AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
REGISTRATION NO. 333-........
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLSTAR SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 5045
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0062751
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
AMOUNT OF
TITLE OF EACH CLASS OF PROPOSED MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------
Common Stock $.01 par value per share...... $28,083,000 $9,684
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act of 1933.
------------------------
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.
================================================================================
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 AUGUST 8, 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
[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 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.
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,
prevent the approval of certain matters requiring the approval of at least
two-thirds of all 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 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
10
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 $12.0 million (approximately 81% 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 and the balance for working capital and general corporate
purposes. 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. As part of working capital and
general corporate purposes, net proceeds remaining after reduction of the
Company's short-term indebtedness 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.
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
</TABLE>
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
- ------------
(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.
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.
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. 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. This
increase was primarily attributable to the replacement of less profitable types
of services with services that generated higher gross margins. 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
17
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 Systems operations. 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, gross margin decreased from
13.3% in 1994 to 12.5% in 1995. The gross margin for Computer Products increased
slightly from 10.3% in 1994 to 10.4% in 1995. 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
18
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 lower than normal gross margin, 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.
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.
19
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, seasonal promotion 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, which 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.
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.
21
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 $20.0
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.
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. 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
22
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. IBMCC and DFS waived such
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. There can be no assurance that the
Company will be able to avoid similar defaults in the future or that any 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.
23
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
24
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
25
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
26
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. StrataDial features inbound/outbound call blending without
requiring an automated call distribution feature ("ACD") of the PBX
telephone system. 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
27
characteristics can be changed without shutting down the dialer, as is
required with many competing products. Through June 30, 1996, the
Company had sold 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 sold 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.
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 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.
28
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 sampling of customers shown below, each of which purchased products
or services in excess of $100,000 during the 18-month period ending June 30,
1996, illustrates the diversity of the Company's customers:
3COM Corporation
Air Liquide America Corp.
Amoco Corporation
B. J. Services Company
Baker Oil Tools, Inc.
Bank America Corporation
Baylor College of Medicine
Blockbuster Entertainment
Brinks Home Security, Inc.
Chevron Chemical Company
Coastal Bancorp
Coopers & Lybrand L.L.P.
Ensco Incorporated
Ericsson, Inc.
Exxon Corp.
General Instrument Corp.
GTE VISNET
H&R Block of South Texas
Houston Lighting & Power Co.
Ingersoll-Rand Company
JCPenney Life Insurance
Landmark Graphics Co.
Lucent Technologies
Maxum Health Corp.
MCI Telecommunications Corp.
Motorola, Inc.
National Semiconductor
Perot Systems Corporation
Ranger Insurance Company
Rockwell International
Schlumberger Technology
Sonic Restaurants, Inc.
Southwestern Bell Telephone Co.
Tandy Corp.
Texas A&M University
Texas Commerce Bank
Toshiba International Corp.
Transamerica Finance Services
Turner Construction Company
Unocal
Western Atlas International, Inc.
29
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.
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 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
30
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 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
31
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 48,000 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 this warehouse 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.
32
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.
33
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, Product 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
34
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.
35
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
36
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 August 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 August 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.
37
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.
38
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. Additionally, Allstar Equities is required to pay certain
operating costs. Under the New Lease, Allstar Equities has an option to purchase
the building for $1.55 million in 1996, such purchase price increasing by
$50,000 in each of the two remaining years of the New Lease. 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, plus certain operating costs. 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 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, 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 the Selling Stockholder is
535,000. Contemporaneously with the share purchase, the Selling Stockholder
entered into a Stock Purchase Agreement with the Company under which the Selling
Stockholder 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 the Selling Stockholder 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 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 the Selling
Stockholder and James H. Long containing certain buy-sell provisions
39
and other shareholder matters which was superceded by a Shareholders' Agreement
executed in August 1996. The Stock Purchase Agreement and the current
Shareholders' 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 consults for the Company's Chief Executive
Officer on an as-needed basis concerning the Company's business and affairs.
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 the
Selling Shareholder. In August 1996, the consulting arrangement was modified and
commemorated in a written Consulting Agreement between the Company and the
Selling Stockholder. 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 the
Selling Shareholder 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.
CERTAIN RELATED BUSINESS TRANSACTIONS
The Company supplies Computer Products to and provides marketing support
for Mintech, Inc. ("Mintech"), a business engaged in reselling computer products
to third parties, which 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 and Chadwick will resign from their positions at Mintech
prior to the closing of this Offering.
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 have been made to Mintech to
date; however, the Company is 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 currently due to Mintech is approximately
$12,000. Mintech has purchased, in the aggregate, approximately $1.3 million of
Computer Products from the Company during
40
the three year period ended December 31, 1995 and the six months ended June 30,
1996, and is presently not indebted to the Company. The Company sold the
products and services to Mintech at a slight discount from the terms provided to
other 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 regarding confidential
information which generally prohibit disclosure of certain information and, for
a period of 12 months, certain competition with Stratasoft. 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.
41
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> <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.
42
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
43
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"), the 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
44
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.
45
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."
46
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.
47
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 reports 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.
48
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
Houston, Texas
August 8, 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> <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.
In addition, in April 1996 the credit line was increased to $20 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.
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.
F-9
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
========= =========
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
F-10
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-11
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
* * * * * *
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
Aggregator..................... A company that purchases directly from
manufacturers in large quantities, maintains
inventory, breaks bulk and resells to
distributors, 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 manufacturer, 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
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............................. 24
Management........................... 34
Certain Relationships and Related
Transactions....................... 39
Principal and Selling Stockholders... 42
Description of Capital Stock......... 43
Shares Eligible for Future Sale...... 46
Underwriting......................... 47
Legal Matters........................ 48
Experts.............................. 48
Additional Information............... 48
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 therefor; thus,
no cash payment was received by the Company from Mr. Adame upon issuance of the
shares. 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
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C>
`1.1 -- Form of Underwriting Agreement.
`2.1 -- 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 by and between IBM Credit Corporation and Allstar
Systems, Inc.
*10.2 -- Agreement for Wholesale Financing dated September 20, 1993, by and between ITT Commercial
Finance Corp. and Allstar-Valcom, Inc.
II-2
*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 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 by and between Novell, Inc. and Allstar Systems, Inc.
`10.10 -- Allstar Systems, Inc. 401(k) Plan.
`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 by and between
Hewlett-Packard Company and Allstar Systems, Inc.
`10.21 -- Associate Agreement by and between NEC America, Inc. and Allstar Systems, Inc.
`10.22 -- Mitel Elite Dealer Agreement and Extension Addendum 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.
*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>
- ------------
* Filed herewith.
` To be filed by Amendment.
II-3
(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 August 8, 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 8th day of August, 1996.
SIGNATURE TITLE DATE
- -------------------- ------------------------------------- ----------------
/s/ JAMES H. LONG Director, Chairman of the Board, August 8, 1996
James H. Long President and Chief Executive Officer
(Principal Executive Officer)
/s/ DONALD R. CHADWICK Chief Financial Officer August 8, 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
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C>
`1.1 -- Form of Underwriting Agreement.
`2.1 -- 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 by and between IBM Credit Corporation and Allstar
Systems, Inc.
*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 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 by and between Novell, Inc. and Allstar Systems, Inc.
`10.10 -- Allstar Systems, Inc. 401(k) Plan.
`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 by and between
Hewlett-Packard Company and Allstar Systems, Inc.
`10.21 -- Associate Agreement by and between NEC America, Inc. and Allstar Systems, Inc.
`10.22 -- Mitel Elite Dealer Agreement and Extension Addendum 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.
*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>
- ------------
* Filed herewith.
` To be filed by Amendment.
EXHIBIT 10.2
AGREEMENT FOR WHOLESALE FINANCING
(SECURITY AGREEMENT - ARBITRATION)
This Agreement for Wholesale Financing ("Agreement") is made as of September 20,
1993 between ITT Commercial Finance Corp. ("ITT") and Allstar-Valcom, Inc., a
Corporation having a principle place of business located at 6401 Southwest
Freeway, Houston, Texas 77074.
1. Subject to the terms of this Agreement, ITT, in its sole discretion, may
extend credit in Dealer from time to time to purchase inventory from ITT
approved vendors. ITT may combine all of ITT's advances to Dealer or on Dealer's
behalf, whether under this Agreement or any other agreement, to make on debt
owned by Dealer. ITT's decision to advance funds on any inventory will not be
binding until the funds are actually advanced. Dealer agrees that ITT may, at
any time and without notice to Dealer, elect not to finance any inventory sold
by particular vendors who are in default of their obligations to ITT, or with
respect to which ITT reasonably feels insecure.
2. Dealer and ITT agree that certain financial terms of any advance made by ITT
under this Agreement, whether regarding finance charges, other fees, maturities,
curtailments or other financial terms, are not set forth herein because such
terms depend, in part, upon the availability from time to time of vendor
discounts or other incentives, prevailing economic conditions, ITT's floor
planning volume with Dealer and with Dealer's vendors, and other economic
factors which may vary over time. Dealer and ITT further agree that it is
therefore in their mutual best interest to set forth in this Agreement only the
general terms of Dealer's financing arrangement with ITT. Upon agreeing to
fiance a particular item on inventory for Dealer, ITT will send Dealer a
Statement of Transaction identifying such inventory and the applicable financial
terms. Unless Dealer notifies ITT in writing of any objection within fifteen
(15) days after a Statement of Transaction is mailed to Dealer: (a) the amount
shown on such Statement of Transaction will be an account stated; (b) Dealer
will have agreed to all rates, charges and other terms shown on such Statement
of Transaction; (c) Dealer will have agreed that the items of inventory
referenced in such Statement of Transaction are being financed by ITT at
Dealer's request; and (d) such Statement of Transaction will be incorporated
herein by reference, will be made a part thereof as if originally set forth
herein, and will constitute an addendum hereto. If Dealer objects to the terms
of any Statement of Transaction Dealer agrees to pay ITT for such inventory in
accordance with the lost recent terms of similar inventory to which Dealer has
not objected (or, if there are no prior terms, at the lesser of 16% per annum or
at the maximum lawful contract rate of interest permitted under applicable law),
but Dealer acknowledges that ITT may then elect to terminate Dealer's financing
program pursuant to Section 12, and cease making additional advances to Dealer.
Any termination for that reason however, willing to accelerate the maturities of
advances previously made, unless Dealer otherwise be in default of this
Agreement.
3. To secure payment of all Dealer's current and future debts to ITT, whether
under this Agreement or any current or future guaranty or other agreement,
dealer grants ITT a security interest in all Dealer's inventory, equipment,
fixtures,
<PAGE>
accounts, contract rights, chattel paper, instruments, reserves, documents and
general intangibles, whether now owned or hereafter acquired, al attachments,
accessories, accessions, substitutions and replacements thereto and all proceeds
thereof. All such assets are as defined in the Uniform Commercial Code and
referred to herein as the "Collateral." All Collateral financed by ITT, and all
proceeds thereof, will be held in trust by Dealer for ITT, with such proceeds
being payable in accordance with Section 7.
4. Dealer represents that all Collateral will be kept at Dealer's principal
place of business listed above, and, if any, the following other locations,
14202 Proton Road, Dallas, Texas 75234. Dealer will give ITT at least 30 days
prior written notice of any change in Dealer's identity, name, form of business,
organization, ownership, principle place of business, Collateral locations or
other business locations.
5. Dealer will: (a) only exhibit and sell Collateral financed by ITT to buyers
in the ordinary course of business; (b) not rent, lease, demonstrate, transfer
or use any Collateral financed by ITT without ITT's prior written consent; (c)
execute all documents ITT requests to perfect ITT's security interest in the
Collateral; (d) deliver to ITT immediately upon each request, and ITT may retain
each Certificate o Title or Statement of Origin issued for Collateral financed
by ITT; and (c) immediately provide ITT with copies of Dealer's annual financial
statement upon their completion (which in no event shall exceed 120 days after
the end of Dealer's fiscal year), and all other information regarding Dealer
that ITT requests from time to time. All financial information Dealer delivers
to ITT will accurately represent Dealer's financial condition either as of the
date of delivery, or , if different, the date specified therein, and Dealer
acknowledges ITT's reliance thereon.
6. Dealer will: (a) pay all taxes and fees assessed against Dealer or the
collateral when due; (b) immediately notify ITT of any loss, their or damage to
any Collateral; (c) keep the Collateral insured for its full insurable value
under a property insurance policy with a company acceptable to ITT, naming ITT
as a loss-payee and containing standard lender's loss payable and termination
provisions; and (d) provide ITT with written evidence of such insurance coverage
and loss payee and lender's clauses. If Dealer fails to pay any taxes, fees or
other obligations which may impair ITT's interest in the Collateral, or fails to
keep the Collateral insured, ITT may pay such taxes, fees or obligations and pay
the cost to insure the Collateral, and the amounts paid will be: (i) an
additional debt owed by Dealer to ITT; and (ii) due and payable immediately in
full. Dealer grants ITT an irrevocable license to enter Dealer's business
locations during normal business hours without notice to Dealer to: (A) account
for and inspect all Collateral; (B) verify Dealer's compliance with this
Agreement; and (C) examine and copy Dealer's books and records related to the
Collateral.
7. Dealer will immediately pay ITT the principal indebtedness owed ITT on each
item of Collateral financed by ITT (as shown on the Statement of Transaction
identifying such Collateral) on the earliest occurrence of any of the following
events: (a) when such Collateral is lost, stolen or damaged; (b) for Collateral
financed under Sold ("PAS") terms (as shown on the Statement
<PAGE>
action identifying such Collateral), when such Collateral is sold, transferred,
rented, leased, otherwise disposed of or matured; (c) in strict accordance with
any curtailment schedule for such Collateral (as shown on the Statement of
Transaction identifying such Collateral); (d) for Collateral financed under
Scheduled Payment Program ("SPP") terms (as shown on the Statement of
Transaction identifying such Collateral), in strict accordance with the
installment payment schedule; and (e) when otherwise required under the terms of
any financing program agreed to in writing by the parties. Regardless of the SPP
terms pertaining to any Collateral financed by ITT, if ITT determines that the
current outstanding debt owed by Dealer to ITT exceeds the aggregate wholesale
invoice price of such Collateral in Dealer's possession, Dealer will immediately
upon demand pay ITT the difference between such outstanding debt and the
aggregate wholesale invoice price of such Collateral. If Dealer from time to
time is required to make immediate payment to ITT of any past due obligation
discovered during any Collateral audit, or at any other time, Dealer agrees that
acceptance of such payment by ITT shall not be construed to have waived or
amended the terms of its financing program. Dealer agrees that the proceeds of
any Collateral received by Dealer shall be held by dealer in trust for ITT's
benefit, for application as provided in this Agreement. Dealer will send all
payments to ITT's branch office(s) responsible for Dealer's account. ITT may
apply: (i) payments to reduce finance charges first and then principal,
regardless of Dealer's instructions; and (ii) principal payments to the oldest
(earliest) invoice for Collateral financed by ITT, but, in any event, all
principal payments will first be applied to such Collateral which is sold,
stolen, damaged, rented, leased, or otherwise disposed of or unaccounted for.
Any third party discount, rebate, bonus or credit granted to Dealer for any
Collateral will not reduce the debt Dealer owes ITT until ITT has received
payment therefor in cash. Dealer will: (1) pay ITT even if any Collateral is
defective or fails to conform to any warranties extended by any third party,
(ii) not assert against ITT any claim or defense Dealer has against any third
party; and (iii) indemnify and hold ITT harmless against all claims and defenses
asserted by any buyer of the Collateral relating to the condition of, or any
representations regarding, any of the Collateral. Dealer waives all rights of
offset Dealer may have against ITT.
8. Dealer will pay ITT finance charges on the outstanding principal debt Dealer
owes ITT for each item of Collateral financed by ITT at the rate(s) shown on the
Statement of Transaction identifying such Collateral, unless Dealer objects
thereto as provided in Section 2. The finance charges attributable to the rate
shown on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the daily Charge (as defined below) by
the actual number of days in the applicable billing period; and 9c) accrue from
the invoice date of the Collateral identified on such Statement of Transaction
until ITT receives full payment of the principal debt Dealer owes ITT for each
item of such Collateral. The "Daily Charge" is the product of the Daily Rate (as
defined below) multiplied by the Average Daily Balance (as defined below). The
"Daily Rate" is the quotient of the annual rate shown on the Statement of
Transaction divided by 360, or the monthly rate shown on the Statement of
Transaction divided by 30. The "Average Daily Balance" is the quotient of (i)
the sum of the outstanding principal debt owned ITT on each day of a billing
period for each item of Collateral identified on a Statement of Transaction,
divided by (ii) the
<PAGE>
actual number of days in such billing period. Dealer will also pay ITT $100 for
each check returned unpaid for insufficient funds (an "NSF check") (such $100
payment repays ITT's estimated administrative costs; it does not waive the
default caused by the NSF check). Dealer acknowledges that ITT intends to
strictly conform to the applicable usury laws governing this Agreement and
understands that Dealer is not obligated to pay any fiance charges billed to
Dealer's account exceeding the amount allowed by such usury laws, and any such
excess finance charges Dealer pays will be applied to reduce Dealer's principal
debt owed to ITT. The annual percentage rate of the finance charges relating to
any item of Collateral financed by ITT shall be calculated from the invoice date
of such Collateral, regardless of any period during which any finance charge
subsidy shall be paid or payable by any third party. ITT will send Dealer a
monthly billing statement identifying all charges due on Dealer's account with
ITT. The charges specified on each billing statement will be: (A) due and
payable in full immediately on receipt, and (B) an account stated, unless ITT
receives Dealer's written objection thereto within 15 days after it is mailed to
Dealer. If ITT does not receive, by the 25th day of any given month, payment of
all charges accrued to Dealer's account with ITT during the immediately
preceding month, Dealer will (to the extent allowed by law) pay ITT a late fee
("Late Fee") equal to the greater of $5 or 5% of the amount of such finance
charges (such late Fee repays ITT's estimated administrative costs; it does not
waive the default caused by the late payment). ITT may adjust the billing
statement at any time to conform to applicable law and this Agreement.
9. Dealer will be in default under this Agreement if: (a) Dealer breaches any
terms, warranties or representations contained herein, in any Statement of
Transaction to which Dealer has not objected as provided in Section 2, or in any
other agreement between ITT and Dealer; (b) any guarantor of Dealer's debts to
ITT breaches any terms, warranties or representations contained in any guaranty
or other agreement between the guarantor and ITT; (c) any representation,
statement, report or certificate made or delivered by Dealer or any guarantor to
ITT is not accurate when made; (d) Dealer fails to pay any portion of Dealer's
debts to ITT when due and payable hereunder or under any other agreement between
ITT and Dealer; (e) Dealer abandons any Collateral; (f) Dealer or any guarantor
is or becomes in default in the payment of any debt owed to any third party; (g)
a money judgment issues against Dealer or any guarantor; (h) an attachment, sale
or seizure issues or is executed against any assets of Dealer or of any
guarantor; (i) the undersigned dies while Dealer's business is operated as a
sole proprietorship or any general partner dies while Dealer's business is
operated as a general or limited partnership; (j) any guarantor dies; (k) Dealer
or any guarantor shall cease existence as a corporation, partnership or trust;
(l) Dealer or any guarantor ceases or suspends business; (m) Dealer or any
guarantor makes a general assignment for the benefit of creditors; (n) Dealer or
any guarantor becomes insolent or voluntarily or involuntarily becomes subject
to the Federal Bankruptcy Code, any state insolvency law or any similar law; (o)
any receiver is appointed for any of Dealer's or any guarantor's assets; (p) any
guaranty of Dealer's debts to ITT is terminated; (q) Dealer loses any franchise,
permission, license or right to sell or deal in any Collateral which ITT
fiances; (r) Dealer or any guarantor misrepresents Dealer's or such guarantor's
financial condition or organizational structure; or 9s) any of the Collateral
becomes subject to any lien,
<PAGE>
claim, encumbrance or security interest prior or superior to ITTs. In the event
of a default:
(i) ITT may at any time at ITT's election, without notice or demand
to Dealer, do any one or more of the following: declare all or
any part of the debt Dealer owes ITT immediately due and
payable, together with all costs and expenses of ITT's
collection activity, including, without limitation, all
reasonable attorney's fees; exercise any or all rights under
applicable law (including, without limitation, the right to
possess, transfer and dispose of the Collateral); and/or cease
extending any additional credit to Dealer (ITT's right to cease
extending credit shall not be construed to limit the
discretionary nature of this credit facility).
(ii) Dealer will segregate and keep the Collateral in trust for ITT,
and in good order and repair, and will not exhibit, sell, rent,
lease, further encumber, otherwise dispose or use any
Collateral.
(iii) Upon ITT's oral or written demand dealer will immediately
deliver the Collateral to ITT in order and repair, at a place
specified by ITT, together with all related documents, or ITT
may, in ITT's sole discretion and without notice or demand to
Dealer, take immediate possession of the Collateral together
with all related documents.
(iv) ITT may, without notice, apply a default finance charge to
Dealer's outstanding principal indebtedness equal to the default
rate specified in Dealer's financing program with ITT, if any,
or if there is none so specified, at the lesser of 3% per annum
above the rate in effect immediately prior to the default, or
the highest lawful contract rate of interest permitted under
applicable law.
All ITT's rights and remedies are cumulative. ITT's failure to exercise any of
ITT's rights or remedies hereunder will not wive any of ITT's rights or remedies
as to any past, current or future default.
10. Dealer agrees that if ITT conducts a private sale of any Collateral by
requesting bids from 10 or more dealers or distributors in that type of
Collateral, any sale by ITT is otherwise authorized to sell such Collateral;
whichever occurs last, to the bidder submitting the highest cash bid therefor,
is a commercially reasonable sale of such Collateral under the Uniform
Commercial Code. Dealer agrees that the purchase of any Collateral by a vendor,
as provided in any agreement between ITT and the vendor, is a commercially
reasonable disposition and private sale of such Collateral under the Uniform
Commercial Code, and no request for bids shall be required. Dealer further
agrees that 7 or more days prior written notice will be commercially reasonable
notice of any public or private sale (including any sale to a vendor). If ITT
disposes of any such Collateral other than as herein contemplated, the
commercial reasonableness of such disposition will be
<PAGE>
determined in accordance with the laws of the state governing this Agreement.
11. Dealer grants ITT an irrevocable power of attorney to: execute or endorse on
Dealer's behalf any checks, financing, statements, instruments, Certificates of
Title and Statements of Origin pertaining to the Collateral; supply any omitted
information and correct errors in any documents between ITT and Dealer; do
anything Dealer is obligated to do hereunder; initiate and settle any insurance
claim pertaining to the Collateral; and do anything to preserve and protect the
Collateral and ITT's rights and interest therein. ITT may provide to any third
party any credit, financial or other information on Dealer that ITT may from
time to time possess.
12. Time is of the essence. This Agreement is deemed to have been entered into
at the ITT branch office executing this Agreement. Either party may terminate
this Agreement at any time by written notice received by the other party. If ITT
terminates this Agreement, Dealer agrees that if Dealer: (a) is not in default
hereunder, 30 days prior notice of termination is reasonable and sufficient
(although this provision shall not be construed to mean that shorter periods may
not, in particular circumstances, also be reasonable and sufficient); or (b) is
in default hereunder, no prior notice of termination is required. Dealer will
not be relieved from any obligation to ITT arising out of ITT's advances or
commitments made before the effective termination date of this Agreement. ITT
will retain all of its rights, interests and remedies hereunder until Dealer has
paid all Dealer's debts to ITT. Dealer cannot assign Dealer's interest in this
Agreement without ITT's prior written consent, although ITT may assign or
participate ITT's interest, in whole or in part, without Dealer's consent. This
Agreement will protect and bind ITT's and Dealer's respective heirs,
representatives, successors and assigns. All agreements or commitments to extend
or renew credit or refrain from enforcing payment of a debt must be in writing.
Any oral or other amendment or waiver claimed to be made to this Agreement that
is not evidenced by a written document executed by ITT and Dealer (except for
each Statement of Transaction that Dealer does not object to in the manner
stated in Section 2) will be null, void and have no force or effect whatsoever.
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 Dealer previously executed any
security agreement with ITT, this Agreement will only amend and supplement such
agreement. If the terms hereof conflict with the terms of any such prior
security agreement, the terms of this Agreement will govern. Dealer agrees to
pay all of ITT's reasonable attorneys fees and expenses incurred by ITT in
enforcing ITT's rights hereunder.
13. BINDING ARBITRATION. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, or any other tort, all contract actions,
whether regarding express or implied terms, such as implied covenants of good
faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all
<PAGE>
calms questioning the reasonableness or lawfulness of any act), whether arising
before or after the date of this Agreement, and whether directly or indirectly
relating to: (a) this Agreement and/or any amendments and agenda hereto, or the
breach, invalidity or termination hereof; (b) any previous or subsequent
agreement between ITT and Dealer; and/or (c) any other relationship, transaction
or dealing between ITT and Dealer (collectively the "Disputes"), will be subject
to and resolved by binding arbitration.
13.1 All arbitration hereunder will be pursuant to either: (a) the Code of
Procedures in effect from time to time ("Code") of the National Arbitration
Forum ("NAF"), currently located at 2124 Dupont Avenue South, Minneapolis,
Minnesota 55405; or (b) the Commercial Arbitration Rules ("Rules") in effect
from time to time of the American Arbitration Association ("AAA"), currently
located at 140 Wet 51st Street, New York, New York 10020-1203. The party first
filing any claim for arbitration shall designate which arbitration procedures
are to be applied for all Disputes between Dealer and ITT, although if either
the VAF or AAA is dissolved, the procedures of the remaining arbitration body
must be used. A copy of the Code, Rules and any fee schedule of the NAF or AAA
may be obtained by contacting the NAF or AAA, as applicable. The parties agree
that all arbitrators selected shall be attorneys. The arbitrator(s) will decide
if any inconsistency exists between the Code, or Rules, as applicable, and the
arbitration provisions contained herein. If any such inconsistency exists, the
arbitration provisions contained herein will control and supersede the Code, or
Rules, as applicable. The site of all arbitration participatory hearings will be
in the Division of the Federal Judicial District of ITT's branch office closest
to Dealer. The laws of the State of Illinois will govern this Agreement;
provided, however, that the Federal Arbitration Act ("FAA"), to the extent
inconsistent, will supersede the laws of such state and govern. This Agreement
concerns transactions involving commerce among the several states. All
arbitration proceedings, including testimony or evidence at hearings, will be
kept confidential although any award or order rendered by the arbitrator(s) or
director of arbitration pursuant to the terms of this Agreement may be entered
as a judgment or order and enforced by either party in any state or federal
court having competent jurisdiction.
13.2 Nothing herein will be construed to prevent ITT's or Dealer's use of
bankruptcy, receivership, injunction, repossession, replevin, claim and
delivery, sequestration, seizure, attachment, foreclosure, and/or any other
prejudgment or provisional action or remedy relating to any Collateral for any
current or future debt owed by either party to the other. Any such action or
remedy will not waive ITT's or Dealer's right to compel arbitration of any
Dispute. If either Dealer or ITT brings any other action for judicial relief
with respect to any Dispute, the party bringing such action will be liable for
and immediately pay all of the other party's costs and expenses (including
attorney's fees) incurred to stay or dismiss such action and remove or refer
such Dispute to arbitration. If either Dealer or ITT brings or appeals an action
to vacate or modify an arbitration award and such party does not prevail, such
party will pay all costs and expenses, including attorney's fees, incurred by
the other party in defending such action.
13.3 Any arbitration proceeding must be instituted: (a) with respect to any
<PAGE>
Dispute for the collection of any debt owed by either party to the other, within
two (2) years after the date the last payment was received by the instituting
party; and (b) with respect to any other Dispute, within two (2) years after the
date the incident giving rise thereto occurred, whether or not any damage was
sustained or capable of or either party knew of such incident. Failure to
institute an arbitration proceeding within such period will constitute an
absolute bar and waiver to the institution of any proceeding with respect to
such Dispute. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or served
if mailed or delivered: (i) to Dealer at Dealer's principle place of business
specified above; and (ii) to ITT at 8251 Maryland Avenue, Clayton, Missouri
63105, Attention: General Counsel, or such other address as the parties may
specify from time to time in writing. No arbitration hereunder will include, by
consolidation, joinder or otherwise, any third party, unless such third party
agrees to arbitrate pursuant to the arbitration provisions contained herein and
the Code, or Rules, as applicable.
14. If Section 13 of this Agreement or its application is invalid or
unenforceable, any legal proceeding with respect to any Dispute will be tried in
a court of competent jurisdiction by a judge without a jury. Dealer and ITT
waive any right to a jury trial in any such proceeding.
THIS CONTRACT CONTAINS BINDING ARBITRATION AND JURY WAIVER PROVISIONS.
ITT COMMERCIAL FINANCE CORP. ALLSTAR-VALCOM, INC.
Dealer's Name
By: /s/ J. C. BERRY By: /s/ JAMES H. LONG
Print Name: J. C. Berry Print Name: James H. Long
Title: REGIONAL BRANCH MGR. Title: PRESIDENT
ATTEST:
/S/ DON R. CHADWICK
Secretary
Print Name: Don R. Chadwick
SECRETARY'S CERTIFICATE OF RESOLUTION
I certify that I am the Secretary or Assistant Secretary of the corporation
named below, and that the following completely and accurately sets forth certain
resolutions of the Board of Directors of the corporation adopted at a special
meeting thereof held on due notice (and with shareholder approval, if required
by law), at which meeting there was present a quorum authorized 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 ben revoked, annulled or amended in any
manner whatsoever.
<PAGE>
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
ITT Commercial Finance Corp. ("ITT") in such amounts and on such terms as such
officers, directors or agents deem proper; to enter into financing, security,
pledge and other agreements with ITT relating to the terms upon which such
financing may be obtained and security and/or other credit support is 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, mortgage, grant
security interests, and otherwise transfer, to ITT as collateral security for
any obligations of this corporation to ITT, whenever and however arising, any
assets of this corporation, whether now owned or hereafter acquired; the Board
of Directors hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do with respect to the
foregoing."
IN WITNESS WHEREOF, I have executed and affixed the seal of the corporation on
the date stated below.
Date: SEPTEMBER 15, 1993 /S/ DON R. CHADWICK
Secretary
(SEAL) /S/ ALLSTAR-VALCOM, INC.
Corporate Name
EXHIBIT 10.3
AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING
(NO BFA)
This Amendment to Agreement for Wholesale Financing is made
to that certain Agreement for wholesale Financing entered into by
and between Allstar Systems, Inc. ("Dealer") and ITT Commercial
Finance Corp. ("ITT") on September 20, 1993, as amended
("Agreement").
WHEREAS, ITT and Dealer desire to amend the Agreement as provided
herein.
NOW, THEREFORE, for and in consideration of the premises and for other
good and valuable consideration the receipt and sufficiency of which are
acknowledged ITT and Dealer agree as follows:
1. Paragraph number 7 of the Agreement is hereby amended to
read as follows:
"7. Dealer agrees to immediately pay ITT the full amount of the
principal balance owed ITT on each item of Collateral financed by ITT
(as shown on the Statement of Transaction identifying such Collateral)
on the earliest occurrence of any of the following events: (a) when such
Collateral is lost, stolen or damaged; (b) for Collateral financed under
Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction
identifying such Collateral), when such Collateral is sold, transferred,
rented, leased, otherwise disposed of or matured; (c) in strict
accordance with any curtailment schedule for such Collateral (as shown
on the Statement of Transaction identifying such Collateral); (d) for
Collateral financed under Scheduled Payment Program ("SPP") terms (as
shown on the Statement of Transaction identifying such Collateral), in
strict accordance with the installment payment schedule; and (e) when
otherwise required under the terms of any financing program agreed to in
writing by the parties, or as provided in the Statement of transaction
identifying such Collateral. Dealer will forward to ITT by the 10th day
of each month a Collateral Summary Report (as defined below) for the
prior month. Regardless of the SPP terms pertaining to any Collateral
financed by ITT, and notwithstanding any scheduled payments made by
Dealer after the Determination Date (as defined below), if ITT
determines, after reviewing the Collateral Summary Report, after
conducting an inspection of the Collateral or otherwise, that (i) the
total current outstanding indebtedness owed by Dealer to ITT as of the
date of the Collateral Summary Report, inspection or any other date on
which a paydown is otherwise required hereunder, as applicable (the
`Determination Date'), exceeds (ii) the Collateral Liquidation Value (as
defined below) as of the Determination Date, Dealer will immediately pay
to ITT an amount equal to the difference between (i) Dealer's total
current outstanding indebtedness owed to ITT as of the Determination
Date, and (ii) the Collateral Liquidation Value as of the Determination
Date. The term `Collateral Summary Report' is defined herein to mean a
report compiled by Dealer specifying the total aggregate wholesale
invoice price of all of Dealer's inventory financed by ITT that is
<PAGE>
unsold and in Dealer's possession and and as of the date of such Report
and to the extent ITT has a first priority, fully perfected security
interest therein. The term `Collateral Liquidation Value' is defined
herein to mean one hundred percent (100%) of the total aggregate
wholesale invoice price of all of Dealer's inventory financed by ITT
that is unsold and in Dealer's possession and control to the extent ITT
has a first priority, fully perfected security interest therein. Any
checks or other instruments delivered to ITT to be applied against
Dealer's outstanding obligations will constitute conditional payment
until the funds represented by such instruments are actually received by
ITT. If Dealer from time to time is required to make immediate payment
to ITT of any past due obligation discovered during any Collateral
audit, upon review of a Collateral Summary Report or at any other time,
Dealer agrees that acceptance of such payment by ITT shall not be
construed to have waived or amended the terms of its financing program.
Dealer agrees that the proceeds of any Collateral received by Dealer
shall be held by Dealer in trust for ITT's benefit, for application as
provided in this Agreement. Dealer will send all payments to ITT's
branch office(s) responsible for Dealer's account. ITT may apply: (i)
payments to reduce finance charges first and then principal, regardless
of Dealer's instructions; and (ii) principal payments to the oldest
(earliest) invoice for Collateral financed by ITT, but, in any event,
all principal payments will first be applied to such Collateral which is
sold, lost, stolen, damaged, rented, leased, or otherwise disposed of or
unaccounted for. Any third party discount, rebate, bonus or credit
granted to Dealer for any Collateral will not reduce the debt Dealer
owes ITT until ITT has received payment therefor in cash. Dealer will:
(i) pay ITT even if any Collateral is defective or fails to conform to
any warranties extended by any third party; (ii) not assert against ITT
any claim or defense Dealer has against any third party; and (iii)
indemnify and hold ITT harmless against all claims and defenses asserted
by and buyer of the Collateral relating to the condition of, or any
representations regarding, any of the Collateral. Dealer waives all
rights of offset Dealer may have against ITT."
2. The following paragraph is incorporated into the Agreement
as if fully and originally set forth therein:
"Dealer will at all times maintain: (a) a Tangible Net Worth and
Subordinated Debt in the combined amount of not less than One Million
Seven Hundred Thousand Dollars ($1,700,000.00); and (b) a ratio of Debt
to Tangible Net Worth and Subordianted Debt of not more than eight to
one
(8:0:1).
For purposes of this paragraph: (i) `Tangible Net Worth' means the book
value of Dealer's assets less liabilities, excluding from such assets
all Intangibles; (ii) `Intangibles' means and includes general
intangibles (as that term is defined in the Uniform Commercial Code);
accounts receivale and adavnces due from officers, directors, employees,
stockholders and affiliates; leasehold improvements net of depreciation;
licenses; good will;
<PAGE>
prepaid expenses; escrow deposits; covenants not to compete; the excess
of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar items
as ITT may from time to to time determine in ITT's sole discretion;
(iii) `Debt' means all of Dealer's liabilites and indebtedness for
borrowed money of any kind and nature whatsoever, whether direct or
indirect, absolute or contingent, and including obligations under
capitalized leases, guaranties, or with respect to which Dealer has
pledged assets to secure performance, whether or not direct recourse
liability has been assumed by Dealer; and (iv) `Subordinated Debt' means
all of Dealer's Debt which is subordinated to the payment of Dealer's
liabilities to ITT by an agreement in form and substance satisfactory to
ITT. The foregoing terms shall be determined in accordance with
generally accepted accounting principles consistently applied, and, if
applicable, on a consolidated basis."
Dealer waives notice of ITT's acceptance of this addendum.
All other terms and provisions of the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, Dealer and ITT have executed this Addendum on this
day of , 19 .
ALLSTAR SYSTEMS, INC.
ATTEST: By: /s/ D. R. CHADWICK
Title: /s/ CHIEF FINANCIAL OFFICER
/s/ _______________
Accounting Manager
ITT COMMERCIAL FINANCE CORP.
By: /s/ SIGNATURE ILLEGIBLE
Title: /s/ CREDIT MANAGER
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into by and between Stratasoft, Inc. a Texas
corporation ("Company") and BOB HENNESSY ("Executive").
1. EMPLOYMENT. Company hereby, as of 9-7-95, 1995 ("effective date"),
hereby employs Executive as its President and General Manager (or any other
capacity that may be directed by Company) subject to the provisions hereof, and
the Executive hereby accepts such employment upon such provisions.
2. DUTIES, RESPONSIBILITIES OF EXECUTIVE. Executive shall faithfully,
on a full-time basis for at least eight (8) hours/day, Mondays through Fridays
of each successive calendar month, but exclusive of holidays set by Company (he
shall not while employed hereunder practice any profession except as an employee
of Company or be engaged in any other business activity which is perceived by
Company to interfere with the business of Company or with Executive's
performance of his job duties, unless agreed to, in writing, by Company)
function as Company's President and General Manager, and as Company may
otherwise order and direct through its Board of Directors. The Executive will
devote all of his time, energy, and skill during regular business hours, and
other times if deemed necessary by Company, to such employment. Executive
Manager of a business such as Company, e.g., he shall be responsible for the
overall day-to-day operations of Company and shall be responsible for business
planning, tactics and strategy for Company; he shall oversee hiring and
termination of employees, and shall develop and implement plans for the
marketing and sale of Company's products. Executive shall perform whatever tasks
its Board of Directors may from time to time assign. Company has the right to
order and direct every aspect of Executive's job performance. Executive shall
prepare and provide to Company all reasonable reports and/or other documentation
related to his job as required by Company.
3. COMPENSATION. Company shall compensate Executive as follows:
(a) A salary of $6,784.00 per month shall be paid to
Executive by Company according to Company's payroll
policies and procedures as determined by Company, at
its sole discretion, from time to time. In any
instance where Executive is employed by Company for
less than a full calendar month, such salary shall be
prorated as follows:
$81,408.00 X B = C
----------
A
A = number of working days in the year
B = actual number of days worked by
Executive in the partial period
1
C = amount of partial salary (gross)
Working days as used in this Employment Agreement
shall be deemed to mean Mondays through Fridays, but
excluding holidays or the like determined by Company.
Any calculations required to be made under this
Employment Agreement shall be made using the formulae
stated, when stated, and by the use of generally
accepted accounting principles, unless otherwise
stated herein.
This Employment Agreement is terminable at will by
either party and nothing contained herein shall ever
be deemed to mean that Executive is employed for any
given term or period of time.
(b) A bonus of 10% of the Company's gross profits shall
be paid, quarterly, for the first continuous eighteen
(18) months of Executive's employment with Company.
Such bonus shall be paid within forty-five (45) days
of the ending date of each successive respective
quarter for which the bonus is paid. If Executive is
employed less than a full successive quarter, such
bonus shall be paid on the number of days Executive
is actually employed during such partial quarter, by
the Company, and based on the Company's gross profits
for the entire calendar quarter prorated by the
number of days actually worked in the quarter in
accordance with the following formula:
Partial bonus = 10% X A X B
---
C
A = gross profits for the quarter
B = actual number of days worked by
Executive in the quarter
C = actual number of working days in the quarter
Such partial bonus shall be paid within forty-five
(45) days of the last day of the quarter for which
paid. "Gross profit" shall be deemed to mean total
revenues of the Company less inventory costs
(including freight charges) ancillary to such
inventory for the bonus period. Notwithstanding the
foregoing, should Executive be employed by Company
for less than the eighteen month bonus period but is
employed by Company for at least one hundred eighty
(180) days of such bonus period, the bonus provided
in this paragraph 3.(b) shall be calculated as if
Executive had been employed for the full eighteen
(18) months, based on gross profits for such eighteen
(18) month period and paid quarterly as above
described.
2
(c) In addition to the bonus described above, an
additional bonus based on net profits of the Company
for each successive calendar quarter, and/or portion
thereof, during which Executive is employed by
Company shall be paid to Executive by Company within
forty-five (45) days of the last day of each such
quarter or partial quarter for which paid, and shall
be calculated as ten percent (10%) of the Company's
net profit multiplied by its net profit margin. For
instance, if the Company's net profit for the quarter
is $50,000.00 and the net profit margin is 30%, the
bonus would be calculated according to the following
equation:
$50,000.00 X .3 X .1 = $1,500.00 ("the bonus")
Should Executive be employed by the Company for less
than a full quarter the bonus provided for in this
paragraph 3(c) would be calculated pro rata based on
the number of days in the quarter actually worked by
Executive divided by the total number of working days
in the quarter multiplied by "the bonus" and based on
the net profit and net profit margin as of the last
day of the quarter for which the bonus is paid.
(d) The Company, or its designee, will provide to
Executive, at no cost to Executive, health insurance
for Executive and his family, so long as Executive is
employed hereunder. Such health insurance shall be
under the AllStar Systems, Inc. ("AllStar") coverage
and shall be the same as provided AllStar employees.
4. VACATION. Executive shall be entitled to 20 days of paid vacation
for each full calendar year during which Executive is employed by Company.
Vacation for the calendar year 1995, and for any calendar year during which
Executive is employed for less than the full calendar year, shall be calculated
pro rata in accordance with the following equation:
20 = EARNED VACATION DAYS
---------------- ---------------------
total working working days actually
days in the year employed
In no event shall vacation days cumulate from one year to the next, nor
shall Executive be entitled to salary or other compensation for unused vacation
days, unless in accordance with the following. The precise days of vacation that
Executive shall utilize his vacation time must be approved by Jim Long, in
writing, at least thirty (30) days in advance of such days. Such vacation days
must not unreasonably interfere with Executive's performance of his duties
hereunder. In any event, vacation time earned but not taken at any time
Executive's employment with Company is terminated shall be calculated and paid
pro rata, based on his then salary.
3
5. AUTOMOBILE AND OTHER ALLOWANCES. In addition to salary and/or
benefits provided for herein, Executive shall receive an automobile allowance in
the sum of $250.00 per month, and shall be paid a cellular phone allowance of
$50.00 per month, or Executive may elect to utilize a Company cellular phone in
the then current Company cellular phone program. Executive shall be responsible
for and shall indemnify and hold Company harmless from any Federal tax
consequences, if any, of such allowances, particularly Executive's obligation to
report such sums and pay appropriate income tax, FICA and Medicare sums.
6. 401K PLAN. Commencing with Executive's employment with Company,
Executive shall be eligible to participate in Company's (or AllStar's) 401k
Plan, subject to the terms and conditions of such plan which terms and
conditions are made a part hereof by reference for all pertinent purposes. It is
recognized and agreed that AllStar is the Company's parent.
7. CONFIDENTIAL INFORMATION, RESTRICTIVE COVENANT. Executive agrees
that all information and/or documentation, including but not limited to,
materials regarding Company's personnel, printed and other promotional
materials, purchasing, accounting, marketing, selling and servicing methods and
all aspects of Company's business, including information regarding Company's
software products, the identities and locations of Company's Accounts
(Customers), and the particulars of Company's agreements and/or relationships
with such Accounts (collectively, "Confidential Information"), are the sole and
exclusive confidential information, trade secret(s) and proprietary right and
interest of Company and are protectible by Company as such. Such Confidential
Information shall be deemed secret AND confidential.
Executive acknowledges that such Confidential Information is unique and
has economic value to Company and gives Company an advantage in the marketplace.
Executive recognizes that the Confidential Information has or will be cultivated
and compiled by Company at great time and expense, and may be provided by
Company (and/or may be learned of by Executive by reason of his employment with
Company) to Executive at Company's discretion, for the sole purpose of enabling
Executive to carry out his job duties in connection with his employment with
Company. Executive recognizes and agrees that such Confidential Information
constitutes a portion of Company's goodwill and business interests.
Executive shall safeguard all such Confidential Information at all
times, both during his employment with Company and at all times thereafter, so
that it is not exposed to and/or appropriated by unauthorized persons and
Executive will exercise every effort to assure the safekeeping and
non-disclosure of same. Executive agrees that the restrictive covenants which
follow are reasonable and necessary for the protection of the Company's goodwill
and business interests, including the Confidential Information.
Executive agrees that it would be difficult, if not impossible, to
compute the amount of loss and/or damage which Company would suffer in the event
Executive breaks any provision of this Agreement, particularly the restrictions
listed below; and he further agrees that he would probably not be able to
respond in damages in an action to compensate Company for such loss or damage;
thus
4
Executive agrees that Company is without adequate legal remedy in the event
Executive violates any of his covenants contained herein.
Wherefore, in light of the foregoing and in consideration of the
employment of Executive by Company in consideration of the provisions hereof,
Executive agrees as follows:
(a) Executive recognizes that Company is engaged in the business
of selling computer programs and computer peripherals, and
providing programming, consulting and support services, and
that it is Executive's responsibility to manage and direct
Company in such endeavors.
(b) Executive will at all times keep in strict confidence and will
not, either directly or indirectly, make known, divulge,
reveal, furnish, make available for use (other than in the
regular course of Company's business) AT ANY TIME,
Confidential Information of Company (as above defined), and
including but not limited to any and all information
concerning and/or related to any and all of the Accounts with
which Company does any business during the time Executive is
employed by Company. Executive hereby agrees that any and all
information concerning or relating to such Accounts is the
Confidential Information of Company.
(c) Executive will not while at any time employed by Company
(except to perform his job functions hereunder) and for a
period of twelve (12) months following the termination of such
employment, whether as an individual, or in any capacity,
directly or indirectly, in competition with Company solicit or
participate in any way concerning the solicitation of: 1) any
Account which Company solicited or sold at any time while
Executive is/was employed by Company; 2) any Account which
Executive learned of while employed by, or as a result of his
employment by Company; 3) any Account of Company with which
Company does any business during the term hereof.
Notwithstanding the foregoing, it shall be permissible for
Executive to solicit and/or sell the Accounts listed on
Exhibit A attached hereto and made a part hereof, after his
termination of employment with Company, without being in
violation of this paragraph 7(c).
(d) Executive will not, while at any time employed by Company and
for a period of twelve (12) months following the termination
of such employment, accept or receive any compensation from,
or directly or indirectly, seek or accept any job offers from
any of the vendors which sold to Company at any time Executive
is/was employed by Company.
(e) Executive will not at any time, directly or indirectly, induce
or participate in inducing any employee or agent of Company to
terminate his or her employment with Company.
5
The above restrictive covenants shall survive the termination of this
Agreement.
Upon Executive's termination of employment with Company and so long as
Executive is not in violation of any of the restrictive covenants contained in
this paragraph 7 (any such violation shall invalidate, void and hold for naught
any unpaid termination bonus described below) Company shall pay to Executive a
"termination bonus" of ten percent (10%) of the Company's net profits earned by
the Company during the twelve consecutive months next preceding the date on
which Executive's employment with Company is terminated ("termination date") or
such lesser period if Executive is employed by the Company for less than twelve
consecutive months. Such termination bonus shall be paid in four (4) equal
consecutive installments paid every ninety (90) days commencing with the 90th
day after the termination date. For instance, if the net profit of Company for
such twelve (12) months (or lesser period) equals $100,00.00, the termination
bonus would be (if the restrictive covenants in this paragraph 7 are not
violated) $10,000.00, payable in equal, consecutive installments of $2,500.00
each. The first installment being due and payable on or before the 90th day
after the termination date, the second installment being due and payable on or
before the 180th day after the termination date, the third after the 270th day
after the termination date and the last on or before the 360th day after the
termination date.
All of the provisions of this paragraph 7 shall run to and protect the
goodwill and business interests of the Company and AllStar, as well as their
subsidiaries, affiliates, successors, assigns and associated companies to the
extent and as fully as if "Company" appearing in this paragraph is deemed to be
and include AllStar, the Company as well as their subsidiaries, affiliates,
successors, assigns and associated companies.
8. OWNERSHIP OF INVENTIONS. All ideas, inventions, trademarks, and
other developments or improvements conceived by the Executive, alone or with
others, during the term of the employment, whether or not during working hours,
that are within the scope of the Company's business operations, or that relate
to any Company work or projects, are the exclusive property of the Company. The
Executive agrees to assist the Company, at its expense, to obtain patents on any
such patentable ideas, inventions, trademarks, and other developments, and
agrees to execute all documents necessary to obtain such patents in the name of
Company.
9. TERMINATION. Employment under this agreement is terminable by either
party at any time, with or without cause, by giving the other party 10 days'
written notice of such termination.
10. ASSIGNMENT OF COPYRIGHT. Contemporaneous with his execution of this
Employment Agreement, Executive shall irrevocably transfer and assign, by
instrument in form and substance as Addendum A attached hereto and made a part
hereof, all of his right, title and interest in and to that certain predictive
dialing software which he has developed, to Company.
11. ASSIGNMENT. This Agreement shall inure to the benefit of the
Company, AllStar and their subsidiaries, affiliates, successors, assigns and
their associated companies. Company and/or AllStar may assign this Agreement at
any time without notice (but Executive cannot). This
6
Agreement is personal as to Executive and no individual or entity shall have any
interest in same except Executive, personally, and Company and AllStar and
Company's and AllStar's successors, assigns, subsidiaries, affiliates and their
associated companies. Notwithstanding anything contained herein, AllStar and its
subsidiaries, affiliates, successors, assigns and associated companies (except
for the Company) shall have no obligations to Executive hereunder other than as
expressly stated, i.e., to provide health insurance and/or 401k benefits as
mentioned in paragraphs 3(d) and 6 hereof, even though all such entities shall
be deemed third-party beneficiaries of this Employment Agreement.
12. SAVINGS CLAUSE. The failure of Company to at any time enforce any
provision hereof shall never be construed to be a waiver of such provision or of
the right of Company to enforce each and every provision hereof at any time. In
the event any paragraph, provision or clause, or any combination of same hereof
shall be found or held to be unenforceable at law or in equity, or under any
ordinance, statute or regulation, such finding or holding shall not in any way
affect the other paragraphs, provisions and clauses which shall remain in full
force and effect, and which shall, to the extent possible, be interpreted and
applied so as to effectuate the intent of the paragraphs, provisions or clauses
held to be unenforceable.
13. ATTORNEY'S FEES - VENUE. Executive agrees to pay Company its actual
attorney's fees and out-of-pocket costs (including all court costs and travel
expense of counsel and witnesses) which Company incurs by virtue of Company
seeking to enforce any provision hereof. This Agreement shall be governed by the
laws of the State of Texas in all respects. Venue respecting any litigation
arising from this Agreement and/or Executive's employment with Company shall be
properly laid only in a court of competent jurisdiction in Harris County, Texas.
14. ENTIRE AGREEMENT. This instrument (including attachment(s))
constitutes the entire Agreement between the parties and it is expressly agreed
that no representations, promises, warranties or understandings, express or
implied, other than as set forth herein shall be binding on either party. None
of the provisions hereof shall be waived, altered or amended unless in writing
signed by both parties.
15. EXECUTIVE'S CERTIFICATION. EXECUTIVE HEREBY CERTIFIES THAT:
(A) HE RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY
BEFORE HE/SHE WAS ASKED TO EXECUTE IT;
(B) HE HAS READ THE AGREEMENT CAREFULLY;
(C) HE HAD SUFFICIENT OPPORTUNITY BEFORE THIS AGREEMENT WAS
EXECUTED TO ASK QUESTIONS ABOUT NOT ONLY COMPANY, BUT ALSO THE
PROVISIONS OF THIS AGREEMENT AND THAT IF HE ASKED SUCH
QUESTIONS HE RECEIVED COMPLETE AND SATISFACTORY ANSWERS TO
SAME;
7
(D) HE HAS BEEN AFFORDED THE OPPORTUNITY TO DISCUSS AND REVIEW
THIS AGREEMENT WITH AN ATTORNEY OF HIS CHOICE;
(E) HE UNDERSTANDS WHAT HIS RIGHTS ARE UNDER THE AGREEMENT AS
WELL AS HIS OBLIGATIONS, ESPECIALLY WITH RESPECT TO THE
ANCILLARY COVENANTS; AND
(F) HE HAS READ AND UNDERSTANDS EACH AND EVERY PROVISION OF
THE FOREGOING AGREEMENT AND DOES HEREBY ACCEPT AND AGREE
TO THE SAME.
IN WITNESS WHEREOF, Executive has, on the date set forth below, affixed
his hand and Company has caused this Agreement to be executed by a duly
authorized person.
DATE: 9-7-95 /s/ BOB HENNESSY
BOB HENNESSY, EXECUTIVE
ACCEPTED:
/S/ STRATASOFT, INC.
COMPANY
DATE: 9-7-95 By /S/ JAMES H. LONG
James H. Long
its PRESIDENT
8
EXHIBIT 10.7
ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS that, for and in consideration of One
Dollar ($1.00) and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the undersigned,
International Lan and Communications, Inc., a Texas corporation, having its
principal office in Houston, Texas, and
Aspen System Technologies, Inc., a Texas corporation, having its principal
office in Bellaire, Texas (collectively "Assignors")
hereby grant, convey, bargain, sell, assign, transfer, and deliver unto
Stratasoft, Inc., a Texas corporation, having its principal office at 6401
Southwest Freeway, Houston, Texas 77074, its successors and assigns, hereinafter
referred to as "ASSIGNEE",
all Assignor's right, title and interest in and to those assets listed on
Exhibit A attached (the "Assets"), including without limitation any and all
rights in and to any copyright renewals, to have and to hold unto Assignee, its
successors and assigns, forever; and Assignee agrees to, and does, assume all
liabilities and obligations of any nature whatsoever under any agreements
comprising part of the Assets being assigned and any liabilities and obligations
arising out of any of Assignor's previous contracts, commitments or dealings
with or to any employee, contractor, agent, prospect, customer or supplier
relating in any way to the Software, Contracts or Intangible Property included
as part of the Assets being assigned. Furthermore, Assignee agrees to defend and
indemnify and hold Assignor harmless from and against any and all claims,
demands, liabilities, obligations, costs and expenses of any nature whatsoever,
including without limitation court costs and attorneys and expert witness fees,
arising out of or relating to any of such previous contracts, commitments or
dealings.
1
IN WITNESS WHEREOF, the Assignors have caused this instrument to be executed by
their duly authorized officers as of this 7th day of September, 1995.
INTERNATIONAL LAN AND COMMUNICATIONS, INC.
By: William R. Hennessy
Title: /S/ WILLIAM R. HENNESSY, CHAIRMAN/CEO
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BEFORE me, the undersigned authority, on this day personally appeared
William R. Hennessy, 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, and further acknowledged to me
that he has the authority to enter into contracts on behalf of and bind
International Lan and Communications, Inc.
Given under my hand and seal of office this 7th day of August, 1995.
/s/
Notary Public
[Seal]
2
ASPEN SYSTEM TECHNOLOGIES, INC.
/s/ WILLIAM R. HENNESSY
By: William R. Hennessy
Title: VICE PRESIDENT
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BEFORE me, the undersigned authority, on this day personally appeared
William R. Hennessy, 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, and further acknowledged to me
that he has the authority to enter into contracts on behalf of and bind Aspen
System Technologies, Inc.
Given under my hand and seal of office this 7th day of September, 1995.
/s/
Notary Public
[Seal]
3
EXHIBIT A ASSETS
1. SOFTWARE: All Assignor's right, title and interest, throughout the
world, in and to the software known as "TeleSales," "LEADMAN," and "PROSPECTOR,"
all respective supplements, enhancements and modifications thereto including
derivative works based thereon (regardless of the state of development), and all
personal property relating thereto, including, without limitation, source codes,
object codes, technical documentation and similar information necessary for the
practical utilization thereof (collectively, the "Software").
2. DOCUMENTATION: All user manuals, brochures and other documentation
or written information describing any aspect of the Software or designed to
facilitate the use or modification or enhancement of the Software
("Documentation").
3. INTANGIBLE PROPERTY: All trade names and other identifying names,
all trademarks, service marks and other identifying names and marks associated
with the Software, whether registered or unregistered, and including all goods
relating to any of the foregoing, and all applications for any of the foregoing,
all patents, copyright, copyright registrations and patent applications
therefor, together with all divisions, renewals and continuations of any of the
foregoing, and all know-how, unpatented inventions, trade secrets and other
intangible, intellectual property embodied in or pertaining to the Software and
the Documentation ("Intangible Property").
4. PERMITS: All licenses, permits, authorizations, and other approvals
from any domestic (federal, state or local) or foreign governmental, public or
self-regulatory body or authority, or from any private party, pertaining to the
Software and the Documentation.
5. CONTRACTS: All agreements with any existing or former customer,
prospect, employee, contractor, agent or supplier relating in any way to the
Software, the Documentation, the Intangible Property or any computer hardware,
software or services supplied or to be supplied by or through Assignor to
customers or prospects for the Software ("Contracts"). If the assignment or
transfer by Assignor of any contract or agreement referred to above shall
require the consent of any other party, and if the making of an agreement to
assign would, under any such contract or agreement, constitute a breach thereof
or impair the rights of Assignor (and/or Assignee as the successor in interest)
thereunder, then this Agreement shall not be construed as an agreement to make
an assignment, but Assignor nonetheless shall be obligated to take reasonable
steps to obtain for Assignee the benefits of such contracts and agreements and
Assignee shall be obligated to perform all obligations of Assignor under such
contracts and agreements (even though Assignor may remain liable to other party
or parties to such contracts or agreements).
6. MARKETING INFORMATION: All customer and marketing materials and
information relating to the Software, including without limitation customer
lists, prospect lists, marketing plans, forecasts and assumptions, price lists
and lists of suppliers and subcontractors.
4
7. RELATED TECHNOLOGY: All things authored, discovered, developed,
made, perfected, improved, designed, engineered, acquired, produced, conceived
or first reduced to practice by Assignor or any of its employees or agents that
rare embodied, derived from or relate to the Software, in any stage of
development, including without limitation, modifications, enhancements, designs,
concepts, techniques, methods, ideas, flow charts, coding sheets, programmers'
notes and all other information relating to the Software and not generally known
within the computer software and telephone industries.
5
EXHIBIT 10.13
PRIMARY VENDOR VOLUME PURCHASE AGREEMENT
THIS VOLUME PURCHASE AGREEMENT is entered into on this 1st day of
August, 1996, between INACOM CORP., a Delaware corporation ("Inacom"), with its
principal offices at 10810 Farnam Drive, Omaha, Nebraska 68154, and ALLSTAR
SYSTEMS, INC., a Texas corporation ("Allstar"), with its principal offices at
6401 Southwest Freeway, Houston, Texas 77074.
AGREEMENT:
The parties hereby agree as follows:
1. PURCHASE COMMITMENT. It is the intention of the parties that Inacom
will be the primary source (versus an alternative or second source) for
Allstar's product purchases. Accordingly, during the initial term of this
Agreement (as defined in Section 7 below) and any successive renewal period
thereafter, and with respect to those products offered by Inacom, Allstar shall
use its best efforts to purchase at least eighty percent (80%) of its annual
product requirements from Inacom. As used herein, the term "best efforts" shall
mean Allstar will purchase 80% of its product requirements from Inacom to the
extent said products are available in Inacom's inventory or may be procured by
Inacom within a reasonable period of time to satisfy Allstar's customer needs,
and are made available to Allstar at reasonably competitive pricing.
2. PRICING. The purchase price for products sold by Inacom to Allstar
hereunder shall be those prices mutually agreed to by the parties in writing
from time to time.
3. TERMS OF SALE.
A. Except as expressly set forth herein, all orders accepted for
delivery will be governed exclusively by the terms and conditions
of Inacom's Information Guide. No additional or different terms
and conditions appearing on the face or reverse side of any order
issued by Allstar shall be effective.
B. Shipments are subject to the reasonable availability of
products and Inacom shall not be liable for failure to perform
hereunder due to circumstances beyond its reasonable control
including, but not limited to, strikes, actions taken by Inacom's
suppliers, riots, wars, fires, acts of God, or acts in compliance
with any law or government regulation.
C. Inacom will use commercially reasonable efforts to meet any
scheduled shipment date.
D. DELIVERY. Responsibility for all shipping and delivery
expenses will be based upon Allstar's annual volume product
purchases from Inacom and determined in accordance with the
schedule set forth on Exhibit 1. In the event of a material
increase in shipping and delivery expenses due to circumstances
beyond Inacom's reasonable control, Inacom reserves the right to
modify Exhibit 1. At the end of each of Inacom's fiscal quarters,
Allstar's product purchases for the preceding quarter will be
annualized to determine the applicable delivery expenses to be
incurred by Allstar pursuant to the schedule set forth on Exhibit
1. A corresponding rebate will be issued to Allstar on a
quarterly basis to reflect said pricing. In addition, the
delivery terms and instructions set forth on Exhibit 1 are
incorporated herein by this reference and shall be applicable to
the delivery of products purchased by Allstar hereunder.
Notwithstanding the foregoing, Allstar will be responsible for
all freight expenses associated with drop shipments directly to
customers. Title and risk of loss for all product deliveries to
Allstar or its customers shall pass to Allstar at the time
products
1
are made available to the respective carrier at Inacom's
distribution facility.
The prices set forth in Section 3 above are exclusive of all
sales, use and like taxes, payment for which shall be the sole
responsibility of Allstar.
4. As consideration for Inacom's willingness to enter into this
agreement, Inacom shall have the following rights and options:
4.1 RIGHT OF FIRST REFUSAL. In the event Allstar desires to sell,
assign or transfer the business of Allstar Systems, Inc. (the
"Business") whether by sale of substantially all of the assets,
capital stock in Allstar or by other means (excluding an initial
public offering) then Allstar shall first give written notice to
Inacom.
The notice shall contain an offer by Allstar to Inacom for Inacom
to acquire the Business on the same terms and conditions proposed
by the third party and shall reference Inacom's rights under this
Volume Purchase Agreement. Inacom shall have sixty (60) days from
the receipt of such notice to deliver written notice that Inacom
shall acquire the Business upon the same terms and conditions
proposed by the third party.
4.2 SALE OF INTEREST. In the event Allstar desires to sell, assign or
transfer securities issued by Allstar representing thirty-three
percent (33%) or more of the aggregate voting power of the
outstanding capital stock of Allstar in the aggregate or in any
class of securities (excluding an initial public offering) then
prior to such sale Allstar shall give written notice to Inacom
and offer to sell such securities to Inacom on the terms and
conditions offered to the third party. Such notice shall
reference this Volume Purchase Agreement and Inacom's rights
hereunder. Inacom shall have sixty (60) days from the receipt of
such notice to deliver a written notice that Inacom will purchase
the securities upon the same terms and conditions proposed by the
third party.
Inacom's failure or election not to exercise the rights granted to it
under paragraphs 4.1 and 4.2 above shall in no way relieve Allstar from any
other obligations contained in this agreement.
The rights and options granted to Inacom by Allstar under Paragraphs 4.1
and 4.2 shall not apply to and shall be extinguished upon the sale of shares by
Allstar to the public in an offering registered with the Securities and Exchange
Commission under the Securities Act of 1933.
5. MANUFACTURER INCENTIVE PROGRAMS. Funds from manufacturer sponsored
reseller level incentive programs including IBM ProPlan, Apple Applefund, Compaq
Reseller Marketing Fund and HP Advantage shall accrue to Allstar, provided the
manufacturers continue to administer the programs in such a way that funds can
be specifically allocated to Allstar. The funds from all other manufacturer
incentive programs will accrue solely and exclusively to Inacom.
6. SERVICES PROVIDED BY INACOM. The only services provided by Inacom
included within the prices set forth in Section 3 are related to order
processing, including nightly price and product availability downloads through
Inacom's Vision Software Program. All other services provided by Inacom such as
marketing, sales, finance, training and the like will be available to Allstar at
the standard rates charged by Inacom for such services.
7. TERM AND TERMINATION. The initial term of this Agreement shall be
sixty-six (66) months commencing on August 1, 1996. This agreement will
automatically renew for successive one year terms unless notice of nonrenewal is
provided in writing by either party at least sixty (60) days prior to the end of
each respective term. In addition, either party may immediately terminate this
2
Agreement if the other is in material breach of any of the terms and conditions
contained herein, provided, that the breaching party refuses or fails to cure
such breach within ten (10) days from the date of written notice thereof.
Within thirty (30) days after expiration of this Agreement,
whether by nonrenewal or termination, Allstar shall pay to Inacom a cancellation
fee of Five Hundred Seventy Thousand Five Hundred and Eight Dollars
($570,508.00).
8. BUSINESS OPERATION. Allstar shall use its best efforts to continue to
operate its business throughout the entire initial period and any subsequent
renewal period of this agreement.
9. PRESS RELEASE. Inacom and Allstar will develop a mutually agreed upon
press release announcing the renewal of Inacom and Allstar's commitment to and
relationship with each other. Except for such press release, neither party will
disclose the nature or substance of this agreement to any third party. The
timing of said release will also be at a time and in a manner mutually agreed
upon by the parties.
10. CHOICE OF LAW/FORUM. This Agreement will be governed by the laws of
the State of Nebraska applicable to contracts made and fully performed in
Nebraska. Any action brought by either party arising out of or in connection
with this Agreement shall be brought in the appropriate state or federal courts
located in Douglas County, Nebraska.
11. ASSIGNMENT.
A. ASSIGNMENT BY INACOM. In the event of a sale of all or
substantially all of Inacom's assets, Inacom agrees that said
purchaser of Inacom's assets will be obligated to assume all of
Inacom's rights, duties and obligations hereunder, subject to the
terms and conditions contained herein.
B. ASSIGNMENT BY ALLSTAR. Allstar understands and acknowledges
that the rights and obligations set forth herein are personal to
Allstar, and that Inacom has entered into this Agreement based on
Allstar's business skill and financial capacity. Accordingly,
Allstar shall not assign or otherwise encumber any interest in
this Agreement without the prior written consent of Inacom.
Inacom shall not unreasonably withhold its consent to an
assignment of this Agreement.
12. DISCLAIMER. Allstar ACKNOWLEDGES THAT Inacom IS NOT THE MANUFACTURER
OF THE PRODUCTS. ALL PRODUCTS ARE SOLD SUBJECT TO THE MANUFACTURER'S STANDARD
WARRANTY. Inacom DISCLAIMS ALL WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
13. LIMITATION OF LIABILITY. EXCEPT AS EXPRESSLY PROVIDED HEREIN, Inacom
SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE CLAIMED TO HAVE RESULTED FROM THE
USE, OPERATION OR PERFORMANCE OF THE PRODUCTS, REGARDLESS OF THE FORM OF ACTION,
EXCEPT FOR LOSS OR DAMAGE CAUSED BY THE SOLE NEGLIGENCE OF Inacom.
NOTWITHSTANDING ANY PROVISION CONTAINED HEREIN TO THE CONTRARY, THE MAXIMUM
LIABILITY OF Inacom TO Allstar OR ANY PERSON WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH ANY SALE, LICENSE, USE OR EMPLOYMENT OF ANY PRODUCTS DELIVERED
TO Allstar HEREUNDER, WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON
CONTRACT, WARRANTY, TORT OR OTHERWISE, SHALL IN NO CASE EXCEED THE ACTUAL AMOUNT
PAID BY Allstar TO Inacom HEREUNDER FOR THE SPECIFIC PRODUCT THAT CAUSED THE
DAMAGES. IN NO EVENT SHALL Inacom BE LIABLE TO Allstar FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR ANY DAMAGES RESULTING FROM LOSS OF
USE, DATA, OR PROFITS.
14. INDEMNIFICATION. Allstar will defend, indemnify and save and hold
Inacom harmless from any and all claims, demands, damages, actions, causes of
action and other liabilities of every kind and nature arising or resulting,
directly or indirectly, from the operation of Allstar's business. Subject to the
3
terms and conditions of Sections 12 and 13, Inacom shall indemnify Allstar for
claims arising from the negligent acts or omissions of Inacom.
15. Allstar acknowledges that it has received and reviewed Inacom's
Information Guide which sets forth the policies and procedures for Allstar to
follow in acquiring and marketing the products hereunder. The Information Guide
is incorporated herein by reference and Allstar agrees to comply with all
matters, practices and specifications contained therein and any changes,
modifications or amendments made thereto by Inacom.
16. ENTIRE AGREEMENT. This Agreement supersedes and replaces all prior
agreements between Inacom and Allstar including the Supply and Service
Agreements dated May 19, 1989 and August 12, 1992, respectively ("Prior
Agreements"). Except for any outstanding balances on any accounts between Inacom
and Allstar on the date hereof and any payment obligations of Allstar guaranteed
by Inacom including Allstar's inventory line of credit with Deutsche Financial
Services (Account No. 30372), each party hereby releases the other and its
officers, directors, shareholders, agents and employees from any and all claims,
debts, liabilities and obligations of any nature, whether accrued, absolute,
contingent, known or unknown on the date hereof, in any way relating to the
Prior Agreements including License fees payable under the Prior Agreements.
INACOM CORP. ALLSTAR SYSTEMS, INC.
By: /s/ JOHN J. DURKIN By: /s/ JAMES H. LONG
Name: John J. Durkin Name: James H. Long
Title: Vice President - Bus. Dev. Title: CEO
4
EXHIBIT 1
FREIGHT PERCENTAGE
ANNUAL VOLUME PURCHASE INCURRED BY ALLSTAR
(less than)$60M 0%
$60M 0%
$59M 0%
$58M 0%
$57M 0%
$56M 0%
$55M 0%
$54M 0%
$53M 0%
$52M 0%
$51M 0%
$50M 0%
$49M 5%
$48M 10%
$47M 15%
$46M 20%
$45M 25%
$44M 30%
$43M 35%
$42M 40%
$41M 45%
$40M 100%
(greater than)$40M 100%
OMAHA, NE Originated Shipments:
All orders will be consolidated each business day into 1 shipment and routed
SKYWAY EXPRESS TRUCK (XT) for next business day delivery.
SWEDESBORO, NJ Originated Shipments:
All orders will be consolidated each business day and routed most economical
means. Under 150 lb. ship UPS GROUND ONLY. Shipments 150 lb. or greater route
SKYWAY EXPRESS TRUCK (XT).
ONTARIO, CA Originated Shipments:
All orders will be consolidated each business day and routed with the most
economical means. Under 150 lb. ship UPS GROUND ONLY. Shipments 150 lb. or
greater route SKYWAY EXPRESS TRUCK (XT).
* To ensure that orders are shipped in the manner described above,
orders need to be placed under T0372 AND HAVE VFO in the SHIP VIA
CODE. By using the VFO SHIP VIA, your orders will be charged VF3
rates (.375). If any other account numbers OR Ship Via Codes
(i.e., VF1, VF2, VF3, UPS, FP1) are used, normal Inacom freight
charges will apply to the order.
Please contact Dave Long at Inacom Corp. if you should have any questions
regarding VFO instructions.
5
EXHIBIT 10.14
INGRAM MICRO INC. RESALE AGREEMENT
- --------------------------------------------------------------------------------
INGRAM MICRO INC. RESALE AGREEMENT
This Agreement ("Agreement") is by and between Allstar Systems ("Allstar"), with
its principal place of business at 6401 SW Freeway, Houston, Texas 77074, and
Ingram Micro Inc. ("Ingram") excluding its subsidiaries, with its principal
place of business at 1600 E. St. Andrew Place, Santa Ana, California 92705. This
Agreement will include Allstar's domestic locations only.
1. PURPOSE
The purpose of this Agreement is to provide the terms and conditions
for the purchase and resale by Allstar and the sale by Ingram to
Allstar of various computer products including both hardware and
software ("Product").
2. TERMS OF SALE
All Product sales shall be subject to Ingram's then-current standard
Customer Information, Sales Terms and Conditions, and Manufacturers'
Policies and Warranties published in its Comprehensive Catalog
("Catalog") at the time of purchase. Should Ingram's Catalog
provisions conflict with this Agreement, the provisions of this
Agreement shall prevail. If authorization for resale is required by
the publisher or manufacturer of any Product, then Ingram shall not
be obligated to sell such Product to Allstar unless Ingram has
received such required authorization.
3. ORDERING
A. Allstar will compile, update, and provide Ingram with Product
order information. The Product order information shall include the:
(i) Product type(s), (ii) unit quantity, (iii) Allstar price, and
(iv) correct shipping address. Allstar personnel will identify, for
each Product order, the ship-to destination as either Allstar,
Allstar's customer, or to some other specified third party. Ingram
shall, subject to Product availability, use its best efforts to fill
and ship all Product orders placed by Allstar within one (1) business
day of order receipt.
B. Ingram shall accept orders over telephone, via the Computer
Assisted Purchasing System ("CAPS"), and via Electronic Data
Interchange ("EDI") only from those who identify themselves as
Allstar personnel and to provide the Ingram customer number prior to
placing the order. Ingram shall have no obligation to confirm the
validity of any order placed or the authority of the person placing
an order in this manner. Allstar shall disclose its Ingram customer
number only to its personnel with a need to know.
- --------------------------------------------------------------------------------
ALLSTAR SYSTEMS 1 INGRAM MICRO INC.
CONFIDENTIAL 12/6/95
INGRAM MICRO INC. RESALE AGREEMENT
- --------------------------------------------------------------------------------
4. PRICING
A. All Product prices will be as shown in Ingram's on-line ordering
system as of the date of order. This pricing is offered in the
expectation that Allstar's total net sales during the term of this
Agreement will meet or exceed $8,000,000.
B. Ingram's price to Allstar for Product purchases shall be Ingram
cost divided by the factor applicable to the Product type. The
Product Types and Factors shall be as follows:
PRODUCT TYPE FACTOR
Software Product .950
Hardware Product .945
Accessory Product .940
Technical Product .930
C. As manufacturer costs change, Ingram pricing may be adjusted to
reflect such changes.
5. REBATES
A. If Allstar meets or exceeds the Quarterly Net Purchase Goals
referenced below during any Ingram fiscal quarter, Ingram will
provide Allstar with a volume rebate as specified below paid back to
the first dollar. This rebate will be calculated beginning August 28,
1995, and will be paid by check within the second month following the
end of Ingram's fiscal quarter.
QUARTERLY NET PURCHASE GOALS REBATE %
$1,500,000 - $1,949,999 .25%
$1,950,000 or more .50%
B. For the purposes of calculating the rebates listed in this
section, negotiated sales will be counted when measuring the
achievement of quarterly net purchase goals, however, negotiated
sales will not be used to calculate the amount of rebates.
C. All Product sales from Ingram subsidiaries (including Ingram
Alliance Reseller Company) will be excluded from Allstar's earned
rebates. Allstar's net purchases from such
- --------------------------------------------------------------------------------
ALLSTAR SYSTEMS 2 INGRAM MICRO INC.
CONFIDENTIAL 12/6/95
INGRAM MICRO INC. RESALE AGREEMENT
- --------------------------------------------------------------------------------
subsidiaries will not be counted when measuring the achievement of
quarterly net purchase goals or used to calculate the amount of
rebates.
6. PAYMENT TERMS AND DISCOUNTS
Ingram shall invoice Allstar upon Product shipment, and all invoices
shall be due and payable net thirty (30) days from invoice date.
7. RETURNS
Allstar shall be entitled to the same customer support, stock
balancing and defective product return privileges as is extended to
Ingram's customers in Ingram's Catalog.
8. TERM AND TERMINATION
This Agreement will commence on the date set forth below and will
continue until November 22, 1996. Either party may terminate this
Agreement, with or without cause, by giving thirty (30) days' advance
written notice to the other party.
9. CONFIDENTIALITY
This Agreement is and contains confidential information, and as such
shall not be disclosed to any third party without the express written
consent of both parties. The parties agree to disclose the terms and
conditions of this Agreement only to their respective personnel with
a need to know.
10. NOTICES
All notices and other communications relating to this Agreement or
its terms shall be in writing and mailed via first class United
States Postal Service, certified or registered, with return receipt
requested. All notices so mailed shall be deemed given two (2) days
after postmark date.
11. ENTIRE AGREEMENT
This Agreement (including any Exhibits and Addenda) constitutes the
entire agreement between the parties regarding the resale of Product,
and shall cancel, terminate, and supersede any and all previous
agreements, proposals, representations, or statements, whether oral
or written. The terms of this Agreement shall supersede the terms of
any invoice or purchase order issued by either party. Any
modifications of this Agreement must be in writing and signed by an
authorized representative of each party.
- --------------------------------------------------------------------------------
ALLSTAR SYSTEMS 3 INGRAM MICRO INC.
CONFIDENTIAL 12/6/95
INGRAM MICRO INC. RESALE AGREEMENT
- --------------------------------------------------------------------------------
12. GOVERNING LAW
This Agreement shall be deemed made in the State of California and
shall be governed by and construed in accordance with California
laws, excluding its conflicts or choice of law rule or principles
which might refer to the law of another jurisdiction. The state and
federal courts situated in Orange County, California shall have
non-exclusive jurisdiction and venue over any dispute or controversy
which arises out of this Agreement.
13. HEADINGS
This Agreement may be executed in any number of original
counterparts, each of which when executed and delivered shall be
deemed to be an original and all of which taken together shall
constitute but one and the same instrument. Headings in this
Agreement are included for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
THIS AGREEMENT IS EFFECTIVE AS OF 12-14, 1995
"Allstar" "Ingram"
Allstar Systems Ingram Micro Inc.
6401 SW Freeway 1600 E. St. Andrew Place
Houston, Texas 77074 Santa Ana, California 92705
By: /S/ ANTHONY ADAME By: /S/ GREG HAWKINS
Name: ANTHONY ADAME Name: GREG HAWKINS
Title: V.P. SALES Title: SR. V.P. SALES
- --------------------------------------------------------------------------------
ALLSTAR SYSTEMS 4 INGRAM MICRO INC.
CONFIDENTIAL 12/6/95
EXHIBIT 10.23
AGREEMENT NO. ____________________
This Agreement is entered into as of March 1, 1995 (the "Effective Date")
between APPLIED VOICE TECHNOLOGY, INC., a Washington corporation ("AVT") and
Allstar Systems, Inc. ("Dealer"). AVT and Dealer agree as follows:
SECTION 1. DEFINITIONS
- --------------------------------------------------------------------------------
1.1 "CUSTOMER" means any person or entity acquiring a Product directly from
Dealer solely for Customer's internal use and not for resale.
1.2 "DEALER PRICE CATALOG" means AVT's Dealer Price Catalog, as AVT may revise
such catalog from time to time. A current copy of the Dealer Price Catalog is
attached as Exhibit 1.2.
1.3 "HARDWARE" means, with respect to each Product, the equipment that is
incorporated in the Product, together with any updates to such equipment.
1.4 "PRODUCTS" means the Products listed in the Dealer Price Catalog.
1.5 "SOFTWARE" means, with respect to each Product, those computer programs and
associated documentation that are incorporated in the Product, together with any
updates to such programs and documentation.
1.6 "TERRITORY" means the area specified in Exhibit 1.6.
SECTION 2. RELATIONSHIP OF THE PARTIES
- --------------------------------------------------------------------------------
2.1 RIGHT TO DISTRIBUTE
AVT hereby appoints Dealer as a nonexclusive dealer of the Products in the
Territory during the Term of this agreement and Dealer accepts that grant.
2.2 LIMITATION ON SUPPLY OF PRODUCTS
Dealer may supply Products only to Customers for purposes of installation in the
Territory. Accordingly, but not by way of limitation, Dealer will not supply the
Products to persons Dealer knows or has reason to know (i) intend to distribute
or resupply the same or (ii) intend to install the Products outside the
Territory.
SECTION 3. MARKETING & SUPPORT RESPONSIBILITIES OF AVT
- --------------------------------------------------------------------------------
3.1 TRAINING
AVT will provide training for Dealer's dedicated sales representatives and
technical certified training for dedicated service personnel. Such training will
be at a site designated by AVT. AVT may, at its option, charge for such training
and for certification testing at AVT's standard rates, as they may be in effect
from time to time. Dealer will be responsible for all costs and expenses
(including, without limitation, expenses of travel, lodging and meals) incurred
by Dealer's personnel in attending, receiving or securing training provided by
AVT.
3.2 MARKETING LITERATURE
AVT will provide to Dealer, at AVT's published rates (or, if AVT has not
published rates, at AVT's standard rates), reasonable amounts of marketing
literature and other marketing the Products. Dealer will use such materials only
for the purposes of performing its obligations under this Agreement. Dealer will
not use any other promotional or marketing materials to market the Products
without AVT's prior written consent.
3.3 TRADE SHOWS
AVT will attend such national trade shows as its determines are appropriate. AVT
may also attend local trade shows in the Territory and in such cases, AVT will
reasonably cooperate with Dealer in Dealer promotional efforts made in
connection with such shows.
3.4 TECHNICAL ASSISTANCE CENTER
AVT will maintain a technical assistance center. At its technical assistance
center, AVT will maintain an adequate staff of qualified technical support
engineers who are knowledgeable in the installation, maintenance and overall
implementation of the Products. The technical assistance center will be
available to respond to Dealer's reasonable telephone or facsimile inquiries
from dealer trained and certified personnel regarding the installation,
maintenance and applications of the Products. The technical assistance center
will operate during normal business hours (Pacific Time) Monday through Friday,
except for AVT holidays, and will assist Dealer in routine and emergency
troubles. AVT also will have available through the center a technician who will
be directed to return calls in emergency situations during off
Allstar Systems, Inc. Page 1
hours, weekends, and holidays within one (1) hour of receipt. AVT reserves the
right to refuse service to, or at its option, charge for such services requested
by Dealer's personnel who have not received training and certification from AVT.
AVT also reserves the right to charge for such services requested by Dealer
technicians on products no longer covered by a valid AVT warranty (as provided
in Section 7.1).
3.5 GENERAL SUPPORT
In addition to support provided through the technical assistance center, such
support may include, in exceptional circumstances, visits of AVT technicians to
the installation and maintenance sites. Dealer will pay for such support
provided by AVT (other than as provided in Section 7.1) at AVT's standard rates
and will also reimburse AVT for all travel and other expenses incurred in
providing such support.
3.6 RESULTS OF END-USER SURVEYS
AVT may, from time to time, provide to Dealer results of surveys taken by AVT of
end-users in the Territory in order to determine their satisfaction with the
Products.
SECTION 4. MARKETING, INSTALLATION AND SUPPORT RESPONSIBILITIES OF DEALER
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4.1 GENERAL MARKETING
Dealer will use its best efforts to develop demand for, promote, market and sell
the Products throughout the Territory. Such efforts will include, but not be
limited to purchasing, installing and maintaining AVT's standard demonstration
system of the Products, as further described at Exhibit 5.5, at one or more of
Dealer's sites within the Territory. Dealer will use the demonstration systems
to demonstrate Product usage for prospective customers, for training, and for
Dealer's internal use.
4.2 INFORMATION TO AVT
Dealer will provide to AVT marketing data, competitive information, and other
relevant information as may be reasonably requested by AVT.
4.3 INSTALLATION
Dealer will properly install the Products at the location in the Territory
designated by the Customer. When installing Products, Dealer will use personnel
trained and certified by AVT, will perform the test procedures and diagnostic
test programs for such Products as reasonably specified by AVT from time to
time, and will otherwise comply with AVT's standard installation directives
issued from time to time. Dealer will also provide written notice of each
installation to AVT within thirty (30) days of the installation date. Such
notice will specify the Customer's name, the installation location, the contact
person for Customer, Customer's telephone configuration, Customer's modem
telephone number and the password necessary to allow AVT to audit the system,
and such other information as AVT may reasonably request.
4.4 SPARE PARTS, TOOLS AND DOCUMENTATION Dealer will maintain for each of its
service locations the recommended spare parts, documentation and service manuals
and recommended diagnostic tools described in Exhibit 5.5 and as otherwise
reasonably directed by AVT from time to time.
4.5 SERVICE PERSONNEL
Dealer will maintain for each of its service locations at least one person
trained and certified by AVT in the servicing of the Products.
4.6 PRODUCT MAINTENANCE
Dealer will perform maintenance of Products supplied by Dealer to Customers in a
timely manner by responding to major system failures (non-operational systems or
major functional problems) within four (4) hours and to minor failures within
twenty-four (24) hours after notification, and in all cases, restore complete
service as soon as possible. These requirements apply twenty-four (24) hours per
day, seven (7) days a week without exception. If Dealer determines that it
cannot meet the foregoing requirement with respect to a particular unit of
Product, it will promptly notify AVT and provide AVT information as to the
location of the unit and how the Customer can be contacted. All maintenance
performed by Dealer will be of a good
Allstar Systems, Inc. Page 2
workmanlike quality and will otherwise comply with AVT's standard maintenance
directives issued from time to time.
4.7 CUSTOMER TRAINING
Dealer will provide training to Customers as reasonably necessary for Customer's
use of Products. Such training will be provided in connection with installation
of Products and as may otherwise be requested by Customers. Such training will
be provided in a timely fashion, will be performed by personnel trained by AVT,
and will otherwise comply with AVT's standard customer training directives
issued from time to time.
4.8 GENERAL SUPPORT
Dealer will provide general support to Customers in the use of the Product. Such
support will include responses to reasonable technical and usage inquiries of
Customers and the performance of routine moves, changes and additions to the
Products reasonably requested by Customers.
4.9 COMPLAINTS
Dealer will investigate and report to AVT all Customer complaints with regard to
Products sold by Dealer (including, but not limited to, warranty claims). Dealer
will give immediate attention to, and will use its best efforts to promptly,
courteously and equitably respond to, adjust and settle (without incurring any
obligation or liability on behalf of AVT), all complaints received by Dealer
from any current or potential Customer or anyone else arising out of or in
connection with any Product or this Agreement. Dealer will promptly notify AVT
of all such complaints and of any action taken (or to be taken) in connection
with such complaints. In handling any complaints. Dealer will use its best
efforts to maintain and promote the good will of and good public relations for
AVT.
4.10 TRADEMARKS
Dealer will not use the names "AVT," "Applied Voice Technology," "CallXpress,"
"CallServer" or confusingly similar names in any promotion materials, telephone,
or other listing, business card, letterhead, sign, or any other manner without
the prior written consent of AVT. AVT hereby consents to the use of its name to
the extent necessary to utilize materials furnished to Dealer under this
paragraph 4.11 in connection with Dealer's normal sales activities. Other than
as expressly permitted under this paragraph, AVT reserves all rights in AVT's
trademarks, trade names, and logos, including the names of the Products. If any
goodwill accrues to AVT's trademarks, trade names and logos as a result of
Dealer's efforts, such goodwill inures exclusively to the benefit of, and Dealer
will hold such goodwill in trust for, AVT.
4.11 INSTALLATION AND SUPPORT FOR NON-DEALER SUPPLIED PRODUCTS
Dealer will, upon AVT's request, provide installation, maintenance and general
support for Products located in the Territory but supplied by others. Dealer
will be compensated by AVT for such services at Dealer's then current rates or
at such other rate as may be agreed upon by the parties, unless service is
otherwise billable to Customer.
4.12 AVT PERFORMANCE
Dealer will allow AVT, or a third party selected by AVT, to perform Dealer's
obligations under Sections 4.4, 4.7, 4.8, 4.9 and 7.4 in the event Dealer fails
to perform such obligations within ten (10) days of notice by AVT. In the event
AVT or a third party performs such obligations and Customers do not generally
pay for such services, AVT will be entitled to reimbursement from Dealer for the
reasonable costs of performing such obligations.
4.13 COMPLIANCE WITH LAWS
Dealer will comply with all applicable federal, state and local laws,
regulations, rules and ordinances in the marketing of Products and refrain from
engaging in any deceptive or unethical trade practices or any act which might
harm the reputation of the Products or AVT.
SECTION 5. PURCHASE ORDERS AND FINANCIAL MATTERS
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5.1 ORDERS
To obtain products from AVT, Dealer will place purchase orders with AVT in
accordance with AVT's standard policies and procedures set forth in the Dealer
Price Catalog.
Allstar Systems, Inc. Page 3
5.2 ACCEPTANCE OF PURCHASE ORDERS
Each purchase order will be subject to AVT's acceptance. AVT will not
unreasonably withhold acceptance of purchase orders placed by Dealer. Acceptance
of purchase orders will be by AVT's written acknowledgment. Rejected purchase
orders will be of no force or effect.
5.3 TERMS CONTROL
Each purchase of Products by Dealer will be subject to, and will be governed by,
this Agreement. AVT will not be bound by, and specifically objects to, any term,
condition, or other provision which is different from or in addition to the
provisions of this Agreement, the Purchase Order, or the Order Acknowledgment
(whether or not it would materially alter this Agreement) which is profferred by
Dealer in any purchase order, receipt, acceptance, confirmation, correspondence,
or otherwise, unless AVT specifically agrees to such provision in a written
instrument signed by AVT. In the event of any inconsistency between the
provisions of the purchase order or order acknowledgment and the provisions of
this Agreement, the provisions of this Agreement will control.
5.4 DELIVERY
Except as provided below, all Products will be delivered F.O.B. AVT's shipment
facility in the United States. Title to the Hardware and risk of loss to the
Products will pass to Dealer at AVT's shipment facility upon such delivery.
5.5 INITIAL PURCHASE
By executing this Agreement, Dealer hereby places a non-cancellable purchase
order for the Products listed in Exhibit 5.5.
5.6 PRICES
Prices for the Products are set forth in the Dealer Price Catalog. Prices for
Products are subject to change sixty (60) days after AVT's notice to Dealer of
the change. Prices for Products will be those in effect at the time the order
for such Products is received by AVT, provided such Products are shipped to
Dealer within thirty (30) days of the price change. Prices are subject to
discount pursuant to the terms of the bonus discount program set forth in the
Dealer Price Catalog.
5.7 SHIPPING
All prices are F.O.B. AVT's shipment facility. Accordingly, Dealer will pay for
freight, handling and shipping insurance. Dealer will also pay for all
applicable excise, sales, use, and other such taxes unless Dealer has supplied
AVT with a resale certificate or a certificate of use outside of Washington
State in the form of Exhibit 5.7.
5.8 PAYMENT TERMS
Payment for Products is due and payable according to the terms set forth in
Exhibit 5.8. In accordance with the terms of that Exhibit, terms of payment are
subject to change based on Dealer's payment history. Payments not made when due
will bear a finance charge of one and one-half percent (1-1/2%) per month on the
amount then due and outstanding from the date such payment is due to the date
such payment is made. If Dealer's account is not kept current as provided
herein, AVT will, in addition to its other rights and remedies, have the right,
at its option, to terminate this Agreement in accordance with the provisions of
Section 8 and discontinue all further shipments to Dealer, even if AVT has
accepted purchase orders, make all further shipments to Dealer on a C.O.D. or
cash-in- advance basis, cancel accepted purchase orders, or require that, as a
condition to further shipments, Dealer provide to AVT an irrevocable letter of
credit in a form and amount, and issued by a bank, acceptable to AVT. In any
action to collect amounts due, the prevailing party will be entitled to
reasonable attorney's fees and costs.
5.9 NO ACCORD AND SATISFACTION
If Dealer pays, or AVT otherwise receives, a lesser amount than the full
purchase price or other amount payable to AVT under this Agreement, such payment
or receipt will not constitute or be construed other than as on account of the
earliest amount due. AVT may accept any check or payment in any amount without
prejudice to AVT's right to recover the balance of the purchase price or other
amount due or to pursue any other right or remedy under this Agreement or
otherwise by law. No endorsement or statement on any letter of credit, check, or
payment or in any letter accompanying any letter of credit, check, or payment or
elsewhere will constitute or be construed as an accord or satisfaction.
Allstar Systems, Inc. Page 4
5.10 SECURITY INTEREST
AVT reserves and Dealer grants to AVT a security interest in the Products
supplied by AVT to Dealer and in the proceeds and accounts arising from or
attributable to the disposition of such Products to secure the full and punctual
performance of Dealer's monetary obligations for such Products under this
Agreement. Such security interest will, to the extent permitted by applicable
law, constitute a purchase money security interest. Dealer will execute such
documents (including, but not limited to, Exhibit 5.10) as AVT may reasonably
request to evidence or perfect such security interest. If Dealer fails to
execute or deliver such documents, Dealer hereby appoints AVT as its
attorney-in-fact to execute such documents on Dealer's behalf.
5.11 SUPPLY OF PRODUCTS
Dealer agrees to acquire Products solely from AVT. Additionally, but not by way
of limitation of AVT's other rights, AVT reserves the right to discontinue
supply of any of the Products to the Dealer in the event AVT generally
discontinues active marketing of the Products.
5.12 FINANCIAL STATEMENTS
Dealer agrees that, unless Dealer uses only cash in advance or cash on delivery
terms for payment of Products, Dealer will provide to AVT, upon request made by
AVT from time to time, Dealer's most recent quarterly and/or annual financial
statements. Such statements will include a balance sheet, an income statement,
and statement of cash flow. When submitting such financial statements to AVT,
Dealer will be deemed to have represented to AVT that such financial statements
fairly present the financial condition of Dealer as of their date and that since
such date there has been no adverse material change in such financial condition.
5.13 CREDIT LIMIT
AVT may grant Dealer a limited credit line. Dealer's outstanding invoices cannot
exceed the sum of that amount. In addition to rejecting purchase orders, AVT may
refuse to ship Products on accepted purchase orders if the order or shipment
would increase the Dealer's outstanding balance above this limit. This limit may
be increased or decreased by AVT at its discretion based upon Dealer's payment
history with AVT or Dealer's financial condition.
SECTION 6. SOFTWARE AND OTHER RIGHTS
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6.1 END-USER LICENSE AGREEMENT Products supplied by Dealer to Customers will be
accompanied by the standard end-user license agreements then provided by AVT
with the Software. Dealer will ensure that the end-user license agreements
packaged with the Products are delivered to the Customer without modification or
tampering. Pursuant to such end-user license agreements, the relevant developer
grants to the user a license to use the Software.
6.2 SERIAL NUMBER
The Software is identified by a unique serial number and supports a specific
system configuration. This system configuration can only be modified through
upgrade kits obtained from AVT. Dealer will not install the Software, or
otherwise allow it to be installed, on more than one system.
6.3 OWNERSHIP AND OTHER RIGHTS
AVT will retain all its title to and ownership of AVT Software and all
copyrights, patent rights, and other such rights associated with AVT Software.
Third-party developers have retained all title to and ownership of the
third-party Software and all copyrights, patent rights, and other such rights
associated with such third-party Software. Dealer has no right to modify the
Products or copy the Software. Dealer will retain on all copies of the Software
all copyright and proprietary rights notices that may be on such copies of the
Software at the time of delivery to Dealer. Dealer will not remove markings,
stickers, plates and other identification tags which bear AVT's name or its
Product names (including, without limitation, "CallXpress") from any Product.
6.4 CONFIDENTIALITY
Each party will hold in confidence all confidential information received or
otherwise obtained from the other, provided that all such information is
provided in written form and is clearly marked as confidential. For purposes of
this Section, "confidential information" will mean all information
Allstar Systems, Inc. Page 5
one party receives or otherwise obtains from the other party other than that
information (i) which is in the public domain through no fault of the receiving
party, (ii) which was already known to the receiving party, or (iii) which the
receiving party independently obtained from a third party without restrictions
on use confidentiality. "Confidential information" will for all relevant
purposes be deemed to include the Software, even if the Software is not clearly
marked as confidential. The parties may disclose confidential information to
their respective employees with a need to know provided such employees are
instructed to retain such information in confidence. In addition to the above
obligations, Dealer will comply with the confidentiality restrictions contained
in the end-user license agreements (including, without limitation, the
restrictions on reverse engineering, decompiling, and disassembly) and will
cause its employees and other persons to whom it may allow access to the
Software to be bound by the provisions of this Section.
SECTION 7. WARRANTY REPAIRS, AND UPDATES AND MODIFICATIONS
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7.1 WARRANTY
(a) AVT warrants to the Dealer that each unit of Product will perform as
warranted by AVT in AVT warranty documentation included in the Dealer Price
Catalog for AVT (the "Warranty Documentation"). AVT further warrants to the
Dealer that Products will, on matters of infringement, be as warranted in the
Warranty Documentation for that unit of Product. The foregoing warranties will,
with respect to any particular unit of Product, be for the warranty period
specified in the Warranty Documentation, but such warranty period will be deemed
to commence upon shipment by AVT of that unit to Dealer. The foregoing
warranties are subject to the limitations and conditions of, and benefit from
the same exclusive remedies as, the warranties of the Warranty Documentation.
AVT reserves the right to modify the terms and conditions of its warranties from
time to time at its sole discretion by modifying the Warranty Documentation.
(b) AVT warrants that Products do not infringe any U.S. patent, U.S. copyright
or trade secret. This warranty will not apply to any infringement to the extent
the infringement arises out of any use or combination of the Products with any
other products, goods, services, or other items furnished by anyone other than
AVT (e.g., by Dealer or any Customer) other than the hardware for which it was
designed, or to any modification or change not made by AVT. AVT will defend and
indemnify Dealer from any and all claims, damages, liabilities, costs, and
expenses (including but not limited to reasonable attorneys' fees) incurred or
arising out of any claim of infringement of any U.S. patent, U.S. copyright or
any trade secret by the Products; provided that Dealer notifies AVT of such
proceeding promptly after Dealer receives notice thereof, AVT has control over
the defense and settlement of the proceeding, Dealer provides such assistance in
the defense and settlement of the proceeding as AVT may reasonably request, and
Dealer complies with any settlement or court order made in connection with such
proceeding (e.g., as to the future use of any infringing Products).
7.2 EXCLUSIVITY
AVT MAKES NO REPRESENTATION OR WARRANTY WITH REGARD TO ANY PRODUCT, AVT'S
SERVICES, OR ANY OTHER ITEM FURNISHED UNDER THIS AGREEMENT, EXCEPT AS
SPECIFICALLY SET FORTH IN THE WARRANTY DOCUMENTATION. EXCEPT AS SPECIFICALLY SET
FORTH IN SECTION 7.1 AND THE WARRANTY DOCUMENTATION, AVT DISCLAIMS AND DEALER
WAIVES AND RELEASES ALL RIGHTS AND REMEDIES OF DEALER AND ALL WARRANTIES AND
OBLIGATIONS OF AVT, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH
RESPECT TO ANY PRODUCTS OR OTHER ITEMS DELIVERED BY OR ON BEHALF OF AVT UNDER
THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IMPLIED WARRANTY ARISING
FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE, AND CLAIM OF
INFRINGEMENT.
Allstar Systems, Inc. Page 6
7.3 DEALER WARRANTIES/REPRESENTATIONS
Dealer will make no representations or warranties with respect to the Product
except as contained in the Warranty Documentation. Dealer will expressly
indicate to Customers that, except as expressly provided in the Warranty
Documentation, they must look solely to Dealer in connection with any support or
maintenance matters concerning the Products.
7.4 INDEMNITY
Except as set forth in paragraph 7.1 and the Warranty Documentation, Dealer
releases and will defend, indemnify, and hold harmless AVT and its officers,
directors, employees and agents and any of them from and against any and all
claims, losses, harms, damages, liens, liabilities, costs, and expenses
(including, but not limited to, reasonable attorneys' fees) arising out of or in
connection with any use, possession, ownership, sale, transfer, or disposition
of any Product or other item after delivery to Dealer, any performance of this
Agreement by Dealer, any breach of or default under this Agreement by Dealer, or
any act or omission of Dealer or any director, officer, employee, or agent of
Dealer or anyone else acting for or on behalf of Dealer in connection with or
related to this Agreement. To the fullest extent permitted by applicable law,
this paragraph will apply regardless of the fault, negligence, strict liability,
or product liability of AVT and its officers, directors, employees and agents or
any of them.
7.5 UPDATES AND MODIFICATIONS
AVT reserves the right to create updates and modifications to the Products (the
"Updates") from time to time at its discretion. The Products distributed to
Dealer with current orders shall incorporate such Updates as AVT elects to make
them available. In addition, AVT may offer Updates to the Dealer for re-supply
to existing Customers in the form of upgrade kits. Such upgrade kits shall be
supplied to Dealer at a price determined by AVT and subject to all of the other
terms and conditions of this Agreement. What qualifies as an Update shall be
determined by AVT at its discretion. In the event AVT develops Updates in order
to conform the Products to the representations and warranties of the Warranty
Documentation, AVT shall distribute such Updates at no additional charge to
Dealer for prompt distribution to Customers to whom Dealer has already
distributed Products. In such event, Dealer shall promptly supply the updated or
modified Products to such Customers at no charge to AVT or the Customers.
SECTION 8. TERM AND TERMINATION
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8.1 TERM
This Agreement will be for a term of (2) years (the "Term"), commencing as of
the Effective Date. Except as otherwise provided at Section 8.3, AVT will
fulfill all orders placed by Dealer during the Term (subject to provisions and
conditions of Section 5) even if the anticipated delivery date falls after the
termination or expiration of this Agreement. AVT may take reasonable measures to
ensure payment for Products delivered after the termination or expiration of
this Agreement.
8.2 TERMINATION
Notwithstanding Section 8.1, either party (the "Terminating Party") may
terminate this Agreement at any time by delivering a written notice to the other
party (the "Notified Party") in the event of:
(a) the breach by the Notified Party of any terms and conditions of this
Agreement (including, without limitation, any purchase order placed and
accepted pursuant hereto) which is not cured within thirty (30) days (ten
(10) days in the case of monetary breaches) of written notice of breach by
the Terminating Party to the Notified Party;
(b) in cases where the Notified Party is Dealer, any statement made by
Dealer in the dealer application submitted to AVT or any representation and
warranty made by Dealer pursuant to this Agreement proving to be materially
false; or
(c) the insolvency, bankruptcy or inability of the Notified Party to pay
debts as and when due, or any general assignment by the Notified Party for
the benefit of creditors, or the appointment of a receiver for all or a
substantial party of the Notified Party's business or property.
Allstar Systems, Inc. Page 7
8.3 POST-TERMINATION
In the event of any early termination of this Agreement by AVT pursuant to
Section 8.2, AVT will be under no obligations to meet purchase orders placed by
Dealer prior to termination which have not yet been fulfilled by AVT, even if
such purchase orders have been accepted by AVT. However, unless AVT otherwise
notifies Dealer in cases of termination by AVT pursuant to Section 8.2, upon
expiration or termination of this Agreement (i) Dealer will be entitled to
distribute the normally-ordered Products then remaining in stock with Dealer in
accordance with all applicable provisions of this Agreement and (ii) the
obligations of the parties under Section 7 will survive such expiration or
termination to the extent required to meet the warranty obligations for those
Products still under warranty at the time of the termination. Termination or
expiration of this Agreement will not affect rights of the parties that have
accrued prior to termination or expiration. The obligation of the parties under
Sections 6.3 and 6.4 and 9.1 will survive and continue after termination or
expiration of this Agreement. Termination or expiration of this Agreement will
not affect rights of Customers under the end-user license agreements.
8.4 NON-EXCLUSIVE REMEDIES
Termination will be in addition to any other rights or remedies a party may
have.
SECTION 9. MISCELLANEOUS
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9.1 LIMITATION OF LIABILITY
AVT'S LIABILITY (WHETHER IN TORT, CONTRACT, OR OTHERWISE AND NOTWITHSTANDING ANY
FAULT, NEGLIGENCE (WHETHER ACTIVE, PASSIVE, OR IMPUTED), PRODUCT LIABILITY, OR
STRICT LIABILITY OF AVT) UNDER THIS AGREEMENT OR WITH REGARD TO ANY PRODUCTS,
AVT'S SERVICES, OR OTHER ITEMS FURNISHED UNDER THIS AGREEMENT WILL IN NO EVENT
EXCEED THE LESSOR OF $1,000,000 OR THE COMPENSATION PAID TO AVT BY DEALER UNDER
SECTION 5 DURING THE YEAR IN WHICH THE TRANSACTION GIVING RISE TO SUCH LIABILITY
OCCURRED. IN NO EVENT WILL AVT BE LIABLE, WHETHER IN CONTRACT, WARRANTY, TORT
(INCLUDING NEGLIGENCE (WHETHER ACTIVE, PASSIVE, OR IMPUTED), PRODUCT LIABILITY,
OR STRICT LIABILITY), OR OTHERWISE TO DEALER OR TO ANY CUSTOMER OR OTHER PERSON
FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF
ITS PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR THE USE OF, INABILITY TO
USE, OR RESULTS OF USE OF ANY PRODUCTS.
9.2 EXCUSED PERFORMANCE
Neither party will be liable for, or be considered to be in breach of or default
under this Agreement on account of, any delay or failure to perform as required
by this Agreement (other than for payment under Section 5) as a result of any
cause or condition beyond such party's reasonable control (including but not
limited to: fire, explosions, earthquakes, storms, flood, wind, drought, and
acts of God or the elements; court orders; acts, delays, and failures to act by
civil, military, or other governmental authority; strikes, lockouts, labor
disputes, riots, insurrections, sabotage, and war; breakdown or destruction of,
or damage or casualty to, any equipment, facilities, or other property;
unavailability of materials, supplies, parts, equipment, personnel, or other
necessary items; interruption, suspension, curtailment, or other disruption of
utilities; and acts or omissions of person or entities other than such party.)
9.3 NOTICES
Any notice or other communication required or permitted to be given by either
party hereto (including without limitation, purchase orders and acknowledgments
of the same) will be given in writing by personal delivery, by facsimile
transmission and confirmed by dispatch of the same notice to the concerned party
by postage prepaid mail, or by registered certified mail, postage prepaid,
delivered, dispatched or addressed to the concerned party at the address or
number specified below:
If to AVT:Applied Voice Technology, Inc.
11410 N.E. 122nd Way
P.O. Box 97025
Kirkland, Washington 98033
Allstar Systems, Inc. Page 8
If Dealer:Allstar Systems
Michael Torigian
6401 SW Freeway
Houston, TX 77074
or to such other addresses and numbers either party hereto may indicate by
proper notice to the other in the same manner as provided for in this Section.
Notices will be deemed effective on the date of delivery, in the case of
personal delivery, on the date of deposit in the mails of a confirming copy of a
facsimile notice, in the case of such notice, and three (3) business days after
mailing in accordance with the provisions of this Section, in the case of
mailing.
9.4 ASSIGNMENT
Dealer may not assign, transfer, delegate or subcontract, in whole or in part,
directly or indirectly, by operation of law (including, without limitation,
merger) or otherwise, any of its rights or obligations under this Agreement
without the prior written consent of AVT. For purposes of this Section, any
transfer of stock or partnership interests in Dealer pursuant to which that
person or group of persons presently owning or controlling more than fifty
percent (50%) of the stock entitled to elect directors or the partnership
interests representing more than fifty percent (50%) of the interests in
Dealer's profits and losses, as the case may be, no longer owns or controls such
percentages of such stock or such partnership interests will be deemed an event
of assignment by Dealer. Subject to the foregoing, this Agreement will be
binding upon and inure to the benefit of each party and their respective
successors and assigns.
9.5 ENTIRE AGREEMENT
This Agreement is the entire agreement and supersedes any prior oral or written
statements, agreements or representations regarding the subject matter contained
herein and may be changed only by a written instrument signed by both parties.
9.6 NONWAIVER
The waiver by either party of any default or breach under this Agreement will
not constitute a waiver of any subsequent default or breach of the same or a
different kind.
9.7 ARBITRATION
If any dispute arises under this Agreement, the parties agree that a good faith
attempt to resolve the dispute will be made by presenting the position of the
parties to the Vice President of Sales & Marketing of AVT and the President of
Dealer at a meeting at a neutral site. If no such meeting can be arranged within
two (2) weeks of request for such meeting or the named individuals are unable to
reach agreement within one (1) week after such meeting, the parties agree that
the dispute will be settled by binding arbitration. All disputes arising in
connection with the Agreement will be finally settled under the rules of
conciliation and arbitration of the International Chamber of Commerce by one
English-speaking arbitrator appointed in accordance with the rules, and hearings
thereon will be held in Seattle, Washington, U.S.A.
9.8 CONSTRUCTION
This Agreement will be interpreted, construed, and enforced in all respects in
accordance with the local laws of the State of Washington, U.S.A. without
reference to its choice of laws principles and not including the provisions of
the 1980 U.N. Convention on Contracts for the International Sale of Goods. The
English language version of this Agreement will control.
9.9 FORUM SELECTION
Dealer will not commence or prosecute any suit, proceeding or claim to enforce
the provisions of this Agreement or a purchase order, or otherwise arising under
or by reasons of this Agreement or a purchase order, other than in the courts of
the State of Washington, U.S.A., King County, or the United States District
Court for the Western District of Washington at Seattle. Each party irrevocably
consents to the jurisdiction of the above-identified courts.
9.10 INDEPENDENT CONTRACTOR
AVT and Dealer are, and at all times during the Term of this Agreement will
remain, independent contractors. Neither party will be deemed an agent, partner,
or joint venturer of the other party. In no event will either party at any time
Allstar Systems, Inc. Page 9
have authority to make any contracts or commitments on behalf of or as an agent
of the other party.
9.11 NO THIRD-PARTY BENEFICIARY
No agreement herein will be deemed to be made for the benefit of any Customer or
any third party.
EXECUTED AND AGREED TO ON THE DATE FIRST WRITTEN ABOVE.
DEALER: Allstar Systems, Inc.
By: /s/ MICHAEL TORIGIAN
Michael Torigian
Title: V.P. Telecom
APPLIED VOICE TECHNOLOGY, INC.
By: /s/ SIGNATURE ILLEGIBLE
Title: President & CEO
Allstar Systems, Inc. Page 10
EXHIBIT 1.2
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[ATTACH DEALER PRICE CATALOG]
Allstar Systems, Inc. Page 11
EXHIBIT 1.6
TERRITORY
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The Territory consents of the following counties in the following state(s):
STATE(S): TEXAS
COUNTIES: Dallas, Tarant, Denton, Johnson, Wise, Collin, Buckishaw
Allstar Systems, Inc. Page 12
EXHIBIT 5.5
INITIAL PURCHASE ORDER
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PRODUCT DEMONSTRATION SYSTEMS
QUANTITY CONFIGURATION UNIT PRICE EXTENSION
1.
2.
3.
4.
5.
Subtotal $
Less: Demo Discount $
Demo System Subtotal $
INITIAL SYSTEMS
- --------------------------------------------------------------------------------
QUANTITY CONFIGURATION UNIT PRICE EXTENSION
1.
2.
3.
4.
5.
Subtotal $
Less: Demo Discount $
Initial System Subtotal $
Allstar Systems, Inc. Page 13
INITIAL PURCHASE ORDER (CONTINUED)
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SPARE PARTS (1 OF EACH PER SERVICE LOCATION)
QUANTITY CONFIGURATION UNIT PRICE EXTENSION
1.
2.
3.
4.
5.
6.
7.
8.
Subtotal $
DIAGNOSTIC TOOLS (1 OF EACH PER SERVICE LOCATION)
QUANTITY CONFIGURATION UNIT PRICE EXTENSION
1.
2.
3.
4.
5.
Subtotal $
Less: Discount Bonus $
Diagnostic Tools Subtotal $
Initial Purchase Total $
Allstar Systems, Inc. Page 14
EXHIBIT 5.7
SALES TAX CERTIFICATES
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RESALE CERTIFICATE
The undersigned hereby certifies that the items subject of the Purchase Order to
which this Certificate is attached are obtained for resale without intervening
use by the undersigned in the regular course of business or are to be used as an
ingredient or component part of a new article of tangible personal property to
be produced for sale. This Certificate is given with full knowledge of and
subject to legally prescribed penalties for fraud and evasion. Company:
Address:
Washington State Tax Registration No.: (if applicable)
Name as Registered:
Type of Business:
By
Title
Date
CERTIFICATE OF USE OUTSIDE OF WASHINGTON
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The undersigned is acquiring the Products from Applied Voice Technology, Inc.,
for purposes of use outside of the State of Washington and the undersigned will
not use or distribute the Products delivered by Applied Voice Technology, Inc.
to the undersigned in the State of Washington. This Certificate is given with
full knowledge of, and subject to, legally prescribed penalties for fraud and
evasion.
By: /s/ Michael Torigian
Title: VP Telecom
Date: 3/1/95
Allstar Systems, Inc. Page 15
EXHIBIT 5.8
PAYMENT TERMS
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INITIAL PURCHASE ORDER "DEMO SYSTEM" PURSUANT TO SECTION 5.5:
Payment terms are 50% deposit on Effective Date, with the remainder due net
sixty (60) days from the Effective Date.
INITIAL PURCHASE ORDER "OTHER ITEMS" PURSUANT TO SECTION 5.5 Payment terms are
standard as described below:
SUBSEQUENT PURCHASES:
1. Payment for subsequent purchase orders shall be due net thirty (30) days
from the shipment date of the Products.
2. Payments received within ten (10) days of the shipment date of the Products
will result in a 3% prompt payment rebate, which will be credited to your
account at the end of each month.
3. Orders received with full payment in advance of shipment will receive a 5%
cash discount.
4. Overdue payment amounts will be assessed a finance charge of 1-1/2% per
month from the date payment is due to the date payment is made.
Allstar Systems, Inc. Page 16
EXHIBIT 5.10
FINANCING STATEMENT
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Return to recorded original to:
Applied Voice Technology, Inc.
11410 N.E. 122nd Way
P.O. Box 97025
Kirkland, WA 98033
1. DEBTOR: Allstar Systems
6401 S.W. Freeway
Houston, Texas 77074
2. SECURED PARTY: Applied Voice Technology, Inc.
11410 N.E. 122nd Way
P.O. Box 97025
Kirkland, WA 98033
3. THIS FINANCING STATEMENT COVERS THE FOLLOWING PROPERTY:
All Applied Voice Technology, Inc. supplied inventory and equipment
(including, without limitation, voice and call processing products, computer
hardware and software and documentation) and all proceeds and accounts arising
from or attributable to disposition of such items.
DEBTOR: SECURED PARTY:
ALLSTAR SYSTEMS APPLIED VOICE TECHNOLOGY
Dealer Name
By: /s/ DONALD R. CHADWICK By: /s/ SIGNATURE ILLEGIBLE
Donald R. Chadwick
Title: CFO Title: President & CEO
Allstar Systems, Inc. Page 17
EXHIBIT 10.24
INDUSTRIAL LEASE AGREEMENT
In consideration of the rents and covenants hereinafter set forth, Landlord
hereby leases to tenant, and Tenant hereby rents from Landlord the following
described leased premises on the terms and conditions set forth in the
Industrial Lease Agreement hereinafter referred to as "Lease".
FUNDAMENTAL LEASE PROVISIONS
Date of Lease: MARCH 9, 1996
Project: ASHCROFT BUSINESS PARK
HOUSTON, TEXAS 77081
Landlord: H-5 J.E.T. LTD
Address for Notices: c/o Howeth Investments, Inc.
720 N. Post Oak, Suite 600, Houston, TX 77024
Phone: (713) 688-6868
Tenant Name: ALLSTAR SYSTEMS, INC.
Trade Name: ALLSTAR SYSTEMS, INC.
Premises Address: 6411-1B ASHCROFT, HOUSTON, TX 77081
Address for Notices: 6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
Leased Area: 7500 Square Feet (approximately)
Total Area: 101,250 Square Feet (approximately)
Tenant's Pro Rata Share: 7.4%
Expense Base: Insurance: $6,117.00;
Taxes: $31,968.00;
Utilities: $ 0.00
LEASE TERM (Sec. 2): Approximately 2 years and 0 months
Commencement Date: The 15TH day of APRIL, 1996
Expiration Date: The 14TH day of APRIL, 1998
FIXED MINIMUM RENT: Beginning on APRIL 15TH, 1996, the sum
of $1,800.00 per month. (Any changes
in Fixed Minimum Rent are shown in
Section 46, hereof.)
SECURITY DEPOSIT: $ 1,800.00
TOTAL DUE UPON EXECUTION: $ 3,750.00
Specified Parking (Sec. 1.2): 5 spaces, unassigned and
unreserved
Use of Premises (Sec. 5): WAREHOUSE AND STORAGE FOR
COMPUTER & ELECTRONICS
COMPANY
Broker(s) Payable by Landlord: NONE
(Commissions are earned and
paid only if and per
separate agreement.)
Telephone: N/A
The Fundamental Lease Provisions are an integral part of the Lease and each
reference in this Lease to any of the Fundamental Lease Provisions shall be
construed to incorporate all of the Lease related to such Fundamental Lease
Provision. In the event of any conflict between any Fundamental Lease Provision
and the balance of the Lease, the latter shall control. References to specific
sections are for convenience and designate some of the sections where references
to the particular Fundamental Lease Provision appear. The provisions of the
Lease are incorporated herein to the same extent as if they preceded the party's
signatures below.
This lease consists of 46.6 Articles on 14 pages, plus 1 Exhibit and 0
additional pages of Addenda or Riders, if any.
LANDLORD: H-5 J.E.T., LTD.
By: /s/
H-5 Ranch, Inc., its General Partner
By: /s/
A.J. Howeth, Vice President
TENANT: ALLSTAR SYSTEMS, INC.
By: /s/
James H. Long
Tenant's Initials
Landlord's Initials
1
1. Premises, Parking and Common Areas.
1.1 Premises. Landlord hereby leases to Tenant and Tenant leases from
Landlord for the term, at the rental, and upon all of the conditions set forth
herein, the real property specified in the Fundamental Lease Provisions and
herein referred to as the "Premises", as outlined on Exhibit "A" attached
hereto, including rights to the Common Areas as hereinafter specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building, herein referred to
as the "Building". The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and improvements
thereon which are owned by Landlord, are herein collectively referred to as the
"Industrial Center".
1.2 Vehicle Parking. Tenant shall be entitled to the amount of vehicle
parking spaces specified in the Fundamental Lease Provisions, unreserved and
unassigned, on those portions of the Common Areas designed by Landlord for
parking. Tenant shall not use more parking spaces than specified without written
consent of Landlord. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles". Vehicles other than Permitted Size
vehicles are herein referred to as "Oversized Vehicles".
(a) Tenant shall not permit or allow any vehicles that belong
to or are controlled by Tenant or Tenant's employees, suppliers, shippers,
customers, or invitees, to be loaded, unloaded or parked in areas other than
those designed by Landlord for such activities.
(b) If tenant permits or allows any of the prohibited
activities described in paragraph 1.2 of this Lease, then Landlord shall have
the right, without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost to
Tenant, which cost shall be immediately payable upon demand by Landlord.
1.3 Common Areas - Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center as of the Commencement Date hereof that are
provided and designated by the Landlord from time to time for the general
non-exclusive use of Landlord, Tenant and of other tenants of the Industrial
Center and their respective employees, suppliers, shippers, customers and
invites, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
1.4 Common Areas - Tenant's Rights. Landlord hereby grants to Tenant,
for the benefit of Tenant and its employees, suppliers, shippers, customers and
invites, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Landlord
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of
Landlord or Landlord's designated agent, which consent may be revoked at any
time with written notice from Landlord. In the event that any unauthorized
storage shall occur then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost of removal and storage of Tenant's goods to the
Tenant, which cost shall be immediately payable upon demand by Landlord.
1.5 Common Areas - Rules and Regulations. Landlord or such other
person(s) as Landlord may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable rules and regulations with
respect thereto provided written notice is given to Tenant. Tenant agrees to
abide and conform to all such rules and regulations and to cause its employees,
suppliers, shipping customers and invitees to so abide and conform. Landlord
shall not be responsible to Tenant for the non-compliance with said rules and
regulations by other lessees of the Industrial Center.
1.6 Common Areas - Changes. Landlord shall have the right, in
Landlord's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitations, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To add improvements to
the Common Areas; (d) To use the Common Areas while engaged in making additional
improvements, repairs or alternations to the Common Areas or alternations to the
Industrial Center, or any portion thereof; (e) To do and perform such other acts
and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Landlord may, in the exercise of sound business judgment,
deem to be appropriate. In making any change contemplated herein, Landlord shall
not unreasonably interfere with Tenant's use and enjoyment of the premises or
Tenant's access thereto.
2. Term.
2.1 Term. The term of the Lease shall be for the period specified in
the Fundamental Lease Provisions unless sooner terminated pursuant to any
provision hereof.
2.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Landlord cannot deliver possession of the Premises to Tenant on said
date, Landlord shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Tenant hereunder
or extend the term hereof, but in such case, Tenant shall not be obligated to
pay rent or perform any other obligation of Tenant under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the premises is tendered to Tenant; provided, however, that if Landlord shall
not have delivered possession of the Premises within sixty (60) days from said
commencement date, Tenant may, at Tenant's option, by notice in writing to
Landlord within fourteen (14) days thereafter, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Tenant is not received by
Landlord within said fourteen (14) day period, Tenant's right to cancel this
Lease hereunder shall terminate and be of no further force or effect.
2.3 Early Possession. If Tenant occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Tenant shall
pay rent for such period at the rate of the initial monthly rent as shown in the
Fundamental Lease Provisions on a per day basis, and such rent shall
Tenant's Initials
Landlord's Initials
2
be due on the commencement date provided, however, this sentence shall not be
construed to guarantee that the Premises will be fully complete with respect to
all of Tenant's build out requirements.
3. Rent.
3.1 Base Rent. Tenant shall pay to Landlord, as Base Rent for the
premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the first day of each month of the term hereof, the
Fixed Minimum Rent as specified in the fundamental Lease Provisions. Upon
execution of this Lease, Tenant shall pay Landlord the first full months rent.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful
money of the United States to Landlord at the address stated on the Fundamental
Lease Provisions or to such other persons or at such other places as Landlord
may designate in writing.
3.2 Operating Expenses. Tenant shall pay to Landlord during the term
hereof, in addition to the Base Rent, Tenant's share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Tenant's Pro Rata Share" for purposes of this Lease, is
defined in the Fundamental Lease Provisions and is also referred to herein as
"Tenant's Share".
(b) "Operating Expenses" is defined, for purposes of the
Lease, as Tenant's pro rata share of any increases in the following expenses of
Landlord to the extent such costs shall exceed the cost of such expenses for the
Expense Base as shown in the Fundamental Lease Provisions hereof (hereinafter
referred to as "Expense Base") (i) Insurance: Landlord's costs of the premiums
for insurance policies maintained by Landlord under paragraph 7, hereof; (ii)
Taxes: the amount of Real Property Taxes to be paid by Landlord under paragraph
9 hereof; (iii) Utilities: the amount of electric, natural gas, water, sewer, or
other public utility services and the cost of trash service (if any) provided to
the Common Area.
(c) Tenant's Share of Operating Expenses shall be payable by
Tenant within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Tenant by Landlord. At Landlord's option, however, an
amount may be estimated by Landlord from time to time of Tenant's Share of
annual Operating Expenses and the same shall be payable monthly or quarterly, as
Landlord shall designate, during each twelve month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Tenant pays
Landlord's estimate of Tenant's Share of Operating Expenses as aforesaid,
Landlord shall deliver to Tenant within ninety (90) days after the expiration of
each calendar year a reasonable detailed statement showing Tenant's Share of the
actual Operating Expenses incurred during the preceding year together with
copies of tax receipts and receipts for the payment of insurance premiums. If
Tenant's payments under this paragraph during said preceding year exceed
Tenant's Share as indicated on said statement, Tenant shall be entitled to
credit the amount of such overpayment against Tenant's Share of Operating
Expenses next falling due. If Tenant's payments under this paragraph during said
preceding year were less than Tenant's Share as indicated on said statement,
Tenant shall pay to Landlord the amount of deficiency within ten (10) days after
delivery by Landlord to Tenant of said statement.
(d) Notwithstanding anything to the contrary contained in this
paragraph 3.2 as to each specific category of expense which one or more tenants
of the property specifically reimburses to Landlord (e.g., separately metered
utilities, insurance premiums, properly taxes directly reimbursed to Landlord,
etc.) such tenant('s) payments with respect thereto shall not be included in
"Operating Expenses" for purposes of this paragraph 3.2.
4. Security Deposits. Tenant shall deposit with Landlord upon execution hereof
the amount specified in the Fundamental Lease Provisions as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails
to pay rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Landlord may use, apply or retain al or any
portion of said deposit for the payment of any rent or other charge in default
or for the payment of any other sum to which Landlord may come obligated by
reason of Tenant's default, or to compensate Landlord for any loss or damage
which Landlord may suffer thereby. If Landlord so uses or applies all or any
portion of said deposit, Tenant shall within ten (10) days after written demand
therefor deposit cash with Landlord in an amount sufficient to restore said
deposit to the full amount then required of Tenant. If Tenant performs all of
Tenant's obligations hereunder, said deposit, or so much thereof as has not
therefore been applied by Landlord shall be returned, without payment of
interest or other increment for its use, to Tenant (or to the last assignee, if
any, of Tenant's interest hereunder) at the expiration of the term hereof, and
after Tenant has vacated the Premises, No trust relationship is created herein
between Landlord and Tenant with respect to said Security Deposit.
5. Use.
5.1 Use. The Premises shall be used and occupied only for the purpose
specified in the Fundamental Lease Provisions or any other use which is
reasonably comparable and for no other purpose.
5.2 Compliance with Law.
(a) Landlord warrants to Tenant that the Premises, in the
state existing on the date that the Lease term commences, but without regard to
the use for which Tenant will occupy the Premises, does not violate any
covenants or restrictions of record, or any applicable building code, regulation
or ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the obligation
of the Landlord, after written notice from any governmental authority having
appropriate jurisdiction, in promptly, at Landlord's sole cost and expense,
rectify any such violation. Should Landlord fail to correct such violation
within sixty (60) days after notice thereof then, as its sole and exclusive
remedy, Tenant shall have the right to terminate this Lease without any further
obligation to Landlord.
(b) Except as provided in paragraph 5.2(a) Tenant shall, at
Tenant's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term of any part of the term hereof,
relating in any manner to the Premises and the occupation and
Tenant's Initials
Landlord's Initials
3
use by Tenant of the Premises and of the Common Areas. Tenant shall not use nor
permit the use of the Premises or the Common Areas in any manner that will tend
to create waste or a nuisance or shall tend to disturb other occupants of the
Industrial Center.
5.3 Condition of Premises.
(a) Landlord shall deliver the Premises to Tenant clean and
free of debris on the Lease commencement date (unless Tenant is already in
possession) and Landlord warrants to Tenant that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Landlord, after receipt of written notice from Tenant setting forth with
specificity the nature of the violation, to promptly, at Landlord's sole cost,
rectify such violation. Tenant's failure to give such written notice to Landlord
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Landlord has complied with all of Landlord's
obligations hereunder. The warranty contained in this paragraph 5.3(a) shall be
of no force or effect if prior to the date of this Lease, Tenant was an owner or
occupant of the Premises. Landlord shall, throughout the term of this Lease,
make available to Tenant all warranties and like guarantees provided to Landlord
for the upkeep, maintenance and repair of all machinery, fixtures and structures
to be used by Tenant within or about the Premises.
(b) Except as otherwise provided in this Lease, Tenant hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Tenant takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Tenant
acknowledges that neither Landlord nor Landlord's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Tenant's business.
6. Maintenance, Repairs, Alternations and Common Area Services.
6.1 Landlord's Obligations. Subject to the provisions of paragraphs 3.2
(Operating Expenses), 5 (Use), 6.2 (Tenant's Obligations) and 8 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Tenant, Tenant's employees, suppliers, shippers, customers, or
invitees, in which event Tenant shall repair the damage, Landlord, at Landlord's
expense, shall keep in good condition and repair the foundations, exterior
walls, structural condition or interior bearing walls of the Premises, as well
as the parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services generally provided to the Industrial Center as of the commencement
date. Landlord shall not, however, be obligated to pain the exterior or interior
surface of exterior walls, nor shall Landlord be required to maintain, repair or
replace windows, doors or plate glass of the Premises. Landlord shall have no
obligation to make repairs under this paragraph 6.1 until a reasonable time
after receipt of written notice from Tenant of the need for such repairs. Tenant
expressly waives the benefits of any statue now or hereafter in effect which
would otherwise afford Tenant the right to make repairs at Landlord's expense or
to terminate this Lease because of Landlord's failure to keep the Premises in
good order, condition and repair. Landlord shall not be liable for damages or
loss of any kind or nature by reason of Landlord's failure to keep the Premises
in good order, condition and repair except to the extent such claim for
liability may be covered under the liability insurance provisions of paragraph
7.2, hereof, Landlord shall not be liable for damages or loss of any kind or
nature by reason of Landlord's failure to furnish any Common Area Services when
such failure is caused by accident, breakage, repairs, strikes, lockout, or
other labor disturbances or disputes of any character, or by any other cause
beyond the reasonable control of Landlord. However, if any such Common Area
Service(s) shall not be provided and the Premises hereunder become wholly
untenable and unusable as a result thereof for more than fourteen (14)
consecutive days after written notification to Landlord, then on the fifteenth
(15) day after such notice rent shall abate on a per day basis until the
interruption of Common Area Services is restored. Should such interruption of
the Common Area Services continue for sixty (60) consecutive days then Tenant,
at Tenant's option, shall have the right to terminate this Lease entirely.
6.2 Tenant's Obligations.
(a) Subject to the provisions of paragraphs 5 (Use), 6.1
(Landlord's Obligations), and 8 (Damage or Destruction), Tenant, at Tenant's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means or
repairing the same are reasonably or readily accessible to Tenant) including,
without limiting the generality of the going, all plumbing, heating, ventilating
and air conditioning systems, electrical and lighting facilities and equipment
within the Premises, fixtures, interior walls and interior surfaces of exterior
walls, ceiling, windows, doors, plate glass, and skylights located within the
Premises. Tenant shall procure and maintain, at Tenant's expense, a ventilating
and air conditioning system maintenance contract. Landlord reserves the right to
procure and maintain the ventilating and air conditioning system maintenance
contract and, if Landlord to elects, Tenant shall reimburse Landlord, upon
demand, for the cost thereof.
(b) If Tenant fails to perform Tenant's obligations under this
paragraph 6.2 or under any other paragraph of this Lease, Landlord may enter on
the Premises after ten (10) days' prior written notice to Tenant (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Tenant's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Landlord
upon demand.
(c) On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed ordinary
wear and tear if the same could have been prevented by good maintenance
practices. Tenant shall repair any damage to the Premises occasioned by the
installation or removal of Tenant's trade fixtures, alterations, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Tenant shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the Premises in good operating condition.
6.3 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written
consent, make alternations, improvements, additions, or Utility Installations
on, or about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises which, by Landlord's reasonable estimate, did not
exceed $2,500 in cumulative costs, during the term of this Lease. In any event,
whether or not in excess of $2,500 in cumulative cost, Tenant shall make no
change or alternation to the exterior of the Premises nor the
Tenant's Initials
Landlord's Initials
4
exterior of the Building nor the Industrial Center without Landlord's prior
written consent. As used in this paragraph 6.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Landlord may require that Tenant remove any or all of
said alterations, improvements, additions or Utility Installations at the
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition. Landlord may require Tenant to provide Landlord, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure
Landlord against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Tenant make any alterations, improvements,
additions or Utility Installations without the prior approval of Landlord,
Landlord may, at any time during the term of this Lease require that Tenant
remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Tenant
shall desire to make and which require the consent of the Landlord shall be
presented to Landlord in written form, with proposed detailed plans. If Landlord
shall give its consent, the consent shall be deemed conditioned upon Tenant
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Landlord prior to the commencement of the work
and the compliance by Tenant of all conditions of said permit in a prompt and
expeditious manner.
(c) Tenant shall pay, when due, all claims for labor or
materials furnished to or for Tenant at or for use in the Premises, which claims
are or may be secured by any mechanic's or materialmen's lien against the
Premises, or the Industrial Center, or any interest therein, Tenant shall give
Landlord not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Landlord shall have the right to post notices of
non-responsibility in or on the Premises or the Building as provided by law. If
Tenant shall, in good faith, contest the validity of any such lien claim or
demand, the Tenant shall, at its sole expense defend itself and Landlord against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Landlord or the
Premises or the Industrial Center, upon the condition that if Landlord shall
require, Tenant shall furnish to Landlord a surely bond satisfactory to Landlord
in an amount equal to such contested lien claim or demand indemnifying Landlord
against liability for the same and holding the Premises and the Industrial
Center free from the effect of such lien or claim. In addition, Landlord may
require Tenant to pay Landlord's attorney's fees and costs in participating in
such action if Landlord shall decide it is to Landlord's best interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (where or not such Utility Installations constitute trade fixtures
of Tenant), which may be made on the Premises, shall be the property of Landlord
unless otherwise agreed upon in writing and shall remain upon and be surrendered
with the Premises at the expiration of the Lease term, unless Landlord requires
their removal pursuant to paragraph 6.3(a). Notwithstanding the provisions of
this paragraph 6.3(d), Tenant's machinery and equipment, other than that which
is affixed to the Premises so that it cannot be removed without material damage
to the Premises, and other than Utility Installations, shall remain the property
of Tenant and may be removed by Tenant subject to the provisions of paragraph
6.2.
7. Insurance; Indemnity.
7.1 Liability Insurance - Tenant. Tenant shall, at Tenant's expense,
obtain and keep in force during the term of this Lease a policy with an
insurance company satisfactory at all times to Landlord, comprehensive general
liability insurance coverage in an adequate amount, as reasonably determined by
Landlord's insurance broker or advisor, but not less than Five Hundred Thousand
Dollars ($500,000.00) combined single limit of coverage for personal injury,
death and property damage. The policy shall insure performance by Tenant of the
indemnity provisions of this paragraph 7. The limits of said insurance shall
not, however, limit the liability of Tenant hereunder.
7.2 Liability Insurance - Landlord. Landlord shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Landlord, but not Tenant, against
any liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
7.3 Property Insurance. Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Industrial Center improvements, but not Tenant's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), and such other
insurance as Landlord deems advisable.
7.4 Payment of Premium Increase.
(a) After the term of this Lease has commenced, Tenant shall
not be responsible for paying Tenant's Share of any increase in the property
insurance premium for the Industrial Center specified by Landlord's insurance
carrier is being cause by the use, acts or omissions of any other tenant of the
Industrial Center, or by the nature of such other tenant's occupancy which
creates an extraordinary or unusual risk.
(b) Tenant, however, shall pay the entirety of any increase in
the property insurance premium for the industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Landlord's insurance carrier as being caused by the nature of
Tenant's occupancy or any set or omission of Tenant.
7.5 Insurance Policies. Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies carried by Landlord.
Tenant shall deliver to Landlord copies of liability insurance policies required
under paragraph 7.1 or certificates evidencing the existence and amounts of such
insurance within seven (7) days after the commencement date of this Lease. No
such policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Landlord,
Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewals or "binders" thereof.
7.6 Waiver of Subrogation. Tenant and Landlord each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Landlord or Tenant or their agents, employees, contractors and/or invitees.
Tenant and Landlord shall, upon obtaining the policies of insurance required
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
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7.7 Indemnity. Tenant shall indemnify and hold harmless Landlord from
Tenant's use of the Industrial Center, or from the conduct of Tenant's business
or from any activity, work or things done, permitted or suffered by Tenant in or
about the premises or elsewhere and shall further indemnify and hold harmless
Landlord from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenants part to be performed under the
terms of this Lease, or arising from any act or omission of Tenant, or any of
Tenant's agents, contractors, or employees and from and against all costs,
attorney's fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in
such defense.
7.8 Liability. Landlord shall not be liable for any injury to or damage
or loss (including loss of income) sustained to the property or person of
Tenant, any agent, employee, guest, licensee, invitee, or customer of Tenant or
any other person occurring in, or about the Premises which results from fire,
explosion, windstorm, hail water damage or other acts of God, accident or any
other cause except gross negligence or willful misconduct of Landlord, it's
agents or employees. Landlord shall not be liable for any damages arising from
any act or neglect of any other tenant, occupant or user of the Industrial
Center nor from the failure of Landlord to enforce the provisions of any other
Lease of the Industrial Center.
8. Damage and Destruction.
8.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that, in Landlord's opinion, the cost of
repair is less than fifty percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that, in Landlord's opinion, the cost of
repair is fifty percent or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Building" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair if fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss"" shall mean damage or destruction which was
covered by an event required to be covered by the insurance described in
paragraph 7 which reasonably interferes with Tenants occupancy or use of the
Premises. The fact that an Insured Loss has a deductible amount shall not make
the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occuring excluding all
improvements made by tenant.
(i) "Uninsured Loss" shall mean any loss not covered under
Landlord's insurance coverage in paragraphs 7.2 and 7.3 hereof which reasonably
interferes with Tenants occupancy or use of the Premises.
8.2 Premises Partial Damages; Premises Building Partial Damage.
(a) Insured Loss; Subject to the provisions of paragraphs 8.4
and 8.5 if at any time during the term of this Lease any option period, renewal
or extension thereof, there is damage which is an Insured Loss and which falls
into the classification of either Premises Partial Damage or Premises Building
Partial Damage, then Landlord shall, at Landlord's expense, repair such damage
to the Premises, but not Tenant's fixtures, equipment or tenant improvements, as
soon as reasonable possible, and this Lease shall continue in full force and
effect. If such repairs shall, by estimate of Landlord's contractor, take more
than 150 days from the date such damage occurs, then Tenant, at Tenant's sole
option, shall have the right to terminate this Lease, otherwise rent shall be
abated until Landlord has restored the Premises to reasonably tenantable
condition.
(b) Uninsured Loss: Subject to the provisions of paragraphs
8.4 and 8.5, if at any time during the term of this Lease there is damage which
is an Uninsured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Tenant (in which event Tenant shall make the repairs at
Tenant's expense), which damage prevents Tenant from using the Premises,
Landlord may at Landlord's option either (i) repair such damage as soon as
reasonably possible at Landlord's expense, in which event this Lease shall
continue in full force and effect, except in the event that such repairs shall,
by estimate of Landlord's contractor, take more than 150 days from the date such
damage occurs, then Tenant, as Tenant's sole option, shall have the right to
terminate this Lease, otherwise rent shall be abated until Landlord has restored
the Premises to reasonably tenantable condition, or (ii) give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after receipt of such notice to give written notice
to Landlord of Tenant's intention to repair such damage at Tenant's expense
without reimbursement from Landlord, in which event this Lease shall continue in
full force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within such 10 day
period this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
8.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
Subject to the provisions of paragraphs 8.4 and 8.5, if at any time during the
term of this Lease there is damage, whether or not it is an Insured Loss, and
which falls into the classification of either (i) Premise Total Destruction, or
(ii) Premises Building Total Destruction or (iii) Industrial Center Buildings
Total Destruction, then Landlord may at Landlord's option either (i) repair such
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damage or destruction, but not Tenant's fixtures, equipment or tenant
improvements, as soon as reasonably possible at Landlord's expense, and this
Lease shall continue in full force and effect, except that rent shall be abated
until Landlord has restored the Premises to reasonably tenantable condition, or
(ii) give written notice to Tenant within thirty (30) days after the date of
occurrence of such damage of Landlord's intention to cancel and terminate this
Lease, in which case this Lease shall be canceled and terminated as of the date
of the occurrence of such damage.
8.4 Damage Near End of Term.
(a) Subject to paragraph 8.4(b), if at any time during the
last six months of the term of this Lease there is substantial damages, whether
or not an Insured Loss, which falls within the classification of Premises
Partial Damage, Landlord may at Landlord's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Tenant of such election within thirty (3) days after the date of occurrence of
such damage.
(b) Notwithstanding paragraph 8.4(a), in the event that Tenant
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Tenant shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Parietal Damage during the last six months of the term of this Lease. If Tenant
duly exercises such option during said twenty (20) day period, Landlord shall,
at Landlord's expense, repair such damage, but not Tenant's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Tenant fails to exercise such option
during said twenty (20) day period then Landlord may at Landlord's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Tenant of Landlord's election to do so within
ten (10) days after the expiration of said twenty (20) day period
notwithstanding any term or provision in the grant of option to the contrary.
8.5 Abatement of Rent; Tenant's Remedies.
(a) In the event Landlord repairs or restores the Premises
pursuant to the Provisions of this paragraph 8, the rent payable hereunder for
this period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Tenant's use of the Premises is
impaired on a per day basis. Except, for abatement of rent, if any, Tenant shall
have no claim against Landlord for any damages suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Landlord shall be obligated to repair to restore the
Premises under the provisions of this paragraph 8 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue, Tenant may at Tenant's option cancel and terminate this Lease by giving
Landlord written notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
8.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 8, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Tenant to Landlord. Landlord
shall, in addition, return to Tenant so much of Tenant's security deposit as has
not theretofore been applied by Landlord.
9. Real Property Taxes.
9.1 Payment of Taxes. Landlord shall pay the Real Property Tax, as
defined in paragraph 9.3, applicable to the Industrial Center subject to
reimbursement by Tenant of Tenant's Share of such taxes in accordance with the
provisions of paragraph 3.2, except as otherwise provided in paragraph 9.2.
9.2 Additional Improvements. Tenant shall not be responsible for paying
Tenant's Share of any increase in Real Property Tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other tenants or by Landlord for the
exclusive enjoyment of such other tenants. Tenant shall, however, pay to
Landlord at the time that Operating Expenses are payable under paragraph 3.2(c)
the entirety of any increase in Real Property Tax if assessed solely by reason
of additional improvements placed upon the Premises by Tenant or at Tenant's
request.
9.3 Definition of "Real Property Tax". As used herein, the term "Real
Property Tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural sanitary, fire,
street, drainage or other improvement district thereof, as against any legal or
equitable interest of Landlord in the Industrial Center or in any portion
thereof, as against Landlord's right to rent to other income therefrom and
against Landlord's business of leasing the Industrial Center. The term "Real
Property Tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, an tax, fee levy, assessment or charge
hereinabove included within the definition of "Real Property Tax" or (ii) the
nature of which was hereinbefore included within the definition of "Real
Property Tax", (iii) which is imposed for a service or right not charged prior
to the Commencement Date, or, if previously charged, has been increased since
the commencement Date, or (iv) which is imposed as a result of a transfer,
either partial or total, of Landlord's interest in the Industrial Center or
which is added to a tax or charge hereinbefore included within the definition of
Real Property Tax by reason of such transfer, or (v) which is imposed by reason
of this transaction, any modifications or changes hereto, or any transfers
hereof.
9.4 Joint Assessment. If the Industrial Center is not separately
assessed, Tenant's Share of the real Property Tax liability shall be an
equitable proportion of the Real Property Taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Landlord from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available, Landlord's
reasonable determination thereof, in good faith, shall be conclusive.
9.5 Personal Property Taxes.
(a) Tenant shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Tenant contained in the premises or elsewhere. When
possible, Tenant shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Landlord.
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(b) If any of Tenant's said personal property shall be
assessed with Landlord's real property, Tenant shall pay to Landlord the taxes
attributable to Tenant within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Tenant's property.
10. Utilities. Tenant shall pay for all gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to the Premises, Tenant
shall pay at Landlord's option, either Tenant's Share or a reasonable proportion
to be determined by Landlord of all charges jointly metered with other premises
in the Building.
11. Assignment and Subletting.
11.1 Landlord's Consent Required. Tenant shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Tenant's interest in the Lease or in the Premises,
without Landlord's prior written consent, Landlord shall respond to Tenant's
request for consent hereunder in a timely manner and any attempted assignment,
transfer, mortgage, encumbrance or subletting without such consent shall be
void, and shall constitute a breach of this Lease without the need for notice to
Tenant under paragraph 12.1.
11.2 Corporate Stock Transfers. If Tenant or any approved assignee is a
corporation or partnership and if at any time during the term of this Lease, the
person or persons wh own a majority of either the outstanding voting shares or
all outstanding shares of capital stock of such corporation or partnership at
the time of the execution of this Lease or any assignment to which the Landlord
has approved cease to own a majority of such shares, such change shall be deemed
an assignment of this Lease by Tenant. This Section shall not apply, however, if
at the time of execution of this Lease or any assignment to which Landlord has
approved the outstanding voting shares of capital stock of Tenant are listed on
a recognized security exchange or over-the-counter market, or as long as such
sale or transfer of stock does not result in a reduction of net worth of tenant.
11.3 Terms and Conditions of Assignment. Regardless of Landlord's
consent, no assignment shall release Tenant of Tenant's obligations hereunder or
alter the primary liability o tenant to pay the Base rent and Tenant's Share of
Operating Expenses, and to perform all other obligations to be performed by
Tenant hereunder. Landlord may accept rent from any person other than Tenant
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Landlord's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 11 of this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Tenant or any successor
of Tenant, in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
said assignee. Landlord may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Tenant without
notifying Tenant or any successor of Tenant without obtaining its or their
consent thereto and such action shall not relief Tenant of liability under this
Lease.
11.4 Terms and Conditions Applicable to Subletting. Regardless of
Landlord's consent, the following terms and conditions shall apply to any
subletting by Tenant of all or any part of the premises and shall be included in
sublease:
(a) Tenant hereby assigns and transfers to Landlord all of
Tenant's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Tenant, and Landlord may collect such rent and income and
apply same toward Tenant's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Tenant's obligations under
this Lease, Tenant may receive, collect and enjoy the rents accruing under such
sublease. Landlord shall not, by reason of this or any other assignment of such
sublease to Landlord not be reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Tenant to
perform and comply with any of Tenant's obligations to such sublessee under such
sublease. Tenant hereby irrevocably authorized and directs any such sublessee,
upon receipt of a written notice from Landlord stating that a default exists in
the performance of Tenant's obligations under this Lease, to pay to Landlord the
rents due and to become due under the sublease. Tenant agrees that such
sublessee shall have the right to rely upon any such statement and request from
Landlord, and that such sublessee shall pay such rents to Landlord without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the contrary. Tenant
shall have no right or claim against such sublessee or Landlord for any such
rents so paid by said sublessee to Landlord.
(b) No sublease entered into by Tenant shall be effective
unless and until it has been approved in writing by Landlord. In entering into
any sublease, Tenant shall use only such form of sublease as is satisfactory to
Landlord, and once approved by Landlord, such sublease shall not be changed or
modified without Landlords prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Landlord, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Tenant other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Landlord has expressly consented in writing.
(c) If Tenant's obligations under this Lease have been
guaranteed by third parties, then a sublease, and Landlord's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(d) The consent by Landlord to any subletting shall not
release Tenant from its obligations or alter the primary liability of Tenant to
pay the rent and perform and comply with all of the obligations of Tenant to be
performed under this Lease.
(e) The consent by Landlord to any subletting shall not
constitute a consent to any subsequent subletting by Tenant or to any assignment
or subletting by the sublessee. However, Landlord may consent to subsequent
subletting and assignments of the sublease or any amendments or modifications
thereto without notifying Tenant or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or anyone else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Landlord's remedies against any other person or entity responsible therefor to
Landlord, or any security held by Landlord or Tenant.
(g) In the event Tenant shall default in the performance of
its obligations under this Lease, Landlord, at its option and without any
obligation to do so, may require any sublessee to attorn to Landlord, in which
event Landlord shall
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undertake the obligations of Tenant under such sublease from the time of the
exercise of said option of the termination of such sublease; provided, however,
Landlord shall not be liable for any prepaid rents or security deposit paid by
such sublessee to Tenant or for any other prior defaults of Tenant under such
sublease.
(h) Each and every consent required by Tenant under a sublease
shall also require the consent of Landlord.
(i) No sublessee shall further assign or sublet all or any
part of the Premises without Landlord's prior written consent.
(j) Landlord's written consent to any subletting of the
Premises by Tenant shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Tenant nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Landlord at the time.
(k) With respect to any subletting to which Landlord has
consented, Landlord agrees to deliver a copy of any notice of default by Tenant
to the subleases and to Tenant. Such sublessee shall have the right to cure a
default of Tenant within ten (10) days after service of said notice of default
upon such sublessee, and the sublessee shall have a right of reimbursement and
offset from and against Tenant for any such defaults cured by the sublessee.
11.5 Attorney's Fees. In the event Tenant shall assign or sublet the
Premises or request the consent of Landlord to any assignment or subletting or
if Tenant shall request the consent of Landlord for any act Tenant proposed to
do then Tenant shall pay Landlord's reasonable attorney's fees incurred in
connection therewith, such attorney's fees not to exceed $350.00 for each such
request without prior written notice to Tenant.
12. Default; Remedies.
12.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Tenant:
(a) The vacating or abandonment of or failure to maintain
electric or telephone service to the Premises by Tenant for a period of more
than thirty (30).
(b) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure shall continue for a period of seven (7) days after written notice
thereof. In the event that Landlord serves Tenant with a Notice to Pay Rent or
Quit pursuant to applicable Unlawful Detainer statues such Notice to Pay Rent or
Quit shall also constitute the notice required by this subparagraph.
(c) Except as otherwise provided in this Lease, the failure of
Tenant to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Tenant, other than described in
paragraph (b) above, where such failure shall continue for a period of ten (10)
days after written notice thereof from Landlord or Tenant; however, that if the
nature of Tenant's noncompliance is such that more than ten (10) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within said ten (10) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such ten (10) day notice shall constitute the sole and
exclusive notice required to be given to Tenant under applicable Unlawful
Detainer statutes.
(d) (i) The making by Tenant of any general arrangement of
general assignment for the benefit of creditors; (ii) Tenant becomes a "debtor"
as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the
case of a petition filed against Tenant, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not is not restored to Tenant within
thirty (30) days; or (iv) the attachment, execution of other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged with in thirty (30)
days. In the event that any provision of this paragraph 12.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Landlord that any financial statement
given to Landlord by Tenant, any assignee of Tenant, any subtenant of Tenant,
any successor in interest of Tenant or any guarantor of Tenant's obligation
hereunder, was materially false.
12.2 Remedies. In the event of any such material default by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have be reason as such default:
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease land the term hereof shall terminate
and Tenant shall immediately surrender possession of the Premises to Landlord.
In such event Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default including, but not limited
to, the cost of recovering possession of the premises; expenses of reletting,
including necessary renovation and alteration of the Premises; reasonable
attorney's fees; and any real estate commission actually paid; the worth at the
time of award by the court having jurisdiction thereof of the amount by which
the unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Tenant proves could be
reasonably avoided, that portion of the leasing commission paid by Landlord
pursuant to paragraph 14 applicable to the unexpired term of this Lease.
(b) Maintain Tenant's right to possession in which case this
Lease shall continue in effect whether or not Tenant shall have vacated or
abandoned the Premises. In such event Landlord shall be entitled to enforce all
of Landlord's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter to Landlord under
the laws of judicial decisions of the state wherein the premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of the Lease shall bear interest from the date due at the
maximum rate then allowable by Law.
(d) In addition to any statutory landlord's lien which
Landlord may have, and in order to secure payment of all rentals and all other
amounts (including any payment for damages) required to be paid by Tenant to
Landlord hereunder, Tenant
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hereby grants to Landlord a security interest in and an express contractual lien
upon all equipment, fixtures, furniture and improvements of Tenant now or
subsequently located upon or within the leased premises (except such part of
such property as may be exchanged, replaced or sold from time to time in the
ordinary course of Tenant's business) and all proceeds therefrom, (all of such
property herein sometimes collectively called the "Collateral"). Such Collateral
shall not be removed therefrom without consent of Landlord until all the
arrearage in rent as well as other payments due hereunder to Landlord shall
first have been paid and all of the other covenants and conditions thereof have
been fully complied with and performed by Tenant, Landlord may, in addition to
any other remedies provided herein, enter upon the leased premises by picking or
changing locks if necessary, and take possession of all or part of such
Collateral situated upon or within the leased premises without liability for
trespass or conversion (Tenant hereby waiving any right to notice or hearing
prior to such taking or possession by Landlord) and sell the same at public or
private sale, with or without having such Collateral at the sale, after giving
Tenant reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale Landlord or its
assigns may purchase, unless otherwise prohibited by law.
12.3 Default by Landlord. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within the times
herein specified or, if not specified, a reasonable time, but in no event later
than thirty (30) days after written notice by Tenant to Landlord specifying
wherein Landlord has failed to perform such obligation, provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30) days
are required for performance then Landlord shall not be in default if Landlord
commences performance within thirty (30) days are required for performance then
Landlord shall not be in default if Landlord commences performance within thirty
(30) day period and thereafter diligently prosecutes the same to completion. In
the event Landlord fails to cure or commence to cure such default within said
thirty (30) day period or fails to complete any curative measures within a
reasonable time thereafter, tenant may, as its sole and exclusive remedy
hereunder, terminate this Lease by giving written notice thereof to Landlord and
such termination shall be deemed effective as of the date Tenant vacates the
Premises and no further obligations to Landlord shall accrue following the date
Tenant vacates the Premises. In the event Landlord disputes the validity of such
alleged default and submits such dispute to arbitration then, notwithstanding
the foregoing sentence, Tenant shall not be entitled to terminate this Lease
until a ruling in Tenant's favor has been rendered by the arbitrator in such
dispute.
12.4 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Rent, Tenant's Share of Operating Expenses or other
sums due hereunder will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Tenant, Tenant shall pay to
Landlord a late charge equal to ten percent (10%) of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, not prevent landlord
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of any of the aforesaid monetary obligations
of Tenant, then Base Rent shall automatically become due and payable quarterly
in advance, rather than monthly, notwithstanding paragraph 3.1 or any other
provision of this Lease to the contrary.
13. Condemnation. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation:"),
this Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Tenant may, at Tenant's option, to be exercised in
writing only within ten (10) days after the condemning Landlord shall have given
Tenant written notice of such taking (or in absence of such notice, within ten
(10) days after the condemning authority shall have taken possession) terminate
this Lease as of the date the condemning authority takes such possession. If
tenant does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the premises
remaining, except that the rent shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
No reduction of rent shall occur if the only area taken is that which does not
have the Premises located thereon. Any award for the taking of all or any part
of the Premises under the power of eminent domain of any payment made under
threat of the exercise of such power shall be the property of Landlord, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Tenant shall be entitled to any award for loss of or damage to
Tenant's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, Landlord shall, to the
extent of severance damages received by Landlord in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Tenant has been reimbursed therefor by the condemning
authority. Tenant shall pay any amount in excess of such severance damages
required to complete such repair.
14. Broker's Commissions. Tenant represents and warrants that there are and will
be no claims for brokerage commissions or finder's fees in connection with the
execution of this Lease, except as stated in the Fundamental Lease Provisions,
and Tenant agrees to indemnify Landlord against and hold Landlord harmless from
all liabilities arising from any such claim (including, without limitation, the
cost of counsel fees in connection therewith).
15. Estoppel Certificate.
(a) Each party (or "responding party") shall, at any time upon
not less than twenty (20) days prior written notice from the other party
("requesting party"), execute, acknowledge and deliver to the requesting party a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party or specifying such defaults
if any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrance of the Premises or of the business of the
requesting party.
(b) At the requesting party's option, the failure to deliver
such statement within such time shall be conclusive upon such party that (i)
this Lease is in full force and effect without modification except as may be
represented by the requesting party, (ii) there are no uncured defaults in the
requesting party's performance, and (iii) if Landlord is the requesting party,
not more than one month's rent has been paid in advance.
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16. Landlord's Liability. The term "Landlord" as used herein shall mean only the
owner or owners at the time in question of the fee title or a tenant's interest
in a ground lease of the Industrial Center and, in the event of any transfer of
such title or interest, Landlord herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds in the hands of Landlord or the then grantor
at the time of such transfer, in which Tenant has an interest shall be delivered
to the grantee, the obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's successors and
assigns, only during their respective periods of ownership.
17. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
18. Interest on Past-Due Obligations. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Tenant under this Lease provided, however, that
interest shall not be payable on late charges incurred by Tenant.
19. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
20. Additional Rent. All monetary obligations of Tenant to Landlord under the
terms of this Lease, including but not limited to Tenant's share of Operating
Expenses and insurance and tax expenses payable, shall be deemed to be rent.
21. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Tenant hereby acknowledges that no real estate broker(s) nor the
Landlord or any employee or agent of said persons has made any oral or written
warranties or representations to Tenant relative to the condition or use by
Tenant of the Premises of the Property and Tenant acknowledges that Tenant
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease except
as otherwise specifically stated in this Lease.
22. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail and, if given
personally or by mail, shall be deemed sufficiently given if addressed to Tenant
or to Landlord at the address noted on the Fundamental Lease Provisions. Either
party may, by notice to the other party, specify a different address for notice
purposes except that upon Tenant's taking possession of the Premises, the
Premises shall constitute Tenant's address for notice purposes. A copy of all
notices required or permitted to be given to Landlord hereunder shall be
concurrently transmitted to such party or parties at such addresses as Landlord
may from time to tome hereafter designate by notice to Tenant.
23. Waivers. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
24. Recording. Either Landlord or Tenant shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
25. Holding Over. If Tenant, with or without Landlord's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, such occupancy shall be a tenancy from month-to-month upon all the
provisions of this Lease pertaining to the obligations of Tenant but the monthly
rent paid during such holdover period shall be equal to one hundred fifty
percent (150%) of the amount of rent paid for the last month of the Lease Term
or any extension thereof. All options, if any, granted under the terms of this
Lease shall be deemed terminated and be of no further effect during said
month-to-month tenancy.
26. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. Covenants and Conditions. Each provision of this Lease performable by Tenant
shall be deemed both a covenant and a condition.
28. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to the provisions of paragraph
16, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
Texas and any litigation concerning this Lease between the parties hereto shall
be initiated in the county in which the Industrial Center is located.
29. Subordination.
(a) This Lease, and any Option granted hereby, at Landlord's
option, shall be subordinate to any ground lease, mortgage, deed of trust or any
other hypothecation or security now or hereafter placed upon the Industrial
Center and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default and, so long as
Tenant shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease and shall give written notice thereof to Tenant, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease of the date of recording
thereof.
(b) Tenant agrees to execute any documents required to
effectuate an attornment consistent with the terms herein, a subordination or
make this Lease or any Option granted herein prior to the lien of any mortgage,
deed of trust or ground lease, as default by Tenant hereunder without further
notice to Landlord, at Landlord's option. Landlord shall execute such documents
on behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby make,
constitute and irrevocably appoint Landlord
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as Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute
such documents in accordance with this paragraph 29(b).
30. Attorney's Fees. If either party or broker(s) as specified bring an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court.
31. Landlord's Access. Landlord and Landlord's agents shall have the right to
enter the Premises at reasonably items for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders or tenants and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Landlord may deem necessary or desirable.
Landlord shall make a reasonably attempt to contact Tenant in person or by
telephone in advance of any such entry other than in an emergency. Landlord may
at any time place on or about the Building any ordinary "For Sale" signs and
Landlord may at any time during the last ninety (90) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities of
Landlord pursuant to this paragraph shall be without abatement of rent nor shall
Landlord have any liability to Tenant for the same.
32. Auctions. Tenant shall not conduct or permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Landlord's prior written consent. Notwithstanding
anything to the contrary in this Lease, Landlord shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
33. Signs. Tenant shall not place any sign or alter any existing sign upon the
Premises or the Industrial Center without Landlord's prior written consent.
Under no circumstances shall tenant place a sign on any roof of the Industrial
Center.
34. Merger. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord shall not work a
merger and shall, at the option of Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as an assignment to
Landlord of any or all of such subtenancies.
35. Consents. Except for paragraphs 11 and 32 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
36. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Tenant under this Lease.
37. Quiet Possession. Upon Tenant paying the rent for the Premises and observing
and performing all of the covenants, conditions and provision on Tenant's part
to be observed and performed hereunder, Tenant shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Landlord represent and
warrant to Tenant that they are fully authorized and legally capable of
executing this Lease on behalf of Landlord and that such execution is binding
upon all parties holding an ownership interest in the Property.
38. Options.
38.1 Definition. As used in this paragraph, the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Tenant has on other
property of Landlord; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center of other property of
Landlord or the right of first offer to Lease other space within the Industrial
Center or other property of Landlord; (3) the right or option to purchase the
Premises or the Industrial Center or the right of first refusal to purchase the
Premises or the Industrial Center or the right of first offer to purchase the
Premises or the Industrial Center or the right or option to purchase other
property of Landlord or the right of first refusal to purchase other property of
Landlord or the right of first refusal to purchase other property of Landlord or
the right of first offer to purchase other property of Landlord.
38.2 Options Personal. Each option granted to Tenant in this Lease is
personal to the original tenant and may be exercised only by the original Tenant
while occupying the premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof and may
not be exercised or assigned, voluntarily or involuntarily, by or to any person
or entity other than Tenant provided, however, that an Option may be exercised
by or assigned to any corporate stock transferee as defined in paragraph 11.2 of
this Lease. The Options, if any, herein granted to Tenant are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
38.3 Multiple Options. In the event that Tenant has any multiple
options to extend or renew this Lease, a later option cannot be exercised unless
the prior to extend or renew this Lease has been so exercised.
38.4 Notice Required. Notwithstanding anything contained herein, Tenant
shall provide not less than ninety (90) days written notice prior to the
exercise of any Option granted herein.
38.5 Effect of Default on Options.
(a) Tenant shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Landlord gives to Tenant a notice of default
pursuant to paragraph 12.1(b) or 12.1(c) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Landlord is due from
Tenant and unpaid (without any necessity for notice thereof to Tenant) and
continuing until the obligation to Landlord is due from Tenant and unpaid
(without any necessity for notice thereof to Tenant) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 12.1(a), 12.1(d) or 12.1(e) (without any necessity of Landlord to
give notice of such default to Tenant), nor (iv) in the event that Landlord has
given to Tenant three or more notices of default naming the reason for such
default under paragraph 12.1(b) or 12.1(c), whether or not the defaults are
cured during the 12 month period of time immediately prior to the time that
Tenant attempts to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Tenant's inability to exercise an
Option because of the provisions of paragraph 384(a).
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(c) All rights of Tenant under the provision of an Option
shall terminate and be of no further force or effect, notwithstanding Tenant's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Tenant fails to pay to Landlord a monetary obligation of
Tenant for a period of ten (10) days after such obligation becomes due (without
any necessity of Landlord to give notice thereof to Tenant), or (ii) Tenant
fails to commence to cure a default specified in paragraph 12.1(c) within ten
(10) days after the date that Landlord gives notice to Tenant of such default
and/or Tenant fails thereafter to diligently prosecute said cure to completion,
or (iii) Tenant commits a default described in paragraph 12.1(a), 12.1(d) or
12.1(c) (without the necessity of Landlord to give notice of such default to
Tenant), or (iv) Landlord gives to Tenant three or more notices of default under
paragraph 12.1(b) or 12.1(c), whether or not the defaults are cured.
39. Security Measures. Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Tenant assumes all
responsibility for the protection of Tenant, its agents and invitees and the
property of Tenant and of Tenant's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Landlord, at Landlord's sole
option, from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses as set forth in paragraph 3.2(b).
40. Easements. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any of the aforementioned documents upon request of Landlord and failure to do
so shall constitute a material default of this Lease by Tenant without the need
for further notice to Tenant.
41. Performance and Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said party to institute suit for recover of such sum. If it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
42. Authority. It Tenant is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is fully authorized to execute and
deliver this Lease on behalf of said entity. If Tenant is a corporation, trust
or partnership Tenant shall, within ten (10) days after the execution of this
Lease, deliver to Landlord evidence of such authority satisfactory to Landlord.
43. Offer. Preparation of this Lease by Landlord's agent and submission of same
to Tenant shall not be deemed an offer to lease. This Lease shall become binding
upon Landlord and tenant only when fully executed by Landlord and Tenant.
44. Landlord's Build-Out. Any construction or "build-out" of the Premises
required to be done by Landlord are outlined in Exhibit "B", attached hereto,
and shall be completed in accordance with building standard specifications
unless otherwise indicated at Landlord's sole cost and expense.
45. Arbitration. In the event of any bona fide dispute arising between Landlord
and Tenant, their successor or assigns regarding their respective obligations,
duties and/or rights under this Lease, such parties agree to submit such
disputes to arbitration under the provisions of the Texas General Arbitration
Act, and Section 154.001 et seq. of the Texas Civil Practice Code and Remedies
Code Annotated.
46. Special Provisions.
46.1 The Base Rental as described in the Fundamental Lease
Provisions shall be paid as follows:
April 15, 1996 - March 31, 1997 - $1,800.00
April 1, 1997 - March 31, 1998 - $1,950.00
46.2 Tenant shall have the "Option" to terminate this Lease
effective after the twelfth month by providing Landlord with
ninety (90) days written notice of the desired termination
date and paying a penalty to Landlord equal to the total of
the Base Rent for four (4) months upon giving such notice.
46.3 Tenant shall have the Right of First Refusal ("Option") on any
available adjacent space that may become available for Lease.
Tenant shall have 3 business days from the date Tenant is
notified of the terms and conditions agreed to by Landlord and
a new prospective tenant for the space to notify Landlord of
Tenant's acceptance of the terms and conditions negotiated for
the available space. If Tenant fails to notify Landlord of
their acceptance or refusal within the specified time, the
Right of First Refusal shall terminate and no longer be
available to Tenant.
46.4 During the first six months of the Lease, Tenant shall have
the "Option" to Lease the adjacent 2500 square feet know as
suite 6411-C subject to Tenant providing Landlord with written
notice of the desired effective date of hte expansion and
paying Landlord a fee in the amount of $2,000.00. The rent for
the expansion space shall be calculated at the same per square
foot rental rate as the original Lease Premises and all other
terms and conditions shall apply to the expansion space.
46.5 Within 10 days of Tenant providing Landlord with written
notification of a roof leak within the Premises, Landlord
shall commence the necessary roof repairs and diligently
prosecute the same to completion. In the event Landlord does
not timely commence and complete such repairs, Tenant shall
have the right to contract with a professional roofing
contractor to make the necessary repairs. Landlord shall
inspect such repairs and reimburse Tenant within 30 days of
receipt of demand from Tenant up to a maximum of $1,000.00 per
occurrence. Under no circumstance shall Tenant have the right
to offset rent.
46.6 Article 11.2 shall not apply to outstanding voting shares or
stock transfers so long as the sale or transfer does not
result in a reduction in net worth of Tenant.
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EXHIBIT 10.25
LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
1.01. DATE OF LEASE: June 24, 1992
1.02. LANDLORD: James J. Laney, David M. Laney, as Trustee of the
Olivia Laney Fall Trust and Robert W. Decherd, Trustee of
Laney Children's Trusts
Address of Landlord: 325 N. St. Paul, Suite 3000,
Dallas, Texas 75201
1.03. TENANT: Technicomp Corporation and Allstar Services, Inc.
Address of Tenant: 6401 Southwest Freeway,
Houston, Texas 77074
1.04. PROPERTY (Include street address, as well as legal description
and approximate square footage): the land and
building (approximately 20,000 square feet), known
locally as 14202 and 14204 Proton Road, Farmers
Branch, Texas and more particularly described in
Exhibit "A" hereto attached and made a part hereof,
such premises being sometimes hereafter referred to
as the "demised premises" or the "property."
1.05. LEASE TERM: See Article 16.1 beginning on August 1, 1992 and
ending on September 30, 1997.
1.06. RENT: $3.95 per square foot (approximately 20,000 square feet)
Dollars ($6,583.33) per month. Subject to 16.6.
1.07. SECURITY DEPOSIT: $6,583.33
1.08. PERMITTED USE (see Section 6.01): office, service, sales and
storage of computers and other goods which are related to
Tenants business.
1.09. PRINCIPAL REALTOR(R) (If none, so state): P.O'B. Montgomery &
Company
Address: 13760 Noel Road, Suite 817, LB-20
Dallas, Texas 75240
1.10. COOPERATING REALTOR (If none, so state): Lincoln Property
Company CSE, Inc.
Address: 3300 Lincoln Plaza
500 N. Akard Street
Dallas, Texas 75201-3394
1.11. REALTORS COMMISSION (See Article Fourteen): Intentionally
omitted (per separate Agreement) ______________ percent
(__________%).
1.12. BASE YEAR FOR TAXES (see Section 4.02): 1992
1.125. BASE YEAR FOR INSURANCE (See Section 16.2) 1992
1.13. PARTY TO RECEIVE PAYMENTS FROM TENANT HEREUNDER: James J.
Laney, 325 N. St. Paul, Suite 3000, Dallas, Texas 75201
Landlord/(strike one)
1.14. DAILY LATE CHARGE (See Section 3.03): Twenty Dollars and
00/100 Dollars ($20.00) per day.
1.15. ACCEPTANCE (see Section 15.13):
The number of days for acceptance shall be five (5) days.
ARTICLE TWO: LEASE AND LEASE TERM
2.01. Lease of Property for Lease Term. Landlord leases the Property to
Tenant and Tenant leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term, unless advanced
or delayed under any provision of this Lease.
2.02. Delay in Commencement. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Property to Tenant on the first date
specified in Section 1.05 above. Landlord's non-delivery of the Property to
Tenant on that date shall not affect this Lease or the obligations of Tenant
under this Lease. However, the Commencement Date shall be delayed until
possession of the Property is delivered to Tenant. The Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If landlord does not deliver possession of the Property
to Tenant within sixty (60) days after the first date specified in Section 1.05
above, Tenant may elect to cancel this Lease by giving written notice to
Landlord within ten (10) days after the 60-day period ends. If Tenant gives such
notice, the Lease shall be canceled effective as of the date of its execution,
and no party hereto shall have any obligations, one to the other. If Tenant does
not give such noticed, Tenant's right to cancel the Lease shall expire and the
Lease Term shall commence upon the delivery of possession of the Property to
Tenant. If delivery of possession of
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the Property to Tenant is delayed, Landlord and Tenant shall, upon such
delivery, execute an amendment to this Lease as set forth the Commencement
Date and expiration date of the Lease.
2.03. Early Occupancy. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the occupancy period. Landlord grants Tenant
permission to occupy the premises upon final execution of this Lease
Agreement*-At no cost.
2.04. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages incurred by Landlord from any
delay by Tenant in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease, Tenant's occupancy of
the Property shall be a "month-to-month" tenancy, subject to all of the terms of
this Lease applicable to a month-to-month tenancy, except that the Base Rent
then in effect shall be increased by twenty-five (25%)* and payment of the first
months rent and security deposit.
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. Manner of Payment. All sums to become due hereunder by Tenant shall be
made to the party named in Section 1.13 above, at the address stated herein for
such party, unless such address is changed as provided herein. All sums payable
by Tenant hereunder, whether or not expressly denominated as rent, shall
constitute rent for the purposes of section 502(b)(7) of the Bankruptcy Code.
3.02. Time of Payment. Upon execution hereof, Tenant shall pay the rent for the
first month of the Lease Term. On or before the first day of the second month of
the Lease Term and of each month thereafter, a like monthly installment shall be
due and payable, in advance, without off-set, deduction or prior demand. If the
Lease Term commences or ends during a calendar month, the rent for any
fractional calendar month following the Commencement Date or preceding the end
of the Lease Term shall be prorated by days.
3.03. Late Charges. Tenant's failure to pay sums due hereunder promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, deed of trust or mortgage encumbering
the Property. Therefore, if any sum due hereunder is not received on its due
date, Tenant shall pay the party named in Section 1.13 above a late charge equal
to the sum stated in Section 1.14 above for each day from its due date until
such delinquent sum is received. If any check tendered in payment of any sum due
from Tenant hereunder is returned for any reason, Tenant shall pay a late charge
for each day from said due date until such check is made good. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment or such returned check.
3.04. Security Deposit. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.13 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore
the Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit. Upon
any termination of this Lease not resulting from Tenant's default, and after
Tenant has vacated the Property in the manner required by this Lease, Landlord
shall refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: TAXES
4.01. Payment by Landlord. Landlord shall pay the real estate taxes on
the Property during the Lease Term.
4.02. Payment by Tenant. Tenant shall pay the party named in Section
1.13 above, as additional rental, the excess, if any, of the real estate taxes
for any year during the Lease Term over the real estate taxes for the base year
stated in Section 1.12. Tenant shall make such payment withing fifteen (15) days
after receipt of a statement showing the amount and computation of such
increase. Tenant shall be responsible for the pro-rata portion of such
additional rental for any fractional part of a year preceding the end of the
Lease Term, which prorated sum shall be due and payable upon the termination of
this Lease. If the termination of this Lease occurs before the tax rate is fixed
for the particular year, the proration shall be upon the basis of the tax rate
for the preceding year applied to the latest assessed valuation, and
notwithstanding the termination of this Lease, any difference in the actual real
estate taxes for such year shall be adjusted between the parties upon receipt of
written evidence of the payment thereof.
4.03. Improvements by Tenant. In the event the real estate taxes levied
against the Property for the real estate tax year in which the Lease Term
commences are increased as a result of any alterations, additions or
improvements made by Tenant or by Landlord at the request of Tenant, Tenant
shall pay to Landlord upon demand the amount of such increase. The purposes of
the calculations under Section 4.02, the amount of the real estate taxes during
the real estate tax year in which the Lease Term commences shall not include any
taxes resulting from any such alterations, additions or improvements made in or
to the Property. Landlord shall obtain from the tax assessor or assessors a
written statement of the total amount of such increase.
4.04. Joint Assessment. If the real estate taxes are assessed against
the Property jointly with other property not constituting a part of the
Property, the real estate taxes for such years shall be equal to the amount
bearing the same proportion to the aggregate assessment that the total square
feet of building area in the Property bears to the total square feet of building
area included in the joint assessment.
4.05. Personal Property Taxes. Tenant shall pay all taxes charged
against trade fixtures, furnishings, equipment or any other personal property
belonging to Tenant. Tenant shall try to have its personal property taxed
separately from the Property, but if any of Tenant's personal property is taxed
with the Property, Tenant shall pay the taxes for the personal property within
fifteen(15) days after tenant receives a written statement for such personal
property taxes.
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ARTICLE FIVE: INSURANCE AND INDEMNITY *See Section 16.2 "Payment by Tenant"
5.01. Casualty Insurance. During the Lease Term, Landlord shall
maintain policies of insurance covering loss of or damage to the Property in
such amount or percentage of replacement value as Landlord or its insurance
advisor deems reasonable in relation to the age, location, type of construction
and physical condition of the Property and the availability of such insurance at
reasonable rates. Such policies shall provide protection against all perils
included within the classification of fire and extended coverage and any other
perils which Landlord deems necessary. Landlord may obtain insurance coverage
for Tenant's fixtures, equipment or building improvements installed by Tenant in
or on the Property. Tenant shall, at Tenant's expense, maintain such primary or
additional insurance on its fixtures, equipment and building improvements as
Tenant deems necessary to protect its interest. Tenant shall not do or merit to
be done anything which invalidates any such insurance policies. Any casualty
insurance which may be carried by Landlord or Tenant shall be for the sole
benefit of the party carrying such insurance and under its sole control.
5.02. Increase in Premiums. Tenant shall not permit any operation or
activity to be conducted or storage or use of any volatile or any other
materials on the Property that would cause suspension or cancellation of any
fire and extended coverage insurance policy carried by Landlord, or increase the
premiums therefor, without the prior written consent of Landlord. If Tenant's
use and occupancy of the Property causes an increase in the premiums for any
fire and extended coverage insurance policy carried by Landlord on the day
before Tenant shall have first gone into possession of the property under this
Lease, Tenant shall pay, as additional rental, the amount of such increase to
Landlord upon demand and presentation of written evidence of the increase by
Landlord.
5.03. Liability Insurance. During the Lease Term, Tenant shall maintain
a policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use, occupancy
or maintenance of the Property. The initial amount of such insurance shall be at
least $1,000,000 and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of professional insurance advisors,
and other relevant factors. However, the amount of such insurance shall not
limit Tenant's liability nor relieve Tenant of any obligation hereunder. The
policy shall contain cross-liability endorsements, if applicable, and shall
insure Tenant's performance of the indemnity provisions of Section 5.04. Such
policy shall contain a provisions which prohibits cancellation or modification
of the policy except upon thirty (30) days' prior written notice to Landlord.
Tenant may discharge its obligations under this Section by naming Landlord as an
additional insured under a policy of comprehensive liability insurance
maintained by Tenant and containing the coverage and provisions described in
this Section. Tenant shall deliver a copy of such policy or certificate ( or a
renewal thereof) to Landlord prior to the Commencement Date and prior to the
expiration of any such policy during the Lease Term. If Tenant fails to maintain
such policy, Landlord may elect to maintain such insurance at Tenant's expense.
Tenant shall, at Tenant's expense, maintain such other liability insurance as
Tenant deems necessary to protect Tenant.
5.04. Indemnity. Landlord shall not be liable to Tenant or to Tenant's
employees, agents or visitors, or to any other person whomsoever, for any injury
to persons or damage to property on or about the Property or any adjacent area
owned by Landlord caused by the negligence or misconduct of Tenant, its
employees, subtenants, licensees or concessionaires or any other person entering
the Property under express or implied invitation of Tenant, or arising out of
the use of the property by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder; and Tenant hereby agrees to indemnify Landlord and hold
it harmless from any loss, expense or claims arising out of such damage or
injury. Tenant shall not be liable for any injury or damage caused by the
negligence or misconduct of landlord, or its employees or agents, and Landlord
agrees to indemnify Tenant and hold it harmless from any loss, expense or damage
arising out of such damage or injury.
5.05. Waiver of Subrogation. Each party hereto waives any and every
claim which arises or may arise in its favor against the other party hereto
during the term of this Lease or nay renewal or extension thereof for any and
all loss of, or damage to , any of its property located within or upon, or
constituting a part of, the Property, which loss or damage is covered by valid
and collectible fire and extended coverage insurance policies, to the extent
that such loss or damage is recoverable under such insurance policies. Such
mutual waivers shall be in addition to, and not in limitation or derogation of,
any other waivers will preclude the assignment of any aforesaid claim by way of
subrogation or otherwise to an insurance company (or any other person), each
party hereby agrees immediately to give to each insurance company which as
issued to it policies of fire and extended coverage insurance, written notice of
the terms of such mutual waivers, and to cause such insurance policies to be
property endorsed, if necessary, to prevent the invalidation of such insurance
coverages by reason of such waivers.
ARTICLE SIX: USE OF PROPERTY
6.01. Permitted Use. Tenant may use the Property only for the permitted
use stated in Section 1.08.
6.02. Compliance with Law. Tenant shall comply with all governmental
laws, ordinances and regulations applicable to the use of the Property, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances in or upon, or connected with
the Property, all at Tenant's sole expense.
6.03. Certificate of Occupancy. Tenant may, prior to the commencement
of the term of this Lease, apply for a Certificate of Occupancy to be issued by
the municipality in which the Property is located, but this Lease shall not be
contingent upon issuance thereof. Nothing herein contained shall obligate
Landlord to install any additional electrical wiring, plumbing or plumbing
fixtures which are not presently existing on the Property, or which have not
been expressly agreed upon by Landlord in writing.
6.04. Signs. Without the prior written consent of Landlord, Tenant
shall not place or affix any signs or other objects upon or to the Property,
including but not limited to the roof or exterior walls of the building or other
improvements thereon, or paint or otherwise deface said exterior walls. Any
signs installed by Tenant shall conform with applicable laws and deed and other
restrictions. Tenant shall remove all signs at the termination of this Lease and
shall repair any damage and close any holes caused or revealed by such removal.
6.05. Utility Services. Tenant shall pay the cost of all utility
services, including but not limited to initial connection charges, all charges
for gas, water and electricity used on the Property, and for all electric
lights, lamps and tubes.
6.06. Landlord's Access. Landlord and its authorized agents shall have
the right, during normal business hours, to enter the Property (a) to inspect
the general condition and state of repair thereof, (b) to make repairs required
or permitted under this Lease, (c) to
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show the property to any prospective tenant or purchaser, or (d) for any other
reasonable purpose. During the final 150 days of the lease Term. Landlord and
its authorized agents shall have the right to erect and maintain on or about the
Property customary signs advertising the Property for lease or for sale.
6.07. Quiet Possession. If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy the Property for the full
Lease Term, subject to the provisions of this Lease.
6.08. Exemptions from Liability. Landlord shall not be liable for any
damage or injury to the person, business (or any loss of income therefrom),
goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers or any other person in or about the Property, whether such
damage or injury is caused by or results from: (a) fire, steam, electricity,
water, gas or rain; (b) the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures or any other cause; (c) conditions arising on or about the Property or
upon other portions of any building of which the Property is part, or from other
sources or places; or (d) any act or omission of any other tenant of any
building of which the Property is a part. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
6.08 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
ARTICLE SEVEN: MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. Acceptance of Premises. Tenant acknowledges that it has fully
inspected the Property and accepts the Property in its condition as of the
execution of this Lease as suitable for the purposes for which it is leased.
Tenant acknowledges that, except as stated in the following sentence, neither
Landlord nor an agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Landlord represents that on the Commencement Date, the plumbing,
electrical system and exterior doors, and any fire protection sprinkler system,
heating system, air conditioning equipment and elevators existing on the date of
this Lease, are or will be in good operation condition.
7.02. Landlord's Obligation to Repair. Subject to the provisions of
Article Eight (Damage or Destruction) and Article Nine (Condemnation) and except
for damage caused by any act or omission of Tenant, Landlord shall keep the
foundation, roof and the structural portions of exterior walls of the
improvements of the Property in good order, condition and repair. However,
Landlord shall not be obligated to maintain or repair windows, doors, plate
glass or the surfaces of walls. IN addition, Landlord shall not be obligated to
make any repairs under this Section, until a reasonable time after receipt of
written notice from Tenant of the need of such repairs. If any repairs are
required to be made by Landlord, Tenant shall, at Tenant's sole cost and
expense, promptly remove Tenant's fixtures, inventory, equipment and other
Property, to the extent required to enable Landlord to make such repairs.
Landlord's liability hereunder shall be limited to the cost of such repairs or
corrections. Tenant waives the benefit of any present or future law which might
give Tenant the right to repair the Property at Landlord's expense or to
terminate the Lease because of the condition of the Property.
7.03. Tenant's Obligation to Repair. Subject to the provisions of the
last sentence of Section 7.01, the preceding Section 7.02, Article Eight (Damage
or Destruction) and Article Nine (Condemnation), Tenant shall, at all times,
keep that portion of the Property not required to be maintained by Landlord in
good order, condition and repair, including but not limited to repairs
(including all necessary replacements) of the windows, plate glass, doors,
heating system, air conditioning equipment, fire protection sprinkler system,
elevators, interior and exterior plumbing and the interior of the building in
general, and including care of landscaping and regular mowing of grass and
maintenance of any paving. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of exterior
walls caused by Tenant's acts or omissions. If Tenant fails to maintain and
repair the property as required by this Section, Landlord may, on ten (10) days'
prior written notice, enter the Property and perform such maintenance or repair
on behalf of Tenant, except that no notice shall be required in case of
emergency, and Tenant shall reimburse Landlord for all costs incurred in
performing such maintenance or repair immediately upon demand.
7.04. Alterations, Additions and Improvements. Tenant shall not create
any openings in the roof or exterior walls, or make any alterations, additional
or improvements to the Property without the prior written consent of Landlord.
Consent for nonstructural alterations, additions or improvements shall not be
unreasonably withheld by Landlord. Tenant shall have the right to erect or
install shelves, bins, machinery, air conditioning or heating equipment and
trade fixtures, provided that Tenant complies with all applicable governmental
laws, ordinances and regulations. At the expiration or termination of this
Lease. Tenant shall, subject to the restrictions of Section 7.05 below, have the
right to remove such items so installed by it, provided Tenant is not in default
at the time of such removal and provided further that Tenant shall, at the time
of removal of such items, repair in good and workmanlike manner any damage
caused by installation or removal thereof. Tenant shall pay for a costs incurred
or arising out of alterations, additions or improvements in or to the Property
and shall not permit a mechanic's materialman lien to be asserted against the
Property. Upon request by Landlord, Tenant shall deliver to Landlord proof of
payment reasonably satisfactory to Landlord of all costs incurred arising out of
any such alterations, additions or improvements.
7.05. Condition upon Termination. Upon the termination of the Lease,
Tenant shall surrender the Property to Landlord, broom clean and in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under an provision of the Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Eight (Damage or Destruction). IN addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the termination of the Lease and to restore
the Property to its prior condition, all a Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of the Lease. In no event, however, shall Tenant remove any of the
following materials or equipment without Landlord's prior written consent: any
power wiring or power panels; lighting or lighting fixtures; wall coverings;
drapes, blinds or other window coverings; carpets or other floor coverings;
heaters, air conditioners or any other heating or air conditioning equipment;
fending or security gates; or other similar building operating equipment and
decorations.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01. Notice. If the building or other improvements situated on the
Property should be damaged or destroyed by fire, tornado or other casualty,
Tenant shall immediately give written notice thereof to Landlord.
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8.02. Partial Damage. If the building or other improvements situated on
the Property should be damaged by fire, tornado or other casualty but not to
such an extent that rebuilding or repairs cannot reasonably be completed within
120 days from the date Landlord receives written notification by Tenant of the
happening of the damage, this Lease shall not terminate, but Landlord shall, at
its sole cost and risk, proceed forthwith and use reasonable diligence to
rebuild or repair such building and other improvements on the Property (other
than leasehold improvements made by Tenant or any assignee, subtenant or other
occupant of the Property) to substantially the condition in which they existed
prior to such damage; provided, however, if the casualty occurs during the final
18 months of the Lease Term Landlord shall not be required to rebuild or repair
such damage unless Tenants shall exercise is renewal option (if any is contained
herein within fifteen (15) days after the date of receipt by Landlord of the
notification of the occurrence of the damage. If Tenant does not elect to
exercise its renewal option or if there is no renewal option contained herein or
previously unexercised at such time, this Lease shall terminate at the option of
Landlord and rent shall be abated for the unexpired portion of this Lease,
effective from the date of actual receipt by Landlord of the written
notification of the damage. If the building and other improvements are to be
rebuilt or repaired and are untenantable in whole or in part following such
damage, the rent payable hereunder during the period in which they are
untenantable shall be adjusted equitably.
8.03. Substantial or Total Destruction. If the building or other
improvements situated on the Property should be substantially or total destroyed
by fire, tornado or other casualty, or so damaged that rebuilding or repairs
cannot reasonably be completed within 120 days from the date Landlord receives
written notification by Tenant of the happening of the damage, this Lease shall
terminate at the option of Landlord and rent shall be abated for the unexpired
portion of this Lease, effective from the date of receipt by Landlord of such
written notification. If this Lease is not terminated, the building and the
improvements shall be rebuilt or repaired and rent abated to the extent provided
under Section 8.02.
ARTICLE NINE: CONDEMNATION
If, during the term of this Lease or any extension or renewal thereof,
all or a substantial part of the Property should be taken for are public or
quasi-public use 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 Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective from the date of taking of the
Property by the condemning authority. If less than a substantial part of the
demise premises is taken for public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain, or sold to the
condemning authority under threat of condemnation, Landlord, at its option, may
be written notice terminate this Lease and shall forthwith at its sole expense
restore and reconstruct the buildings and improvements (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Property) situated on the Property in order to make the same reasonably
tenantable and suitable for the use for which the Property is leased as defined
in Section 6.01. The rent payable hereunder during the unexpired portion of this
Lease shall be adjusted equitably. Landlord and Tenant shall each be entitled to
receive and retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation proceedings. The
termination of this Lease shall not affect the rights of the respective parties
to such awards.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord such
consent shall not be unreasonably withheld, assign this Lease or sublet the
Property or any portion thereof. Any assignment or subletting shall be expressly
subject to all terms and provisions of this Lease, including the provisions of
Section 6.0 pertaining to the use of the Property. In the event of any
assignment or subletting, Tenant shall remain fully liable for the full
performance of all Tenant's obligations under this Lease. Tenant shall not
assign its rights hereunder or sublet the Property without first obtaining
written agreement from the assignee or sublessee whereby the assignee or
sublessee agrees to be bound by the terms of this Lease. No such assignment or
subletting shall constitute a novation. In the event of the occurrence of an
event of default while the Property is assigned or sublet, Landlord, in addition
to any other remedies provided herein or by law, may at Landlord's option,
collect directly from such assignee or subtenant all rents becoming due under
such assignment or subletting any apply such rent against any sums due to
Landlord hereunder. No direct collection by Landlord from any such assignee or
subtenant shall release Tenant from the performance of its obligations
hereunder.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. DEFAULT. The following events shall be deemed to be events of
default under this Lease.
(a) Failure of Tenant to pay any installment of the rent or
other sum payable to Landlord hereunder on the date that same is due and such
failure shall continue for a period of ten (10) days;
(b) Failure of Tenant to comply with any term, condition or
covenant of this Lease, other than the payment of rent or other sum of money,
and such failure shall not be cured within thirty (30) days after written notice
thereof to Tenant;
(c) Tenant or any guarantor of Tenant's obligations hereunder
shall generally not pay its debts as they become due or shall admit writing its
inability to pay its debts, or shall make a general assignment for the benefit
of creditors.
(d) Tenant or any guarantor of Tenant's obligations hereunder
shall commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property.
(e) Any case, proceeding or other action against Tenant or any
guarantor of Tenant's obligations hereunder shall be commence seeking to have an
order for relief entered against it as debtor, seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
Tenant (i) fails to obtain a dismissal of such case, proceeding, or other action
within sixty (60) days of its commencement or (ii) coverts the case from or
chapter of the Federal Bankruptcy Code to another chapter or (iii) is the
subject of an Order of Relief which is not fully stayed within seven business
days after the entry thereof.
(f) Abandonment by Tenant of any substantial portion of the
Property or cessation of the use of the Property for the purpose leased.
11.02 REMEDIES. Upon the occurrence of any of the events of default
listed in Section 11.01, Landlord shall have the option to pursuant any one or
more of the following remedies without any notice or demand whatsoever:
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(a) Terminate this lease, in which each tenant shall
immediately surrender the Property to Landlord. If Tenant fails to so surrender
such premises, Landlord may, without prejudice to any other remedy which it may
have, or possession of the Property or arrearage in rent, enter upon and take
possession of the Property and expel or remove Tenant and any other person who
may be occupying such premises or any part thereof, by force if necessary,
without being liable for prosecution or any claim for damages therefor. Tenant
shall pay to Landlord on demand the amount of all loss and damage, which
Landlord may suffer by reason of such termination, whether through inability to
relet the Property on satisfactory terms or otherwise;
(b) Enter upon and take Property, by force, if necessary,
without terminating this Lease and without being liable for prosecution or for
any claim for damages therefor, and expel or remove Tenant and any other person
who may be occupying such premises or any part thereof. Landlord may relet the
Property and receive the rent therefor. Tenant agrees to pay to Landlord monthly
or on demand from time to time any deficiency that may arise by reason of any
such reletting. In determining the amount of such deficiency, the brokerage
commission, attorneys' fees, remodeling expenses and other costs of reletting
shall be subtracted from the amount of rent received under such reletting;
(c) Enter upon the Property, by force, if necessary; without
terminating this Lease and without being liable for prosecution or for any claim
for damages therefor, and do whatever Tenant is obligated to do under the terms
of this Lease. Tenant agrees to pay Landlord on demand for expenses which
Landlord may incur in this effecting compliance with Tenant's obligation sunder
this Lease, together with interest thereon at the rate of twelve percent (12%)
per annum from the date expended until paid. Landlord shall not be liable for
any damages resulting to Tenant from such action, whether caused by negligence
of Landlord or otherwise.
Pursuit of any of the foregoing remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
11.03 NOTICE OF DEFAULT. Tenant shall give written notice of any
failure by Landlord to perform any of its obligations under this Lease to
Landlord and to any ground lessor, mortgagee or beneficiary under any deed of
trust encumbering the Property whose name and address have been furnished to
Tenant in writing., Landlord shall not be in default under this Lease unless
Landlord ( or such ground lessor, mortgagee or beneficiary) fails to cure such
non-performance within thirty (30) days after receipt of Tenant's notice.
However, if such non-performance reasonably requires more than thirty (30) days
to cure, Landlord shall not be in default if such cure is commenced within such
thirty (30) day period and thereafter diligently pursued to completion.
11.04 LIMITATION OF LANDLORD'S LIABILITY. As used in this Lease, the
term"Landlord" means only the current owner or owners of the fee title to the
Property or the leasehold estate under a ground lease of the Property at the
time in question. Each Landlord is obligated to perform the obligations of
Landlord under this Lease only during the time such Landlord owns such interest
or title. Any Landlord who transfer its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall deliver
to its transferee all funds previously paid by Tenant if such funds have not yet
been applied under the terms of this Lease.
ARTICLE TWELVE: LANDLORD'S LIEN
In addition to the statutory Landlord's lien, Tenant hereby grants to
Landlord a security interest to secure payment of all rent and other sums of
money becoming due hereunder from Tenant, upon all goods, wares equipment,
fixtures, furniture and other personal property of Tenant situated in or upon
the Property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of the Landlord until all
arrearage in rent and other sums of money then due to Landlord hereunder shall
first have been paid and discharged. Upon the occurrence of an event of default,
Landlord may, in addition to any other remedies provided herein or by law, enter
upon the Property and take possession of any and all goods, wares, equipment,
fixtures, furniture and other personal property of Tenant situated on the
Property without liability for trespass or conversion, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any such sale. Unless
otherwise required by law, notice to Tenant of such sale shall be deemed
sufficient if given in the manner prescribed in this Lease at least ten (10)
days before the time of sale. Any public sale made under this Article shall be
deemed to have been conducted in a commercially reasonable manner if held on the
Property or where the property is located, after the time, place and method of
sale and a general description of the types of property to be sold have been
advertised in a daily newspaper published in Dallas County, Texas for five
consecutive days before the date of sale. Landlord or its assigns may purchase
at a public sale and, unless prohibited by a law, at a private sale. The
proceeds from any disposition dealt with in this Article, less any and all
expenses connected with the taking of possession, holding and selling of the
property (including reasonable attorneys' fees and legal expenses), shall be
applied as a credit against the indebtedness secured by the security interest
granted herein. Any surplus shall be paid to Tenant or as otherwise required by
law; Tenant shall pay any deficiencies forthwith. Upon request by Landlord,
Tenant agrees to execute and deliver to Landlord a financing statement in form
sufficient to perfect the security interest of Landlord in the aforementioned
property and proceeds thereof under the provisions of the Uniform Commercial
Code in force in the State of Texas. The statutory lien for rent is expressly
reserved; the security interest herein granted is in addition and supplementary
thereto. If required by Tenant's financiers, Landlord agrees to execute a
Landlord Waiver subordinating Landlord's Lien position to financier for certain
inventory and computer equipment financed by financiers.
ARTICLE THIRTEEN: PROTECTION OF LENDERS
13.01 SUBORDINATION. Landlord shall have the right to subordinate this
Lease to any ground Lease, deed of trust or mortgage encumbracing the Property,
and advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is hot otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and givens written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
13.02 ATTORNMENT. If Landlord's interest in the Property is acquired by
any ground lessor, beneficiary under under a deed of trust, mortgagee or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
6
13.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instruments or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so., If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes , constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
13.04 ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been charged (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not been
canceled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; and (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why). Tenant shall deliver such statement to Landlord within
ten (10) days after Landlord's request. Any such statement by Tenant may be
given by Landlord to any prospective purchaser or encumbrancer of the Property.
Such purchaser or encumbrancer may rely conclusively upon such statement as true
and correct.
(b) If Tenant does not deliver such statement to Landlord with such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event Tenant shall be estopped from denying
the truth of such facts.
13.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as are reasonably required by landlord t verify the net worth of
Tenant, or any assignees, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Property. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement. All
financial statement be confidential and shall be used only for the purposes set
forth herein.
ARTICLE FOURTEEN: MISCELLANEOUS.
14.01 FORCE MAJEURE. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood, or any other cause not within the control of
Landlord, the period for performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or hindered.
14.02 INTERPRETATION. The captions of the Articles or Sections of this
Lease are to assist the parties in reading this Lease and are not a part of the
terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. For convenience, each party hereto is referred to in the neuter
gender, but the masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
15.03 WAIVERS. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provisions of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provisions of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
15.04 SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
15.05 JOINT AND SEVERAL LIABILITY. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
15.06 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is
the only agreement between the parties pertaining to the lease of the Property
and o other agreements are effective. All amendment to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
15.07 NOTICE. All notices required or permitted under this Lease shall
be in writing and shall be personally delivered or shall be deemed to be
delivered, whether actually received or not when deposited in the United States
mail, postage pre-paid, registered or certified mail, return receipt requested,,
addressed as stated herein. Notices to Tenant shall be delivered to the address
specified in Section 1.03 above, except that, upon Tenant's taking possession of
the Property, the Property shall be Tenant's address for notice purposes Notices
to any other party hereto shall be delivered to the address specified in Article
One as the address for such party. Any party hereto may change its notice
address upon written notice to the other parties.
15.08 ATTORNEYS' FEES. If on account of any breach or default by any
party hereto in its obligations to any other party hereto (including but not
limited to the Principal REALTOR), it shall become necessary for the
non-defaulting party to employ an attorney to enforce or defend any of its
rights or remedies hereunder, the defaulting party agrees to pay the
non-defaulting party its reasonable attorneys' fees, whether or not suit is
instituted on connection therewith.
15.09 VENUE. All obligations hereunder, including, but not limited to
the payment of commissions to the Principal REALTOR, shall be performable and
payable in Dallas, Dallas County, Texas.
15.10 GOVERNING LAW. The laws of the State of Texas shall govern this
Lease.
7
15.11 SURVIVAL. All obligations of any party hereto not fulfilled at
the expiration or the earlier termination of this Lease shall survive such
expiration or earlier termination as continuing obligations of such party.
15.12 BINDING EFFECT. This Lease shall inure to the benefit and be
binding upon each of the parties hereto and their heirs, representatives,
successors and assigns; provided, however, Landlord shall have no obligation to
Tenant's successors or assigns unless the rights or interests of such successors
or assigns are acquired in accordance with the terms of this Lease.
15.13 EXECUTION AS OFFER. The execution of this Lease by the first
party to do so constitutes an offer to lease the Property. Unless within the
number of days stated in Section 1.15 above from the date of its execution by
the first party to do so, this Lease is accepted by the other party and a fully
executed copy is delivered to the first party, such offer shall be automatically
revoked and terminated.
ARTICLE SIXTEEN: ADDITIONAL PROVISIONS AND RIDERS
Additional provisions may be set forth in the blank space below, and/or
a rider or riders attached hereto. If no additional provisions are to be
inserted in the blank space below, please draw a line through such space. If no
rider or riders are to be attached hereto, please state "no riders" in the blank
space below. If a rider or riders are to be attached hereto, please state "no
riders" in the blank space below. If a rider or riders are to be attached
hereto, please state in the blank space below. "See rider or riders attached,"
and please have Landlord and Tenant initial all such riders.
16.01 Provided Tenant is not in default of any term, covenant or provision of
this lease, Tenant shall have the option to terminate the lease after 24 months
from commencement and prior to September 30, 1997. The effective date of
termination shall be proceeded by three (3) months prior written notice to the
Landlord and payment by Tenant to Landlord of the penalty per the following
schedule.
DATE OF TERMINATION TERMINATION PENALTY after 24 months from commencement eight
(8) months rent after 36 months from commencement four (4) months rent after 48
months from commencement two (2) months rent
16.02 PAYMENT BY TENANT. Tenant shall pay the party named in Section 1.13 above,
as additional rental, the excess, if any, of the insurance referred to in
Section 5.01 and 5.02 herein for any year during the Lease Term over the
insurance for the base year stated in Section 1.125. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the amount
and computation of such increase. Tenant shall be responsible for the pro-rate
portion of such additional rental for any fractional party of 1 year proceeding
the end of the lease, which prorates sum shall be due and payable upon the
termination of this lease.
16.03 Landlord at his sole cost and expense shall paint only the following: 1)
metal flashing along roof line of the building; 2) canopy over the entrance; 3)
railings across entrance and stairs. Color shall be mutually agreed upon by
Tenant and Landlord. Landlord will prior to commencement of term be responsible
for restriping the parking lot.
16.04 Lease shall have a preventive maintenance program providing for the
quarterly inspections of the heating and air condition system by a licensed
heating and air conditioning contractor and provide evidence of such inspections
upon request. Lessor shall have the right upon written notice to Lessee, to
undertake the responsibility for preventative maintenance of the heating and air
conditioning system at Lessee's expense.
16.05 Provided Tenant is property maintaining heating and air conditioning
system per 16.4 above, Landlord shall fully warrant the operation of such for
twelve (12) months following the commencement date of this Lease.
16.06 Landlord shall waive Tenants monthly rental payment for the 13th, 25th and
37th month's provided Texas can verify to Landlord written evidence that Tenant
improvement have been made to the building at Tenants expense of not less than
the monthly rental payment(s) being waived by Landlord.
EXECUTED as of the date stated in Section 1.01 above.
ATTEST: LANDLORD: James J. Laney, David M. Laney, as
Trustee of the Olivia Laney Fall Trust and
Robert W. Decherd, Trustee of Laney Children's
_______________________ Trusts
By: /s/ JAMES J. LANEY
James J. Laney
/s/ DAVID LANEY
David Laney as Trustee of
Olivia Laney Fall Trust
/s/ ROBERT W. DECHERD
Robert W. Decherd, Trustee of Laney Children's
Trusts, by Patrick E. Mitchell,
Attorney-in-Fact
8
ATTEST: TENANT: Technicomp Corporation and Allstar
Services, Inc.
By: /s/ JAMES H. LONG
James H. Long
Title: President
Date of execution by Tenant: 7/8/92
REALTORS
LINCOLN PROPERTY COMPANY P.O.'B. MONTGOMERY & COMPANY
Cooperating REALTOR Principal REALTOR, Member of The Greater Dallas
Association of REALTORS, Inc.
By: By:
*NOTE: If this Lease Agreement is negotiated by Principal Realtor in cooperation
with another Realtor, Landlord shall be liable for payment of all commissions to
Principal Realtor only, whereupon it shall be protected from any claims from
said Cooperating Realtor.
9
EXHIBIT A
Being two (2) tracts of land as follows:
TRACT 1
Being a tract of land situated in Block "F," Metropolitan Business Park
Section Five, an Addition to the city of Farmer Branch, Texas,
according to the revised plant thereof as filed for record in Volume
72192 at Page 0602 of the Deed Records of Dallas County, Texas, and
being more particularly described as follows:
BEGINNING at a point that is North 1045.00 feet from the intersection
of the North line of Spring Valley Road (a 100' R.O.W.) with the East
line of Proton Road (a 60' R.O.W.); THENCE North 150.00 feet along the
said East line of Proton Road (a 60' R.O.W.); THENCE East 335.00 feet;
THENCE South 150.00 feet; THENCE West 335.00 feet to the Place of
Beginning, and containing 50,250 square feet of 1.154 acres of land;
and
TRACT 2
Being a tract of land situated in Block "F" Revised, Metropolitan
Business Park, Section Five, an Addition to the City of Farmers Branch,
Texas, according to the plat thereof as filed for record in Volume
72192 at Page 0602, of the Deed Records of Dallas County, Texas, and
being more particularly described as follows:
BEGINNING at a point that is North 1195.00 feet from the intersection
of the North line of Spring Valley Road (a 100' R.O.W.) with the east
line of Proton Road (a 60' R.O.W.); THENCE North 52.00 feet along the
said east line of Proton Road; THENCE East, 335.00 feet; THENCE South,
52.00 feet; THENCE WEST, 335.00 feet to the Place of Beginning, and
containing 17,420 square feet or 0.3999 acres of land.
10
OPTION TO EXTEND TERM
LEASE RIDER
This Rider is attached to and made a part of that certain Lease
Agreement dated June 24, 1992 by and between James J. Laney, David M. Laney, as
Trustee or the Olivia Laney Fall Trust and Robert W. Decherd, Trustee of Laney
Children's Trusts as Landlord, 325 N. St. Paul, Suite 3000, Dallas, Texas 75201
and Technicomp Corporation and Allstar Services as Tenant, covering the Property
commonly known as 14202 & 14204 Proton Road, Farmers Branch, Texas (the
"Property").
A. OPTION(S) TO EXTEND TERM
1. Landlord hereby grants to Tenant one (1) option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of three (3) years each (the
"Extension(s), on the same terms, conditions and covenants set forth in the
Lease Agreement, except as provided below. Each option shall be exercised only
by written notice delivered to the Landlord at least one hundred twenty (120)
days before the expiration of the Lease Term or the preceding Extension of the
Lease Term. If Tenant fails to deliver Landlord written notice of the exercise
of an Option within the prescribed time period, such Option and any succeeding
Options shall lapse, and there shall be no further right to extend the Lease
Term. Each Option shall be exercisable by Tenant on the express condition that
at the time of the exercise, and at all times prior to the commencement of such
Extension(s), Tenant shall not be in default under any of the provisions of this
Lease. The foregoing Option(s) are personal to Tenant and may not be exercised
by any assignee of sub-tenant.
B. CALCULATION OF RENT
The rent during the Extension(s) shall be determined by one of the
following methods (INDICATE YOUR CHOICE BY PUTTING AN "X" IN THE APPROPRIATE
BLANK UPON THE EXECUTION OF THE LEASE AGREEMENT):
1. Consumer Price Index Adjustment
2. Fair Rental Value Adjustment X
3. Fixed Rental Adjustment
1. CONSUMER PRICE INDEX ADJUSTMENT
The monthly rent during the particular Extension shall be determined by
multiplying rent during the Lease Term by a fraction determined as follows:
a. The numerator shall be the latest index.
b. The denominator shall be the initial index.
If such computation would reduce the rent for the particular Extension,
it shall be disregarded, and the rent during the immediately preceding period
shall apply instead.
The index shall mean the Consumer Price Index for Urban Consumers (all
items), Dallas-Fort Worth, Texas area (1967 = 100) published by the United
States Department of Labor, Bureau of Labor Statistics.
The initial index shall mean the index published for the nearest
calendar month preceding the commencement date of the Lease Term. The latest
index shall mean the index published for the nearest calendar month preceding
the first day of the Extension.
If a base year other than 1967 is adopted, the index shall be converted
in accordance with the appropriate conversion factor. If the index is
discontinued or revised, such other index or computation with which it is
replaced shall be used in order to obtain substantially the same result as would
have been obtained if it had not been discontinued or revised.
2. FAIR RENTAL VALUE ADJUSTMENT
The rent shall be increased on the first day of the particular
Extension to the "Fair Rental Value" of the Property, determined in the
following matter: but not less than the base rent of the primary term escalated
from the commencement year to the primary lease expiration by the consumer price
index not to exceed 5% per annum.
a. If the Landlord and Tenant have not been able to agree on the Fair
Rental Value Adjustment prior to the date the option is required to be
exercised, the rent for the Extension shall be determined as follows: Within
fifteen (15) days following the exercise of the option, Landlord and Tenant
shall endeavor in good faith to agree upon a single appraiser. If Landlord and
Tenant are unable to agree upon a single appraiser within said fifteen (15) day
period, appoint one appraiser. The two appraisers appointed by Landlord and
Tenant shall be required to be first approved by the then president of the
1
Greater Dallas Board of REALTORS Inc. as qualified to determine rental
applicable to the Property. Within ten (10 days after the two appraisers are
appointed, they shall appoint a third appraiser. If either Landlord or Tenant
fails to appoint its appraiser within the prescribed time period the single
appraiser appointed shall appoint a third appraiser. If either Landlord or
Tenant fails to appoint its appraiser within the prescribed time period the
single appraiser appointed shall determine the Fair Rental Value of the
Property. If the two appointed appraisers fail to agree on the third appraiser,
he shall be appointed by the then president of the Greater Dallas Board of
Directors. Each party shall bear the cost of the appraiser appointed by it and
the parties shall share equally the cost of the third appraiser.
b. The "Fair Rental Value" of the Property shall mean the price that a
ready and willing tenant would pay as of the commencement of the Extension as
monthly rent to a ready and willing landlord of Property comparable to the
Property comparable to the Property if such property were exposed for lease on
the open market for a reasonable period of time and taking into account all of
the purposes for which such property may be used and not just the use proposed
to be made of the Property by Tenant. The Fair Rental Value of the Property
shall be the average of the two of the three appraisals which are closet in
amount, and the third appraisal shall be disregarded. In no event shall the rent
be reduced by reason of such computation. If the Fair Rental Value is not
determined prior to the commencement of the Extension, then Tenant shall
continue to pay to Landlord the rent applicable to the Property immediately
prior to such Extension until the Fair Rental Value is determined, and when it
is determined, Tenant shall pay to Landlord within ten (10) days after receipt
of such notice the difference between the rent actually paid by Tenant to
Landlord and the new rent determined hereunder.
3. FIXED ADJUSTMENTS.
The base rent shall be increased to the following amounts on the
following dates:
DATE: AMOUNT:
__________________________ ____________________________________
__________________________ ____________________________________
__________________________ ____________________________________
INITIALS:
LANDLORD:
TENANT:
*To be attached to Lease Agreement GDBR-062-10/85, and to be incorporated and
made part thereof if said agreement provides for a building to be construed by
Landlord and Tenants.
2
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
NAME STATE OF INCORPORATION
---- ----------------------
Stratasoft, Inc. Texas
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement 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 August , 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
August , 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ALLSTAR SYSTEMS, INC. OF DECEMBER
31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED) AND FOR THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 JUN-30-1996
<CASH> 0 670 1,029 481
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 12,172 16,965 15,826
<ALLOWANCES> 0 (188) (464) (716)
<INVENTORY> 0 5,386 5,407 6,767
<CURRENT-ASSETS> 0 18,235 23,274 22,730
<PP&E> 0 1,642 1,703 2,016
<DEPRECIATION> 0 (460) (717) (834)
<TOTAL-ASSETS> 0 19,077 24,266 24,436
<CURRENT-LIABILITIES> 0 16,872 21,542 21,105
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 2 2 2
<OTHER-SE> 0 2,203 2,722 3,329
<TOTAL-LIABILITY-AND-EQUITY> 0 19,077 24,266 24,436
<SALES> 49,536 64,076 91,085 58,150
<TOTAL-REVENUES> 49,536 64,076 91,085 58,150
<CGS> 42,289 55,541 79,700 50,797
<TOTAL-COSTS> 42,289 55,541 79,700 50,797
<OTHER-EXPENSES> 6,060 7,448 9,306 5,829
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 644 764 1,218 583
<INCOME-PRETAX> 543 323 861 941
<INCOME-TAX> 229 140 342 334
<INCOME-CONTINUING> 314 183 519 607
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 314 183 519 607
<EPS-PRIMARY> .15 .07 .19 .23
<EPS-DILUTED> 0 0 0 0
</TABLE>
