstandings and credit lines are brought into balance gradually. The
Uplift Program includes all products purchased from our extensive supplier
network.
Increased requests for base credit lines in excess of this standard program and
other requirements not satisfied by the standard terms will be handled on an
individual basis. Only the Flexible Payment Plan is eligible for this uplift.
As always, our goal is to provide you with the highest quality service to meet
your financing needs. We believe this program, in conjunction with our strong
supplier relationships, demonstrates our dedication to achieving this goal.
If you have any questions regarding this announcement, please contact your local
remarketer financing center at 1-800-753-7053 and speak to your remarketer
financing advisor.
Sincerely,
/s/ BRIAN G. WHITFIELD
Brian G. Whitfield
Center Operations Manager
EXHIBIT 10.31
INSURANCE PROCEEDS AGREEMENT
Agreement is made this the 2ND day of August, 1996 by Allstar systems,
Inc., a Texas corporation (Company), and Jack B. Corey, (Shareholder).
WHEREAS, the Shareholder presently owns an aggregate of 65,625 shares of
common stock of the Company; and,
WHEREAS, the Company desires to acquire the right to purchase all of the
capital stock of the company owned by the shareholder in the event of the death
of James H. Long, its President ("Long"), and Shareholder desires to require the
Company to purchase all shares of stock of the Company in the event of death of
James H. Long
Therefore, in consideration of the above and the mutual agreements
hereafter set forth, the parties agree as follows:
1. In the event of the death of Long, the Company shall, to the extent
permitted by the laws of its jurisdiction of incorporation, be required to
purchase shares of capital stock of the Company owned by Shareholder at the time
of Long's death as follows:
(A) The price to be paid for the stock shall be the applicable price set
forth on Schedule "A" attached hereto which corresponds to the number of months
shareholder has held the stock.
2. The payment for shares of stock owned by the Shareholder at date of
death shall be made within thirty (30) days of the receipt of proceeds of the
life insurance carried on the life of Long pursuant to section 3.
3. In order to assure that funds are available to fund the Company's
obligation hereunder the Company shall carry life insurance in and amount at
least equal to the amount equal to the number of shares owned by the Shareholder
multiplied by the highest per share price set forth on Schedule "A" of the
Shareholder Agreement. The Company shall cause sufficient proceeds from such
insurance policy to be applied to repurchase such shares in accordance with
section three (3) of the Shareholder Agreement.
4. Any notice, offer or acceptance which is required or remitted to be
given shall be in writing and shall be addressed as follows:
to Allstar
6401 Southwest Freeway
Houston, Texas
to Corey
P.O. Box 525
Pinehurst, Texas 77362
or to such other address as any party may hereafter designate for the purpose in
a notice given to each of the other parties in accordance with the provisions of
this section.
5. So long as this agreement remains in effect all of the shares of
stock issued by the Company and owned by the Shareholder shall bear a legend
referring to this agreement.
6. This agreement has been approved by a majority of the board of
directors at a meeting at which the shareholder abstained from voting.
7. This agreement shall continue in effect until all of the 65,625
shares of stock currently owned by the Shareholder have been purchased by Long
or the Company.
8. No waiver of any provision of this agreement shall be effective
unless in writing and signed by the party entitled to exercise the rights
conferred by this agreement.
9. This agreement shall be governed by , and construed in accordance
with, the laws of the State of Texas and shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Shareholder and his
heirs, legal representatives and estate.
In witness whereof, the parties have executed this agreement as of the
date written above.
ALLSTAR SYSTEMS, INC.
By: /s/ JAMES H. LONG
James H. Long, President
/s/ JACK B. COREY
Jack B. Corey, Shareholder
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-09789 of Allstar Systems, Inc. ("Allstar") on Form S-1 of our report dated
April 19, 1996, except for Notes 1, 4, 5 and 11 as to which the date is
September , 1996, appearing in the Prospectus, which is part of this
Registration Statement, and to the references to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of Allstar listed in Item 16(b). This consolidated financial statement
schedule is the responsibility of Allstar's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Houston, Texas
September , 1996
