As filed with the Securities and Exchange Commission on October 16, 1996.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7378
(State of Incorporation) (Primary Standard Industrial 41-1853438
Classification Code Number) (I.R.S. Employer Identification No.)
</TABLE>
11401 Rupp Drive
Burnsville, Minnesota 55337
(612) 944-9448
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Michael F. Cibulka
Chief Executive Officer
11401 Rupp Drive
Burnsville, Minnesota 55337
Tel: (612) 944-9448
Fax: (612) 882-3895
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mark S. Weitz
Wendy C. Skjerven Joel I. Papernik
Leonard, Street and Deinard Squadron, Ellenoff, Plesent,
Professional Association & Sheinfeld, LLP
Suite 2300 551 Fifth Avenue
150 South Fifth Street New York, NY 10176
Minneapolis, Minnesota 55402 Tel: (212) 661-6500
Tel: (612) 335-1517 Fax: (212) 697-6686
Fax: (612) 335-1657
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of the Registration Statement.
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, please check the following
box and list the Securities Act 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, check the following box and list the Securities Act
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
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered (1) Per Share (2) Price (2) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 2,300,000 $10.00 $23,000,000 $7,931.03
</TABLE>
(1) Includes 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
______________
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securitiesmay 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 OCTOBER 16, 1996
2,000,000 Shares
[Logo]
ExpressPoint Technology Services, Inc.
Common Stock
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by ExpressPoint Technology Services, Inc. ("ExpressPoint" or the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial public
offering price will be between $8.00 and $10.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Company has applied for quotation on the Nasdaq
Stock Market's National Market under the symbol "EXPT."
For a discussion of certain material factors that should be considered in
connection with an investment in the Common Stock, see "Risk Factors"
commencing on page 7 and "Dilution" commencing on page 13.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
<S> <C> <C> <C>
Per Share $ $ $
Total (3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be $ payable by
the Company.
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted the Underwriters a 30-day option to purchase
up to 300,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several 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 delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New
York, on or about , 1996.
Rodman & Renshaw, Inc.
The date of this Prospectus is , 1996.
<PAGE>
Three to five photographs depicting the Company's
facilities, operations and/or finished product.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
ExpressPoint(r) is a registered trademark of the Company. This Prospectus
also includes trade names, trademarks and registered trademarks of companies
other than the Company.
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with, and as a condition to the closing of the offering
made by this Prospectus (the "Offering"), ExpressPoint Technology Services,
Inc. will acquire two technology support service companies, Amcom Corporation
("Amcom") and Delta Parts, Inc. ("Delta Parts," together, the "Founding
Companies") in exchange for shares of its Common Stock and cash (the
"Acquisition"). Unless otherwise indicated, all references herein to
ExpressPoint Technology Services, Inc. or ExpressPoint shall mean
ExpressPoint Technology Services, Inc. prior to the effectiveness of the
Acquisition, and references herein to the Company shall include the Founding
Companies. See "Organization."
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share, per share and financial information set forth
herein assumes (i) adjustment to give effect to the Acquisition, (ii) an
initial public offering price of $9.00 and (iii) no exercise of the
Underwriters' over-allotment option. This Prospectus includes forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Certain factors that might cause such differences include, but
are not limited to, those discussed in the section entitled "Risk Factors."
The Company
ExpressPoint Technology Services, Inc. has agreed to acquire Amcom and
Delta Parts, two established, independent technology support service
companies, in order to create a platform from which to launch the development
of an international company capable of providing comprehensive,
cost-effective technology support services to keep computers, point of sale
("POS") systems, banking equipment and computer networks operational. The
Company's services consist of depot repair and refurbishment (as opposed to
on-site repair), spare parts sales, systems integration and sales and
inventory and logistics management. The Company also markets primarily
refurbished computer, banking and POS systems, as well as its proprietary
ExpressPoint(R) POS software system. The Company primarily utilizes used
parts for its sales, repair and systems integration businesses, which allows
it to offer its customers a less costly solution to their maintenance
requirements. Although ExpressPoint has conducted no operations to date, it
has entered into agreements to acquire Amcom and Delta Parts simultaneously
with the closing of this Offering. After the Acquisition, management believes
the Company will be well-positioned to become one of the leading technology
support service companies in the United States. Pro forma combined revenues
and net income for the fiscal year ended December 31, 1995 were $27.0 million
and $1.1 million, respectively. For the six months ended June 30, 1996, pro
forma combined revenues and net income were $18.6 million and $1.1 million,
respectively, as compared to $11.6 and $0.2 million, respectively, for the
six months ended June 30, 1995.
The Company believes that there is a strong trend in the technology
support service industry towards outsourcing. Equipment manufacturers, third
party maintenance organizations, resellers/dealers and self- maintainers, all
of which traditionally performed their repair and maintenance work in-house,
are increasingly outsourcing their repair needs, spare parts stocking and
inventory management to what is referred to in the industry as "fourth party"
service providers such as the Company. Management believes equipment
manufacturers want to focus their resources on their primary business of
selling new systems, responding to the accelerated pace of product lifecycles
and reducing their costs and capital requirements. Management further
believes that equipment manufacturers are finding it increasingly difficult
to manage the repair and inventory needs of today's multivendor
systems--systems which integrate components from several different
manufacturers. Further, these organizations are looking to reduce the size of
their vendor base and rely on a small number of vendors to concentrate their
repair, logistic and other value-added services. These trends have created
the opportunity for a fourth party service provider, such as the Company, to
develop into a major company serving customers throughout the United States
and internationally. According to Dataquest, the total size of the U.S.
fourth party service market in 1994 was estimated to be $1.1 billion and is
projected to be $1.9 billion in 1999, representing a compounded annual growth
rate of 13.1%.
The Company plans to grow through both internal growth and acquisitions.
The Company believes that it has the financial strength and stability and the
necessary infrastructure, personnel and systems to
3
<PAGE>
capitalize on current industry trends. To date, the Company has been
successful in establishing strong relationships with many leading
corporations, including equipment manufacturers such as NCR Corporation,
formerly known as AT&T Global Information Solutions ("NCR"), Digital
Equipment Corporation ("DEC"), and Hewlett-Packard Company
("Hewlett-Packard"); resellers/dealers such as MicroAge, Inc. ("MicroAge")
and Intelligent Electronics, Inc. ("Intelligent Electronics"); third party
maintenance organizations such as Electronic Data Systems Corp. ("EDS"),
DecisionOne Corporation ("DecisionOne") and Siemens-Nixdorf Information
Systems, Inc. ("Siemens-Nixdorf"); and self-maintainers such as The Von's
Companies ("Von's"), Melville Corporation ("Melville"), Key Bank USA, NA
("Key Bank") and Federal Express Corporation ("FedEx").
The Company believes an acquisition strategy is timely because, according
to an industry study commissioned on behalf of the Company, the technology
support service industry is highly fragmented with over 2,000 companies in
the United States, many of which have annual sales of less than $5.0 million.
The Company plans to implement its acquisition program by focusing on
companies with complementary services and market niches. It believes it will
be an attractive acquisition partner to other companies due to its (i)
strategy for creating a national company, (ii) increased financial strength
and visibility as a public company and (iii) experience in developing and
maintaining strong customer relationships.
The Company believes its overall strengths include its (i) reputation as a
reliable provider of technology support services, (ii) broad based technical
knowledge and expertise, (iii) well-managed inventory systems and extensive
database for sourcing parts, which allow for rapid turnaround on customer
orders, (iv) ability to avoid the costly overhead involved with "feet on the
street" service--repair work done at customer sites and (v) emphasis on
developing a long-term relationship with customers, by working with them to
determine, plan for and meet their needs.
In the near term, the Company will maintain its two principal executive
offices at 6205 Bury Drive, Eden Prairie, Minnesota 55346, telephone number
(612) 949-9400 and 11401 Rupp Drive, Burnsville, Minnesota 55337, telephone
number (612) 944-9448.
The Offering
<TABLE>
<S> <C>
Common Stock Offered by the Company 2,000,000 shares
Common Stock to be Outstanding After the Offering 4,584,249 shares (1)
Use of Proceeds For payment of the cash portion of the purchase price
for the Acquisition, including expenses associated
therewith, repayment of certain notes issued to Amcom
employees in September 1996 and general corporate
purposes, including potential future acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol "EXPT"
</TABLE>
________
(1) Includes (i) 2,584,149 shares of Common Stock to be issued to Amcom and
Delta Parts shareholders in connection with the Acquisition, but excludes
(ii) options to purchase 879,892 shares of Common Stock at an exercise
price of $2.00 per share, (iii) options to purchase 25,000 shares of
Common Stock at an exercise price of $6.75 per share, (iv) options to
purchase 334,532 shares of Common Stock at exercise prices ranging from
$0.01 to $6.75 per share, (v) warrants to purchase 222,926 shares of
Common Stock at exercise prices ranging from $0.7092 to $5.00 per share and
(vi) an aggregate of 925,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan, Non-Employee Director Stock
Option Plan and Employee Stock Purchase Plan (collectively, the "Plans").
See "Management--Stock Option Plans."
4
<PAGE>
Summary Pro Forma Combined Financial Data
ExpressPoint will acquire the Founding Companies simultaneously with and
as a condition to the consummation of the Offering. The Acquisition will be
recorded using the purchase method of accounting with Delta Parts treated as
the acquirer in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 97. See "Organization," "Certain
Transactions--Organization of the Company," Unaudited Pro Forma Combined
Financial Statements and Notes to Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------
Year Ended Six Months Ended June 30,
December 31, ------------------------------
Statements of Operations Data: (1) 1995 1995 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenues $27,026,836 $11,631,484 $18,579,952
Cost of sales 15,537,678 6,803,157 11,072,758
--------------- -------------- ---------------
Gross profit 11,489,158 4,828,327 7,507,194
Operating expenses:
Selling, general and administrative (2)(3)(4) 9,118,749 4,307,986 5,405,975
Goodwill amortization (5) 368,941 184,470 184,470
--------------- -------------- ---------------
Operating income 2,001,468 335,871 1,916,749
Nonoperating expenses:
Interest expense, net (6) 179,497 67,430 102,426
Other expense 680 181 509
--------------- -------------- ---------------
Pro forma income before income tax provision 1,821,291 268,260 1,813,814
Pro forma income tax provision (7) 692,091 101,939 689,249
--------------- -------------- ---------------
Pro forma net income $ 1,129,200 $ 166,321 $ 1,124,565
=============== ============== ===============
Pro forma net income per share $ .30 $ .04 $ .30
=============== ============== ===============
Shares used in computing pro forma net income per share (8) 3,706,960 3,706,960 3,706,960
=============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996
Pro Forma
Selected Balance Sheet Data: (1) Actual Pro Forma As Adjusted (9)
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash $ 100 $ 296,712 $ 9,156,712
Working capital 100 6,117,933 14,977,933
Total assets 100 22,102,957 30,962,957
Short-term debt -- 1,144,102 1,144,102
Long-term debt, net of current portion -- 435,852 435,852
Total stockholders' equity 100 17,603,163 26,463,163
</TABLE>
_________
(1) Assumes that the closing of the Acquisition had occurred as of January 1,
1995, in the case of the pro forma statements of operations data, and as
of June 30, 1996, in the case of the pro forma balance sheet data. The
unaudited summary pro forma combined financial data are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate. The unaudited summary pro forma combined
financial data presented herein are not necessarily indicative of the
results the Company would have obtained had such events occurred at the
beginning of the period or of the future results of the Company. The
unaudited summary pro forma combined financial data should be read in
conjunction with the other financial data and notes thereto included
elsewhere in this Prospectus. The aggregate consideration for the
Acquisition is $16.7 million, which consists of (i) $6.3 million of cash
to be paid to the Amcom shareholders upon the consummation of the
Offering, (ii) $10.0 million estimated fair value of 1,108,647 shares
of Common Stock to be issued to the Amcom shareholders and (iii) $0.5
million of the Acquisition transaction costs.
5
<PAGE>
(2) Includes a pro forma adjustment to reflect adjustment to compensation
expense of the officers of Amcom based upon employment agreements entered
into in September 1996 in contemplation of the Acquisition pursuant to
which the ExpressPoint Notes, as set forth and defined in footnote 9,
were issued. Does not reflect costs (which will be significant) related
to other employees of the Company or corporate expenses related to being
a public company. See "Management's Discussion and Analysis of Pro Forma
Financial Condition and Pro Forma Results of Operations," "Management --
Executive Compensation," "--Employment Agreements" and Notes to Pro Forma
Combined Financial Statements.
(3) Includes a pro forma adjustment to eliminate compensation expense
associated with Amcom's contributions to an Employee Stock Ownership Plan
(the "Amcom ESOP") which will be terminated in connection with the
Acquisition.
(4) Includes a pro forma adjustment to reflect an excise tax liability of
Amcom resulting from the termination of the Amcom ESOP.
(5) Includes a pro forma adjustment to reflect the amortization expense on
the goodwill recorded in connection with the Acquisition.
(6) Includes a pro forma adjustment to reflect the elimination of interest
expense attributable to certain Delta Parts Convertible Notes which will
be converted into Common Stock in connection with the Acquisition.
(7) Includes a pro forma adjustment to reflect the provision for income taxes
on the unaudited pro forma combined statements of operations at an
effective tax rate of 38% for all periods presented.
(8) Computed on a basis described in Note 5 of Notes to Pro Forma Combined
Financial Statements.
(9) Adjusted to give effect to the net proceeds of the Offering and the
anticipated use of the net proceeds to pay $6.3 million of cash
consideration to the Amcom shareholders and $350,000 of the Acquisition
transaction costs. Does not give effect to $2,316,800 of demand notes
issued to certain employees of Amcom in September 1996, which are
anticipated to be paid upon completion of the Offering (the "ExpressPoint
Notes").
6
<PAGE>
RISK FACTORS
Prospective investors of the Common Stock offered herein should consider
carefully the following factors as well as the other information set forth in
this Prospectus in evaluating an investment in the Company.
Absence of Combined Operating History; Risks of Integration
ExpressPoint was founded in April 1996 and has conducted no operations to
date. ExpressPoint has entered into agreements to acquire the Founding
Companies simultaneously with and as a condition to the closing of the
Offering. Prior to the consummation of the Offering, the Founding Companies
have been operating as independent entities and there can be no assurance
that ExpressPoint will be able to integrate successfully these businesses.
The management groups of the Founding Companies have not previously worked
together and there can be no assurance that the combined management will
effectively be able to oversee the combined entity and implement the
Company's operating or growth strategies. See "Organization,"
"Business--Integrated Growth Strategy" and "Management."
Growth and Acquisition Risk
A central part of the Company's integrated growth strategy is to increase
its revenues and its market share through the acquisition of additional
technology support service companies which will complement its existing
businesses. There can be no assurance that the Company will be able to
identify or reach mutually agreeable terms with acquisition candidates or
that the Company will be able to manage profitably additional businesses or
integrate successfully such additional businesses into the Company.
Acquisitions may involve a number of special risks including adverse
short-term effects on the Company's reported operating results; diversion of
management's attention; dependence on retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities;
and the need to amortize acquired intangible assets. Some or all of these
risks could have a material adverse effect on the Company's financial
condition and results of operations.
The Company believes that consolidation will become more prevalent in the
technology support service industry. Increased competition for attractive
acquisition candidates may increase the prices for such candidates and there
can be no assurance that acquisitions will be available to the Company on
favorable terms. In addition, there can be no assurance that businesses
acquired in the future will achieve sales and profitability that justify the
investment therein. See "Business--Integrated Growth Strategy."
Need for Additional Financing to Implement Acquisition Strategy
The Company currently intends to finance future acquisitions by using its
Common Stock for all or a portion of the consideration to be paid. In the
event that the Company's Common Stock does not maintain sufficient value or
potential acquisition candidates are unwilling to accept the Company's Common
Stock as consideration for the sale of their businesses, the Company may be
required to utilize more of its cash resources, if available, in order to
continue its acquisition program. If the Company does not have sufficient
cash resources, its growth could be limited unless it is able to obtain
capital through additional debt or equity financings. Although the Company is
in the process of negotiating a line of credit of up to $15.0 million for
working capital and acquisitions, there can be no assurance that such
negotiations will be successfully concluded or that such line of credit will
be sufficient to achieve the Company's growth strategy. If the Company is
unable to obtain sufficient financing, it may be unable to fully implement
its acquisition strategy. See "Use of Proceeds," "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources" and
"Business--Integrated Growth Strategy."
Dependence on Certain Technologies; Excess or Unusable Inventory
The technology support service industry and, in particular, the computer
industry, have been characterized by rapid technological change, compressed
product lifecycles and pricing and margin pressures. Improvements in
technology and quality of hardware products or other factors may result in a
7
<PAGE>
reduced need for parts and systems repairs in the future or may render
existing products and services obsolete. The Company's continued success will
depend on its ability to anticipate technological developments to avoid
holding obsolete inventory, to develop the engineering and technical
knowledge and skills necessary to repair new generations of technology and to
expand its services to address the requirements of increasingly sophisticated
customers. Although the Company believes that it will be able to offer its
services based on new generations of technology as they emerge, there can be
no assurance that the Company will be able to do so on a cost-effective
basis, that such technologies will not render obsolete the Company's role as
a provider of refurbished systems, parts and repairs or that the Company can
avoid large inventory stocks of obsolete, unsaleable inventory. Excess,
obsolete or otherwise unusable inventory could have a material adverse effect
on the Company's financial condition, liquidity and results of operations.
See "Business--Operations."
Customer Concentration; Fixed-Price Contracts
For the six months ended June 30, 1996, the Company on a pro forma
combined basis derived approximately 30% of its revenues from NCR. While NCR
has maintained an eight-year relationship with Amcom, there can be no
assurance that NCR will continue to utilize the Company's services to the
same extent that it has done in the past or at all. Any substantial change in
the Company's relationship with NCR could have a material adverse effect on
the Company's financial condition and results of operations. Moreover,
several of the Company's contracts are negotiated on a fixed-price basis and,
if the repairs and services required under the contract exceed the Company's
original expectations, such contracts may prove unprofitable for the Company,
which could adversely affect the Company's financial condition and results of
operations. See "Business--Major Customers."
Competition
The technology support service industry is highly competitive. The Company
believes that over 2,000 companies nationwide currently offer some or all of
the services offered by the Company, including several companies that are
substantially larger than the Company or have greater financial resources.
Certain of these competitors may choose to enter the Company's more
specialized areas of operation in the future. An additional significant
source of competition is the in-house service and repair capabilities of
equipment manufacturers and third party maintenance organizations. While the
Company has benefited greatly from a recent trend toward outsourcing by such
companies, there can be no assurance that these businesses will continue to
outsource technology support functions. In addition, the Company intends to
enter new product, service and geographic areas through internal growth and
acquisitions and expects to encounter significant competition from
established competitors in such new areas. As a result of this highly
competitive environment, the Company may lose customers or have difficulty in
acquiring new customers and its business may be adversely affected. See
"Business--Competition."
Sourcing Spare Parts, Component Parts and Systems
The Company's success is dependent on its ability to source spare parts
quickly and economically and to distribute a wide variety of spare parts,
component parts and systems. To date, the Company has not experienced
difficulties or delays in obtaining spare parts, component parts or systems
economically and on a timely basis, in part because of the Company's
knowledge of the industry, along with its extensive database for sourcing
such products. There can be no assurance, however, that the Company will be
able to continue to obtain spare parts, component parts and systems and, if
so, to obtain such parts or systems on an economical basis.
8
<PAGE>
Potential Fluctuations in Operating Results; Effect on Price of Common Stock;
Volatility of Stock Price
Results for any quarter are not necessarily indicative of the results that
the Company may achieve for any subsequent quarter or for a full fiscal year.
Quarterly results may vary materially as a result of the timing and structure
of acquisitions, the timing and magnitude of costs related to such
acquisitions and the gain or loss of material client relationships. Since a
significant portion of the Company's revenues are generated from large
contracts or orders, the timing or completion of such contracts could result
in fluctuations in the Company's results of operations for particular
quarterly periods. In addition, the Company has bid and may continue to bid
for significant special projects which can be non-recurring in nature. These
projects can produce quarterly fluctuations in revenue and gross margins.
Further, the anticipated financial benefits of the combination of the
Founding Companies may not be generated immediately, if at all, and the
Company's initial results as a combined company may reflect increased
corporate overhead that exceeds the realized benefits. Such fluctuations in
operating results may adversely affect the market price of the Company's
Common Stock. The market price for the Company's Common Stock may also
fluctuate in response to material announcements by the Company or significant
clients of the Company, changes in economic or other conditions impacting the
Company's major customers and general economic conditions. See "Management's
Discussion and Analysis of Pro Forma Combined Financial Condition and Pro
Forma Combined Results of Operations--Seasonality and Fluctuations."
Reliance on Key Personnel and Trained Technical Personnel
The Company's operations are dependent on the continued efforts of Michael
F. Cibulka, President and Chief Executive Officer, Del M. Johnson,
Vice-Chairman and the President of the Amcom Division, and the other
executive officers of the Founding Companies. Furthermore, the Company will
also be dependent on the senior management of businesses acquired in the
future. If any of these people are unable or unwilling to continue in their
present roles or if the Company is unable to attract and retain other skilled
employees, the Company's business could be adversely affected. In addition,
the Company is dependent on its ability to attract and retain skilled
technical personnel. Competition for such qualified technical personnel in
the industry is intense and there can be no assurance that the Company will
be able to attract and retain such personnel.
Control by Management
Following the completion of the Offering, the directors and executive
officers of the Company and entities affiliated with them, will beneficially
own approximately 45.7% of the then outstanding shares of Common Stock (42.3%
if the Underwriters' over-allotment option is exercised in full) and are
likely to be able to exercise substantial control over the Company's affairs.
These stockholders acting together would likely be able to elect a sufficient
number of directors to control the Company's Board of Directors and to
approve or disapprove any matter submitted to a vote of stockholders. See
"Principal and Selling Stockholders" and "Description of Securities."
Potential Effect of Shares Eligible for Future Sale on Price of Common Stock
Future sales of shares of Common Stock by existing stockholders pursuant
to Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise, could have an adverse effect on
the price of the shares of Common Stock. Upon completion of this Offering,
the Company will have 4,584,249 shares of Common Stock outstanding (4,784,249
shares if the Underwriters' over-allotment option is exercised in full). In
addition, the Company has outstanding options to purchase 1,239,424 shares of
Common Stock, warrants to purchase 222,926 shares of Common Stock and an
aggregate of 925,000 shares of Common Stock reserved for issuance under the
Plans.
The 2,000,000 shares of Common Stock offered hereby (2,300,000 if the
Underwriters' over-allotment option is exercised in full) will be freely
transferable without restriction or further registration under the Securities
Act except for any shares purchased by an "affiliate" of the Company within
the meaning of Rule 144. The remaining 2,584,249 outstanding shares of Common
Stock will be "restricted securities," as that term is defined in Rule 144,
and may only be sold pursuant to a registration statement under the
Securities
9
<PAGE>
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144. No prediction can be made as to the effect
that future sales of Common Stock, or the availability of shares of Common
Stock for future sales, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock,
or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the future sale of its equity securities.
The Company's officers, directors and certain of its stockholders, holding
approximately 2,084,249 shares of Common Stock, have agreed, for a period of
180 days from the date of this Prospectus, not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company, without the prior
written consent of Rodman & Renshaw, Inc. (the "Lock-Up"). In addition, such
individuals, having the right to acquire an aggregate of 1,462,350 shares
issuable upon the exercise of options or warrants, have agreed to the same
restrictions on disposition.
As soon as practicable after the effective date of the Offering, the
Company intends to register on Form S-8 for resale 722,147 shares of Common
Stock held by the Amcom ESOP (the "ESOP Shares"). Of the ESOP Shares,
approximately 222,000 will be subject to the Lock-Up. Pursuant to the terms
of the Acquisition, the Amcom ESOP will be terminated upon the closing of the
Acquisition, and the Company will immediately file an application for
determination of qualified status with the Internal Revenue Service. Until a
favorable determination with regard to the qualified status of the ESOP is
obtained from the Internal Revenue Service, no ESOP Shares will be
distributed to the ESOP participants, except as required by law. It is
expected that such determination will not be received until five to nine
months subsequent to the Amcom ESOP termination. Upon such distribution, the
ESOP Shares distributed to non-affiliates will be freely tradeable. See
"Principal and Selling Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."
The Company has reserved for future issuance under the Plans an aggregate
of 925,000 shares of Common Stock. The Company intends to register the shares
issuable upon exercise of options when granted under the Plans and, upon such
registration, such shares will be eligible for resale in the public market.
The Company has agreed not to offer or sell any shares of Common Stock of
the Company for a period of 180 days following the date of this Prospectus
without the prior written consent of Rodman & Renshaw, Inc., except that the
Company may issue Common Stock in connection with acquisitions or upon the
exercise of outstanding options or options granted under the Plans.
Absence of Public Market and Determination of Offering Price
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price has
been determined by negotiations between the Company and the Representatives
and may bear no relation to the market price for the shares subsequent to the
Offering. There can be no assurance that the price as so determined is
representative of the current or future market value of the Common Stock
offered hereby. The Company has applied for quotation on the Nasdaq National
Market. However, there can be no assurance that an active trading market will
develop subsequent to the Offering or, if developed, will be sustained.
Immediate and Substantial Dilution
The purchasers of the shares of Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value
per share of $5.61 per share. In the event the Company issues additional
Common Stock in the future, including shares which may be issued in
connection with future acquisitions, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of the Company. See "Dilution."
10
<PAGE>
ORGANIZATION
Simultaneously with the closing of the Offering, ExpressPoint will acquire
Amcom and Delta Parts, two established, independent technology support
service companies.
All common shares of the Founding Companies will be acquired for
$6,300,000 in cash and the issuance of an aggregate of 2,584,149 shares of
Common Stock (including 129,705 shares issuable upon conversion of $453,967
principal amount and interest to the end of the term of Delta Parts
Convertible Notes) in exchange for Founding Company shares on a one-for-one
basis.
In September 1996, certain Amcom employees agreed to terminate their
employment agreements in exchange for options to purchase 879,892 shares of
Common Stock at an exercise price of $2.00 per share and $2,316,800 of
ExpressPoint Notes. These agreements resulted in charges to the operations of
ExpressPoint of $6,496,287 in September 1996.
In connection with the Acquisition, ExpressPoint will replace employee and
director stock options to purchase 334,532 shares of Delta Parts common stock
at prices ranging from $0.01 to $6.75 per share and warrants to purchase
222,926 shares of Delta Parts common stock at prices ranging from $0.7092 to
$5.00 per share with options and warrants on the same terms to purchase the
same number of shares of the Company's Common Stock.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered hereby are estimated to be $15,510,000,
($17,184,000 if the Underwriters' over-allotment option is exercised in full)
after deducting the underwriting discount and estimated offering expenses. Of
this amount, $6,300,000 will be used to pay the cash portion of the
Acquisition purchase price for Amcom; $2,316,800 will be used to repay the
ExpressPoint Notes issued in September 1996, to certain Amcom shareholders
and key employees, who will become officers, directors or 5% stockholders of
the Company, in exchange for modifying their current employment arrangements;
and $350,000 will be used to pay a portion of the Acquisition transaction
costs. In addition, if the Company is unable to obtain the release of
personal guarantees of Michael F. Cibulka, President and Chief Executive
Officer, and Mark P. Duffy, Chief Operating Officer, for approximately
$906,000 of Delta Parts indebtedness or is otherwise unable to refinance such
indebtedness as is required under the terms of the Acquisition, the Company
will use proceeds from the Offering to repay such indebtedness. See "Certain
Transactions--Organization of the Company."
The remaining net proceeds will be used for general corporate purposes,
including working capital, and also may be utilized in connection with future
acquisitions. As of the date of the Prospectus, the Company has no
understandings, commitments or agreements with respect to any such
transactions at the present time. Pending such uses, the net proceeds will be
invested in short-term interest bearing investment grade securities.
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes and therefore
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Any payment of future dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Company's Board of Directors deems
relevant.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization at June 30, 1996 of the
Company (assuming the Acquisition had been consummated as of that date) and
as adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered hereby and the application of a portion of the estimated net proceeds
therefrom. See "Selected Pro Forma Combined Financial Data" and "Use of
Proceeds." This table should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of June 30, 1996
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- -------------- --------------
<S> <C> <C> <C>
Short-term debt (including current portion of long-term debt) $ 1,144,102 $ 1,144,102
Long-term debt, excluding current portion 435,852 435,852
Stockholders' equity:
Common Stock, $0.01 par value, 15,000,000 shares
authorized; 100 issued and outstanding actual; 2,584,249 issued
and outstanding pro forma 4,584,249 issued and
outstanding pro forma as adjusted (1) $ 1 25,842 45,842
Additional paid-in capital 99 12,372,152 21,212,152
Retained earnings 5,249,972 5,249,972
Loans to stockholders (44,803) (44,803)
Total stockholders' equity 100 17,603,163 26,463,163
Total capitalization $100 $19,183,117 $28,043,117
</TABLE>
__________
(1) Does not include (i) options to purchase 879,892 shares of Common Stock
at an exercise price of $2.00 per share, (ii) options to purchase 25,000
shares of Common Stock at an exercise price of $6.75 per share, (iii)
options to purchase 334,532 shares of Common Stock at exercise prices
ranging from $0.01 to $6.75 per share, (iv) warrants to purchase 222,926
shares of Common Stock at exercise prices ranging from $0.7092 to $5.00 per
share and (v) an aggregate of 925,000 shares of Common Stock reserved for
issuance under the Plans. See "Management--Stock Option Plans."
12
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 on a pro forma
basis, giving effect to the Acquisition, was $6,702,615 or $2.59 per share of
Common Stock pro forma net tangible book value per share represents the
Company's pro forma total tangible assets less its pro forma total
liabilities, divided by the pro forma total number of outstanding shares of
Common Stock. After giving effect to the sale of the 2,000,000 shares of
Common Stock offered hereby at an assumed offering price of $9.00 per share
(after deducting underwriting discounts and estimated offering expenses) and
the application of the estimated net proceeds therefrom, the adjusted pro
forma net tangible book value of the Company at June 30, 1996 would have been
$15,562,615 or $3.39 per share. This represents an immediate increase in such
net tangible book value of $0.80 per share to existing stockholders and an
immediate dilution of $5.61 per share to new investors purchasing the shares
in the Offering. The following table illustrates pro forma dilution to new
investors:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share $ 9.00
Pro forma net tangible book value per share before Offering $ 2.59
Increase attributable to new investors 0.80
-------------
Adjusted pro forma net tangible book value per share after Offering 3.39
-------------
Dilution in net tangible book value per share to new investors $ 5.61
=============
</TABLE>
The following table sets forth at the date of this Prospectus the number
of shares of Common Stock purchased from the Company, the total consideration
to the Company and the average price per share paid by existing stockholders
(after giving effect to the Acquisition) and by the investors in this
Offering.
<TABLE>
<CAPTION>
Shares Acquired Total Consideration Average Price
---------------------- -----------------------
Number Percent Amount Percent Per Share
------------ --------- ------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,584,249 56.4% $ 5,465,107 23.3% $ 2.11
New investors 2,000,000 43.6 18,000,000 76.7 9.00
--------- ----- ---------- -----
Total 4,584,249 100.0% 23,465,107 100.0%
========= ===== ========== =====
</TABLE>
__________
The foregoing tables exclude the exercise of all outstanding warrants and
stock options. To the extent that any existing warrants or options granted or
to be granted are exercised in the future at a price less than the Price to
Public, there will be further dilution to new investors. See
"Management--Stock Option Plans."
13
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
ExpressPoint will acquire the Founding Companies simultaneously with and
as a condition to the consummation of the Offering. The Acquisition will be
recorded using the purchase method of accounting with Delta Parts treated as
the acquirer in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 97. See "Organization," "Certain
Transactions--Organization of the Company," Unaudited Pro Forma Combined
Financial Statements and Notes to Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------
Six Months Ended June 30,
------------------------------
Year Ended
December 31,
Statements of Operations Data: (1) 1995 1995 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenues $27,026,836 $11,631,484 $18,579,952
Cost of sales 15,537,678 6,803,157 11,072,758
--------------- -------------- ---------------
Gross profit 11,489,158 4,828,327 7,507,194
Operating expenses:
Selling, general and administrative (2)(3)(4) 9,118,749 4,307,986 5,405,975
Goodwill amortization (5) 368,941 184,470 184,470
--------------- -------------- ---------------
Operating income 2,001,468 335,871 1,916,749
Nonoperating expenses:
Interest expense, net (6) 179,497 67,430 102,426
Other expense 680 181 509
--------------- -------------- ---------------
Pro forma income before income tax provision 1,821,291 268,260 1,813,814
Pro forma income tax provision (7) 692,091 101,939 689,249
--------------- -------------- ---------------
Pro forma net income $ 1,129,200 $ 166,321 $ 1,124,565
=============== ============== ===============
Pro forma net income per share $ .30 $ .04 $ .30
=============== ============== ===============
Shares used in computing pro forma net income per share (8) 3,706,960 3,706,960 3,706,960
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996
----------------------------------------------
Pro Forma
Selected Balance Sheet Data: (1) Actual Pro Forma As Adjusted (9)
-------------- ---------------
<S> <C> <C> <C>
Cash $100 $ 296,712 $ 9,156,712
Working capital 100 6,117,933 14,977,933
Total assets 100 22,102,957 30,962,957
Short-term debt -- 1,144,102 1,144,102
Long-term debt, net of current portion -- 435,852 435,852
Total stockholders' equity 100 17,603,163 26,463,163
</TABLE>
__________
(1) Assumes that the closing of the Acquisition had occurred as of January 1,
1995, in the case of the pro forma statements of operations data, and as
of June 30, 1996, in the case of the unaudited selected pro forma balance
sheet data. The pro forma combined financial data are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate. The unaudited selected pro forma combined
financial data presented herein are not necessarily indicative of the
results the Company would have obtained had such events occurred at the
beginning of the period or of the future results of the Company. The
unaudited selected pro forma combined financial data should be read in
conjunction with the other financial data and notes thereto included
elsewhere in this Prospectus. The aggregate consideration for the
Acquisition is $16.7 million, which consists of (i) $6.3 million of cash
to be paid to the Amcom shareholders upon the consummation of the
Offering, (ii) $10.0 million estimated fair value of 1,108,647 shares of
Common Stock to be issued to the Amcom shareholders and (iii) $0.5
million of the Acquisition transaction costs.
14
<PAGE>
(2) Includes a pro forma adjustment to reflect adjustment to compensation
expense of the officers of Amcom based upon employment agreements entered
into in September 1996 in contemplation of the Acquisition pursuant to
which the ExpressPoint Notes, as set forth in Footnote 9, were issued.
Does not reflect costs (which will be significant) related to other
employees of the Company or corporate expenses related to being a public
company. See "Management's Discussion and Analysis of Pro Forma Financial
Condition and Pro Forma Results of Operations," "Management -- Executive
Compensation," "-- Employment Agreements" and Notes to Pro Forma Combined
Financial Statements.
(3) Includes a pro forma adjustment to eliminate compensation expense
associated with Amcom's contributions to the Amcom ESOP which will be
terminated in connection with the Acquisition.
(4) Includes a pro forma adjustment to reflect an excise tax liability of
Amcom resulting from the termination of the Amcom ESOP.
(5) Includes a pro forma adjustment to reflect the amortization expense on
the goodwill recorded in connection with the Acquisition.
(6) Includes a pro forma adjustment to reflect the elimination of interest
expense attributable to certain Delta Parts Convertible Notes which will
be converted into Common Stock in connection with the Acquisition.
(7) Includes a pro forma adjustment to reflect the provision for income taxes
on the pro forma combined results of operations at an effective tax rate
of 38% for all periods presented.
(8) Computed on a basis described in Note 5 of Notes to Pro Forma Combined
Financial Statements.
(9) Adjusted to give effect to the net proceeds of the Offering and the
anticipated use of the net proceeds to pay $6.3 million of cash
consideration to the Amcom shareholders and $350,000 of the Acquisition
transaction costs. Does not give effect to the ExpressPoint Notes issued
to certain employees of Amcom in September 1996.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
General
ExpressPoint was founded in April 1996 and has agreed to acquire Amcom and
Delta Parts, two established, independent technology support service
companies, in order to create a platform from which to launch the development
of an international company capable of providing comprehensive cost-effective
technology support services to a wide range of customers. The Company's
services consist of depot repair and refurbishment (as opposed to on-site
repair), spare parts sales, systems integration and sales and inventory and
logistics management. Amcom also markets primarily refurbished computer,
banking and POS systems, as well as a proprietary POS software system.
All common shares of the Founding Companies will be acquired for
$6,300,000 in cash and the issuance of an aggregate of 2,584,149 shares of
Common Stock (including 129,705 shares issuable upon conversion of $453,967
principal amount and interest to the end of the term of Delta Parts
Convertible Notes) in exchange for Founding Company shares on a one-for-one
basis.
In September 1996, certain Amcom employees agreed to terminate their
employment agreements in exchange for options to purchase 879,892 shares of
Common Stock at an exercise price of $2.00 per share and $2,316,800 of
ExpressPoint Notes. These agreements resulted in charges to the operations of
ExpressPoint of $6,496,287 in September 1996.
In connection with the Acquisition, ExpressPoint will replace employee and
director stock options to purchase 334,532 shares of Delta Parts common stock
at prices ranging from $0.01 to $6.75 per share and warrants to purchase
222,926 shares of Delta Parts common stock at prices ranging from $0.71 to
$5.00 per share with options and warrants on the same terms to purchase the
same number of shares of the Company's Common Stock.
The fiscal years of ExpressPoint and Delta Parts end on December 31 of
each year. Amcom's fiscal year ends on May 31 of each year but will be
changed to a calendar year in connection with the Acquisition.
Pro Forma Results of Operations
The following discussions should be read in conjunction with the Selected
Pro Forma Combined Financial Data, the Selected Financial Data of
ExpressPoint and the Founding Companies and the Financial Statements and
related notes appearing elsewhere in this Prospectus.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30,
1995
Revenues increased by 59.7% to $18,579,952 for the six months ended June
30, 1996 from $11,631,484 for the six months ended June 30, 1995. This
increase was due to additional revenue from existing and new customers.
Gross profit increased by 55.5% to $7,507,194 for the six months ended
June 30, 1996 from $4,828,327 for the six months ended June 30, 1995. As a
percentage of revenues, gross profit decreased to 40.4% for the six months
ended June 30, 1996 from 41.5% for the six months ended June 30, 1995. The
decline in gross profit margin percentage was primarily due to higher product
costs that were incurred in order to support the Company's growth.
Selling, general and administrative expenses increased by 25.5% to
$5,405,975 for the six months ended June 30, 1996 from $4,307,986 for the six
months ended June 30, 1995. As a percentage of revenues, selling, general and
administrative expenses decreased to 29.1% for the six months ended June 30,
1996 from 37.0% for the six months ended June 30, 1995. The percentage
decrease was primarily due to absorption of fixed costs over an increased
revenue base.
As a result of the foregoing factors, operating income increased by
470.7% to $1,916,749 for the six months ended June 30, 1996 from $335,871 for
the six months ended June 30, 1995. As a percentage of
16
<PAGE>
revenues, income from operations increased to 10.3% for the six months ended
June 30, 1996 from 2.9% for the six months ended June 30, 1995.
Interest expense increased by 51.9% to $102,426 for the six months ended
June 30, 1996 from $67,430 for the six months ended June 30, 1995 primarily
due to increased short-term debt borrowings that were necessary to support
the Company's higher revenues in 1996.
Net income increased by 576.1% to $1,124,565 for the six months ended
June 30, 1996 from $166,321 for the six months ended June 30, 1995.
Liquidity and Capital Resources
The Founding Companies have three lines of credit providing for combined
advances of up to $3.0 million, depending upon levels of eligible accounts
receivable and inventories. Borrowings outstanding under these agreements as of
June 30, 1996 totaled approximately $1.0. In addition, ExpressPoint has obtained
a preliminary commitment for a credit facility (the "Credit Facility") which
would, subject to completion of the Offering, permit borrowings of up to $15.0
million, including up to $10.0 million for acquisitions and up to $5.0 million
for working capital. Borrowings under the Credit Facility would be
collateralized by substantially all of the assets of the Company and would bear
interest at a rate to be negotiated. There can be no assurance that the Company
will enter into a definitive agreement with respect to the proposed Credit
Facility on these or any other terms.
Subsequent to the Acquisition, the Founding Companies will either
refinance or repay certain term loans and borrowings under one of the lines
of credit if the personal guarantees of certain Delta Parts shareholders can
not otherwise be eliminated. Borrowings outstanding under these agreements
totaled approximately $906,000 as of June 30, 1996.
The Company believes that funds generated from operations, together with
the net proceeds of the Offering, will be sufficient to finance its current
operations, potential obligations relating to the Acquisition and planned
capital expenditure requirements at least through the close of the Company's
fiscal year ended December 31, 1997. In the longer term, the Company may
require additional sources of liquidity to fund future growth and
acquisitions. Such sources of liquidity may include additional equity or debt
financings.
Effect of Inflation
Inflation is not a material factor affecting the Company's business.
General operating expenses such as salaries and employee benefits are,
however, subject to normal inflationary pressures.
Seasonality and Fluctuations
While Delta Parts is not subject to significant seasonality, Amcom
experiences seasonal increases in its POS systems business in the fourth
calendar quarter related primarily to increased retailer sales activity and
the concommitant increased maintenance and repair requirements for POS
systems.
The Company often has and may continue to bid for significant special
projects which can be non-recurring in nature. These projects can produce
quarterly fluctuations in revenues and gross margins.
17
<PAGE>
Selected Financial Data of ExpressPoint and the Founding Companies
The selected financial data of ExpressPoint and the Founding Companies are
derived in part from the more detailed financial statements and notes thereto
of ExpressPoint and the Founding Companies included elsewhere in this
Prospectus. The ExpressPoint balance sheet data have been derived from the
audited balance sheet included herein. The selected balance sheet data as of
May 31, 1995 and 1996 and the of operations data for each of the three years
in the period ended May 31, 1996 for Amcom have been derived from audited
financial statements included elsewhere herein. The Amcom selected balance
sheet data as of May 31, 1992, 1993 and 1994 and the statements of operations
data for each of the two years in the period ended May 31, 1993 have been
derived from unaudited data. The selected balance sheet data as of December
31, 1993, 1994 and 1995, and the statements of operations data for the period
from inception (August 9, 1993) through December 31, 1993 and each of the two
years in the period ended December 31, 1995, for Delta Parts have been
derived from audited financial statements included elsewhere herein. The
Delta Parts balance sheet data as of December 31, 1993 has been derived from
unaudited data.
The selected individual financial data of the Founding Companies, as of
and for the one and six month periods ended June 30, 1995 and 1996, as
applicable for Amcom and Delta Parts, have been derived from unaudited
financial statements included elsewhere herein. Such selected financial data
are not necessarily indicative of the results to be expected for the full
year.
In the opinion of ExpressPoint's and the Founding Companies' management, the
unaudited financial statements of the Founding Companies reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and the results of operations of
ExpressPoint and the Founding Companies for those periods in accordance with
generally accepted accounting principles. Selected Financial Data of
ExpressPoint and the Founding Companies should be read in conjunction with the
financial statements and notes hereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Founding Companies"
included elsewhere in this Prospectus. ExpressPoint and Delta Parts have a
fiscal year ended December 31. Amcom has a fiscal year ended May 31.
18
<PAGE>
<TABLE>
<CAPTION>
Amcom Corporation
---------------------------------------------------------------------------------------------
For the
Statements of For the Year Ended May 31, Month Ended
Operations Data: ---------------------------------------------------------------------- June 30, June 30,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $13,351,846 $14,048,911 $18,724,459 $18,760,147 $28,134,130 $1,600,330 $2,237,218
Cost of sales 8,062,079 7,893,288 9,990,733 10,184,776 16,015,589 974,483 1,218,213
----------- ----------- ----------- ----------- ----------- ---------- ----------
Gross profit 5,289,767 6,155,623 8,733,726 8,575,371 12,118,541 625,847 1,019,005
----------- ----------- ----------- ----------- ----------- ---------- ----------
Operating expenses:
Selling, general
and administrative 4,054,141 5,291,747 6,682,788 7,226,953 9,794,364 537,943 843,956
----------- ----------- ----------- ----------- ----------- ---------- ----------
Operating income
(loss) 1,235,626 863,876 2,050,938 1,348,418 2,324,177 87,904 175,049
Nonoperating
expenses:
Interest expense,
net 62,706 64,163 46,435 31,053 98,562 625 5,080
Other expense
(income) (8,990) (11,942) 949 786 5,509
----------- ----------- ----------- ----------- ----------- ---------- ----------
Income (loss) before
taxes 1,181,910 811,655 2,003,554 1,316,579 2,220,106 87,279 169,969
Income tax provision
(benefit) 436,743 294,712 752,000 496,000 801,000 33,166 62,890
----------- ----------- ----------- ----------- ----------- ---------- ----------
Net income (loss) $ 745,167 $ 516,943 $ 1,251,554 $ 820,579 $ 1,419,106 $ 54,113 $ 107,079
=========== =========== =========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Delta Parts, Inc.
------------------------------------------------------------------
For the For the
Period From Six Months Ended
Inception For the Year Ended
Statements of (August 9, 1993) December 31,
Operations Data: Through ------------------------ June 30, June 30,
December 31, 1993 1994 1995 1995 1996
----------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 211,084 $ 4,608,239 $ 4,257,251 $2,093,560 $ 3,040,596
Cost of sales 138,359 3,472,279 2,817,678 1,377,222 2,142,068
----------- ----------- ----------- ---------- -----------
Gross profit 72,725 1,135,960 1,439,573 716,338 898,528
----------- ----------- ----------- ---------- -----------
Operating expenses:
Selling, general and
administrative 125,023 1,048,070 1,642,575 828,063 785,650
----------- ----------- ----------- ---------- -----------
Operating income (loss) (52,298) 87,890 (203,002) (111,725) 112,878
Nonoperating expenses:
Interest expense, net 7,232 69,498 160,449 63,542 66,338
Other expense (income)
----------- ----------- ----------- ---------- -----------
Income (loss) before
taxes (59,530) 18,392 (363,451) (175,267) 46,540
Income tax provision
(benefit) 5,000 (2,000)
----------- ----------- ----------- ---------- -----------
Net income (loss) $(59,530) $ 13,392 $ (361,451) $ (175,267) $ 46,540
=========== =========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
ExpressPoint Founding Companies
Technology --------------------------------------------------------------------
Services, Inc. Amcom Corporation
--------------- --------------------------------------------------------------------
As of May 31,
As of -------------------------------------------------------- As of
Selected Balance Sheet June 30, June 30,
Data: 1996 1992 1993 1994 1995 1996 1996
--------------- ----------- --------- -------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $100 $ 114,533 $ 75,058 $ 251,259 $ 739,664 $ 288,140 $ 276,558
Working capital 100 1,559,783 2,098,541 3,133,666 4,007,787 5,329,559 5,386,089
Total assets 100 4,507,568 3,680,667 6,966,253 5,362,089 9,264,922 8,740,818
Short-term debt 1,199,600 325,000 1,777,915 27,065 1,329,022 627,600
Long-term debt, net of
current portion 258,730 76,508 47,618 46,713
Common stock held by ESOP
subject to repurchase
obligation 793,125 991,440 1,840,359 2,720,022 3,880,726 3,882,976
Common stock held by
shareholders subject to
put option 1,425,212 1,315,879 476,216 105,679 301,469 301,469
---- ---------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity
(deficit) $100 $ (296,406) $ 131,555 $ 891,733 $1,504,164 $1,647,267 $1,760,730
==== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Delta Parts, Inc.
------------------------------------------
As of December 31, As of
------------------------------- June 30,
Selected Balance Sheet Data: 1993 1994 1995 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Cash $ 57,877 $ 145,528 $ 191,107 $ 20,054
Working capital (72,239) 475,211 208,753 720,070
Total assets 209,587 1,410,965 1,626,191 2,565,391
Short-term debt 174,863 202,892 367,005 516,502
Long-term debt, net of current portion 45,000 750,848 747,199 748,339
Common stock held by ESOP subject to
repurchase obligation
Common stock held by stockholders subject
to put option
-------- ---------- ---------- -----------
Total stockholders' equity (deficit) $(59,430) $ 84,747 $ (73,916) $ 490,366
======== ========== ========== ===========
</TABLE>
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Founding Companies
The following discussion should be read in conjunction with the Selected
Financial Data of ExpressPoint and the Founding Companies and the Financial
Statements and related notes thereto appearing elsewhere in this Prospectus.
Amcom
Results of Operations
The following table sets forth selected operating data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------------------------------------------
1994 1995 1996
----------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $18,724,459 100.0% $18,760,147 100.0% $28,134,130 100.0%
Cost of sales 9,990,733 53.4 10,184,776 54.3 16,015,589 56.9
-------------- -------- -------------- -------- -------------- ---------
Gross profit 8,733,726 46.6 8,575,371 45.7 12,118,541 43.1
Selling, general and
administrative expenses 6,682,788 35.7 7,226,953 38.5 9,794,364 34.8
-------------- -------- -------------- -------- -------------- ---------
Operating income 2,050,938 11.0 1,348,418 7.2 2,324,177 8.3
Interest expense 46,435 0.2 31,053 0.2 98,562 0.4
Other expense 949 0.0 786 0.0 5,509 0.0
-------------- -------- -------------- -------- -------------- ---------
Income before provision for
income taxes 2,003,554 10.7 1,316,579 7.0 2,220,106 7.9
-------------- -------- -------------- -------- -------------- ---------
Income tax provision 752,000 4.0 496,000 2.6 801,000 2.8
-------------- -------- -------------- -------- -------------- ---------
Net income $ 1,251,554 6.7% $ 820,579 4.4% $ 1,419,106 5.0%
============== ======== ============== ======== ============== =========
</TABLE>
Year Ended May 31, 1996 Compared with Year Ended May 31, 1995
Revenues increased by 50.0% to $28,134,130 in fiscal 1996 from $18,760,147
in fiscal 1995. This increase was due primarily to an increase in revenues
from existing customers and, to a lesser extent, to sales made to new
customers.
Gross profit increased by 41.3% to $12,118,541 in fiscal 1996 from
approximately $8,575,371 in fiscal 1995. As a percentage of revenues, gross
profit decreased to 43.1% in fiscal 1996 from 45.7% in fiscal 1995. The
decline in gross profit margin was primarily due to higher product costs that
were incurred in order to support Amcom's significant growth in fiscal 1996.
Selling, general and administrative expenses increased by 35.5% to
$9,794,364 in fiscal 1996 from $7,226,953 in fiscal 1995, due to costs
associated with higher staffing levels. As a percentage of revenues, selling,
general and administrative expenses decreased to 34.8% in fiscal 1996 from
38.5% in fiscal 1995. The percentage decrease was primarily due to absorption
of fixed costs over an increased revenue base.
Operating income increased by 72.4% to $2,324,177 in fiscal 1996 from
$1,348,418 in fiscal 1995. As a percentage of revenues, operating income
increased to 8.3% in fiscal 1996 from 7.2% in fiscal 1995.
Interest expense increased by 217.4% to $98,562 in fiscal 1996 from
$31,053 in fiscal 1995, primarily as a result of increased short-term debt
borrowings that were needed to support Amcom's increased working capital
needs generated by the increase in revenues.
As a result of the foregoing factors, net income increased by 72.9% to
$1,419,106 in fiscal 1996 from $820,579 in fiscal 1995.
20
<PAGE>
Year Ended May 31, 1995 Compared with Year Ended May 31, 1994
Revenues increased by 0.2% to $18,760,147 in fiscal 1995 from $18,724,459
in fiscal 1994. This slight increase was due to approximately $3.0 million of
increased sales to a single customer offset by lower system sales.
Gross profit decreased by 1.8% to $8,575,371 in fiscal 1995 from
$8,733,726 in fiscal 1994. As a percentage of revenues, gross profit
decreased to 45.7% in fiscal 1995 from 46.6% in fiscal 1994.
Selling, general and administrative expenses increased by 8.1% to
$7,226,953 in fiscal 1995 from $6,682,788 in fiscal 1994. As a percentage of
revenues, selling, general and administrative expenses increased to 38.5% in
fiscal 1995 from 35.7% in fiscal 1994. The increase was due in part to higher
labor costs and associated benefits resulting from an increase in the parts
and repair business as compared to system sales.
Operating income decreased by 34.3% to $1,348,418 in fiscal 1995 from
$2,050,938 in fiscal 1994. As a percentage of gross revenues, operating income
decreased to 7.2% in fiscal 1995 from 11.0% in fiscal 1994.
Interest expense decreased by 33.1% to $31,053 in fiscal 1995 from $46,435
in fiscal 1994 primarily due to a lower level of borrowings.
As a result of the foregoing factors, net income decreased by 34.4% to
$820,579 in fiscal 1995 from $1,251,554 in fiscal 1994.
Liquidity and Capital Resources
During the year ended May 31, 1996, net cash flows used in operating
activities were $1,384,085 primarily due to increases in working capital
resulting from the increases in revenues. Net cash flows used in investing
activities of $340,506 primarily consisted of expenditures for production
equipment and investments in management information systems. Net cash flows
provided by financing activities were $1,273,067 primarily representing
proceeds from additional borrowings under Amcom's credit facility.
During the year ended May 31, 1995, net cash provided by operating
activities were $2,714,136 primarily due to accounts receivable collections.
Net cash flows used in investing activities were $229,032 primarily due to
purchases of fixed assets. Net cash flows used in financing activities were
$1,996,699 primarily representing repayments under Amcom's credit facility
and principal payments on long-term debt.
21
<PAGE>
Delta Parts
Results of Operations
<TABLE>
<CAPTION>
For the Period
from Inception
(August 9, 1993)
through December 31, Year Ended December 31,
----------------------------------------------
1993 1994 1995
---------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $211,084 100.0% $4,608,239 100.0% $4,257,251 100.0%
Cost of sales 138,359 65.5 3,472,279 75.3 2,817,678 66.2
------------ --------- ------------- --------------------- ---------
Gross profit 72,725 34.5 1,135,960 24.7 1,439,573 33.8
Selling, general and
administrative
expenses 125,023 59.2 1,048,070 22.7 1,642,575 38.6
------------ --------- ------------- --------------------- ---------
Operating income
(loss) (52,298) (24.8) 87,890 1.9 (203,002) (4.8)
Interest expense, net 7,232 3.4 69,498 1.5 160,449 3.8
------------ --------- ------------- --------------------- ---------
Income (loss) before
provision for income
taxes (59,530) (28.2) 18,392 0.4 (363.451) (8.5)
------------ --------- ------------- --------------------- ---------
Income tax provision
(benefit) 0 0.0 5,000 0.1 (2,000) 0.0
------------ --------- ------------- --------------------- ---------
Net income (loss) $(59,530) (28.2)% $ 13,392 0.3% $ (361,451) (8.5)%
============ ========= ============= ===================== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
----------------------------------------------
1995 1996
---------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues $2,093,560 100.0% $3,040,596 100.0%
Cost of sales 1,377,222 65.8 2,142,068 70.4
------------- -------- ------------- ---------
Gross profit 716,338 34.2 898,528 29.6
Selling, general and
administrative
expenses 828,063 39.6 785,650 25.8
------------- -------- ------------- ---------
Operating income
(loss) (111,725) (5.3) 112,878 3.7
Interest expense (net) 63,542 3.0 66,338 2.2
------------- -------- ------------- ---------
Income (loss) before
provision for income
taxes (175,267) (8.4) 46,540 1.5
------------- -------- ------------- ---------
Income tax provision
(benefit) 0 0.0 0 0.0
------------- -------- ------------- ---------
Net income (loss) $ (175,267) (8.4)% $ 46,540 1.5%
============= ======== ============= =========
</TABLE>
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30,
1995
Revenues increased by 45.2% to $3,040,596 for the six months ended June
30, 1996 from $2,093,560 for the six months ended June 30, 1995. This
increase was primarily due to increased business from existing customers.
Gross profit increased by 25.4% to $898,528 from $716,338 for the six
months ended June 30, 1996. As a percentage of revenues, gross profit
decreased to 29.6% for the six months ended June 30, 1996 from 34.2% for the
six months ended June 30, 1995. The decrease in gross profit percentage
occurred because certain high margin sales in the earlier period did not
recur in the later period and a higher percentage of sales were made at
slightly lower margins.
Selling, general and administrative expenses decreased by 5.1% to $785,650
from $828,063 for the six months ended June 30, 1995. As a percentage of
revenues, selling, general and administrative expenses decreased to 25.8% for
the six months ended June 30, 1996 from 39.6% for the six months ended June
30, 1995. The decrease was primarily due to absorption of fixed costs over an
increased revenue loss.
Operating income (loss) was $112,878 for the six months ended June 30,
1996, compared with a loss of $111,725 for the six months ended June 30,
1995.
Interest expense increased by 4.4% to $66,338 for the six months ended
June 30, 1996 from $63,542 for the six months ended June 30, 1995, primarily
as a result of slightly increased short-term borrowings.
As a result of the foregoing factors, net income increased to $46,540 for
the six months ended June 30, 1996 from a net loss of $175,267 for the six
months ended June 30, 1995.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Revenues decreased by 7.6% to $4,257,251 in fiscal 1995 from $4,608,239 in
fiscal 1994, primarily due to several one-time transactions in 1994 which did
not recur in 1995, partially offset by sales to new customers. In 1995, Delta
Parts made a fundamental change in business strategy to focus its resources
on actively developing long-term customer relationships rather than pursuing
individual transactions. As a result, Delta Parts expects its revenue
fluctuations in the future may be less significantly impacted by non-
recurring sales.
22
<PAGE>
Gross profit increased by 26.7% to $1,439,573 in fiscal 1995 from
$1,135,960 in fiscal 1994. As a percentage of revenues, gross profit
increased to 33.8% in fiscal 1995 from 24.7% in fiscal 1994. The increase in
gross profit percentage was a result of Delta Parts' shift in its sales
strategy, since its sales mix consisted of a greater percentage of higher
margin value-added business as compared to 1994 results.
Selling, general and administrative expenses increased by 56.7% to
$1,642,575 in fiscal 1995 from $1,048,070 in fiscal 1994. As a percentage of
revenues, selling, general and administrative expenses increased to 38.6% in
fiscal 1995 from 22.7% in fiscal 1994. The increase was primarily due to the
hiring of additional personnel in sales and customer service to support an
anticipated growth in business and Delta Parts' move to bigger facilities in
1995.
Operating income decreased to a loss of $203,002 in fiscal 1995 from
a profit of $87,890 in fiscal 1994. This decline in profits was a result of
the decrease in revenues and increase in costs.
Interest expense increased by 130.9% to $160,449 in fiscal 1995 from
$69,498 in fiscal 1994, primarily as a result of increased short-term and
long-term debt borrowings that were required to support higher levels of
inventory and capital expenditures.
As a result of the foregoing factors, Delta Parts incurred a net loss of
$361,451 in fiscal 1995 as compared to net income of $13,392 in fiscal 1994.
Liquidity and Capital Resources
During the six months ended June 30, 1996, net cash flows used in
operating activities were $735,852, primarily due to increases in working
capital resulting from the increases in revenues. Net cash flows used in
investing activities of $103,580 primarily consisted of expenditures for
investments in capital equipment used in Delta Parts' repair business,
including testing equipment. Net cash flows provided by financing activities
were $668,379, primarily representing proceeds from the sale of common stock
of $532,442 and a $150,637 net increase in outstanding debt under Delta
Parts' credit facilities.
During 1995, net cash flows used in operating activities were $134,200
primarily due to increases in working capital. Net cash flows used in
investing activities of $180,239 primarily consisted of expenditures for
capital equipment used in Delta Parts' repair business, including testing
equipment, new work stations and management information systems. Net cash
flows provided by financing activities were $360,018, primarily representing
proceeds from the sale of common stock of $176,007, the issuance of $75,000
of subordinated debt and a $105,064 net increase in outstanding debt under
Delta Parts' credit facilities.
23
<PAGE>
BUSINESS
ExpressPoint has agreed to acquire Amcom and Delta Parts, two established,
independent technology support service companies, in order to create a
platform from which to launch the development of an international company
capable of providing comprehensive, cost-effective technology support
services to keep computers, POS systems, banking equipment and computer
networks operational. The Company's services consist of depot repair and
refurbishment (as opposed to on-site repair), spare parts sales, system
integration and sales and inventory and logistics management. The Company
also markets primarily refurbished computer, banking and POS systems, as well
as its proprietary ExpressPoint POS software system. The Company primarily
utilizes used parts for its sales, repair and systems integration businesses,
which allows it to offer its customers a less costly solution to their
maintenance requirements. Although ExpressPoint has conducted no operations
to date, it has entered into agreements to acquire Amcom and Delta Parts
simultaneously with the closing of this Offering. After the Acquisition,
management believes the Company will be well-positioned to become one of the
leading technology support service companies in the United States. Pro forma
combined revenues and net income for the fiscal year ended December 31, 1995
were $27.0 million and $1.1 million, respectively. For the six months ended
June 30, 1996, pro forma combined revenues and net income were $18.6 million
and $1.1 million respectively, as compared to $11.6 million and $0.2 million,
respectively, for the six months ended June 30, 1995.
The Company believes that there is a strong trend in the technology
support service industry towards outsourcing. Equipment manufacturers, third
party maintenance organizations, resellers/dealers and self-maintainers, all
of which traditionally performed their repair and maintenance work in-house,
are increasingly outsourcing their repair needs, spare parts stocking and
inventory management to what is referred to in the industry as "fourth party"
service providers such as the Company. Management believes equipment
manufacturers want to focus their resources on their primary business of
selling new systems, responding to the accelerated pace of product lifecycles
and reducing their costs and capital requirements. Management further
believes that equipment manufacturers are finding it increasingly difficult
to manage the repair and inventory needs of today's multivendor
systems--systems which integrate components from several different
manufacturers. Further, these organizations are looking to reduce the size of
their vendor base and rely on a small number of vendors to concentrate their
repair, logistic and other value-added services. These trends have created
the opportunity for a fourth party service provider, such as the Company, to
develop into a major company serving customers throughout the United States
and internationally. According to Dataquest, the total size of the U.S.
fourth party service market in 1994 was estimated to be $1.1 billion and is
projected to be $1.9 billion in 1999, representing a compounded annual growth
rate of 13.1%.
The Company plans to grow through both internal growth and acquisitions.
The Company believes that it has the financial strength and stability and the
necessary infrastructure, personnel and systems to capitalize on current
industry trends. To date, the Company has been successful in establishing
strong relationships with many leading corporations, including equipment
manufacturers such as NCR, DEC, and Hewlett-Packard; resellers/dealers such
as MicroAge and Intelligent Electronics; third party maintenance
organizations such as EDS, DecisionOne and Siemens-Nixdorf; and
self-maintainers such as Von's, Melville, Key Bank and FedEx.
The Company believes an acquisition strategy is timely because, according
to an industry study commissioned on behalf of the Company, the technology
support service industry is highly fragmented with over 2,000 companies in
the United States, many of which have annual sales of less than $5.0 million.
The Company plans to implement its acquisition program by focusing on
companies with complementary services and market niches. It believes it will
be an attractive acquisition partner to other companies due to its (i)
strategy for creating a national company, (ii) increased financial strength
and visibility as a public company and (iii) experience in developing and
maintaining strong customer relationships.
The Company believes its overall strengths include its (i) reputation as a
reliable provider of technology support services, (ii) broad based technical
knowledge and expertise, (iii) well-managed inventory systems and extensive
database for sourcing parts, which allow for rapid turnaround on customer
orders, (iv) ability to avoid the costly overhead involved with "feet on the
street" service--repair work
24
<PAGE>
done at customer sites and (v) emphasis on developing a long-term
relationship with customers, by working with them to determine, plan for and
meet their needs.
Industry Background and Overview
Technology support service companies provide on-site and depot technical
expertise and spare parts to keep computers, POS systems, banking equipment
and computer networks operational. The chart below illustrates the
participants in this industry and the Company's role in providing spare parts
(mostly used), depot repair and other services to the other industry
participants. The chart also shows the variety of customers who purchase used
and repaired parts as a cost-effective alternative to new parts.
[Chart to Come]
25
<PAGE>
Large organizations have traditionally satisfied information technology
requirements through mainframe or stand-alone midrange systems utilizing
hardware and software produced by a single equipment manufacturer. Technology
support services, including spare parts and repairs for these systems, were
usually provided directly by the equipment manufacturer. However, a number of
developments, including the growing use of multivendor systems, have resulted
in a movement by many organizations away from the traditional reliance on
equipment manufacturers towards independent providers of multivendor
technology support services, including third party maintenance organizations.
In addition, third party maintenance organizations, resellers/dealers and
self-maintainers have found it increasingly difficult and costly to stock the
parts inventory, or maintain the technology required to service multivendor
systems, particularly in an environment where system components are regularly
being modified, upgraded or changed. Industry observers have noted an
increase in "outsourcing" or the shifting of stocking, parts accessing,
repair, maintenance and inventory management to fourth party technology
service providers. Additionally, many of these outsourcing organizations are
looking for fewer vendors to provide their repair, logistics and value-added
activities.
In this environment, the Company believes that the market share
attributable to fourth party technology support service companies should
increase. As estimated by Dataquest, the total size of the fourth party
segment in which the Company operates was approximately $1.1 billion in 1994
and is projected to be approximately $1.9 billion in 1999, representing a
compound annual growth rate of 13.1%. The three major areas that the Company
currently serves--parts repair, refurbished parts sales and logistics and
inventory management--are projected to more than double, growing from $702
million in 1994 to $1.4 billion in 1999, representing a compounded annual
growth rate of 15.1%. These three areas represented approximately 64% of the
total fourth party market and are projected to grow to approximately 73% of
such market by the end of the decade.
While the market has grown, it has been characterized by the entry of a
large number of relatively small companies, resulting in a highly fragmented
industry. An industry study commissioned by the Company estimates that there
are over 2,000 companies providing technical support services, many of which
have annual sales of less than $5.0 million. The fourth party marketplace,
however, is undergoing a process of consolidation, via acquisition, to
capitalize on the trend in the industry for customers to demand high quality
and economical service from a small number of vendors.
Integrated Growth Strategy
The Company believes it is well-positioned to take advantage of industry
trends by growing both internally and through acquisitions to become one of
the leading technology support service companies. While parts sales and depot
repair services have traditionally comprised the core services associated
with the fourth party market, the Company has extended its services as the
needs of its customers have changed. The Company offers not only new and
refurbished parts sales and parts repair, but systems integration and sales
inventory and logistics management including warehouse and distribution
services. In addition, the Company has expanded into additional value-added
services. The Company, for example, buys, refurbishes and sells mid-range
International Business Machines Corporation ("IBM") systems, such as PS/6000
and point of sale terminal equipment; IBM, NCR, MICROS Systems, Inc.
("MICROS") and Panasonic Company ("Panasonic") cash register systems; IBM and
ISC Systems Corporation ("ISC") banking equipment; and RISC servers. The
Company's customers purchase used or refurbished systems which they consider
equivalent to new systems, but at substantial savings. The Company also
markets its proprietary ExpressPoint POS software for IBM POS and PC-based
machines to retailers, wholesalers and distributors. The software program can
be configured to meet a customer's specific needs and can be tailored to a
single retail store or can support multi-company and multi-store operations.
Internal Growth
(bullet) Capitalize on Outsourcing Trend. The Company intends to leverage
its position as a high-quality, reliable, efficient,
cost-effective alternative to in-house technology support
services in order to capitalize on the growing trend toward
outsourcing. As pressure has grown to do parts repair and
26
<PAGE>
replacement in the most efficient and cost-effective manner, all
the types of organizations which performed repair and/or parts
replacement service--equipment manufacturers, third party
maintenance organizations, resellers/dealers and
self-maintainers--have increasingly turned to outsourcing. A
growing number of organizations are also outsourcing a greater
number of support service functions, ranging from parts stocking
to depot repair to logistics and inventory management.
(bullet) Cross-sell its Services to Existing Customers. The Company
intends to utilize its contacts and relationships with existing
customers to increase the complement of services it offers to
such customers. The Company believes its strong customer
relationships will lead to further opportunities to cross-sell
its services, including logistics and inventory management. The
Company's objectives are to further position itself as an
integral part of its customers' service and repair programs and
to become a primary source for its customers' technology support
services.
(bullet) Expand its Systems Sales. The Company intends to focus
additional resources on developing its system integration and
sales activities, building on its successful strategy of
developing strong positions in specialty niches such as banking
and POS systems.
(bullet) Expand to International Markets. The Company believes that
opportunities for technology support services will increase as
the trend towards outsourcing expands into international
markets. In addition, management believes opportunities exist
because foreign markets historically have not had the access to
parts and used machines that are available to U.S. markets and
relatively few foreign end-users maintain their own systems. The
Company will seek to expand its presence in the international
technology support service market by extending its relationships
with U.S. companies to their foreign affiliates and marketing
and sales efforts directed at specific foreign companies.
Growth by Acquisition
The Company intends to launch an active acquisitions program following
the Offering. Several market trends have created opportunities for
consolidation. Large customers, such as the equipment manufacturers, have
expressed a desire to reduce the number of vendors with which they work,
which should result in a concentration of technology support services in
larger companies which are more capable of handling the volume. As the range
of products requiring service increases, smaller independent companies may
find it difficult to handle the breadth of expertise required or the cost of
inventory. Finally, the customers' ever increasing expectations of rapid
turnaround require broad geographical coverage and sophisticated systems to
track inventory and source parts which are not in inventory. The Company
intends to utilize various combinations of stock, cash and notes to
effectuate acquisitions and believes it will be an attractive acquisition
partner to other technology support service companies due to its increased
financial strength and visibility as a public company, its experience in the
industry, its customer base and its increased national sales opportunities.
The Company intends to target, as acquisition candidates, operations
which provide opportunities for the following:
(bullet) Complementary Services/Specialization. The Company intends to
increase the range of services it offers by seeking acquisition
candidates which have developed niches in the market, either in
particular products or particular types of systems (such as the
niche the Company has developed in POS systems), to enable the
Company to cross-sell and complement its existing services and
systems, with the acquired company's services offered to the
Company's existing customer base and vice versa.
(bullet) Expand Strategic Relationships. The Company believes that a
desirable acquisition candidate will often have management with
strong relationships with particular clients or strong selling
abilities to a particular customer segment and intends to retain
such personnel.
(bullet) Increased Geographic Presence. The Company will seek targets
with locations which allow the Company to expand rapidly into
additional geographic markets. Additional locations would
provide increased opportunities for same-day turn-around of
parts and supply requests and help the Company develop a
nationwide network of offices and facilities capable of
servicing national accounts.
27
<PAGE>
(bullet) Consolidation of Functions. The Company intends to seek
opportunities for synergies to be obtained by consolidating
several key functions, such as inventory control, warehousing
and distribution, computer systems, billing and other
administrative functions and to take advantage of other
economies of scale.
Services Offered
The Company has developed a variety of services designed to meet the
diverse needs of its customers. All of the Company's services are focused on
reducing customer costs while maintaining high quality and customer
satisfaction. Since the Company believes that its customers prefer to work
with technology support service companies that can fulfill a wide variety of
their needs, the Company has developed an extensive array of services to
provide "one-stop shopping."
Depot Repair
Depot repair refers to the repair, rebuilding and testing of parts and
equipment at an independent repair company's facility, as contrasted with the
on-site provision of such services at the customer's premises. Through its
depot repair capabilities, the Company provides customers with the
opportunity to outsource repairs of their proprietary products or products
produced by third parties. While many of the Company's customers maintain
in-house repair centers dedicated to servicing their products or product
lines, many of these customers can no longer justify the high cost of such
repair centers. In addition, equipment manufacturers which maintain
multivendor systems do not typically have the expertise, resources or
capabilities to handle the repairs of another manufacturer's equipment. The
Company offers its customers expertise in the repair of a broad variety of
products, along with a reliable, cost-efficient option to outsource some or
all of their repair requirements.
Sale of Parts
A significant part of the Company's business is the sale of computer and
related spare parts, primarily used, repaired and refurbished. The Company
sells parts to the field service departments of major equipment
manufacturers; third party maintenance organizations; computer
resellers/dealers; and the internal service departments of self-maintainers.
The Company's inventory includes over 180,000 different types of parts from
over 150 manufacturers, including IBM, Hewlett-Packard, Compaq Computer
Corporation, Spectra-Physics Scanning Systems, Inc., Symbol Technologies,
Inc. and Lexmark International Group, Inc. The Company has a particular
expertise in providing parts and repair support for POS systems.
The Company is often able to provide a wide variety of parts to a
multitude of customers at a significant discount to the cost of comparable
new parts and, if necessary, the Company is able to provide the parts on an
expedited emergency basis. The Company's spare parts capabilities enhance its
logistics and inventory management capability and the efficiency of its
repair service offerings.
Systems Refurbishment, Reconfiguration and Integration
The Company's services extend beyond the sale and repair of spare parts
to the assembly of complete systems, such as used POS equipment, banking
equipment and computer systems. This may involve repair, refurbishment,
configuration, reconfiguration, upgrading, integration and, if requested, the
loading of software. Since many current systems are generally multivendor
systems which include peripherals and machines from several different
manufacturers, the system integration services offered by the Company require
a broad range of technical expertise, as well as the ability to source
components of multiple manufacturers. The Company believes there are only a
limited number of technology support service companies which can adequately
perform these system services. Although the Company configures or integrates
most of its systems with used parts or components, the Company may purchase
new parts and components when integrating new systems for specific customers.
Refurbishment and reconfiguration of systems is a significant portion of the
services provided by the Company under the Hewlett-Packard contract. See
"--Major Customers."
28
<PAGE>
System Sales
The Company also buys, refurbishes and sells mid-range IBM systems, such
as RS/6000 and POS terminal equipment; IBM, NCR, MICROS and Panasonic cash
register systems; IBM and ISC banking equipment; and RISC servers.
Additionally, the Company markets its proprietary ExpressPoint POS software
for IBM POS and PC-based machines to retailers, wholesalers and distributors.
The software program can be configured to meet a customer's specific needs
and can be tailored to a single retail store or can support multi-company and
multi-store operations.
Logistics and Inventory Management
The Company manages and coordinates a customer's inventory when the
customer has decided to outsource its inventory, management and logistics
functions. This service includes a variety of activities to ensure the
customer has the necessary parts and products on a timely basis. The Company
integrates parts stocking, repair and delivery functions to provide its
customers with a comprehensive logistics solution.
Operations
Successful operations depend on the Company's ability to control and
access inventory efficiently, to source parts which are not in inventory
quickly and economically, to conduct repairs in a timely and cost-effective
manner and to maintain a constant supply of machines to refurbish and
reconfigure for resale or for disassembly for spare parts.
Parts Sourcing
The Company's operations depend upon the ability to identify, locate,
procure and deploy spare parts from among the thousands of parts that
comprise the installed base of computer and computer based equipment.
Critical to the Company's success is a sophisticated information system,
which relies on a spare parts identification and sourcing database developed
over the last ten years. This database allows the Company's sales force to
find and deliver a spare part from inventory quickly or, if a part is not
available in inventory, to query the spare parts sourcing database rapidly to
locate and procure the part from the hundreds of sources with which the
Company regularly does business. The database also allows the salesperson to
identify functional equivalents for a part to fill customer orders which are
not model or make sensitive. The system provides the salesperson with a
complete pricing history for the part to assist in price discussions with the
customer, as well as a transaction history with that particular customer.
Management of all the Company's inventory is computerized and the Company
is in the process of implementing a comprehensive bar coding system. The
Company performs regular inventory counts and inventory analyses to help
manage its inventory. The Company is in the process of installing a
customized inventory analysis system, which will enable the Company to
perform more sophisticated analysis of its inventory and support a
substantially higher level of sales.
Because customers are often under time pressure to maintain and repair
their systems, the Company's success is in large part based on its ability to
complete a transaction in a timely manner. In order to increase the
percentage of spare parts sourced directly from inventory, the Company
procures a variety of commonly requested parts in advance. The Company's
information system regularly examines parts usage patterns and available
stocks, and enables Company personnel to perform analyses to support
procurement activities.
The Company also works with customers to establish systems to regularly
access and stock parts based on a customer's (and a component's) repair
history, which helps the Company reduce its excess inventory and serve
customers more efficiently.
Depot Repair
The Company's depot repair functions operate in two ways. The Company may
receive a defective part from a customer, repair it, and return it to the
customer. Typically, this type of repair transaction takes an average of five
days from receipt of the defective part. Many of the Company's customers,
however, cannot
29
<PAGE>
wait for a part to be repaired. These customers take advantage of the
Company's "advance exchange" program, whereby the Company ships a replacement
part to a customer as soon as the customer notifies it of the need for such a
part. When the customer delivers the defective part to the Company, the
Company repairs it and then places it in its own inventory for subsequent
resale.
The Company's repair technicians are organized into groups under the
supervision of project engineers and technical managers. Because the Company
does its repair work without manufacturer support (except with respect to its
arrangement with Hewlett-Packard) the Company must rely on its project
engineers and technical managers to establish schematics for defective parts
(see "--Major Customers--Hewlett-Packard"). The Company believes it has
employed a team of highly qualified project engineers and technical managers
who have developed an extensive knowledge base, in the procedures and
processes required for repair work, and who cross train other Company
technicians.
The Company also employs a sourcing specialist whose sole function is to
find or have manufactured the necessary components for repair work. The
Company believes that smaller companies would typically be unable to afford a
sourcing specialist, which could limit the ability of their repair
departments to satisfy all customer repair needs.
Customer Communications
The Company has developed a formal process for going directly on-line
with customers' purchase orders, invoicing, and manufacturing releases and
has done so with DEC. This allows the Company to receive parts orders
instantaneously and to ship directly to the field. The Company is also in the
process of implementing an electronic data interchange ("EDI") program with
some of its key customers. EDI is the integration of the Company's and its
customers' hardware and software programs, to electronically, rather than in
paper form, transmit and receive documents such as purchase orders and
invoices. The Company expects to be able to offer EDI to its other customers
before the end of 1996. The Company believes this is not only a selling point
with potential new customers, but also, an effective barrier to entry for
competitors.
Disassembly
The Company sources spare parts by disassembling whole machines. The
Company relies upon its ability to continually purchase machines which it can
disassemble in order to obtain necessary parts. The Company employs several
persons who specialize in this function and, in addition, all sales
representatives support the acquisition of machines for disassembly by
identifying such machines for purchase.
Sales and Marketing
The Company employs a sales force of 21 persons and maintains sales
offices in Minnesota, Massachusetts, Ohio, Florida and Texas.
The Company supports its sales efforts with attendance at trade shows,
advertisements in trade journals, brochures and direct marketing efforts. The
Company also maintains a Web site for customers which allows them to obtain
information about the Company's services and demonstrate the ExpressPoint
software. The Company expects to have pricing information available at its
Web site in 1997.
The Company has several programs designed to attract new customers and/or
strengthen relationships with existing customers. To attract new customers,
the Company's sales personnel are trained to develop customized support
programs. These programs, based on a potential customer's equipment and the
Company's historical information on failure rates, demonstrate how a customer
can benefit by outsourcing to the Company.
Major Customers
The Company has a customer base of over 3,000. The Company's equipment
manufacturer customers include companies such as NCR, DEC and
Hewlett-Packard; self-maintainers such as Von's, Melville, Key Bank and FedEx;
third party maintenance firms such as DecisionOne and Siemens-Nixdorf; and
resellers/dealers such as MicroAge and Intelligent Electronics. Certain
customers function in more than one area, such as NCR, which is both an
equipment manufacturer and a third party maintenance firm.
30
<PAGE>
NCR
Since 1988, Amcom has been providing technology support services to NCR
with respect to IBM POS systems and related peripherals which NCR maintains
and services for its third party customer base, which includes several major
retail chains. NCR is one of the nation's largest maintainers of POS systems.
The Company provides repair, refurbishment and spare parts replacement for
such systems. The Company believes that it is a market leader in this niche.
During the six months ended June 30, 1996, NCR accounted for approximately
30% of Amcom's business.
Hewlett-Packard
The Company recently entered into a four-year contract with
Hewlett-Packard to be the principal organization to which PC-related
services, such as board repair, refurbishment, disassembly and
recertification are outsourced. Pursuant to this agreement, Hewlett-Packard
has assumed all capital costs in connection with the construction of a
facility in the Sacramento, California area and will reimburse the Company
for all of its overhead and rental costs. The Company received the contract
from Hewlett-Packard in a competitive process, based on quality and technical
capabilities, in which more than 35 companies responded to Hewlett-Packard's
request for proposals.
Competition
The technology support service industry is fragmented, with widespread
competition from a variety of small independent suppliers and a limited
number of large companies, some of which operate nationally or have
significantly greater resources than the Company, such as The Cerplex Group,
Inc., Aurora Electronics, Inc. and PC Service Source, Inc. In addition,
equipment manufacturers which continue to provide their own parts, repair and
service functions, such as IBM, can be considered competitors of the Company.
As the industry consolidates, the Company also anticipates greater
competition for strong acquisition candidates. The Company believes that
competition for customers is based on a number of factors, including (i)
quality of service, (ii) breadth of parts offered, (iii) ability to offer
sophisticated logistic and inventory management programs, (iv) price and (v)
ability to offer rapid delivery.
Employees
The Company employs a total of approximately 308 persons, with
approximately 153 persons in the Minneapolis area and 120 persons in
California, all of whom are presently dedicated to Hewlett-Packard work.
Overall, the Company employs 21 persons in sales and marketing, 35 persons in
administration, 12 persons in management, 119 persons as technicians and 121
persons in its warehouses. The Company's employees are not represented by any
labor union and the Company believes its relations with its employees are
satisfactory.
31
<PAGE>
Facilities
The following table sets forth certain information regarding the Company's
facilities. Except as noted, all of these facilities are leased.
<TABLE>
<CAPTION>
Approximate
Location Square Footage Function
- -------------------- --------------- ----------------------------------------------
<S> <C> <C>
Eden Prairie, MN 25,600 Offices, warehouse, repair depot
Eden Prairie, MN 15,200 Warehouse, disassembly, systems integration
Burnsville, MN 23,400 Offices, warehouse, repair depot
Rocklin, CA (1) 57,200 Hewlett-Packard offices, warehouse
Aitkin, MN 400 Sales office
North Andover, MA 400 Sales office
West Jefferson, OH 5,000 Warehouse, repair depot
Las Vegas, NV 850 Sales office
Fort Worth, TX 9,000 Sales office, warehouse, repair depot
</TABLE>
(1) Hewlett-Packard owns this facility. Hewlett-Packard is currently
constructing a new 150,000 square foot facility in Lincoln,
California, in the Sacramento area, 90,000 square feet of which will
be sublet to the Company to perform the Hewlett-Packard work, as well
as work from others if the Company so chooses. The Company expects to
move into the new facility by the end of 1996.
The Company believes that its properties are generally well-maintained, in
good condition and adequate for its present needs. While the Company
anticipates that Amcom and Delta Parts will retain their respective
Minneapolis area facilities for the immediate future, it expects that there
will be some consolidation, which may entail a move to an entirely new
facility, subsequent to the closing of the Offering.
Litigation
During September 1996, Delta Parts was contacted by a former employee
seeking approximately $800,000 of compensation plus punitive damages for
wrongful termination. While the resolution of this matter could have a
significant impact on the Company's financial condition and results of
operations in a future reporting period, management believes the matter is
without merit and that the ultimate outcome will not have a significant
effect on the Company's financial position or liquidity.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition or results of
operations of the Company.
32
<PAGE>
MANAGEMENT
Directors and Executive Officers
Set forth below is certain information concerning each of the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David R. A. Steadman 59 Chairman of the Board of Directors
Del M. Johnson 56 Vice-Chairman & President--Amcom Division
Michael F. Cibulka 45 President & Chief Executive Officer, Director
Mark P. Duffy 41 Vice-President--Corporate Development, Director
Dana J. Pekas 33 Vice-President--Sales, Director
John T. Harnett Vice-President & Chief Financial Officer,
52 Treasurer
Timothy R. Balko 33 Vice-President--Major Accounts
Betsy J. Martin 53 Vice-President & Controller
Larry J. Stroup 48 Director
</TABLE>
The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below. The following
directors and executive officers were elected to their current positions with
the Company on September 27, 1996.
David R. A. Steadman has been a director of Delta Parts since 1993.
Currently, Mr. Steadman serves as the President of Atlantic Management
Associates, Inc., a management services firm, a position he has held since
1988. From 1990 to 1994, Mr. Steadman served as President and Chief Executive
Officer of Integra--A Hotel and Restaurant Company and from 1987 to 1988 as
Chairman and Chief Executive Officer of GCA Corporation, a manufacturer of
automated semiconductor capital equipment. From 1980 to 1987, Mr. Steadman
was a Vice President of Raytheon Company, a defense electronics manufacturer,
and served in various management positions, most recently as President of its
venture capital division. Mr. Steadman is Chairman of the Board of Directors
of Technology Service Group, Inc., a manufacturer of high technology pay
telephone components, and Wahlco Environmental Systems, Inc., an
environmental equipment and services company. Mr. Steadman is also a director
of Aavid Thermal Technologies, Inc., a manufacturer of thermal management
products and a producer of computational fluid dynamics software; Kurzweil
Applied Intelligence, Inc., a voice recognition software company; and
Vitronics Corporation, a manufacturer of reflow soldering ovens.
Del M. Johnson is the co-founder of Amcom and has served as its Chairman
and President since its inception in 1983. From 1981 to 1983, Mr. Johnson
served as Equipment Leasing Officer at Security Pacific Bank Corporation, and
from 1974 to 1981, he served as Assistant Vice President at Citicorp
Industrial Credit. From 1964 to 1974, Mr. Johnson worked as a District
Dealership Manager for the Buick Division of General Motors Corporation.
Michael F. Cibulka is a co-founder of Delta Parts and has served as its
Chairman, President and Chief Executive Officer since its inception in August
1993. From 1988 to 1993, Mr. Cibulka served as Senior Vice President of
Dataserv, Inc., a Bell South technology parts, repair and service subsidiary,
as the Manager of the Parts Division. In addition, Mr. Cibulka was elected to
Dataserv, Inc.'s Board of Directors in 1990. From 1973 to 1979, Mr. Cibulka
worked with Xerox Corporation, where he held various sales and management
positions. Mr. Cibulka is a brother-in-law of Mr. Duffy.
Mark P. Duffy is a co-founder of Delta Parts and has served as a Director,
Vice President and Chief Operating Officer from its inception. From 1986 to
1993, Mr. Duffy was Treasurer of ATV Capital
33
<PAGE>
Management, Inc., a venture capital firm. From 1980 to 1982, Mr. Duffy was
with Coopers & Lybrand L.L.P. and from 1982 to 1986 with Arthur Young &
Company. Mr Duffy is a brother-in-law of Mr. Cibulka.
Dana J. Pekas joined Amcom in 1985, with responsibility for initiating and
developing Amcom's point of sale business. In 1993, Mr. Pekas was appointed
to his current position as Vice President--Sales and Marketing. In that
position, Mr. Pekas develops marketing and sales strategies and manages sales
staff at Amcom headquarters and its six distribution and sales centers. Mr.
Pekas is the brother of Jordan Pekas.
John T. Harnett joined Delta Parts as Vice President and Chief Financial
Officer in 1996. From 1991 until he joined the Company, Mr. Harnett was an
independent management consultant, specializing in strategic planning and
financial consulting. During this period, Mr. Harnett also developed a linear
programming based scheduling software application for businesses. From 1987
to 1991, he was with Dataserv, Inc., most recently as Senior Vice President
for Strategic and Operations Planning. From 1974 to 1987, Mr. Harnett was
with the Customer Service Division of TRW, Inc., most recently as Director of
Planning & Development with responsibility for acquisitions of equipment
service businesses.
Timothy R. Balko joined Amcom in 1986 to establish a component level
repair and parts department. From 1987 to 1993, Mr. Balko served as a sales
representative for major accounts and was responsible for inventory
management and technical personnel. In 1993, Mr. Balko was appointed Vice
President--Major Accounts in which capacity he co-manages, with Mr. Pekas,
the development of marketing and sales strategies. From 1984 to 1986, Mr.
Balko served as a technician for product rework at Sperry Univac.
Betsy J. Martin joined Amcom in 1983 to develop Amcom's accounting,
payroll, inventory and receivables processes and departments. In 1987, Ms.
Martin was appointed Secretary and Vice President--Accounting and
Administration. In 1989, Ms. Martin was elected to the Board of Directors of
Amcom. From 1963 to 1983, Ms. Martin held a variety of positions at General
Electric, including Operations Manager and Credit Manager.
Larry J. Stroup has been a director of Delta Parts since January 1995.
Since 1981, Mr. Stroup has been associated with Katun Corporation, a
technology parts and repair company specializing in office copying and
imaging equipment and since 1988, he has been Katun's Executive Vice
President and Chief Operating Officer. Prior to joining Katun, Mr. Stroup
held several positions with Xerox Corporation.
Other Significant Employees
Andrea J. Lindblad joined Delta Parts in 1993 as Director of
Administration. Ms. Lindblad currently holds the position of Vice President
of Information Systems and Administration. From 1985 to 1993, Ms. Lindblad
was employed by Dataserv, Inc. in the Technology Support Services Division,
where she became the company's Inventory Control Manager.
Joel Lindquist has been Vice President of Operations of Delta Parts since
1994, when Delta Parts acquired Lindquist Computer Services, Inc., a
technology services company specializing in parts sales, repair and
refurbishment of ATM and POS related equipment, which Mr. Lindquist founded
in 1988. From 1986 to 1988, Mr. Lindquist was Manager of the POS Installation
Team at Dataserv, Inc. From 1981 to 1986, Mr. Lindquist worked for a
nationwide technical services company as Director of Operations.
Jordan Pekas joined Amcom in 1991, as a sales representative and has
served as Eastern Regional Sales Manager of Amcom since 1993. From 1989 to
1991, Mr. Pekas was employed by Union Carbide Corporation as Regional Sales
Specialist for the Mid-Atlantic and New England states. Mr. Pekas is the
brother of Dana J. Pekas.
Robert K. Spinner joined Amcom in 1989 as a sales and marketing
representative to further expand point of sale system sales in the restaurant
and retail markets. Mr. Spinner currently serves as Director of POS Sales.
From 1987 to 1989, Mr. Spinner served as a sales representative for Johnson
Equipment Company, a restaurant equipment reseller.
The Company's directors will hold office until the first Annual Meeting of
Stockholders and until their successors are elected and qualified.
Thereafter, directors will be elected to one-year terms. The Company's
34
<PAGE>
Board of Directors will establish an Audit Committee, a Compensation
Committee, a Stock Plans Committee and an Executive Committee. The members of
each committee are expected to be determined at the first meeting of the
Board of Directors following the consummation of the Offering. The members of
the Audit, Stock Plans and Compensation Committees will be non-employee
directors. All officers serve at the discretion of the Board of Directors,
although some of them have entered into employment agreements with the
Company. See "--Employment Agreements."
Directors' Compensation
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee
of the Company will receive an annual fee of $5,000, as well as an additional
fee of $500 for each day or part thereof spent in attendance at Board or
committee meetings. No fee is paid for meetings held by telephone conference
call. Each non-employee director serving on the Board on June 1, 1997, will
receive a non-statutory stock option to purchase 3,000 shares of Common
Stock, and on each June 1 thereafter if he or she is still serving as a
non-employee director on that date. Any director elected to the Board after
June 1, 1997, will receive a non-statutory stock option to purchase 3,000
shares of Common Stock on the date of election and on each anniversary
thereof, so long as he or she remains a non-employee director. See "--1996
Non-Employee Director Stock Option Plan." As Chairman of the Board of
Directors, in lieu of the quarterly and meeting fees, Mr. Steadman is paid a
fee of $3,000 per month and has been granted a ten-year stock option to
purchase 25,000 shares of the Company's Common Stock, exercisable at $6.75
per share in two equal annual installments on the first and second
anniversary of the grant date. All directors of the Company are reimbursed
for out-of-pocket expenses incurred in carrying out their responsibilities as
directors.
Executive Compensation
The Company was incorporated in April 1996 and has not conducted any
operations prior to the Offering; however, the Company anticipates that
during fiscal 1996, annualized base salaries of the Chief Executive Officer
and the five other most highly compensated officers will be as follows: Mr.
Cibulka at $200,000; Mr. Johnson at $185,000; Mr. Pekas at $160,000; Mr.
Duffy at $150,000; Mr. Balko at $110,000, and Mr. Harnett at $110,000
(collectively, the "named executive officers").
Option Grants In Last Fiscal Year
On September 27, 1996, ten-year non-statutory stock options covering, in
the aggregate, 924,892 shares of Common Stock were granted. These options are
currently exercisable and expire on September 27, 2006. None of the options
had been exercised as of the date of this Prospectus. The following table
sets forth certain information with respect to options granted by the Company
to the named executive officers in the last fiscal year.
<TABLE>
<CAPTION>
Potential Realizable Value
at
Percent of Assumed Annual Rates of
Number of Total Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term (1)
Options Employees in Price Expiration ---------------------------
Name Granted Fiscal Year Per Share Date 5% 10%
------------------ ------------ --------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Del M. Johnson 148,543 16.9% $2.00 09/27/06 $1,227,267 $2,130,192
Dana J. Pekas 377,024 42.8 2.00 09/27/06 3,114,985 5,406,741
Timothy R. Balko 169,155 19.2 2.00 09/27/06 1,397,564 2,425,780
</TABLE>
(1) The potential realizable value is calculated based on the term of the
option (ten years) at its date of grant. It is calculated by assuming
that the per share market value on the date of grant (estimated at $6.75)
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option shares can be sold on the
last day of its term for the appreciated stock price.
35
<PAGE>
Employment Agreements
Each of Messrs. Cibulka, Johnson, Duffy, Pekas, Balko and Harnett have
entered into employment agreements with the Company. The agreements provide
for a minimum annual base salary payable to each officer for the three-year
term of the agreement (see "Executive Compensation") and in the case of Mr.
Pekas, an annual incentive bonus based on sales not to exceed $100,000
annually; participation in all benefit plans generally made available to
senior officers of the Company; life insurance, at Company expense, in an
amount at least equal to one year's salary; and indemnity to the fullest
extent permitted by the Company's Certificate of Incorporation, By-laws and
the laws of the State of Delaware. In the event of termination of employment
of an officer without cause, under the terms of the employment agreement, the
officer is entitled to a continuation of salary and benefits until the end of
the three-year agreement term, but in any event for no less than twelve
months; and in the event of termination of employment of an officer as a
result of permanent disability, the employment agreements provide for the
continuation of salary and benefits to such officer for a period of twelve
months. The agreements also provide that the officer shall not compete with
the Company or solicit the Company's employees or customers during his
employment and for a period of one year after termination of employment or
during the period of salary continuation, whichever is longer.
Pursuant to their employment agreements, Messrs. Johnson, Pekas and Balko
have also received (i) a one-time cash bonus in the form of the ExpressPoint
Notes, in the amounts of $390,600, $991,400 and $444,800, respectively; and
(ii) a ten-year, immediately exercisable stock option to purchase shares of
the Company's Common Stock at $2.00 per share, for 148,543 shares, 377,024
shares and 169,155 shares, respectively.
Stock Option Plans
1996 Employee Stock Option Plan
The 1996 Employee Stock Option Plan (the "Plan") was adopted by the Board
of Directors and approved by stockholders of the Company on September 27,
1996. The purpose of the Plan is to provide directors, officers and key
employees and consultants with additional incentives by increasing their
ownership interests in the Company. The Plan provides for the issuance
pursuant to stock options of the greater of 700,000 shares or 15% of the
aggregate number of shares of the Company's Common Stock outstanding,
provided, however, that options to purchase no more than 600,000 shares of
Common Stock may be granted as incentive stock options ("ISOs"). The plan
provides for the grant of ISOs to employees and the grant of non-statutory
Stock Options ("NSOs") to employees, officers, directors, consultants and
advisors of the Company and its subsidiaries. Any employee of the Company or
of any subsidiary who is considered a key contributor to the overall success
of the consolidated enterprise is an eligible participant in the Plan. The
maximum number of shares with respect to which options may be granted under
the Plan to any one employee in any one year is 500,000 shares. Grants will
be made based on the recommendation of senior management and in the case of
executive officers, based on the recommendations of the Compensation
Committee.
The Plan is administered by the Stock Plans Committee of the Board of
Directors made up of non- employee directors (the "Committee"). Subject to
the provisions of the Plan itself, the Committee has the authority to select
the optionees and determine the terms of the options granted, including (i)
the number of shares, (ii) the term of the option (which may not exceed ten
years or five years in the case of an ISO granted to a 10% stockholder of the
Company), (iii) the exercise or purchase price (which in the case of an ISO
cannot be less than the fair market value of the Common Stock on the date of
grant or 110% if the employee is an owner of 10% or more of the total
combined voting power of all classes of stock of the Company), (iv) the type
and duration of any transfer or other restrictions and (v) the time and form
of payment for stock upon exercise of options. Options are not transferable
by the option holder except by will, by the laws of descent and distribution,
pursuant to a qualified domestic relations order or to immediate family
members. The Committee also determines the period, if any, during which the
option may continue beyond termination of employment, except that upon a
grantee's termination of employment for cause, all his or her options
terminate immediately. Generally, no incentive stock option may be
36
<PAGE>
exercised as such more than three months following termination of employment.
However, in the event that termination is due to death or disability, an
incentive stock option is exercisable as such for a maximum of one year after
such termination. The Plan will remain in effect until terminated by the
Board of Directors and may be amended by the Board of Directors without the
consent of the stockholders of the Company, except that any amendment,
although effective when made, will be subject to stockholder approval if
required by any federal or state law or regulation or by the rules of any
stock exchange or automated quotation system on which the Common Stock may
then be listed or quoted.
1996 Non-Employee Director Stock Option Plan
The 1996 Non-Employee Director Stock Option Plan (the "Director Plan")
was adopted by the Board of Directors and approved by stockholders of the
Company on September 27, 1996. The purpose of the Director Plan is to provide
a means of compensating directors who are not employees of the Company
("non-employee directors") to encourage stock ownership in the Company by
them, to retain existing non-employee directors, and to attract new
knowledgeable and experienced persons who, as non-employee directors, can
make a significant contribution to the success of the Company.
Up to 75,000 shares of Common Stock are authorized for issuance under the
Director Plan. There are currently two non-employee directors. The Director
Plan is administered by the Board of Directors.
Pursuant to the provisions of the Director Plan, each non-employee
director holding office on June 1, 1997 will be automatically granted a
non-statutory stock option to purchase 3,000 shares of Common Stock on that
date and on each anniversary of that date, provided that he or she is then
serving as a non-employee director, at an exercise price equal to the market
value of a share of Common Stock on the date of grant. Non-employee directors
elected to the Board after June 1, 1997 will automatically be granted an
option to purchase 3,000 shares of Common Stock at an exercise price equal to
the market value of a share of Common Stock on the date of election and on
each anniversary of that date so long as such director remains a non-employee
director.
All options become exercisable in two equal installments on the first and
second anniversary of the grant date. In the event of a "change in control"
of the Company (as defined in the Director Plan) the options become
exercisable in full. The options expire ten years from the date of grant or
one year after the non-employee director ceases to act in such capacity,
whichever occurs first, unless termination is for cause.
Options under the Director Plan may not be assigned or transferred except
by will, the laws of descent and distribution, a qualified domestic relations
order or to immediate family members. All options under the Director Plan
will be non-statutory options.
The 1996 Employee Stock Purchase Plan
The 1996 Employee Stock Purchase Plan was adopted by the Board of
Directors and approved by stockholders on September 27, 1996 (the "Purchase
Plan"). The purpose of the Purchase Plan is to enable employees to purchase
shares of the Company's Common Stock at a discount from the market price
through payroll deductions.
The Purchase Plan is not qualified under S.401 of the Internal Revenue
Code (the "Code") and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
The Purchase Plan currently provides for the issuance of a maximum of
150,000 shares of Common Stock, subject to appropriate adjustments to give
effect (a) to any mergers occurring at any time, and (b) to any
consolidations, reorganizations, recapitalization, stock splits, stock
dividends or other relevant changes in the capitalization of the Company. The
Purchase Plan, which is administered by the Board of Directors or a committee
appointed by the Board, is implemented by a series of "Offerings" that begin
on an "Offering Commencement Date" and end on an "Offering Termination Date"
as determined by the Board of Directors. During the period of an Offering,
payroll deductions authorized by a participant are accumulated, and on the
Offering Termination date, shares of the Company's stock are purchased for
the participant using his or her accumulated deductions unless the
participant has withdrawn from the Offering prior to
37
<PAGE>
that date. No Purchase Plan Offering will commence prior to the Offering of
stock hereunder and no Purchase Plan Offering may be longer than twenty-seven
months or commence after September 26, 2006.
Any full-time employee of the Company, Amcom, Delta Parts (and any other
subsidiaries if approved by the Board of Directors) who is customarily
employed for more than 20 hours per week and more than five months in each
calendar year is eligible to participate in an Offering. An employee who
becomes eligible to participate in the Purchase Plan after an Offering has
commenced must wait until the commencement of the next Offering to
participate. A Participant's rights under the Purchase Plan and an Offering
are not assignable or transferable by a participant and are exercisable only
by the participant. Participation in the Purchase Plan is entirely voluntary.
The purchase price of the shares is the lower of 85% of the market value
of the Common Stock on the Offering Commencement Date, or 85% of the market
value on the Offering Termination Date. Market value is currently determined
as the last reported sale price of the Common Stock on the Nasdaq National
Market for the date in question.
Indemnification of Directors and Officers
Section 145 ("Section 145") of the Delaware General Corporation Law
provides a detailed statutory framework covering indemnification of directors
and officers against liabilities and expenses arising out of legal
proceedings brought against them by reason of their status or service as
directors or officers. The Company's By-Laws and Certificate of Incorporation
provides for indemnification of directors and officers to the fullest extent
permitted by Section 145. Section 145 generally provides that a director or
officer of a corporation (i) shall be indemnified by the corporation for all
expenses of such legal proceedings when he or she is successful on the
merits, (ii) may be indemnified by the corporation for the expenses,
judgments, fines and amounts paid in settlement of such proceedings (other
than a derivative suit), even if he or she is not successful on the merits,
if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation
(and, in the case of a criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful) and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a stockholder
alleging a breach by a director or officer of a duty owed to the
corporation), even if he or she is not successful on the merits, if he or she
acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation. No indemnification
may be made under clause (iii) above, however, if the Director or officer is
adjudged liable for negligence or misconduct in the performance of his or her
duties to the corporation, unless a court determines that, despite such
adjudication, but in view of all of the circumstances, he or she is entitled
to indemnification. The indemnification described in clauses (ii) and (iii)
above may be made only upon a determination that indemnification is proper
because the applicable standard has been met. Such a determination may be
made by a majority of a quorum of disinterested Directors, independent legal
counsel, the stockholders or a court of competent jurisdiction. The Board of
Directors may authorize advancing litigation expenses to a director or
officer upon receipt of an undertaking by such Director or officer to repay
such expenses if it is ultimately determined that he or she is not entitled
to be indemnified for them. In this connection, the Company intends to
maintain liability insurance for the benefit of the Company and its directors
and officers.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the
transactions described under "Organization" by (i) all persons known to the
Company to be the beneficial owner of 5% or more of the Common Stock, (ii)
each director and person who is or will become a director upon consummation
of the Offering, (iii) each named executive officer and (iv) all executive
officers and such directors as a group. None of the foregoing persons owned
shares of Common Stock prior to the Offering and the Acquisition except to
the extent they are deemed under applicable law to be the beneficial owners
of stock that they may purchase under stock options. The address of Messrs.
Johnson, Pekas and Balko is 6205 Bury Drive, Eden Prairie, Minnesota 55346,
and the address of Messrs. Steadman, Cibulka, Duffy, Stroup and Harnett is
11401 Rupp Drive, Burnsville, Minnesota 55337. All persons listed below have
sole voting and investment power with respect to their shares unless
otherwise indicated.
In the event the Underwriters exercise their over-allotment option to
purchase up to 300,000 shares of Common Stock, the Underwriters will purchase
the first 100,000 of such shares from Messrs. Cibulka (75,000 shares) and
Duffy (25,000 shares). The Company will receive no proceeds from the sale of
shares by the Selling Stockholders.
<TABLE>
<CAPTION>
Percentage of
Amount and Outstanding Shares Owned (1)
Nature of -----------------------------
Beneficial Before After
Name Ownership Offering Offering
- ---- ------------ -------------- --------------
<S> <C> <C> <C>
David R. A. Steadman (2) 111,091 4.2% 2.4%
Del M. Johnson (3) 410,831 15.0 8.7
Michael F. Cibulka (4) 799,460 30.7 17.4
Mark P. Duffy (5) 230,000 8.9 5.0
Dana J. Pekas (6) 497,095 16.8 10.0
Larry J. Stroup (7) 10,000 * *
Timothy R. Balko (8) 243,246 8.8 5.1
John T. Harnett (7) 20,000 * *
All directors and executive officers as a group (9 Persons) (9) 2,514,946 71.8% 45.7%
</TABLE>
* Less than 1%
(1) Based on 4,584,249 shares outstanding, assuming that the Underwriters'
over-allotment option is not exercised. If the Underwriters'
over-allotment option is exercised, the percentages shown will decrease.
(2) Includes 10,000 shares that may be acquired under a currently exercisable
Delta Parts stock option; 70,762 shares that may be acquired under Delta
Parts warrants to purchase Company Common Stock at prices ranging from
$0.7092 to $3.50 per share.
(3) Includes 148,543 shares that may be acquired under a currently
exercisable stock option.
(4) Includes 20,860 shares that may be acquired under Delta Parts warrants to
purchase Company Common Stock at prices ranging from $0.75 to $3.50 per
share. If the Underwriters' over-allotment option is exercised with
respect to at least 100,000 shares, Mr. Cibulka will sell 75,000 shares
and will beneficially own 724,460 shares of Common Stock, which
represents 15.7% of the total ownership interest after the Offering.
(5) If the Underwriters' over-allotment option is exercised with respect to
at least 100,000 shares, Mr. Duffy will sell 25,000 shares and will
beneficially own 205,000 shares of Common Stock, which represents 4.5% of
the total ownership interest after the Offering.
(6) Includes 377,024 shares that may be acquired under a currently
exercisable stock option.
(7) These are shares that may be acquired under a currently exercisable Delta
Parts stock option.
(8) Includes 169,155 shares that may be acquired under a currently
exercisable stock option.
(9) Includes 828,622 shares that may be acquired under currently exercisable
stock options at prices ranging from $2.00 to $3.50 per share; 91,622
shares that may be acquired under Delta Parts warrants to purchase
Company Common Stock at prices ranging from $0.7092 to $3.50 per share.
39
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, par value $0.01 per share. After giving effect to the
Acquisition as if consummated prior to the consummation of the Offering, the
Company would have 2,584,249 shares of Common Stock outstanding. Upon
consummation of the Offering, the Company will have 4,584,249 shares of
Common Stock outstanding (4,784,249 shares if the Underwriters'
over-allotment option is exercised in full).
Common Stock
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors, and
there is no cumulative voting. The holders of the Common Stock are also
entitled to such dividends as may be declared in the discretion of the Board
of Directors out of funds legally available therefor. See "Dividend Policy."
Holders of Common Stock are entitled to share ratably in the net assets of
the Company upon liquidation after payment or provision for all liabilities.
The holders of Common Stock have no preemptive rights to purchase shares of
stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of
the Company. All outstanding shares of Common Stock are, and the shares of
Common Stock to be issued pursuant to the Offering will be upon payment
therefor, fully paid and non-assessable.
Warrants
As of June 30, 1996, the Company had warrants outstanding exercisable for
an aggregate of 95,188 shares of Common Stock at an exercise price of $0.7092
per share, which expire September 1, 1998; 62,000 shares of Common Stock at
an exercise price of $0.75 per share, which expire April 13, 2004; 37,880
shares of Common Stock at an exercise price of $3.50 per share, which expire
December 1, 2005; 22,858 shares of Common Stock at an exercise price of $3.50
per share, which expire March 31, 2001; and 5,000 shares of Common Stock at
an exercise price of $5.00 per share, which expire July 1, 1999. All
agreements embodying such outstanding warrants provide for anti-dilution
adjustments in the event of certain mergers, consolidations, reorganizations,
recapitalization, stock dividends, stock splits or other changes in the
corporate structure of the Company.
Statutory Business Combination Provision
Upon consummation of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person or an affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless (i) the transaction resulting
in a person becoming an interested stockholder, or the business combination,
is approved by the Board of Directors of the corporation before the person
becomes an interested stockholder, (ii) the interested stockholder acquired
85% or more of the outstanding voting stock of the corporation in the same
transaction that makes such person an interested stockholder (excluding
shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans) or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and
by the holders of at least 66-2/3% of the corporation's outstanding voting
stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person
is an interested stockholder.
40
<PAGE>
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action
of its stockholders, to exempt itself from coverage, provided that such bylaw
or certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is
.
CERTAIN TRANSACTIONS
Organization of the Company
In connection with the Acquisition, and as consideration for their
interests (including options and warrants to purchase common stock) in the
Founding Companies, Directors, Executive Officers and holders of 5% or more
of the outstanding shares of Common Stock will receive cash, shares of Common
Stock, stock options or replacement stock options to purchase shares of
Common Stock of the Company and replacement warrants to purchase Common
Stock.
In addition, in connection with the Acquisition, the Company is obligated,
on a best efforts basis, to obtain the release of personal guarantees of Mr.
Cibulka and Mr. Duffy for approximately $906,000 of Delta Parts indebtedness.
If such release cannot be obtained or if the indebtedness cannot otherwise be
re-financed, the Company, as required under the terms of the Acquisition,
will use proceeds from the Offering to repay such indebtedness.
Options to Purchase Common Stock
Certain investors in Delta Parts, including Messrs. Steadman and Stroup,
directors of the Company, are holders of warrants and options to purchase
common stock in connection with their investment in, and services provided
to, Delta Parts. In connection with the Acquisition, the warrants will be
exchanged for warrants to purchase Common Stock of the Company; the stock
options will be replaced by stock options to purchase the Common Stock of the
Company in each case in the same ratio as shares of Delta Parts common stock
are exchanged for Common Stock of the Company. See "Organization."
Certain Loans to Management
Provided the underwriters' over-allotment option is exercised with respect
to the Selling Stockholder shares, Mr. Cibulka will re-pay a loan made to him
by Delta Parts in the amount of $60,000 and Mr. Duffy will re-pay a loan made
to him by Delta Parts in the amount of $30,000. The total principal amount of
these loans outstanding at June 30, 1996 was $44,803.
Policy on Transactions with Affiliates
Any transactions with affiliates of the Company will be approved by a
majority of the Board of Directors, including a majority of the disinterested
members of the Board of Directors, and will be made on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering and the Acquisition, the Company will
have outstanding 4,584,249 shares of Common Stock; warrants to purchase
222,926 of Common Stock at prices ranging from $0.7092 to $5.00 per share
(the "Warrant Shares"); and employee stock options to purchase 1,462,350
shares of Common Stock at exercise prices ranging from $0.01 to $6.25 per
share (the "Option Shares"). The 2,000,000 shares sold in the Offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely tradable without restriction unless held by affiliates
of the Company. The remaining 2,584,249 outstanding shares of Common Stock,
the Warrant Shares or the Option Shares have not been registered under the
Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder. Of the unregistered securities, the Company
intends to register for resale 722,147 shares of Common Stock held by the
Amcom ESOP for Amcom employees. Pursuant to the terms of the Acquisition, the
Amcom ESOP will be terminated on the closing of the Acquisition but, except
as required by law, no shares will be distributed to the ESOP participants
until a favorable determination with regard to the qualified status of the
Amcom ESOP is obtained from the Internal Revenue Service. It is expected that
such determination will not be received until five to nine months subsequent
to such termination.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from the Company or any affiliate of the Company, the
acquiror or subsequent holder of the shares may sell, within any three-month
period commencing 90 days after the date of this Prospectus, a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of the Common Stock (approximately 4,584,249 shares immediately after the
Offering), or the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the proposed sale is sent to the Commission. Sales under Rule
144 are also subject to certain provisions relating to the manner of sale,
notice requirements and the availability of current public information about
the Company. A person who is not deemed to have been an affiliate of the
Company at any time for 90 days preceding a sale and who has beneficially
owned his shares for at least three years could be entitled to sell such
shares under Rule 144 without regard to the volume limitations, manner of
sale provisions or notice requirements.
The Company has agreed not to offer or sell any shares of Common Stock for
a period of 180 days (the "Lock-up Period") following the date of this
Prospectus without the prior written consent of Rodman & Renshaw, Inc.,
except that the Company may issue Common Stock in connection with
acquisitions or upon the exercise of options.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale
of shares or the availability of shares for sale will have on the market
price prevailing from time to time after the Offering. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices and the ability of the Company to raise
equity capital in the future.
42
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Rodman &
Renshaw, Inc. and (the
"Representatives"), have severally agreed, subject to the terms and
conditions in the underwriting agreement (the "Underwriting Agreement") by
and among the Company and the Underwriters, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the
shares of Common Stock if they purchase any.
Underwriter Number of Shares
-------------------------------- -------------------
Rodman & Renshaw, Inc.
Total 2,000,000
===================
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not
more that $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company and the Selling Stockholders have granted to the Underwriters
an over-allotment option, exercisable for 30 days from the date of this
Prospectus, to purchase up to a maximum of 300,000 additional shares of
Common Stock to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. The first 100,000
shares for which the Underwriters have an over-allotment option will be sold
by the Selling Stockholders and the remaining 200,000 shares will be sold by
the Company. To the extent the Underwriters exercise such over-allotment
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise
this over-allotment option only to cover over-allotments made in connection
with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders, as the case may be, will indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
will contribute to payments the Underwriters may be required to make in
respect thereof.
The Company, its officers, directors and certain stockholders have agreed
not to sell any shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of Rodman & Renshaw,
Inc., except for (i) the shares of Common Stock offered hereby, (ii) shares
of Common Stock issued in connection with acquisitions or (iii) shares of
Common Stock issued upon the exercise of outstanding stock options.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial offering price was determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the history of and prospects for the
Company and the industry in which it operates, an assessment of the Company's
management, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of securities markets at the
time of the Offering and the market price of publicly traded stock of
comparable companies in recent periods.
In October 1995, Delta Parts entered into an agreement with Kramer Capital
Management, Inc. ("KCM"), to retain KCM's financial consulting services (as
amended, the "KCM Agreement"). By September 6, 1996, KCM had rendered
substantially all services
43
<PAGE>
contemplated by the KCM Agreement, and the KCM Agreement was amended and
assigned to the Company (the "Amended KCM Agreement"). Pursuant to the terms
of the Amended KCM Agreement, KCM earned fees in the amount of $850,000 for
services rendered in connection with the Acquisition (the "Acquisition
Advisory Fee"). In partial payment of the Acquisition Advisory Fee, the
Company issued on September 30, 1996, a one-year promissory note to KCM in
the amount of $500,000. The Company agreed to pay the remaining $350,000 of
the Acquisition Advisory Fee immediately following consummation of the
Offering, but in any event on or before March 31, 1997. In addition, the
Company agreed to pay KCM the amount of $150,000 upon closing of the Offering
in payment of services rendered by KCM in connection therewith.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Leonard, Street and Deinard
Professional Association, Minneapolis, Minnesota. Certain legal matters in
connection with the sale of the Common Stock offered hereby will be passed
upon for the Underwriters by Squadron, Ellenoff, Plesent & Sheinfeld, LLP,
New York, New York.
EXPERTS
The balance sheet as of June 30, 1996 of ExpressPoint Technology Services,
Inc. and the related statements of stockholder's equity and cash flows for
the period from inception (April 23, 1996) to June 30, 1996, the balance
sheets of Amcom Corporation as of May 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended May 31, 1996, the balance sheets of Delta
Parts, Inc. as of December 31, 1994 and 1995, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
inception (August 9, 1993) through December 31, 1993 and for the years ended
December 31, 1994 and 1995, and the balance sheets of Lindquist Computer
Services, Inc. as of December 31, 1993 and August 31, 1994 and the related
statements of operations, stockholder's equity and cash flows for the year
ended December 31, 1993, and for the eight-month period ended August 31,
1994, included in this prospectus, have been included herein in reliance on
the reports of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., (the "Commission") a Registration Statement on Form S-l
with respect to the shares of Common Stock offered hereby. This Prospectus,
filed as a part of the Registration Statement, does not contain all the
information contained in the Registration Statement (and the exhibits and
schedules thereto), certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information
pertaining to the Company and the shares of Common Stock offered hereby,
reference is made to such Registration Statement, including the exhibits,
financial statements and schedules filed therewith. Statements contained in
this Prospectus as to the contents of any contract or any other document are
not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza Building, 450
Fifth Street, N.W., Washington, D.C. 20549 and its regional offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, information regarding the Company is
also available at the Commission's Web site (http://www.sec.gov).
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent auditors and quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation F-2
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996 F-3
Unaudited Pro Forma Combined Statements of Operations for the year ended December 31,
1995 F-4
Unaudited Pro Forma Combined Statements of Operations for the six-month period ended
June 30, 1995 F-5
Unaudited Pro Forma Combined Statements of Operations for the six-month period ended
June 30, 1996 F-6
Notes to Unaudited Pro Forma Combined Financial Statements F-7
Historical Financial Statements
Report of Independent Accountants F-10
Balance Sheet as of June 30, 1996 F-11
Statement of Stockholder's Equity for the period from inception (April 23, 1996) through
June 30, 1996 F-12
Statement of Cash Flows for the period from inception (April 23, 1996) through June 30,
1996 F-13
Notes to Financial Statements F-14
AMCOM CORPORATION
Report of Independent Accountants F-15
Balance Sheets as of May 31, 1995 and 1996 and as of June 30, 1996 F-16
Statements of Operations for the years ended May 31, 1994, 1995 and 1996 and for the
one-month periods ended June 30, 1995 and 1996 F-17
Statements of Stockholders' Equity for the years ended May 31, 1994, 1995 and 1996 and
for the one-month periods ended June 30, 1995 and 1996 F-18
Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996 and for the
one-month periods ended June 30, 1995 and 1996 F-19
Notes to Financial Statements F-20
DELTA PARTS, INC.
Report of Independent Accountants F-27
Balance Sheets as of December 31, 1994 and 1995 and as of June 30, 1996 F-28
Statements of Operations for the period from inception (August 9, 1993) through December
31, 1993, the years ended December 31, 1994 and 1995 and the six-month periods ended
June 30, 1995 and 1996 F-29
Statements of Stockholders' Equity for the period from inception (August 9, 1993)
through December 31, 1993, the years ended December 31, 1994 and 1995 and the six-month
periods ended June 30, 1995 and 1996 F-30
Statements of Cash Flows for the period from inception (August 9, 1993) through December
31, 1993, the years ended December 31, 1994 and 1995 and the six-month periods ended
June 30, 1995 and 1996 F-31
Notes to Financial Statements F-32
LINDQUIST COMPUTER SERVICES, INC.
Report of Independent Accountants F-41
Balance Sheets as of December 31, 1993 and August 31, 1994 F-42
Statements of Operations for the year ended December 31, 1993 and the eight-month period
ended August 31, 1994 F-43
Statements of Stockholder's Equity for the year ended December 31, 1993 and the
eight-month period ended August 31, 1994 F-44
Statements of Cash Flows for the year ended December 31, 1993 and the eight-month period
ended August 31, 1994 F-45
Notes to Financial Statements F-46
</TABLE>
F-1
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The following unaudited pro forma combined financial statements give effect
to the acquisition by ExpressPoint Technology Services, Inc. (ExpressPoint)
of all the common stock of Amcom Corporation (Amcom) and Delta Parts, Inc.
(Delta Parts). Amcom and Delta Parts are hereafter collectively referred to
as the Founding Companies. This acquisition (the Acquisition) will occur
simultaneously with, and as a condition to, the closing of ExpressPoint's
initial public offering (the Offering) and will be accounted for using the
purchase method of accounting. The unaudited pro forma combined financial
statements also give effect to the issuance of Common Stock, which will be
issued by ExpressPoint to the Founding Companies upon the effectiveness of
the Offering. These statements are based on historical financial statements
of ExpressPoint and the Founding Companies included elsewhere in the
registration statement and the estimates and assumptions set forth below and
in the notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the
Acquisition as if it occurred on June 30, 1996. The unaudited pro forma
combined statements of operations give effect to the Acquisition as if it
occurred on January 1, 1995.
The pro forma adjustments are based on preliminary estimates, currently
available information and certain assumptions that management deems
appropriate. In management's opinion, the preliminary estimates regarding
allocation of the purchase price of the Founding Companies are not expected
to materially differ from the final adjustments. These adjustments will be
finalized after the Closing of the Acquisition. The unaudited pro forma
combined financial statements presented herein are not necessarily indicative
of the results ExpressPoint would have obtained had such events occurred at
the beginning of the period, as assumed, or of the future results of
ExpressPoint. The unaudited pro forma combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this registration statement.
F-2
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
as of June 30, 1996
<TABLE>
<CAPTION>
Founding Companies
-------------------------
ExpressPoint
Technology
Services, Amcom Delta Parts, Pro Forma Combined
Inc. Corporation Inc. Combined Adjustments Pro Forma
----------- ------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash $100 $ 276,558 $ 20,054 $ 296,712 $ $ 296,712
Accounts receivable,
net 4,946,956 1,120,052 6,067,008 6,067,008
Inventories 2,846,979 747,674 3,594,653 3,594,653
Other current assets 64,526 158,976 223,502 223,502
----------- ------------ ------------ ---------- ----------- ------------
Total current assets 100 8,135,019 2,046,756 10,181,875 10,181,875
Property and equipment,
net 397,145 396,028 793,173 793,173
Goodwill 80,666 80,666 10,796,648(a) 10,877,314
Other assets 208,654 41,941 250,595 250,595
----------- ------------ ------------ ---------- ----------- ------------
Total assets $100 $8,740,818 $2,565,391 $11,306,309 $10,796,648 $22,102,957
=========== ============ ============ ========== =========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Revolving credit
agreement, bank 437,956 437,956 437,956
Bank line of credit 600,000 600,000 600,000
Current maturity of
long-term debt 27,600 78,546 106,146 106,146
Accounts payable 1,428,056 578,199 2,006,255 2,006,255
Accrued compensation 378,218 131,161 509,379 509,379
Accrued expenses 125,968 100,824 226,792 (11,674)(c) 215,118
Other current
liabilities 189,088 189,088 189,088
------------ ------------ ---------- ----------- ------------
Total current
liabilities 2,748,930 1,326,686 4,075,616 (11,674) 4,063,942
------------ ------------ ---------- ----------- ------------
Long-term debt, net of
current 46,713 748,339 795,052 (359,200)(c) 435,852
Commitments
Common stock held by ESOP
subject to repurchase
obligation 3,882,976 3,882,976 (3,882,976)(b)
Common stock held by
shareholders subject to
put option 301,469 301,469 (301,469)(b)
Stockholders' equity:
Common stock $.01 par
value, 15,000,000
shares authorized,
2,584,249 combined
pro forma shares
issued and
outstanding 1 221,945 13,458 235,404 (209,562)(a)(b)(c) 25,842
Additional paid-in
capital 99 892,660 892,759 11,479,393(a)(b)(c) 12,372,152
Loans to stockholders (44,803) (44,803) (44,803)
Retained earnings 1,538,785 (370,949) 1,167,836 4,082,136(b)(c) 5,249,972
----------- ------------ ------------ ---------- ----------- ------------
Total stockholders'
equity 100 1,760,730 490,366 2,251,196 15,351,967 17,603,163
----------- ------------ ------------ ---------- ----------- ------------
Total liabilities
and stockholders'
equity $100 $8,740,818 $2,565,391 $11,306,309 $10,796,648 $22,102,957
=========== ============ ============ ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-3
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<CAPTION>
Founding Companies
-----------------------------
Amcom Delta Parts, Pro Forma Combined
Corporation Inc. Combined Adjustments Pro Forma
-------------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $22,769,585 $4,257,251 $27,026,836 $27,026,836
Cost of sales 12,720,000 2,817,678 15,537,678 15,537,678
-------------- -------------- -------------- ----------- --------------
Gross profit 10,049,585 1,439,573 11,489,158 11,489,158
Operating expenses:
Selling, general and
administrative 8,508,808 1,640,143 10,148,951 $(1,030,202)(e)(f)(g) 9,118,749
Goodwill amortization 2,432 2,432 366,509(d) 368,941
-------------- -------------- -------------- ----------- --------------
Operating income (loss) 1,540,777 (203,002) 1,337,775 663,693 2,001,468
Nonoperating expenses:
Interest expense, net 47,468 160,449 207,917 (28,420)(i) 179,497
Other expense 680 680 680
-------------- -------------- -------------- ----------- --------------
Pro forma income (loss)
before taxes 1,492,629 (363,451) 1,129,178 692,113 1,821,291
Pro forma income tax
provision (benefit) 513,668 (2,000) 511,668 180,423(h) 692,091
-------------- -------------- -------------- ----------- --------------
Pro forma net income (loss) $ 978,961 $ (361,451) $ 617,510 $ 511,690 1,129,200
============== ============== ============== =========== ==============
Pro forma net income per
share $ .30
==============
Shares used in computing
pro forma net income
per share 3,706,960(j)
==============
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-4
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
for the six-month period ended June 30, 1995
<TABLE>
<CAPTION>
Founding Companies
-----------------------------
Amcom Delta Parts, Pro Forma Combined
Corporation Inc. Combined Adjustments Pro Forma
-------------- -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenues $9,537,924 $2,093,560 $11,631,484 $11,631,484
Cost of sales 5,425,935 1,377,222 6,803,157 6,803,157
-------------- -------------- ------------ ------------ --------------
Gross profit 4,111,989 716,338 4,828,327 4,828,327
Operating expenses:
Selling, general and
administrative 3,841,682 826,847 4,668,529 $(360,543)(e)(f)(g) 4,307,986
Goodwill amortization 1,216 1,216 183,254(d) 184,470
-------------- -------------- ------------ ------------ --------------
Operating income (loss) 270,307 (111,725) 158,582 177,289 335,871
Nonoperating expenses:
Interest expense, net 3,888 63,542 67,430 67,430
Other expense 181 181 181
-------------- -------------- ------------ ------------ --------------
Pro forma income (loss)
before taxes 266,238 (175,267) 90,971 177,289 268,260
Pro forma income tax
provision 97,646 97,646 4,293(h) 101,939
-------------- -------------- ------------ ------------ --------------
Pro forma net income
(loss) $ 168,592 $ (175,267) $ (6,675) $ 172,996 $ 166,321
============== ============== ============ ============ ==============
Pro forma net income per
share $ .04
==============
Shares used in computing
pro forma net income
per share 3,706,960(j)
==============
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-5
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
for the six-month period ended June 30, 1996
<TABLE>
<CAPTION>
Founding Companies
-----------------------------
Amcom Delta Parts, Pro Forma Combined
Corporation Inc. Combined Adjustments Pro Forma
-------------- -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenues $15,539,356 $3,040,596 $18,579,952 $18,579,952
Cost of sales 8,930,690 2,142,068 11,072,758 11,072,758
-------------- -------------- ------------ ------------ --------------
Gross profit 6,608,666 898,528 7,507,194 7,507,194
Operating expenses:
Selling, general and
administrative 5,377,376 784,434 6,161,810 $(755,835)(e)(f)(g) 5,405,975
Goodwill amortization 1,216 1,216 183,254(d) 184,470
-------------- -------------- ------------ ------------ --------------
Operating income 1,231,290 112,878 1,344,168 572,581 1,916,749
Nonoperating expenses:
Interest expense, net 59,436 66,338 125,774 (23,348)(i) 102,426
Other expense 509 509 509
-------------- -------------- ------------ ------------ --------------
Pro forma income before
taxes 1,171,345 46,540 1,217,885 595,929 1,813,814
Pro forma income tax
provision 450,717 450,717 238,532(h) 689,249
-------------- -------------- ------------ ------------ --------------
Pro forma net income $ 720,628 $ 46,540 $ 767,168 $ 357,397 $ 1,124,565
============== ============== ============ ============ ==============
Pro forma net income per
share $ .30
==============
Shares used in computing
pro forma net income
per share 3,706,960(j)
==============
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma combined financial statements.
F-6
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. ExpressPoint Technology Services, Inc. Background
ExpressPoint Technology Services, Inc. (ExpressPoint) was incorporated on
April 23, 1996 and had no operating activities prior to June 30, 1996.
Accordingly there are no historical statements of operations available
for ExpressPoint prior to June 30, 1996.
ExpressPoint was formed to create an international provider of computer
parts sourcing and service. ExpressPoint will acquire Amcom Corporation
(Amcom) and Delta Parts, Inc. (Delta Parts) simultaneously with the
consummation of an initial public offering (the Offering). Amcom and
Delta Parts are hereafter collectively referred to as the Founding
Companies.
2. Historical Financial Statements
The historical financial statements present the financial position and
results of operations for ExpressPoint and the Founding Companies and
were derived from the respective financial statements where indicated.
ExpressPoint and Delta Parts have a December 31 fiscal year end and Amcom
has a May 31 fiscal year end. However, for purposes of the Unaudited Pro
Forma Combined Financial Statements, the unaudited statements of
operations information for Amcom is derived from financial statements for
the year ended December 31, 1995 and the six-month periods ended June 30,
1995 and 1996. The audited historical financial statements of
ExpressPoint and the Founding Companies have been included elsewhere in
this prospectus in accordance with Securities and Exchange Commission
Staff Accounting Bulletin (SAB) No. 80.
3. Acquisition of Founding Companies
Simultaneously with, and as a condition to, the closing of the Offering,
ExpressPoint will acquire all of the common stock of the Founding
Companies (the Acquisition). The Acquisition will be accounted for using
the purchase method of accounting with Delta Parts treated as the
acquirer as determined in accordance with Securities and Exchange
Commission SAB No. 97. The total estimated purchase price is $16,741,823,
which consists of (i) $6,300,000 to be paid to the Amcom shareholders
upon the consummation of the Offering; (ii) $9,977,823 estimated fair
value of 1,108,647 shares of common stock at an estimated initial public
offering price of $9.00 per share; and (iii) acquisition transaction
costs of $464,000.
The estimated purchase price of $16,741,823 has been allocated to the net
assets of Amcom based upon their estimated fair values. Based upon
management's preliminary analysis, it is anticipated that the historical
carrying value of Amcom's assets and liabilities will approximate fair
value. The amount allocated to goodwill is $10,796,648. The Founding
Companies do have long-term client contracts, however client
relationships can be canceled by the client upon relatively short notice.
Management has not identified any other tangible or identifiable
intangible assets of Amcom to which a portion of the purchase price could
reasonably be allocated.
4. Unaudited Pro Forma Combined Balance Sheet Adjustments
(a) To record the excess of the purchase price paid for Amcom's common
stock of $16,741,823 over the fair value of the net assets of Amcom
at the time of the Acquisition of $5,945,175.
(b) To record the conversion of temporary equity into permanent equity to
reflect the effect of (i) the termination of all shareholder put
options; and (ii) the termination of the Amcom Employee Stock
Ownership (ESOP) together with the separate registration of these
shares which results in the termination of ESOP participant put
options.
(c) To record the conversion of certain convertible Delta Parts debt,
accrued interest and interest through maturity, to common stock.
F-7
<PAGE>
A summary of the unaudited pro forma combined balance sheets adjustments (a),
(b) and (c) is as follows:
<TABLE>
<CAPTION>
Debit (Credit)
-----------------------------------------------------------
Unaudited Pro Forma Combined Balance Sheets Adjustments
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet Accounts (a) (b) (c) Total
Goodwill $ 10,796,648 $10,796,648
Accrued expenses $ 11,674 11,674
Long term debt, net of current portion 359,200 359,200
Common stock held by ESOP subject to
repurchase obligation $ 3,882,976 3,882,976
Common stock held by shareholders subject to
put option 301,469 301,469
Common stock (100,327) 314,429 (4,540) 209,562
Additional paid-in capital (10,696,321) (333,645) (449,427) (11,479,393)
Retained earnings (4,165,229) 83,093 (4,082,136)
------------ ----------- --------- -----------
$ -- $ -- $ -- $ --
============ =========== ========= ===========
</TABLE>
5. Unaudited Pro Forma Combined Statements of Operating Adjustments
ExpressPoint is in the process of hiring other corporate staff in
addition to those of the Founding Companies. Also, certain corporate
expenses will be incurred in 1996 and thereafter related to operating as
a public company and in managing the Founding Companies, which heretofore
have operated as autonomous businesses. These additional expenses (which
will be significant) have not been reflected in the accompanying
unaudited pro forma combined statements of operations. The effect of the
additional expenses and related benefits is not currently estimable as
the Acquisition has not been consummated and the expected synergies of
combining the Founding Companies are not specifically quantifiable at
this time.
(d) To reflect amortization expense for the goodwill recorded in
connection with the Acquisition of the Founding Companies. The
goodwill is being amortized on a straight-line basis over an
estimated life of 35 years.
(e) To reflect adjustments to compensation expense of the officers of the
Founding Companies based upon employment agreements entered into in
September 1996, in contemplation of the Acquisition. Amount of
adjustment was $736,432, $208,574 and $487,396 for the year ended
December 31, 1995, the six-month period ended June 30, 1995 and the
six-month period ended June 30, 1996, respectively.
(f) To eliminate compensation expense associated with Amcom's
contributions to an Employee Stock Ownership Plan (the Amcom ESOP)
which will be terminated in connection with the Acquisition. Amount
of adjustment was $423,770, $281,969 and $268,439 for the year ended
December 31, 1995, the six-month period ended June 30, 1995 and the
six-month period ended June 30, 1996, respectively.
(g) To reflect an excise tax liability resulting from termination of the
Amcom ESOP. Amount of adjustment was $130,000 for the year ended
December 31, 1995 and the six-month period ended June 30, 1995.
(h) To reflect the provision for income taxes on the unaudited pro forma
combined statements of operations at an effective rate of 38% for all
periods presented.
(i) To reflect the elimination of interest expense attributable to
certain Delta Parts debt which will be converted to common stock in
connection with the Acquisition.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is based upon the weighted average number of
shares of Common Stock and common stock equivalents outstanding
during the period. All warrants, options and convertible debt are
assumed exercised or converted at the beginning of the period in
accordance with Securities and Exchange Commission SAB No. 83.
F-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shares issued in the formation of ExpressPoint 100
Shares issued to the Founding Companies 2,454,444
Equivalent shares for options issued to Founding Companies employees 684,360
Equivalent shares for replacement options and warrants issued to option and warrant holders of
Founding Companies 438,351
Shares issued for conversion of Delta Parts subordinated debt 129,705
------------
Shares used in computing pro forma net income per share 3,706,960
</TABLE>
6. Pro Forma Combined Statements of Operations Significant Accounting Policies
The following significant accounting policy has been reflected in
ExpressPoint's unaudited pro forma combined statements of operations.
Revenue Recognition
ExpressPoint recognizes revenues from parts sales and repairs upon
shipment of the parts.
7. Concentration of Credit Risk
ExpressPoint generated a significant portion of its revenues from a
single customer during the year ended December 31, 1995 and the six-month
periods ended June 30, 1995 and 1996. Loss of this customer, or other
significant customers, could have a material adverse effect on
ExpressPoint's business, results of operations and financial condition.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
ExpressPoint Technology Services, Inc.:
We have audited the accompanying balance sheet of ExpressPoint Technology
Services, Inc., as of June 30, 1996, and the related statements of
stockholder's equity and cash flows for the period from inception (April 23,
1996) through June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of ExpressPoint Technology
Services, Inc. as of June 30, 1996, and its cash flows for the period from
inception (April 23, 1996) through June 30, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
October 14, 1996
F-10
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
BALANCE SHEET
As of June 30, 1996
<TABLE>
<S> <C>
ASSETS:
Cash $100
-------
Total assets $100
=======
Liabilities and Stockholder's Equity:
Stockholder's Equity:
Common stock, $0.01 par value, 15,000,000 shares authorized, 100 shares issued and
outstanding 1
-------
Additional paid-in capital 99
-------
Total stockholder's equity 100
-------
Total liabilities and stockholder's equity $100
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
for the period from inception (April 23, 1996) through June 30, 1996
<TABLE>
<CAPTION>
Common Stock
------------------
Additional
Shares Amount Paid-in Capital Total
-------- -------- --------------- --------
<S> <C> <C> <C> <C>
Inception of ExpressPoint Technology Services, Inc. -- $-- $-- $ --
Sale of common stock, May 22, 1996 100 1 99 100
-------- -------- --------------- --------
Balance, June 30, 1996 100 $1 $99 $100
======== ======== =============== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
STATEMENT OF CASH FLOWS
for the period from inception (April 23, 1996) through June 30, 1996
<TABLE>
<S> <C>
Cash flows from financing activities:
Proceeds from the sale of common stock $100
-------
Net increase in cash 100
Cash at beginning of period --
-------
Cash at end of period $100
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Background
ExpressPoint Technology Services, Inc. (ExpressPoint) was incorporated in
Delaware on April 23, 1996 and had no operations prior to June 30, 1996.
Accordingly, there are no historical statements of operations available
for ExpressPoint prior to June 30, 1996. ExpressPoint was formed to
create a leading provider of technology support services in the United
States. On May 22, 1996, ExpressPoint sold 100 shares of common stock for
$100 of cash.
ExpressPoint has entered into agreements to acquire all of the common
stock of Amcom Corporation (Amcom) and Delta Parts, Inc. (Delta Parts)
(together referred to as the Founding Companies). The Founding Companies
have been operating independently and ExpressPoint may not be able to
successfully integrate these businesses and their operations, employees
and management. Given the nature of ExpressPoint, it is and will be
subject to many risks, including but not limited to (i) an absence of
combined operating history, (ii) the potential inability to manage
growth, (iii) risks generally associated with acquisitions, (iv) possible
fluctuations in quarterly results, (v) reliance on major clients and key
industries and (vi) reliance on key personnel.
2. Acquisition of the Founding Companies
ExpressPoint has entered into an agreement to acquire all the common
stock of the Founding Companies. This acquisition (the Acquisition) will
occur simultaneously with, and as a condition to, the closing of
ExpressPoint's initial public offering.
3. Options and Warrants
Upon the closing of the Acquisition, ExpressPoint has agreed to replace
existing options previously granted to employees of the Founding
Companies by granting options to purchase 323,800 shares of common stock
at an exercise price per share equal to the original options granted. All
of these options will be fully vested upon grant.
Upon the closing of the Acquisition, ExpressPoint has agreed to issue
warrants to replace existing warrants previously issued to purchase
217,926 shares of common stock. These replacement warrants will have the
same terms as the existing warrants.
4. Subsequent Events
In September 1996, certain employees of Amcom agreed to terminate their
existing employment agreements in exchange for options to purchase
879,892 ExpressPoint common shares at $2.00 per share and $2,316,800 of
demand notes payable from ExpressPoint. The resulting $6,496,287 charge
to ExpressPoint's operations will be reflected in the Statement of
Operations in September 1996.
During the third quarter of 1996, ExpressPoint incurred total transaction
costs related to the Acquisition of approximately $850,000. Transaction
costs of $464,000 incurred in connection with the acquisition of Amcom by
Delta Parts, as determined pursuant to SEC Staff Accounting Bulletin No. 97,
are included as a component of the estimated purchase price of Amcom.
Transaction costs of $396,000 incurred in connection with the acquisition
of Delta Parts were charged to the operations of ExpressPoint in the third
quarter of 1996.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Amcom Corporation:
We have audited the accompanying balance sheets of Amcom Corporation as of
May 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Amcom Corporation as of
May 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 1996, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
September 27, 1996
F-15
<PAGE>
AMCOM CORPORATION
BALANCE SHEETS
as of May 31, 1995 and 1996 and June 30, 1996
<TABLE>
<CAPTION>
May 31
--------------------------- June 30,
1995 1996 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 739,664 $ 288,140 $ 276,558
Accounts receivable, net of allowance for doubtful
accounts of $9,757, $21,757 and $9,757, respectively 2,434,932 5,381,679 4,946,956
Inventories 1,730,234 2,922,484 2,846,979
Other current assets 58,673 125,098 64,526
------------- ------------- -------------
Total current assets 4,963,503 8,717,401 8,135,019
Property and equipment, net 360,245 404,645 397,145
Other noncurrent assets 38,341 142,876 208,654
------------- ------------- -------------
Total assets $5,362,089 $9,264,922 $8,740,818
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under the bank line of credit 1,300,000 600,000
Current maturities of long-term debt 27,065 29,022 27,600
Accounts payable 545,364 1,377,925 1,428,056
Accrued compensation 198,904 365,265 378,218
Other accrued expenses 54,000 87,082 125,968
Customer deposits 130,383 228,548 189,088
------------- ------------- -------------
Total current liabilities 955,716 3,387,842 2,748,930
------------- ------------- -------------
Long-term debt, net of current maturities 76,508 47,618 46,713
Commitments
Common stock held by ESOP subject to
repurchase obligation 2,720,022 3,880,726 3,882,976
Common stock held by stockholders subject
to put option 105,679 301,469 301,469
Stockholders' equity:
Common stock, no par; 2,500,000 shares authorized,
1,108,647 shares issued and outstanding 162,003 215,561 221,945
Retained earnings 1,342,161 1,431,706 1,538,785
------------- ------------- -------------
Total stockholders' equity 1,504,164 1,647,267 1,760,730
------------- ------------- -------------
Total liabilities and stockholders' equity $5,362,089 $9,264,922 $8,740,818
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
AMCOM CORPORATION
STATEMENTS OF OPERATIONS
for the years ended May 31, 1994, 1995 and 1996 and the
one-month periods ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
May 31
----------------------------------------------- June 30 June 30
1994 1995 1996 1995 1996
--------------- --------------- --------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $18,724,459 $18,760,147 $28,134,130 $1,600,330 $2,237,218
Cost of sales 9,990,733 10,184,776 16,015,589 974,483 1,218,213
--------------- --------------- --------------- ------------- -------------
Gross profit 8,733,726 8,575,371 12,118,541 625,847 1,019,005
Selling, general and
administrative 6,682,788 7,226,953 9,794,364 537,943 843,956
--------------- --------------- --------------- ------------- -------------
Operating income 2,050,938 1,348,418 2,324,177 87,904 175,049
Interest expense (46,435) (31,053) (98,562) (625) (5,080)
Other (949) (786) (5,509)
--------------- --------------- --------------- ------------- -------------
Income before provision for
income taxes 2,003,554 1,316,579 2,220,106 87,279 169,969
Provision for income taxes (752,000) (496,000) (801,000) (33,166) (62,890)
--------------- --------------- --------------- ------------- -------------
Net income $ 1,251,554 $ 820,579 $ 1,419,106 $ 54,113 $ 107,079
=============== =============== =============== ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
AMCOM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended May 31, 1994, 1995 and 1996 and the
one-month periods ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
Common Stock
------------------- Retained
Shares Amount Earnings Total
--------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, May 31, 1993 7,792 $158,256 $ (26,701) $ 131,555
Net income 1,251,554 1,251,554
Purchase of shares by ESOP from stockholders (3,927) (79,757) (692,175) (771,932)
Stock split 100:1 382,635
Excess of fair value over cost for shares
committed to be released to ESOP net of income
tax effect of $7,513 12,258 12,258
Transfer of excess of fair value over cost of
shares held by ESOP (571,365) (571,365)
Change in common stock held by stockholders
subject to put option 839,663 839,663
--------- --------- ------------ --------------
Balance, May 31, 1994 386,500 90,757 800,976 891,733
Net income 820,579 820,579
Excess of fair value over cost for shares
committed to be released to ESOP net of income
tax effect of $43,666 71,246 71,246
Transfer of excess of fair value over cost of
shares held by ESOP (649,931) (649,931)
Change in common stock held by stockholders
subject to put option 370,537 370,537
--------- --------- ------------ --------------
Balance, May 31, 1995 386,500 162,003 1,342,161 1,504,164
Net income 1,419,106 1,419,106
Excess of fair value over cost for shares
committed to be released to ESOP net of income
tax effect of $32,826 53,558 53,558
Transfer of excess of fair value over cost of
shares held by ESOP (1,133,771) (1,133,771)
Change in common stock held by stockholders
subject to put option (195,790) (195,790)
--------- --------- ------------ --------------
Balance, May 31, 1996 386,500 215,561 1,431,706 1,647,267
Net income (unaudited) 107,079 107,079
Excess of fair value over cost for shares
committed to be released to ESOP net of income
tax effect of $3,912 (unaudited) 6,384 6,384
Balance, June 30, 1996 (unaudited) 386,500 $221,945 $ 1,538,785 $ 1,760,730
========= ========= ============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
AMCOM CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended May 31, 1994, 1995 and 1996 and the
one-month periods ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
May 31
-------------------------------------------- June 30, June 30,
1994 1995 1996 1995 1996
-------------- -------------- -------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,251,554 $ 820,579 $ 1,419,106 $ 54,113 $ 107,079
Adjustments to reconcile net income
from operations to net cash (used in)
provided by operating activities:
Depreciation and amortization 137,633 149,055 172,183 9,115 13,410
ESOP shares released 387,258 364,605 80,491 8,634
Provision for losses on accounts
receivable 39,560 540 79,627 6,636
Deferred income taxes (2,500) 12,000 (26,500)
Loss on disposal of assets 3,851 14,763 19,388
Changes in assets and liabilities:
Accounts receivable (3,089,047) 2,574,259 (3,026,374) (104,115) 434,723
Inventories (90,091) (389,804) (1,192,250) (378,242) 75,505
Other current assets 25,732 (39,212) (39,925) 20,152 60,572
Accounts payable 344,211 (172,963) 832,561 (11,672) 50,131
Accrued compensation and expenses 291,757 (455,823) 199,443 (130,187) 51,839
Customer deposits 15,539 91,137 98,165 (69,357) (39,460)
Accrued income taxes 153,000 (255,000)
-------------- -------------- -------------- ------------ ------------
Net cash (used in) provided by
operating activities (531,543) 2,714,136 (1,384,085) (603,557) 762,433
-------------- -------------- -------------- ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (141,006) (214,744) (235,971) (31,294) (5,910)
Other noncurrent assets, net 6,483 (14,288) (104,535) 4,445 (65,778)
-------------- -------------- -------------- ------------ ------------
Net cash used in investing activities (134,523) (229,032) (340,506) (26,849) (71,688)
-------------- -------------- -------------- ------------ ------------
Cash flows from financing activities:
Borrowing on line of credit to bank 2,590,000 100,000 3,650,000
Repayment on line of credit to bank (1,515,000) (1,500,000) (2,350,000) (700,000)
Borrowings on long-term debt ESOP 771,932 --
Principal payments on long-term debt
ESOP (135,287) (533,072) (26,933) (2,163) (2,327)
Redemption of common stock (97,446) (63,627)
Loan proceeds to ESOP (771,932)
-------------- -------------- -------------- ------------ ------------
Net cash (used in) provided by
financing activities 842,267 (1,996,699) 1,273,067 (2,163) (702,327)
-------------- -------------- -------------- ------------ ------------
Net increase (decrease) in cash 176,201 488,405 (451,524) (632,569) (11,582)
Cash at beginning of period 75,058 251,259 739,664 739,664 288,140
-------------- -------------- -------------- ------------ ------------
Cash at end of period $ 251,259 $ 739,664 $ 288,140 $ 107,095 $ 276,558
============== ============== ============== ============ ============
Supplemental cash flow information:
Interest paid $ 39,969 $ 40,198 $ 88,135 $ 7,345 $ 10,899
============== ============== ============== ============ ============
Income taxes paid $ 603,450 $ 798,371 $ 927,222 $ -- $ 125,780
============== ============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information related to June 30, 1995 and 1996 is unaudited)
1. Nature of Business and Significant Accounting Policies
The Company
Amcom Corporation (the "Company") is a Minnesota corporation that was
formed June 9, 1983. The Company sells, repairs and refurbishes spare
parts and subsystems for computers, point-of-sale equipment and banking
equipment for customers throughout the United States. The Company also
provides inventory and repair logistics services for its largest
customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The most significant areas which require the use of management
estimates relates to the determination of the valuation of inventory and
uncollectible accounts receivables.
Inventories are subject to technological life cycle changes which could
impact future inventory values and/or the estimated useful life of
inventories.
Revenue Recognition
Revenue from parts sales and repairs is recognized upon shipment.
Equipment rental and leases are recorded in income as earned.
Inventories
Inventories consist of computer systems, principally used point-of-sale
systems and computer parts. Inventories are valued at the lower of cost
or market, with cost determined principally on the specific
identification basis.
Property and Equipment
Property and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; maintenance and
repairs are expensed as incurred. Depreciation and amortization is
determined using accelerated methods over the estimated useful lives of
the assets, which range from three to five years. When assets are sold or
disposed of, the related cost and accumulated depreciation are removed
from the accounts, and any gain or loss is included in the results of
operations.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
F-20
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
Interim Financial Information
The balance sheet as of June 30, 1996, the statements of operations,
stockholders' equity and cash flows for the one-month periods ended June
30, 1995 and 1996, together with related notes, are unaudited, but, in
the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
financial condition as of June 30, 1996, and the Company's results of
operations, stockholders' equity and cash flows for the one-month periods
ended June 30, 1995 and 1996. The results of operations and cash flows as
presented for the one-month periods ended June 30, 1995 and 1996 are not
necessarily indicative of the results to be expected for the full fiscal
year.
2. Major Customers and Concentrations of Credit Risk
A portion of the Company's sales has been derived from one major customer
as follows:
Year Ended May 31 Month ended
--------------------- ---------------------
June 30, June 30,
1994 1995 1996 1995 1996
------ ------ ------ --------- ----------
Customer A 33% 49% 50% 25% 38%
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivables. The Company sells its products to a large number of
customers in many different industries and geographic areas. At May 31,
1995 and 1996 and June 30, 1996, approximately 34%, 53% and 46%,
respectively, of trade receivables were concentrated in one customer. The
Company's largest clients are established large companies. To reduce
credit risk, the Company performs continuing credit evaluations of its
customers periodically. Historically, the Company has not experienced
significant losses related to receivables from individual customers or
groups of customers in any particular geographic area.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
May 31,
----------------------- June 30,
1995 1996 1996
----------- ------------ ------------
<S> <C> <C> <C>
Office furniture $167,990 $ 185,478 $ 185,478
Equipment and computers 644,119 769,480 774,465
Vehicles 44,973 44,973 44,973
Purchased software 67,007 96,878 97,803
----------- ------------ ------------
924,089 1,096,809 1,102,719
Less accumulated depreciation and amortization 563,844 692,164 705,574
----------- ------------ ------------
$360,245 $ 404,645 $ 397,145
=========== ============ ============
</TABLE>
4. Lines of Credit
At May 31, 1996 and June 30, 1996, the Company has line of credit
agreements providing for advances up to $2,500,000. The lines of credit
are due on demand. Amounts outstanding under the agreements bear
interest, payable monthly at the bank's prime rate plus .5% (the bank's
prime rate was 9.00% at May 31, 1995 and 8.25% at May 31 and June 30,
1996). The lines of credit are collateralized by accounts receivable,
inventories and equipment.
F-21
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
5. Long-Term Debt
Long-term debt consists of installment bank loans used to permit the
Company's ESOP to purchase stock from major stockholders (see Note 6):
<TABLE>
<CAPTION>
May 31,
--------------------- June 30,
1995 1996 1996
----------- --------- ----------
<S> <C> <C> <C>
Note payable, bank payable in monthly installments of
$2,788, including principal and interest computed at
7%, balance due 1999. The note is collateralized by
accounts receivables, inventories and equipment and
unallocated ESOP shares. $103,573 $76,640 $74,313
Less current maturities 27,065 29,022 27,600
----------- --------- ----------
Total long-term debt $ 76,508 $47,618 $46,713
=========== ========= ==========
</TABLE>
The note payable repayment schedule is as follows as of May 31, 1996:
<TABLE>
<S> <C>
1997 $29,022
1998 31,120
1999 16,498
----------
$76,640
==========
</TABLE>
6. Retirement Plans
The Company provides a contributory defined contribution employee stock
ownership and salary savings plan for its eligible employees that permits
aggregate annual contributions up to 15% of eligible compensation. (The
15% limitation is raised to 25% in years when the ESOP has outstanding
loans.) All employees over age 19, who have completed one year of
service, become participants at the next plan entry date. The plan
contains two types of benefits, 401(k) and ESOP .
401(k)
The 401(k) feature allows eligible employees to make contributions to the
plan via salary deferrals up to a maximum contribution of 15% of salary
per employee, subject to Internal Revenue Service (IRS) limitations.
Employee 401(k) contributions are fully vested when contributed. The
Company, upon board approval, may make discretionary 401(k) matching
contributions. No matching contributions were made for the years ended
May 31, 1994, 1995 or 1996 or the one-month periods ended June 30, 1995
or 1996.
ESOP
In 1988, the Company established an employee stock ownership plan (ESOP)
to provide employees an opportunity to share in the ownership of the
Company. The cost of the ESOP is borne by the Company through annual
contributions to an Employee Stock Ownership Trust (ESOT) in amounts
determined by the Board of Directors. Share of common stock acquired by
the plans are to be allocated to each employee and held until the
employee's retirement, termination or death. The trust may pay
terminating employees in stock or in cash. Vesting in ESOP contributions
occurs at a rate of 20% per year starting in the second year, with full
vesting reached after six years.
F-22
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
In November 1993, the ESOP purchased 1,452 shares from one of the
Company's stockholders. This stock purchase was financed by a five-year
bank loan of $140,807 issued to the Company. In December 1993, the ESOP
purchased 2,475 shares from one of the Company's stockholder/president
for $631,125. This stock purchase was financed by a five-year bank loan
that was issued to the Company. The loan was repaid during 1995 through
additional ESOP contributions.
The November and December 1993 bank loans to the Company are matched with
corresponding loans from the Company to the ESOP. These loans have the
same terms as the bank loans. These loans permitted the ESOP to directly
purchase the Company stock from major stockholders. The shares purchased
with these loans initially were pledged as collateral for the ESOP's
debt. As the debt is repaid, shares are released from collateral and
allocated to employees that are eligible for ESOP contributions based on
the proportion of principal and interest paid during the year or
committed by the Company for the year's ESOP contribution. Accordingly,
the shares pledged as collateral are reported as unearned ESOP shares in
the balance sheet. As shares are committed to be released, the Company
reports ESOP retirement plan expense equal to the current fair value of
the shares. In accordance with terms of the ESOP, the Company must
repurchase shares of its stock at fair value from holders wishing to
dispose of their shares and the Company has first repurchase options on
all shares held by such holders. Accordingly, the fair value of shares
held by the ESOP, subject to repurchase is not considered part of
stockholders' equity.
ESOP common stock activity for each of the three years in the period
ended May 31, 1996 and for the month ended June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Unearned ESOP
Common Stock Shares
------------------------- --------------------------
Shares Amount Shares Amount Total
----------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1993 3,888 $ 991,440 $ 991,440
Redemption of ESOP shares of terminated
employees (382) (97,446) (97,446)
Purchase of shares by ESOP from
stockholders 3,927 771,932 3,927 $(771,932)
Stock split 100:1 735,853 388,773
Cost of shares committed to be released
for May 1994 ESOP contribution (155,514) 375,000 375,000
Increase in fair market value of shares
held by ESOP 571,365 571,365
----------- ------------- ------------ ------------- ------------
Balance, May 31, 1994 743,286 2,237,291 237,186 (396,932) 1,840,359
Redemption of ESOP shares of terminated
employees (21,139) (63,627) (63,627)
Cost of shares committed to be released
for May 1995 ESOP contribution (135,639) 293,359 293,359
Increase in fair market value of shares
held by ESOP 649,931 649,931
----------- ------------- ------------ ------------- ------------
Balance, May 31, 1995 722,147 2,823,595 101,547 (103,573) 2,720,022
Cost of shares committed to be released
for May 1996 ESOP contribution (28,981) 26,933 26,933
Increase in fair market value of shares
held by ESOP 1,133,771 1,133,771
----------- ------------ -------------- ------------- ------------
</TABLE>
F-23
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
<TABLE>
<CAPTION>
Unearned ESOP
Common Stock Shares
------------------------- --------------------------
Shares Amount Shares Amount Total
----------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1996 722,147 3,957,366 72,566 (76,640) 3,880,726
Cost of shares committed to be released
for June 1996 ESOP contribution (3,208) 2,250 2,250
Balance, June 30, 1996 722,147 $3,957,366 69,358 $(74,390) $3,882,976
=========== ============= ============ ============= ============
</TABLE>
The Company has expensed contributions of $394,771, $408,272 and $406,605
to the ESOP in 1994, 1995 and 1996, respectively. Contributions expensed were
$25,000 and $28,635 for the one-month periods ended June 30, 1995 and 1996,
respectively.
The ESOP shares are as follows:
<TABLE>
<CAPTION>
As of May 31 As of
-------------------------------- June 30,
1994 1995 1996 1996
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Allocated shares 350,586 484,961 620,600 649,581
Shares released for allocation 155,514 135,639 28,981 3,208
Unreleased shares 237,186 101,547 72,566 69,358
--------- --------- ----------- ----------
Total ESOP shares 743,286 722,147 722,147 722,147
========= ========= =========== ==========
Fair value of unreleased shares as of
May 31, 1996 and June 30, 1996
based on the appraisals at May 31,
1996 $397,662 $380,082
=========== ==========
</TABLE>
7. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended Month Ended
---------------------------------- ----------------------
June 30, June 30,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal $674,500 $426,000 $745,500 $29,191 $56,658
State 80,000 58,000 82,000 3,975 6,232
----------- ----------- ----------- ----------- ----------
754,500 484,000 827,500 33,166 62,890
Deferred (2,500) 12,000 (26,500)
----------- ----------- ----------- ----------- ----------
Provision for income
taxes $752,000 $496,000 $801,000 $33,166 $62,890
=========== =========== =========== =========== ==========
</TABLE>
F-24
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
Temporary differences comprising the net deferred tax asset (liability)
recognized in the accompanying balance sheet, included in other current
assets, are as follows:
As of May 31 As of
---------------------- June 30,
1995 1996 1996
----------- ----------- -----------
Allowance for doubtful accounts $ 3,700 $ 6,200 $ 3,700
Depreciation (12,100) (14,500) (14,500)
Vacation accrual 16,200 30,300 30,300
Other, net (10,300) 2,000 4,500
----------- ----------- -----------
Net deferred tax asset
(liability) $ (2,500) $ 24,000 $ 24,000
=========== =========== ===========
The Company has not recorded a valuation allowance at May 31, 1995 or
June 30, 1996. Management believes the use of taxable income in carryback
years, the use of taxable income from reversals of existing taxable
temporary differences and the use of future taxable income will ensure
the future realization of the deferred tax assets.
Significant differences between income taxes on income for financial
reporting purposes and income taxes calculated using the federal
statutory tax rate are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the month ended
----------------------------------------------
June 30, June 30,
1994 1995 1996 1995 1996
------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Provision for federal income taxes
at statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 4.0 4.4 3.7 4.4 3.7
Other, net (.5) (.7) (1.7) (.4) (.7)
------- ------- ------- --------- ----------
Effective income tax rate 37.5% 37.7% 36.0% 38.0% 37.0%
======= ======= ======= ========= ==========
</TABLE>
8. Lease Commitments
The Company leases office space and office equipment under noncancellable
operating leases. Rent expense for the years ended 1994, 1995 and 1996
was $289,687, $348,369 and $350,567, respectively. Rent expense for the
one-month periods ended June 30, 1995 and 1996 was $27,929 and $22,090,
respectively. Future obligations on the Company's operating leases are as
follows:
<TABLE>
<S> <C>
1997 $ 323,383
1998 328,624
1999 337,843
2000 94,867
2001 3,834
----------
Total $1,088,551
==========
</TABLE>
9. Other Commitments
The Company has an incentive compensation plan for key management
personnel. The compensation expense under this plan was $835,749,
$414,090 and $698,393 for the years ended May 31, 1994, 1995 and
F-25
<PAGE>
AMCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
1996, respectively, of which $13,407 and $102,506 are included in other
accrued expenses on the balance sheet as of May 31, 1995 and 1996,
respectively. Compensation expense under the plan was $19,307 and $40,797
for the one-month periods ended June 30, 1995 and 1996, respectively.
Incentive compensation of $76,014 is included in other accrued expenses
at June 30, 1996.
10. Common Stock Subject to Put Option
Under the terms of the Company's corporate stock agreement, common stock
held by certain stockholders may be put back to the Company at its fair
value at the time of the stockholders' death. The Company has purchased
life insurance policies for each of these shareholders and has designated
the death benefits to fund the cash distributions in the event these put
options are exercised. The fair value of the put options in excess of the
available insurance death benefits is not considered to be part of
stockholders' equity. There were 386,500 outstanding common shares
subject to these put options as of May 31, 1995 and 1996 and June 30,
1996.
11. Subsequent Event
On June 25, 1996, the Company entered into a letter of intent to sell all
of the issued and outstanding shares of stock of the Company in exchange
for shares of an acquiring Company and cash consideration of $6,300,000.
The transaction is structured to close simultaneously with, and as a
condition to, the consummation of an initial public offering by the
acquiring Company.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Delta Parts, Inc.:
We have audited the accompanying balance sheets of Delta Parts, Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from inception
(August 9, 1993) through December 31, 1993 and for the years ended December
31, 1994 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Delta Parts, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from inception (August 9, 1993) through December 31,
1993 and for the years ended December 31, 1994 and 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
September 20, 1996, except as
to Note 3, Financing Agreements
and Note 10, Contingency,
for which the date is
October 14, 1996
F-27
<PAGE>
DELTA PARTS, INC.
BALANCE SHEETS
as of December 31, 1994 and 1995 and June 30, 1996
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------
1994 1995 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 145,528 $ 191,107 $ 20,054
Accounts receivable, net 396,851 463,440 1,120,052
Inventories 397,399 468,799 747,674
Other current assets 94,803 38,315 158,976
Deferred income taxes 12,000
------------- ------------- -------------
Total current assets 1,046,581 1,161,661 2,046,756
Property and equipment, net 201,213 341,353 396,028
Intangible assets, net 133,791 113,452 103,900
Other assets 29,380 9,725 18,707
------------- ------------- -------------
Total assets $1,410,965 $1,626,191 $2,565,391
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Revolving credit agreement, bank 152,000 307,956 437,956
Current maturities of long-term debt 50,892 59,049 78,546
Accounts payable 321,413 446,495 578,199
Accrued expenses 47,065 139,408 231,985
------------- ------------- -------------
Total current liabilities 571,370 952,908 1,326,686
------------- ------------- -------------
Long-term debt, net of current maturities 750,848 747,199 748,339
Deferred income taxes 4,000
Commitments and contingency
Stockholders' equity (deficit):
Common stock, $.01 par value, 10,000,000 shares authorized,
1,122,100, 1,178,911 and 1,345,797 shares issued and
outstanding at December 31, 1994 and 1995 and June 30, 1996,
respectively 11,221 11,789 13,458
Additional paid-in capital 163,614 361,887 892,660)
Accumulated deficit (56,038) (417,489) (370,949)
------------- ------------- -------------
118,797 (43,813) 535,169
Loans to stockholders (34,050) (30,103) (44,803)
------------- ------------- -------------
Total stockholders' equity (deficit) 84,747 (73,916) 490,366
------------- ------------- -------------
Total liabilities and stockholders' equity (deficit) $1,410,965 $1,626,191 $2,565,391
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-28
<PAGE>
DELTA PARTS, INC.
STATEMENTS OF OPERATIONS
for the period from inception (August 9, 1993) through
December 31, 1993 and for the years ended
December 31, 1994 and 1995 and for the six-month periods
ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
December 31 June 30
---------------------------------------- ---------------------------
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $211,084 $4,608,239 $4,257,251 $2,093,560 $3,040,596
Cost of sales 138,359 3,472,279 2,817,678 1,377,222 2,142,068
------------ ------------- ------------- ------------- -------------
Gross profit 72,725 1,135,960 1,439,573 716,338 898,528
Operating expenses:
Sales and marketing 46,656 393,932 590,557 289,314 294,905
General and administrative 78,367 654,138 1,052,018 538,749 490,745
------------ ------------- ------------- ------------- -------------
Operating (loss) income (52,298) 87,890 (203,002) (111,725) 112,878
Interest expense (7,232) (71,246) (163,932) (64,787) (66,638)
Interest income 1,748 3,483 1,245 300
------------ ------------- ------------- ------------- -------------
(Loss) income before provision for
income taxes (59,530) 18,392 (363,451) (175,267) 46,540
Income tax (benefit) provision 5,000 (2,000)
------------ ------------- ------------- ------------- -------------
Net (loss) income $(59,530) $ 13,392 $ (361,451) $ (175,267) $ 46,540
============ ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-29
<PAGE>
DELTA PARTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
for the period from inception (August 9, 1993) through December 31, 1993
and for the years ended December 31, 1994 and 1995
and for the six-month period ended June 30, 1996
<TABLE>
<CAPTION>
Additional Loans
Common Stock Paid-in to Accumulated
--------------------- Capital Stockholders Deficit Total
Shares Amount
----------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception
(August 9, 1993) -- -- -- -- -- --
Sale of common stock at $.10 per share 1,000,000 $10,000 $ (9,900) $ 100
Net loss (59,530) (59,530)
----------- --------- ----------- ------------ ------------ -----------
Balance at December 31, 1993 1,000,000 10,000 (69,430) (59,430)
Sale of common at $1.35 per share stock 62,000 620 $ 83,080 83,700
Common shares issued in payment of
services rendered for organization
costs 100 1 134 135
Shares issued in connection with the
Lindquist Computer Services, Inc.
acquisition (Note 4) 60,000 600 80,400 81,000
Loans to stockholders acquired in
connection with the Lindquist Computer
Services, Inc. acquisition $ (4,050) (4,050)
Loan granted to stockholder (30,000) (30,000)
Net income 13,392 13,392
----------- --------- ----------- ------------ ------------ -----------
Balance at December 31, 1994 1,122,100 11,221 163,614 (34,050) (56,038) 84,747
Sale of common stock at $3.50 per share 50,287 503 175,504 176,007
Conversion of subordinated note payable
and accrued interest into common stock
at $3.50 per share (Note 3) 6,524 65 22,769 22,834
Repayment of loans to stockholders 3,947 3,947
Net loss (361,451) (361,451)
----------- --------- ----------- ------------ ------------ -----------
Balance at December 31, 1995 1,178,911 11,789 361,887 (30,103) (417,489) (73,916)
Sale of common stock (unaudited) 166,886 1,669 530,773 532,442
Loans granted to stockholders
(unaudited) (60,000) (60,000)
Repayment on loans to stockholders
(unaudited) 45,300 45,300
Net income (unaudited) 46,540 46,540
----------- --------- ----------- ------------ ------------ -----------
Balance at June 30, 1996 (unaudited) 1,345,797 $13,458 $892,660 $(44,803) $(370,949) $ 490,366
=========== ========= =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-30
<PAGE>
DELTA PARTS, INC.
STATEMENTS OF CASH FLOWS
for the period from inception (August 9, 1993) through December 31, 1993
and for the years ended December 31, 1994 and 1995 and for the
six-month periods ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
December 31 June 30
----------------------------------------------------------------
1993 1994 1995 1995 1996
------------ ------------------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (59,530) $ 13,392 $(361,451) $(175,267) $ 46,540
Adjustments to reconcile net (loss) income
from operations to net cash used in
operating activities:
Depreciation 4,147 15,098 59,754 37,745 39,923
Amortization of intangibles 8,517 20,339 10,416 9,552
Provision for losses on accounts receivable 8,304 2,000 985 640
Provision for inventory obsolescence 16,000 27,206 14,015 28,129
Deferred income taxes (8,000) 8,000
Changes in assets and liabilities:
Accounts receivable (55,612) (261,735) (68,589) (55,513) (657,252)
Inventories (27,141) (318,714) (98,606) (34,031) (307,004)
Other current assets (11,148) (82,374) 56,488 55,729 (120,661)
Accounts payable 45,024 212,382 125,082 28,185 131,704
Accrued expenses 4,130 30,667 95,577 39,177 92,577
------------ ------------------------- ------------- ------------
Net cash used in operating activities (100,130) (366,463) (134,200) (78,559) (735,852)
------------ ------------------------- ------------- ------------
Cash flows from investing activities:
Additions to property and equipment (43,152) (94,517) (199,894) (154,688) (94,598)
Business acquisition, net of cash acquired (37,308)
(Increase) decrease in other assets (18,804) (54,190) 19,655 (20,951) (8,982)
Net cash used in investing activities (61,956) (186,015) (180,239) (175,639) (103,580)
------------ ------------------------- ------------- ------------
Cash flows from financing activities:
Borrowings on revolving credit agreement,
bank 175,000 433,259 230,000 88,215 380,000
Repayments on revolving credit agreement,
bank (137) (603,570) (74,044) (29,618) (250,000)
Proceeds from subordinated debt 45,000 258,800 75,000
Proceeds from long-term debt 500,000 49,500
Principal payments on long-term debt (2,060) (50,892) (618) (28,863)
Proceeds from the sale of common stock 100 83,700 176,007 91,067 532,442
Repayment of advances to stockholders 3,947 45,300
Advances to stockholders (30,000) (60,000)
------------ ------------------------- ------------- ------------
Net cash provided by financing activities 219,963 640,129 360,018 149,046 668,379
------------ ------------------------- ------------- ------------
Net increase (decrease) in cash 57,877 87,651 45,579 (105,152) (171,053)
Cash at beginning of period 57,877 145,528 145,528 191,107
------------ ------------------------- ------------- ------------
Cash at end of period $ 57,877 $ 145,528 $ 191,107 $ 40,376 $ 20,054
============ ========================= ============= ============
Supplemental cash flow information:
Interest paid $ 3,102 $ 74,411 $ 128,416 $ 62,300 $ 91,445
Income taxes (refunded) paid 44,000 (28,095) (28,095)
Supplemental disclosures of noncash investing
and financing activities:
Convertible subordinated notes payable and
accrued interest converted into common
stock 22,834
Common shares issued in payment of services
rendered 135
Common stock issued in connection with the
acquisition of Lindquist Computer Services,
Inc. (LCS) (Note 4) 81,000
Payable to the previous owners of LCS for
the covenant not-to-compete 12,500
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-31
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to June 30, 1995 and 1996 is unaudited)
1. Nature of Business and Summary of Significant Accounting Policies
Business Description
Delta Parts, Inc. (the Company) repairs, distributes and refurbishes
spare parts and subsystems for computers, point-of-sale equipment and
automatic teller machines for customers within the United States. The
Company also provides inventory and repair logistics services such as
inventory management, advanced exchange services and purchasing for its
largest customers. The Company commenced operations on August 9, 1993.
Revenue Recognition
Revenue from parts sales and repairs is recognized upon shipment. Revenue
from inventory and repair logistics services is recognized as the
services are rendered.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined using a method which approximates the first-in, first-out
(FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance
and repair costs are expensed as incurred. Depreciation is determined
using the straight-line method over the estimated useful lives of the
assets which range from three to five years. The cost and related
accumulated depreciation of assets sold or disposed of are removed from
the accounts and the resulting gain or loss is included in the results of
operations.
Goodwill and Other Intangible Assets
Goodwill recognized in the business acquisition accounted for as a
purchase is being amortized on the straight-line method over 35 years.
The Company periodically evaluates the recoverability of unamortized
goodwill through measurement of future estimated undiscounted operating
unit cash flows.
Other intangible assets, primarily a covenant not-to-compete and
organization costs are amortized on the straight-line method over 3
years.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes whereby deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the sum of taxes currently payable and
the change in the deferred tax assets and liabilities during the period.
The Company elected C Corporation status for income tax purposes
effective January 1, 1994. Prior to that date, the Company had elected
for S Corporation status, and the losses of the Company were included in
the personal income tax returns of the stockholders.
F-32
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information related to June 30, 1995 and 1996 is unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The most significant areas which require the use of management
estimates relate to the determination of the allowances for inventory
obsolescence and uncollectible accounts receivable.
Inventories are subject to technological life cycle changes which could
impact future inventory sales prices and/or the estimated useful life of
inventories. Provisions are applied against inventories to reduce the
recorded amount of excess or obsolete items to their net realizable
value.
Interim Financial Information
The balance sheet as of June 30, 1996, the statements of operations,
stockholders' equity and cash flows for the six-month periods ended June
30, 1995 and 1996, together with the related notes, are unaudited, but,
in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
financial position as of June 30, 1996, and the Company's results of
operations and cash flows for the six-month periods ended June 30, 1995
and 1996. The results of operations and cash flows as presented for the
six-month periods ended June 30, 1995 and 1996 are not necessarily
indicative of the results to be expected for the full fiscal years.
2. Selected Balance Sheet Information
December 31 June 30,
----------------------
1994 1995 1996
----------- ----------- -------------
Accounts receivable, net:
Accounts receivable $408,099 $470,048 $1,127,300
Less allowance for doubtful accounts (11,248) (6,608) (7,248)
----------- ----------- -------------
$396,851 $463,440 $1,120,052
=========== =========== =============
Inventories:
The Company has periodically written down the carrying values of certain
inventories to their estimated net realizable value. These writedowns,
charged to cost of goods sold, totaled $16,000, $27,206, $14,015 and
$28,129 for the years ended December 31, 1994 and 1995 and for the
six-month periods ended June 30, 1995 and 1996, respectively. There were
no writedowns for the period ended December 31, 1993.
December 31 June 30,
--------------------
1994 1995 1996
--------- --------- -----------
Other current assets:
Prepaid expenses $61,646 $20,748 $151,471
Deposits and other 2,070 5,160
Income taxes receivable 31,087 12,407 7,505
--------- --------- -----------
$94,803 $38,315 $158,976
========= ========= ===========
F-33
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
December 31
---------------------- June 30,
1994 1995 1996
----------- ----------- ------------
Property and equipment, net:
Warehouse equipment 144,642 317,375 380,498
Furniture and fixtures 74,516 100,797 132,272
----------- ----------- ------------
219,158 418,172 512,770
Less accumulated depreciation (17,945) (76,819) (116,742)
----------- ----------- ------------
$201,213 $341,353 $ 396,028
=========== =========== ============
Intangible assets, net:
Covenant not-to-compete $ 50,000 $ 50,000 $ 50,000
Goodwill 85,125 85,125 85,125
Organization costs 7,183 7,183 7,183
----------- ----------- ------------
142,308 142,308 142,308
Less accumulated amortization (8,517) (28,856) (38,408)
----------- ----------- ------------
$133,791 $113,452 $ 103,900
=========== =========== ============
Accrued expenses:
Accrued vacation and compensation 33,600 93,059 120,589
Accrued interest 965 36,481 11,674
Commissions payable 6,445 10,572
Other 12,500 3,423 89,150
----------- ----------- ------------
$ 47,065 $139,408 $ 231,985
=========== =========== ============
3. Financing Agreements
Revolving Credit Agreement
The Company has a revolving credit agreement providing for advances up to
$500,000. Amounts outstanding under this agreement bear interest, payable
monthly, at the bank's index rate plus 2% (the index rate was 8.5% at
December 31, 1994 and 1995 and June 30, 1996). The weighted average
interest rate on the revolving line of credit was approximately 9.5%,
9.6%, 10.8% and 10.3% for the period from inception (August 9, 1993)
through December 31, 1993 and for the years ended December 31, 1994 and
1995 and the six-month period ended June 30, 1996, respectively.
Subsequent to December 31, 1995, the line of credit was increased to
$1.25 million. This note and the term note payable described below are
collateralized by substantially all property and equipment, accounts
receivable, inventories and insurance policies with a combined benefit of
$500,000 on the life of an officer and stockholder of the Company. The
note and the term note payable described below are also personally
guaranteed by two officers and stockholders of the Company.
This revolving credit agreement and the term note payable contain certain
restrictive covenants which, among other things, require the Company to
maintain tangible net worth, as defined, of not less than $500,000;
require the Company to maintain a net worth ratio, as defined, of 3.0 to
1.0; maintain working capital, as defined, of not less than $500,000; and
prohibit the payment of dividends. The term note payable also includes a
subjective acceleration clause in which the lender may declare an event
of default should the lender deem themselves "insecure."
F-34
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
During 1995, the Company violated term note payable covenants which
required it to obtain the lender's written consent for certain equity and
related party advance transactions. In addition, the Company violated a
covenant requiring it to obtain the lender's written consent prior to the
acquisition of another company (Note 4, Lindquist Acquisition). During
1996, the Company violated covenants under the new line of credit
agreement, which required the Company to provide the lender with periodic
financial reports pursuant to terms of the debt agreement. In addition,
the Company was in violation of certain cross-default provisions of this
agreement, as a result of covenant violations included in the term note
agreement. The lender has waived its right to declare these covenant
violations defaults under the agreements. In the event of default under
the revolving credit agreement, the applicable interest rate for the
loan, for a period beginning 15 days after written notice of such default
and ending upon the curing of said noticed default, shall increase one
percent (1%) for the first 30 days of said default and increase an
additional 1% during each 30 day period thereafter during which the
default continues. Upon the curing of the noticed default, the interest
rate on the loan shall revert to the initially agreed upon interest rate.
Convertible Subordinated Notes Payable
In December 1995, holders of subordinated notes payable converted their
notes into convertible subordinated notes payable. At the option of the
holders of these notes, all or any portion of the principal balance of
the notes, with any accrued interest and interest which would have been
accrued through the date of maturity of the note, may be converted into a
whole number of shares of the Company's common stock at the rate of $3.50
per share. During December 1995, one stockholder converted the principal
balance of his note ($19,600), along with accrued interest ($3,234) into
6,524 shares of common stock.
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revolving credit agreement $152,000 $307,956 $437,956
=========== =========== ===========
Convertible subordinated notes payable, stockholders: Unless
converted to common shares, the principal amount of these
notes shall be paid in full together with any accrued
interest on April 12, 1998. The notes bear interest at the
rate of 13% per annum, payable quarterly. The notes are
collateralized by all assets of the Company, but are
subordinated to certain existing and future bank financing
obligations. 359,200 359,200
Subordinated notes payable, stockholders: The entire principal
balance and any accrued interest were originally due April
1996. The notes bore interest at 10% for a period of one
year from the date of the respective notes, after which
the interest rate was adjusted to a bank's reference rate,
then in effect, plus 4%. Interest was payable quarterly.
The bank's reference rate was 8.5% at December 31, 1994
and 1995. The notes were converted into convertible
subordinated notes payable during December 1995. 303,800
</TABLE>
F-35
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
----------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Term note payable, bank: Payable in monthly installments of
$8,300, including principal and interest computed at the
prime rate plus 2.75% (the prime rate was 8.5% at December
31, 1994 and 1995 and June 30, 1996), balance due May 2001.
75% of this note is guaranteed by the U.S. Small Business
Administration. 497,940 447,048 418,185
Term note payable, bank: Payable in monthly installments of $834,
including principal and interest computed at 9.25% through
June 1999. Collateralized by a vehicle and personally
guaranteed by an officer and stockholder of the Company. 26,000
Term note payable, bank: Payable in monthly installments of $750,
including principal and interest computed at 9.25% through
June 1999. Collateralized by a vehicle and personally
guaranteed by an officer and stockholder of the Company. 23,500
----------- ----------- -----------
$801,740 $806,248 $826,885
=========== =========== ===========
</TABLE>
The aggregate maturities of long-term debt at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996 $ 59,049
1997 66,469
1998 433,473
1999 82,994
2000 92,688
Thereafter 71,575
----------
$806,248
==========
</TABLE>
4. Lindquist Acquisition
On August 31, 1994, the Company purchased substantially all of the
operating assets and assumed certain liabilities of Lindquist Computer
Services, Inc. (LCS) and obtained a related covenant not-to-compete for
$62,500 in cash, 60,000 shares of its common stock with an estimated
value of $81,000 and a payable for $12,500. In addition, the Company
agreed to assume certain tax liabilities of the previous owner of LCS, as
well as enter into an employment agreement with this individual. The
excess of the purchase price over the estimated fair market value of the
net identifiable tangible and intangible assets acquired was $85,125 and
is being amortized using the straight-line method over 35 years. The
acquisition has been accounted for as a purchase. Results of operations
since the purchase date are included in the Statements of Operations. Pro
forma data (unaudited) as though the acquisition had been effective
August 9, 1993 (inception date) is as follows:
1993 1994
------------ ------------
Pro forma revenues 1,678,168 5,323,941
Pro forma net loss (1,504) (76,699)
F-36
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
5. Lease Commitments
The Company leases office space, warehouse facilities and certain
equipment under noncancellable operating leases expiring at various dates
through 1999. A certain portion of the office space is subleased to a
third party under an agreement expiring in 1997. Total rent expense,
including a pro rata share of the lessor's operating cost were $11,836,
$93,880, $172,461, $58,711 and $81,046 for the period from inception
(August 9, 1993) through December 31, 1993, and for the years ended
December 31, 1994 and 1995 and for the six-month periods ended June 30,
1995 and 1996, respectively. Future minimum lease payments under
noncancellable operating leases along with sublease rental income are as
follows:
Operating Sublease
Year Ending December 31 Leases Income
----------- ----------
1996 $215,924 $36,120
1997 192,711 18,060
1998 164,031
1999 13,611
6. Stockholders' Equity
Common Stock
In February 1994, the Company's Board of Directors amended the Articles
of Incorporation of the Company, increasing the authorized $.01 par value
common stock to 10,000,000 shares and declared a stock split of 1,000
common shares for each share of common stock outstanding. Accordingly,
the Company's stockholders' equity and all share information has been
restated to reflect this transaction, including the transfer of $9,900 of
accumulated deficit to common stock.
The Company has repurchase rights, at $.01 per common share, for shares
issued in connection with the LCS acquisition (Note 4). The Company may
exercise its right to repurchase the shares if certain conditions exist
subsequent to the acquisition, as defined by the Employment Agreement
between the Company and the former owner of LCS. These repurchase rights
decline pro rata over a three-year period commencing on September 2,
1994, after which the Company's right to repurchase these shares
terminates. As of September 20, 1996, 20,000 of these shares remain
subject to the repurchase provision.
The 1994 Stock Option Plan
In July 1994, the Company adopted the 1994 Stock Option Plan, under which
options to purchase up to 315,000 shares of common stock may be granted
to the Company's officers, directors, employees and consultants, at
exercise prices not less than 100% of the fair market value of the
Company's common stock on the date of the grant. These options, which can
be either incentive stock options or nonqualified stock options (as
determined by the Company's Compensation Committee), vest in the manner
determined by the Compensation Committee at the time of grant. Options
granted to date vest in equal installments over a five-year period from
the date of the grant, upon the achievement of certain sales goals in the
case of certain salesmen, and/or upon the sale of the Company or an
initial public offering of the Company's common stock. All options expire
10 years from the date of grant. Compensation expense related to
compensatory options granted under the Plan was approximately $17,000 and
$44,000 during the years ended December 31, 1994 and 1995, respectively,
and approximately $24,000 during each of the six-month periods ended June
30, 1995 and 1996.
F-37
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
The 1995 Nonemployee Director Stock Option Plan
In May 1995, the stockholders approved the 1995 Nonemployee Director
Stock Option Plan under which options to purchase up to 150,000 shares of
common stock may be granted to nonemployee directors at exercise prices
not less than 100% of the fair market value of the Company's common stock
on the date of grant. Initial option grants to purchase up to 10,000
shares of common stock were given to incumbent nonemployee directors on
June 1, 1995. These options became exercisable on December 1, 1995. Each
nonemployee director who received an initial option and who is serving as
a nonemployee director at the close of business on June 1 in any year
commencing with June 1, 1996, shall be automatically granted on such date
an option to purchase an additional 3,000 shares of common stock. In
addition, each person who becomes a nonemployee director after June 1,
1995 shall be automatically granted an option to purchase 3,000 shares of
common stock effective upon his or her election or appointment to the
Board of Directors and shall be automatically granted an option to
purchase an additional 3,000 shares of common stock on each anniversary
of the date of his or her election or appointment to the Board of
Directors, providing that on such anniversary he or she is a nonemployee
director. These options vest 50% after the first year and 50% the
following year. Options granted under the Plan expire 10 years from the
date of grant.
The following table details option activity related to the 1994 Stock
Option Plan and the 1995 Nonemployee Director Stock Option Plan:
Price Per
Shares Share
Balances, December 31, 1993 -- --
Granted 161,000 $ .01
----------- --------------
Balances, December 31, 1994 161,000 $ .01
Granted 55,800 $1.00-$3.50
Cancelled (12,000) $ .01
----------- --------------
Balances, December 31, 1995 204,800 $ .01-$3.50
Granted 124,000 $3.50
Cancelled (5,000) $3.50
----------- --------------
Balances, June 30, 1996 323,800 $ .01-$3.50
===========
Options exercisable at December
31, 1995 116,333 $ .01-$3.50
=========== ==============
Options exercisable at June 30,
1996 113,265
===========
Warrants
1993: In September 1993, in connection with the guarantee by certain
individuals of the Company's bank debt, the Company issued warrants to
purchase 95,188 shares of common stock at a purchase price of $.7092 per
share. These warrants became immediately exercisable upon issuance and
expire 5 years from their date of issuance.
1994: In April 1994, in connection with the issuance of subordinated
notes payable, the Company issued warrants to purchase 62,000 shares at a
purchase price of $.75 per share. These warrants became immediately
exercisable upon issuance and expire 10 years from their date of
issuance.
F-38
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
1995: In December 1995, in connection with the extension of the maturity
of convertible subordinated notes payable by the holders thereof, the
Company issued warrants to purchase 37,880 shares of common stock at a
purchase price of $3.50 per share. These warrants became immediately
exercisable upon issuance and expire 10 years from their date of
issuance. Under these warrants, the holders have a right to put the
warrant shares back to the Company at a price of $5.00 per share (subject
to adjustment) for a period of one year after exercise, but not prior to
May 1, 1998. The Company is recognizing the difference between the put
price ($5.00) and the warrant exercise price through May 1, 1998.
1996: In March 1996, in connection with the private sale of shares of
common stock, the Company issued warrants to purchase 22,858 shares of
common stock at a purchase price of $3.50 per share. These warrants
became immediately exercisable upon issuance and expire five years from
their date of issuance.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, "Accounting for Stock-Based
Compensation" (SFAS No. 123). As permitted under SFAS No. 123, the
Company will adopt the new standard in 1996. Management has not yet
selected from the implementation alternatives and, therefore, has not
determined the impact of this standard on the Company's 1996 financial
position or results of operations.
7. Income Taxes
The federal and state components of the income tax (benefit) provision
are as follows:
<TABLE>
<CAPTION>
December 31
-----------------------
1994 1995
--------- ------------
<S> <C> <C>
Currently payable (refundable):
Federal $10,000 $(10,000)
State 3,000
--------- ------------
13,000 (10,000)
Deferred (benefit) provision (8,000) 8,000
--------- ------------
Income tax provision (benefit) $ 5,000 $ (2,000)
========= ============
</TABLE>
The following table sets forth the components of the deferred tax assets
and liabilities as of December 31, 1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
December 31
--------------------- June 30
1994 1995 1996
-------------------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards (expire 2008-2010) $ 47,000 $ 37,700
Allowances for doubtful accounts and inventory valuation $ 5,000 10,000 15,700
Accrued vacation and compensation 7,000 19,000 24,000
Amortization 1,000 3,000 1,000
Depreciation (5,000) (12,000) (5,000)
Deferred tax valuation allowance (67,000) (73,400)
-------------------- -----------
Net deferred tax asset $ 8,000 -- --
==================== ===========
</TABLE>
As of December 31, 1995 and June 30, 1996, the Company established a
valuation allowance for any tax benefits for which management believes,
based on the relative weight of currently available evidence, that it is
"more likely than not" that the related net deferred tax asset will not
be realized.
Under the Internal Revenue Code, certain stock transactions, including
sales of stock and the granting of warrants to purchase stock, may limit
the amount of net operating loss carryforwards that may be utilized on an
annual basis to offset taxable income in future periods.
F-39
<PAGE>
DELTA PARTS, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
(Information related to June 30, 1995 and 1996 is unaudited)
Significant differences between income taxes on income for financial
reporting purposes and income taxes calculated using the federal
statutory tax rate are as follows:
<TABLE>
<CAPTION>
December 31 June 30
--------------------- -----------------------
1994 1995 1995 1996
-------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Provision (benefit) at federal statutory rate $3,066 $(73,090) $(35,000) $ 9,300
Limitation of net operating loss carryforward
benefit 71,090 35,000 (9,300)
State income taxes, net of federal benefit 633
Nondeductible business meetings and entertainment
expenses 739
Other 562
------ -------- -------- --------
$5,000 $ (2,000) $ $
====== ======== ======== ========
</TABLE>
8. Major Customers
A portion of the Company's revenues during the years ended December 31,
1994, 1995 and the six-month periods ended June 30, 1995 and 1996 has
been derived from major customers as follows:
For the Year Ended For the Six Months Ended
December 31 June 30
------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
Customer A 10%
Customer B 15% 16% 15%
Customer C 24%
Customer D 13%
Accounts receivable credit concentrations associated with Customer B at
December 31, 1995 and June 30, 1996 were $144,742 and $250,759,
respectively. Accounts receivable credit concentrations associated with
Customer A at June 30, 1996 were $405,698.
9. Subsequent Events
On June 25, 1996, the Company entered into a letter of intent to exchange
each share of its outstanding common stock for shares of an acquiring
company. This transaction assumes conversion of all convertible debt
prior to the exchange of common shares. The transaction is structured to
close simultaneously with and as a condition to the consummation of an
initial public offering by the acquiring Company.
In August 1996, the Company issued subordinated notes in exchange for
$250,000 cash. The notes, which bear interest at 13%, are due on June 30,
1998, or upon the closing of an initial public offering, if earlier. In
connection with the notes, the Company issued warrants to purchase 5,000
shares of common stock at $5.00 per share.
10. Contingency
During September 1996, the Company was contacted by a former employee
seeking approximately $800,000 of compensation plus punitive damages for
wrongful termination. An estimate of the Company's potential liability
resulting from this matter can not be made at this time. Management
believes the matter is without merit. However, resolution of this matter
could have a significant impact on the Company's financial position or
results of operations in a future reporting period.
F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Lindquist Computer Services, Inc.:
We have audited the accompanying balance sheets of Lindquist Computer
Services, Inc. as of December 31, 1993 and August 31, 1994, and the related
statements of operations, stockholder's equity and cash flows for the year
ended December 31, 1993, and for the eight-month period ended August 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Lindquist Computer
Services, Inc. as of December 31, 1993 and August 31, 1994, and the results
of its operations and its cash flows for the year ended December 31, 1993,
and for the eight-month period ended August 31, 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
October 1, 1996
F-41
<PAGE>
LINDQUIST COMPUTER SERVICES, INC.
BALANCE SHEETS
as of December 31, 1993 and August 31, 1994
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 11,043 $ 2,533
Accounts receivable, net 143,182 87,808
Inventories 51,008 88,929
Employee receivable 86,800 5,037
Income taxes receivable 14,000
Prepaid expenses 3,093 613
----------- -----------
Total current assets 295,126 198,920
Property and equipment, net 79,663 82,734
----------- -----------
Total assets $374,789 $281,654
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable 188,580 147,449
Accounts payable 65,372 93,561
Accrued expenses 23,712 19,910
----------- -----------
Total current liabilities 277,664 260,920
----------- -----------
Deferred income taxes 3,400 2,900
----------- -----------
Commitments
Stockholder's equity:
Common stock, no par value, 100,000 shares authorized, 1,000 shares
issued and outstanding at August 31, 1994 and December 31, 1993 1,000 1,000
Retained earnings 92,725 16,834
----------- -----------
Total stockholder's equity 93,725 17,834
----------- -----------
Total liabilities and stockholder's equity $374,789 $281,654
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
LINDQUIST COMPUTER SERVICES, INC.
STATEMENTS OF OPERATIONS
for the year ended December 31, 1993
and for the eight-month period ended August 31, 1994
1993 1994
------------- -----------
Revenues $1,467,084 $717,702
Cost of sales 752,759 372,909
------------- -----------
Gross profit 714,325 344,793
Operating expenses 638,799 425,224
------------- -----------
Operating income (loss) 75,526 (80,431)
Interest expense (11,308) (9,660)
Other income 2,229
------------- -----------
Income (loss) before provision for income taxes 66,447 (90,091)
Provision (benefit) for income tax 16,400 (14,200)
------------- -----------
Net income (loss) $ 50,047 $(75,891)
============= ===========
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
LINDQUIST COMPUTER SERVICES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
for the year ended December 31, 1993
and for the eight-month period ended August 31, 1994
Common Common Retained
Shares Stock Earnings Total
------- -------- ----------- -----------
Balance at December 31, 1992 1,000 $1,000 $ 42,678 $ 43,678
Net income 50,047 50,047
------- -------- ----------- -----------
Balance at December 31, 1993 1,000 1,000 92,725 93,725
Net loss (75,891) (75,891)
------- -------- ----------- -----------
Balance at August 31, 1994 1,000 $1,000 $ 16,834 $ 17,834
======= ======== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
LINDQUIST COMPUTER SERVICES, INC.
STATEMENTS OF CASH FLOWS
for the year ended December 31, 1993
and for the eight-month period ended August 31, 1994
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 50,047 $(75,891)
Adjustments to reconcile net income (loss) from operations to net cash (used
in) provided by operating activities:
Depreciation 33,481 18,456
Deferred income taxes 3,400 (500)
Changes in assets and liabilities:
Accounts receivable 51,664 55,374
Inventories 81,681 (37,921)
Employee receivable (86,800) 81,763
Income taxes receivable (14,000)
Prepaid expenses (1,396) 2,480
Accounts payable (166,065) 28,189
Accrued expenses (5,068) (3,802)
------------ ------------
Net cash (used in) provided by operating activities (39,056) 54,148
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (36,439) (21,527)
------------ ------------
Net cash used in investing activities (36,439) (21,527)
------------ ------------
Cash flows from financing activities:
Net (repayments) borrowings on notes payable to bank 47,899 (41,131)
------------ ------------
Net cash provided by (used in) financing activities 47,899 (41,131)
------------ ------------
Net decrease in cash (27,596) (8,510)
Cash at beginning of period 38,639 11,043
------------ ------------
Cash at end of period $ 11,043 $ 2,533
============ ============
Supplemental cash flow information:
Interest paid $ 11,308 $ 9,660
Income taxes paid 3,553
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
LINDQUIST COMPUTER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Business Description
Lindquist Computer Services, Inc. repairs, distributes and refurbishes
spare parts and subsystems for computers, point-of-sale equipment and
automatic teller machines. The Company commenced operations on September
12, 1988.
Effective August 31, 1994, substantially all of the Company's operating
assets were purchased and certain liabilities were assumed by Delta
Parts, Inc. (DPI) for $62,500 in cash, 60,000 shares of DPI common stock
with an estimated value of $81,000 and a payable for $12,500. In
addition, DPI agreed to assume certain tax liabilities of the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affected the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could have differed from
those estimates. The most significant areas which require the use of
management estimates related to the determination of the allowances for
inventory obsolescence and uncollectible accounts receivable.
Inventories were subject to technological life cycle changes which could
have impacted future inventory sales prices and/or the estimated useful
life of inventories.
Revenue Recognition
Revenue from parts sales and repairs was recognized upon shipment of the
parts.
Inventories
Inventories were stated at the lower of cost or market, with cost
determined using a method which approximated the first-in, first-out
(FIFO) method.
Property and Equipment
Property and equipment were stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance
and repair costs were expensed as incurred. Depreciation was determined
using the straight-line method over the estimated useful lives of the
assets which range from three to five years. The cost and related
accumulated depreciation of assets sold or disposed of were removed from
the accounts and the resulting gain or loss is included in the results of
operations.
Income Taxes
The Company utilized the asset and liability method of accounting for
income taxes whereby deferred taxes were determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences were expected to reverse. Valuation allowances were
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense was the sum of taxes
currently payable and the change in the deferred tax assets and
liabilities during the period.
F-46
<PAGE>
2. Selected Balance Sheet Information
1993 1994
----------- ------------
Accounts receivable, net:
Accounts receivable $153,182 $ 93,056
Less allowance for doubtful accounts (10,000) (5,248)
----------- ------------
$143,182 $ 87,808
=========== ============
Property and equipment, net:
Furniture and fixtures 3,226 3,226
Machinery and equipment 163,435 184,962
----------- ------------
166,661 188,188
Less accumulated depreciation (86,998) (105,454)
----------- ------------
Property and equipment, net $ 79,663 $ 82,734
=========== ============
3. Financing Agreements
Revolving Credit Agreement and Term Note Payable
The Company had a revolving credit agreement which provided for advances
up to $160,000. Amounts outstanding under this agreement bore interest,
payable monthly, at the bank's reference rate plus 1.75% (the reference
rate was 6% and 7.25% at December 31, 1993 and August 31, 1994). This
note and the term note described below were collateralized by
substantially all property and equipment, accounts receivable and
inventories of the Company. This note and the term note described below
were also personally guaranteed by the stockholder of the Company.
Amounts outstanding under the revolving credit agreement were $150,200
and $111,619 as of December 31, 1993 and August 31, 1994, respectively.
The Company also had a term note payable to the bank. This note was
payable in monthly installments of $3,125, including principal and
interest computed at 8.75%. The balance was due in August 1995. The
amount outstanding on this note was $35,830 at August 31, 1994. At
December 31, 1993, the Company had an outstanding balance of $38,380
under a term note payable to the bank, which included terms similar to
the term note payable outstanding at August 31, 1994.
During 1993 and 1994, the Company was in violation of certain covenants
included in the revolving credit agreement and the term note payable (the
agreements), which prohibited the Company from lending money to certain
individuals. The Company did not obtain waivers for these violations,
however, the lender did not exercise its right to declare these
violations an event of default pursuant to terms of the agreements during
1993 or 1994. Balances outstanding under these agreements were classified
as current liabilities in the Balance Sheets.
4. Lease Commitments
The Company leased office space, warehouse facilities and certain
equipment under noncancellable operating leases. Total rent expense,
including a pro rata share of the lessor's operating costs were $116,722
and $61,392 for the year ended December 31, 1993 and the eight-month
period ended August 31, 1994, respectively. Future minimum lease payments
under noncancellable operating leases were assumed by DPI in connection
with the acquisition of certain assets and liabilities of the Company by
DPI.
F-47
<PAGE>
5. Income Taxes
The federal and state components of the income tax provision are as
follows:
1993 1994
--------- ------------
Currently payable (refund receivable):
Federal $ 9,500 $(14,000)
State 3,500 300
--------- ------------
13,000 (13,700)
Deferred provision (benefit) 3,400 (500)
--------- ------------
Income tax provision (benefit) $16,400 $(14,200)
========= ============
The $3,400 and $2,900 deferred tax liability recorded as of December 31,
1993 and August 31, 1994, respectively, was the result of excess
depreciation expense deducted for income tax purposes and the allowance
for uncollectible accounts receivable which was not deductible for income
tax purposes.
F-48
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation in connection with this offer other
than those contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or solicitation of any offer to buy by anyone
in any jurisdiction in which such offer to sell or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
Until , 1996 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
TABLE OF CONTENTS
Page
---------
Prospectus Summary 3
Risk Factors 7
Organization 11
Use of Proceeds 11
Dividend Policy 11
Capitalization 12
Dilution 13
Selected Pro Forma Combined Financial Data 14
Management's Discussion and Analysis of Pro Forma
Combined Financial Condition and Pro Forma
Combined Results of Operations 16
Selected Financial Data of ExpressPoint and the
Founding Companies 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations of the
Founding Companies 20
Business 24
Management 33
Principal and Selling Stockholders 39
Description of Securities 40
Certain Transactions 41
Shares Eligible for Future Sale 42
Underwriting 43
Legal Matters 44
Experts 44
Additional Information 44
Index to Financial Statements F-1
=============================================================================
=============================================================================
[Logo]
EXPRESSPOINT
TECHNOLOGY
SERVICES, INC.
2,000,000 Shares
Common Stock
----------
PROSPECTUS
----------
Rodman & Renshaw, Inc.
, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses incurred by the
Company in connection with the sale and distribution of the Common Stock
being offered hereby, other than the underwriting discounts and commissions.
All amounts shown are estimated except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq application fee.
SEC registration fee $ 7,931
NASD filing fee 2,800
Nasdaq application fee 28,785
Printing expenses 150,000
Fees and expenses of Company Counsel 300,000
Fees and expenses of Company Accountants 460,000
Financial Advisory Fee 150,000
Transfer Agent and Registrar fees 20,000
Blue Sky fees and expenses 25,000
Miscellaneous 85,484
------------
TOTAL $1,230,000
============
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil or criminal or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding 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 corporation, and, with
respect to any criminal action or proceeding, had not reasonable cause to
believe his conduct was unlawful. Section 145 further provides that a
corporation similarly may indemnify any such person serving in any such
capacity who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation and
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Delaware Court of
Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director of the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
The Company's Certificate of Incorporation and By-laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the law of the State of Delaware.
The Underwriting Agreement (a form of which appears as Exhibit 1.1 hereto)
provides that the Underwriter will indemnify the Company's directors and
officers in certain circumstances.
The Company intends to maintain liability insurance for the benefit of the
Company and its directors and officers.
Item 15. Recent Sales of Unregistered Securities.
(a) Roger Barzun, the organizer of the registrant, purchased 100 shares of
Common Stock in April 1996.
(b) The Registrant has issued options to six Amcom employees covering
879,892 shares of Common Stock.
In issuing such securities, the Company relied upon the exemption from the
registration and prospectus delivery requirements of the Securities Act
provided by Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits listed in the following table have been filed as part of
the Registration Statement.
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement dated October , 1996
2.1 Agreement and Plan of Reorganization among the Company, Amcom Acquisition Corp. and Amcom
Corporation dated as of October 14, 1996
2.2 Agreement and Plan of Reorganization among the Company, Delta Acquisition Corp. and Delta Parts,
Inc. dated as of October 14, 1996
3.1 Certificate of Incorporation of the Company and Amendments thereto
3.2 Bylaws of the Company
4.1* Speciman Form of the Company's Common Stock Certificate
5.1* Opinion of Leonard, Street and Deinard Professional Association
9.1 Form of Irrevocable Proxy of Shareholders of Amcom Corporation
9.2 Form of Irrevocable Proxy of Shareholders of Delta Parts, Inc.
10.1 1996 Employee Stock Option Plan
10.2 1996 Non-Employee Director Stock Option Plan
10.3 1996 Employee Stock Purchase Plan
10.4* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Del M.
Johnson dated as of September 27, 1996
10.5* Employment Agreement between Company and Michael F. Cibulka dated as of September 27, 1996
10.6* Employment Agreement between Company and Mark P. Duffy dated as of September 27, 1996
10.7* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Dana J. Pekas
dated as of September 27, 1996
10.8* Employment Agreement between Company and John T. Harnett dated as of September 27, 1996
10.9* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Timothy R. Balko
dated as of September 27, 1996
10.10* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Betsy J. Martin
dated as of September 27, 1996
10.11* Employment Agreement between Company and Andrea J. Lindblad dated as of September 27, 1996
10.12* Employment Agreement between Company and Joel Lindquist dated as of September 27, 1996
10.13* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Jordan Pekas
dated as of September 27, 1996
II-2
<PAGE>
10.14* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Robert K.
Spinner dated as of September 27, 1996
10.15+ Amcom Corporation Contract Addendum IBM 4680 P.O.S. System Agreement Extension dated August 1,
1996 between Amcom Corporation and NCR Corporation
10.16+ Amcom Corporation Contract Addendum IBM 4680 P.O.S. System Agreement between Amcom Corporation and
AT&T Global Information Solutions dated May 16, 1995
10.17+ NCR Puerto Rico/Amcom Corporation IBM POS Agreement between Amcom Corporation and NCR-Puerto Rico
dated March 1, 1996
10.18* Support Agreement between Amcom Corporation and AT&T Global Information Solutions, dated July 1,
1991
10.19+ NCR/Amcom Support Agreement between Amcom Corporation and NCR Corporation, dated July 1, 1989
10.20 Basic Order Agreement No. 22398 between Amcom Corporation and Digital Equipment Corporation for
Spares, Repairs, Expendables, Exchanges, dated March 12, 1996
10.21 Division Repair/Refurbishment Agreement, Support Materials Organization, Contract Number C2-603,
Revision A, between Delta Parts, Inc. and Support Materials Organization, a division of the
Hewlett-Packard Company, as of February 20, 1996
10.22 Agreement between Delta Parts, Inc. and Digital Equipment Corporation, dated
June 25, 1996
10.23 Amendment and Extension Agreement Amendment No. 03 to Agreement 19649, between Delta Parts, Inc.
and Digital Equipment Corporation dated January 30, 1996 and Amendment No. 05 to Basic Order
Agreement No. 19649 between Delta Parts, Inc. and Digital Equipment Corporation dated November
11, 1994
10.24 Office/Warehouse Lease between Amcom Corporation and First Wisconsin National Bank of Milwaukee
for premises located at 6205-6209 Bury Drive, Eden Prairie, Minnesota dated April 6, 1990 and
Amendments thereto
10.25 Consent to Sublease between the Equitable Life Assurance Society of the United States and Viking
Press, Inc. dated September 18, 1995 and attached Sublease between Amcom Corporation and Viking
Press, Inc. for the premises located at 7524-7530 Washington Avenue South, Eden Prairie,
Minnesota, dated September 18, 1995
10.26 Lease between Amcom Corporation and Equitable Life Assurance Society of the United States for the
premises located at 7524-7530 Washington Avenue South, Eden Prairie, Minnesota, dated September
1, 1995
10.27 Line of Credit for Amcom Corporation by Fidelity Bank, dated September 10, 1996
10.28* Line of Credit for Amcom Corporation by IBM Credit Corporation's Remarketer Financing Program,
dated June 8, 1995.
10.29 Loan Agreement between Delta Parts, Inc. and Century Bank National Association and related
documents, dated July 17, 1996
10.30 Loan Agreement, Note and Security Agreement between Delta Parts, Inc. and Century Bank National
Association guaranteed by the Small Business Administration
10.31 Consulting Agreement between Delta Parts, Inc. and Kramer Capital Management, Inc., dated October
18, 1995 and Amendments thereto and Assignment, Assumption and Amendment Agreement among
ExpressPoint Technology Services, Inc., Delta Parts, Inc. and Kramer Capital Management, Inc.
dated September 30, 1996 and Promissory Note payable by ExpressPoint Technology Services, Inc.
to Kramer Capital Management, Inc., dated September 30, 1996
10.32 Promissory Note payable by Michael F. Cibulka to Delta Parts, Inc., dated July 15, 1996
10.33 Promissory Note payable by Mark P. Duffy to Delta Parts, Inc., dated December 10, 1994
11.1 Statement of Computation of Pro Forma Combined Per Share Earnings
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
II-3
<PAGE>
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Report of Independent Accountants on Financial Statement Schedule
23.6 Report of Independent Accountants on Financial Statement Schedule
23.7 Report of Independent Accountants on Financial Statement Schedule
23.8* Consent of Leonard, Street and Deinard Professional Association (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
* To be filed by amendment
+ Confidential treatment requested as to certain portions
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts, Amcom Corporation
Schedule II -- Valuation and Qualifying Accounts, Delta Parts, Inc.
Schedule II -- Valuation and Qualifying Accounts, Lindquist Computer
Services, Inc.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1993 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant 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
registrant 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 Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, 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 registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-1 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, State of Minnesota on
October 16, 1996.
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
By: s/Michael F. Cibulka
---------------------------------------------------
Michael F. Cibulka
President, Chief Executive
Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on October 16, 1996. Each person whose signature to this
registration statement appears below hereby constitutes and appoints Michael
F. Cilbulka and Delmont Johnson, and each of them, as his or her true and
lawful attorney-in-fact and agent, with full power of substitution, to sign
on his or her behalf individually and in the capacity stated below and to
perform any acts necessary to be done in order to file all amendments and
post-effect amendments to this registration statement, and any and all
instruments or documents filed as part of or in consideration with this
registration statement or the amendments thereto and each of the undersigned
does hereby ratify and confirm that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title
------------------------- ------------------------------------------------------------
<S> <C>
s/Michael F. Cibulka
----------------------- President, Chief Executive Officer and Director
Michael F. Cibulka (principal executive officer)
s/Del M. Johnson
-----------------------
Del M. Johnson Vice-Chairman of the Board and President of Amcom Division
s/David R.A. Steadman
-----------------------
David R.A. Steadman Chairman of the Board
s/John Harnett
----------------------- Vice-President, Chief Financial Officer and Treasurer
John Harnett (principal financial and accounting officer)
s/Betsy Martin
-----------------------
Betsy Martin Vice-President and Controller
s/Larry Stroup
-----------------------
Larry Stroup Director
s/Mark Duffy
-----------------------
Mark Duffy Director
s/Dana Pekas
-----------------------
Dana Pekas Vice-President, Sales and Director
</TABLE>
II-5
<PAGE>
SCHEDULE II
AMCOM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance at
beginning of costs and against end of
Description period expenses accounts Other period
-------------------------------- -------------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended May 31, 1994 $ 1,954 $39,560 $(21,514) $-- $20,000
Year ended May 31, 1995 20,000 540 (10,783) -- 9,757
Year ended May 31, 1996 9,757 79,627 (67,627) -- 21,757
</TABLE>
S-1
<PAGE>
SCHEDULE II
DELTA PARTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance at
beginning of costs and against end of
Description period expenses accounts Other period
- ------------------------------------------------- -------------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Period from inception (August 9, 1993) through
December 31, 1993 $ -- $ -- $ -- $ -- $ --
Year ended December 31, 1994 -- 8,304 (2,304) 5,248 11,248
Year ended December 31, 1995 11,248 2,000 (6,640) -- $ 6,608
Reserve for Inventory Obsolescence
Period from inception (August 9, 1993) through
December 31, 1993 $ -- $ -- $ -- $ -- $ --
Year ended December 31, 1994 -- 16,000 -- -- 16,000
Year ended December 31, 1995 16,000 27,206 -- -- $43,206
</TABLE>
S-2
<PAGE>
SCHEDULE II
LINDQUIST COMPUTER SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance at
beginning of costs and against end of
Description period expenses accounts Other period
-------------------------------------------------------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended December 31, 1993 $ -- -- -- -- $10,000
Eight-month period ended August 31, 1994 10,000 -- ($4,752) -- $ 5,248
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
------- ------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement dated October , 1996 --
2.1 Agreement and Plan of Reorganization among the Company, Amcom Acquisition Corp. and Amcom
Corporation dated as of October 14, 1996 --
2.2 Agreement and Plan of Reorganization among the Company, Delta Acquisition Corp. and Delta Parts,
Inc. dated as of October 14, 1996 --
3.1 Certificate of Incorporation of the Company and Amendments thereto --
3.2 Bylaws of the Company --
4.1* Speciman Form of the Company's Common Stock Certificate --
5.1* Opinion of Leonard, Street and Deinard Professional Association --
9.1 Form of Irrevocable Proxy of Shareholders of Amcom Corporation --
9.2 Form of Irrevocable Proxy of Shareholders of Delta Parts, Inc. --
10.1 1996 Employee Stock Option Plan --
10.2 1996 Non-Employee Director Stock Option Plan --
10.3 1996 Employee Stock Purchase Plan --
10.4* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Del M.
Johnson dated as of September 27, 1996 --
10.5* Employment Agreement between Company and Michael F. Cibulka dated as of September 27, 1996 --
10.6* Employment Agreement between Company and Mark P. Duffy dated as of September 27, 1996 --
10.7* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Dana J. Pekas
dated as of September 27, 1996 --
10.8* Employment Agreement between Company and John T. Harnett dated as of September 27, 1996 --
10.9* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Timothy R. Balko
dated as of September 27, 1996 --
10.10* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Betsy J. Martin
dated as of September 27, 1996 --
10.11* Employment Agreement between Company and Andrea J. Lindblad dated as of September 27, 1996 --
10.12* Employment Agreement between Company and Joel Lindquist dated as of September 27, 1996 --
10.13* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Jordan Pekas
dated as of September 27, 1996 --
10.14* Employment Agreement and Non-Statutory Stock Option Agreement between Company and Robert K.
Spinner dated as of September 27, 1996 --
10.15+ Amcom Corporation Contract Addendum IBM 4680 P.O.S. System Agreement Extension dated August 1,
1996 between Amcom Corporation and NCR Corporation --
10.16+ Amcom Corporation Contract Addendum IBM 4680 P.O.S. System Agreement between Amcom Corporation and
AT&T Global Information Solutions dated May 16, 1995 --
10.17+ NCR Puerto Rico/Amcom Corporation IBM POS Agreement between Amcom Corporation and NCR-Puerto Rico
dated March 1, 1996 --
10.18* Support Agreement between Amcom Corporation and AT&T Global Information Solutions, dated July 1,
1991 --
10.19+ NCR/Amcom Support Agreement between Amcom Corporation and NCR Corporation, dated July 1, 1989 --
10.20 Basic Order Agreement No. 22398 between Amcom Corporation and Digital Equipment Corporation for
Spares, Repairs, Expendables, Exchanges, dated March 12, 1996 --
10.21 Division Repair/Refurbishment Agreement, Support Materials Organization, Contract Number C2-603,
Revision A, between Delta Parts, Inc. and Support Materials Organization, a division of the
Hewlett-Packard Company, as of February 20, 1996 --
<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
------- ------- -----------
10.22 Agreement between Delta Parts, Inc. and Digital Equipment Corporation, dated
June 25, 1996 --
10.23 Amendment and Extension Agreement Amendment No. 03 to Agreement 19649, between Delta Parts, Inc.
and Digital Equipment Corporation dated January 30, 1996 and Amendment No. 05 to Basic Order
Agreement No. 19649 between Delta Parts, Inc. and Digital Equipment Corporation dated November
11, 1994 --
10.24 Office/Warehouse Lease between Amcom Corporation and First Wisconsin National Bank of Milwaukee
for premises located at 6205-6209 Bury Drive, Eden Prairie, Minnesota dated April 6, 1990 and
Amendments thereto --
10.25 Consent to Sublease between the Equitable Life Assurance Society of the United States and Viking
Press, Inc. dated September 18, 1995 and attached Sublease between Amcom Corporation and Viking
Press, Inc. for the premises located at 7524-7530 Washington Avenue South, Eden Prairie,
Minnesota, dated September 18, 1995 --
10.26 Lease between Amcom Corporation and Equitable Life Assurance Society of the United States for the
premises located at 7524-7530 Washington Avenue South, Eden Prairie, Minnesota, dated September
1, 1995 --
10.27 Line of Credit for Amcom Corporation by Fidelity Bank, dated September 10, 1996 --
10.28* Line of Credit for Amcom Corporation by IBM Credit Corporation's Remarketer Financing Program,
dated June 8, 1995. --
10.29 Loan Agreement between Delta Parts, Inc. and Century Bank National Association and related
documents, dated July 17, 1996 --
10.30 Loan Agreement, Note and Security Agreement between Delta Parts, Inc. and Century Bank National
Association guaranteed by the Small Business Administration --
10.31 Consulting Agreement between Delta Parts, Inc. and Kramer Capital Management, Inc., dated October
18, 1995 and Amendments thereto and Assignment, Assumption and Amendment Agreement among
ExpressPoint Technology Services, Inc., Delta Parts, Inc. and Kramer Capital Management, Inc.
dated September 30, 1996 and Promissory Note payable by ExpressPoint Technology Services, Inc.
to Kramer Capital Management, Inc., dated September 30, 1996 --
10.32 Promissory Note payable by Michael F. Cibulka to Delta Parts, Inc., dated July 15, 1996 --
10.33 Promissory Note payable by Mark P. Duffy to Delta Parts, Inc., dated December 10, 1994 --
11.1 Statement of Computation of Pro Forma Combined Per Share Earnings --
21.1 Subsidiaries of the Company --
23.1 Consent of Coopers & Lybrand L.L.P. --
23.2 Consent of Coopers & Lybrand L.L.P. --
23.3 Consent of Coopers & Lybrand L.L.P. --
23.4 Consent of Coopers & Lybrand L.L.P. --
23.5 Report of Independent Accountants on Financial Statement Schedule --
23.6 Report of Independent Accountants on Financial Statement Schedule --
23.7 Report of Independent Accountants on Financial Statement Schedule --
23.8* Consent of Leonard, Street and Deinard Professional Association (included in Exhibit 5.1) --
24.1 Powers of Attorney (included on signature page) --
27.1 Financial Data Schedule --
</TABLE>
- --------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions
[UNNEGOTIATED]
Draft 10/9/96
2,000,000 Shares
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
Common Stock
UNDERWRITING AGREEMENT
_____________, 1996
Rodman & Renshaw, Inc.
- -----------------------
225 Liberty Street
2 World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
ExpressPoint Technology Services, Inc., a Delaware corporation (the
"Company"), proposes to sell to you and the other underwriters named in Schedule
I attached hereto (the "Underwriters"), for whom you are acting as the
representatives (the "Representatives"), an aggregate of 2,000,000 shares (the
"Firm Shares") of the Company's Common Stock, par value $.01 per share (the
"Common Stock") all of which are to be issued and sold by the Company (the
"Company Shares"). In addition, those certain stockholders of the Company set
forth on Schedule II attached hereto (the "Selling Stockholders") and the
Company, propose to grant to the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock (the "Option Shares") for the purpose
of covering over-allotments in connection with the sale of the Firm Shares. Of
the Option Shares purchased by the Underwriter, the first 100,000 shares will be
sold by the Selling Stockholders (the "Selling Stockholder Shares") and the
remaining 200,000 shares will be sold by the Company (the "Company Option
Shares"). The obligation of each Selling Stockholder to sell Option Shares to
the Underwriters under this Agreement shall be as set forth opposite his name on
Schedule II attached hereto. The Firm Shares and the Option Shares are together
called the "Shares."
<PAGE>
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and
subject to the terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell the Firm Shares to
the several Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase at the purchase price per share
of Common Stock of $_____ (the "Initial Price"), the aggregate number
of Firm Shares set forth opposite such Underwriter's name in Schedule I
attached hereto. The Underwriters agree to offer the Firm Shares to the
public as set forth in the Prospectus (as hereinafter defined).
(b) The Selling Stockholders grant to the several Underwriters
an option to purchase severally and not jointly, all or any part of the
number of Selling Stockholder Shares at the Initial Price. The number
of Selling Stockholder Shares to be purchased by each Underwriter shall
be the same percentage (adjusted by the Representatives to eliminate
fractions) of the total number of Selling Stockholder Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the
Firm Shares. Such option may be exercised only to cover over-allotments
in the sales of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time on or before 12:00 noon, New
York City time, on the business day before the Firm Shares Closing Date
(as defined below), and from time to time thereafter within 30 days
after the date of this Agreement, upon written, telecopy or telegraphic
notice, or verbal or telephonic notice confirmed by written, telecopy
or telegraphic notice, by the Representatives to each of the Company
and the Selling Stockholders no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at
least two business days before any Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Selling
Stockholder Shares to be purchased and the time and date (if other than
the Firm Shares Closing Date) of such purchase.
(c) The Company grants to the several Underwriters an option
to purchase severally and not jointly, all or any part of the number of
Company Option Shares at the Initial Price. The number of Company
Option Shares to be purchased by each Underwriter shall be the same
percentage (adjusted by the Representatives to eliminate fractions) of
the total number of Company Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares. Such
option may be exercised only if the Underwriters have purchased all of
the Selling Stockholder Shares and only to cover over-allotments in the
sales of the Firm Shares by the Underwriters. Such option may be
exercised in whole or in part at any time on or before 12:00 noon, New
York City time, on the business day before the Firm Shares Closing Date
(as defined below), and from time to time thereafter within 30
<PAGE>
days after the date of this Agreement, upon written, telecopy or
telegraphic notice, or verbal or telephonic notice confirmed by
written, telecopy or telegraphic notice, by the Representatives to the
Company no later than 12:00 noon, New York City time, on the business
day before the Firm Shares Closing Date or at least two business days
before any Option Shares Closing Date (as defined below), as the case
may be, setting forth the number of Company Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.
2. Delivery and Payment. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and payment
of the purchase price by certified or official bank check or checks payable in
New York Clearing House (next day) funds to the Company, shall take place at the
offices of Rodman & Renshaw, Inc., at 225 Liberty Street, 2 World Financial
Center, New York, New York, 10281, at 10:00 a.m., New York City time, on the
third business day following the date on which the public offering of the Shares
commences (unless such date is postponed in accordance with the provisions of
Section 10(b) hereof), or at such time and place on such other date, not later
than 10 business days after the date of this Agreement, as shall be agreed upon
by the Company and the Representatives (such time and date of delivery and
payment are called the "Firm Shares Closing Date"). The public offering of the
Shares shall be deemed to have commenced at the time, which is the earlier of
(a) the time, after the Registration Statement (as defined in Section 4 below)
becomes effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or (b) the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by the Underwriters or dealers by letter,
telecopy or telegram.
In the event the option with respect to the Selling Stockholder Shares
and/or the Company Shares, as the case may be, is exercised, delivery (i) by the
Selling Stockholders of the Selling Stockholder Shares and/or (ii) by the
Company of the Company Option Shares, as the case may be, to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by certified or official bank check or checks payable in New York Clearing
House (next day) funds to the Selling Stockholders and/or the Company, as the
case may be, shall take place at the offices of Rodman & Renshaw, Inc., at the
address specified above, at the time and on the date (which may be the same date
as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Sections 1(b) and 1(c) (such time and
date of delivery and payment is called the "Option Shares Closing Date(s)"). The
Firm Shares Closing Date and the Option Shares Closing Date(s) are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in
such names and shall be in such denominations as the
<PAGE>
Representatives shall request at least two full business days before the Firm
Shares Closing Date or the Option Shares Closing Date(s), as the case may be,
and shall be made available to the Representatives for checking and packaging,
at such place as is designated by the Representatives, on the full business day
before the Firm Shares Closing Date or the Option Shares Closing Date(s), as the
case may be.
3. Public Offering. The Company and the Selling Stockholders understand
that the Underwriters propose to make a public offering of the Shares, as set
forth in and pursuant to the Prospectus (as defined in Section 4 below), as soon
after the effective date of the Registration Statement and the date of this
Agreement as the Representatives deem advisable. The Company and the Selling
Stockholders hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each preliminary prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
4. Representations and Warranties of the Company and the
Selling Stockholders.
(a) The Company represents and warrants to, and agrees
with, the several Underwriters that:
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement, and may have filed one or more amendments thereto,
on Form S-1 (Registration No. 333-_____), including in such
registration statement, and each such amendment, a related
preliminary prospectus (a "Preliminary Prospectus"), for the
registration of the Shares and the Option Shares, in
conformity with the requirements of the Securities Act of 1933
(the "Act"). In addition, the Company has filed or will
promptly file a further amendment to such registration
statement, in the form heretofore delivered to you. The
Company may also file a related registration statement with
the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering certain additional Shares, which
registration shall be effective upon filing with the
Commission. As used in this Agreement, the term "Original
Registration Statement" means such registration statement, as
amended, on file with the Commission at the time such
registration statement becomes effective (including the
prospectus, financial statements, exhibits, and all other
documents filed as a part thereof or incorporated by reference
directly or indirectly therein), provided that such
registration statement, at the time it becomes effective, may
omit such information as is permitted to be omitted from a
registration statement when it becomes effective
-4-
<PAGE>
pursuant to Rule 430A of the General Rules and Regulations
promulgated under the Act (the "Regulations"), which
information ("Rule 430 Information") shall be deemed to be
included in such registration statement when a final
prospectus is filed with the Commission in accordance with
Rules 430A and 424(b)(1) or (4) of the Regulations; the term
"Rule 462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule 462(b)
under the Act (including the Original Registration Statement
and any Preliminary Prospectus or Prospectus incorporated
therein at the time the Original Registration Statement
becomes effective); the term "Registration Statement" includes
both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus"
means each prospectus included in the Registration Statement,
or any amendments thereto, before it becomes effective under
the Act, the form of prospectus omitting Rule 430A Information
included in the Registration Statement when it becomes
effective, if applicable (the "Rule 430A Prospectus"), and any
prospectus filed by the Company with your consent pursuant to
Rule 424(a) of the Regulations; and the term "Prospectus"
means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating
to the securities covered by the Registration Statement in the
form first filed on behalf of the Company with the Commission
pursuant to Rule 424(b) of the Regulations shall differ from
such final prospectus, the term "Prospectus" shall mean the
prospectus as filed pursuant to Rule 424(b) from and after the
date on which it shall have first been used.
(ii) When the Registration Statement becomes
effective, and at all times subsequent thereto to and
including the Closing Dates, and during such longer period as
the Prospectus may be required to be delivered in connection
with sales by the Underwriters or a dealer, and during such
longer period until any post-effective amendment thereto shall
become effective, the Registration Statement (and any
post-effective amendment thereto) and the Prospectus (as
amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all
statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the
-5-
<PAGE>
Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule
430A Prospectus is included in the Registration Statement at
the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424(b)(1) or (4) will contain all Rule 430A
Information; and each Preliminary Prospectus, as of the date
filed with the Commission, did not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; except that no
representation or warranty is made in this Section 4(a)(ii)
with respect to statement or omissions made in reliance upon
and in conformity with written information furnished to the
Company as stated in Section 7(b) with respect to any
Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or
any amendment or supplement thereto.
(iii) If the Company has elected to rely on Rule
462(b) and the Rule 462(b) Registration Statement has not been
declared effective, then (i) the Company has filed a Rule
462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt and (ii) the Company has given
irrevocable instructions for transmission of the applicable
filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111
promulgated under the Act or the Commission has received
payment of such filing fee.
(iv) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction have issued an order
(a "Stop Order") suspending the effectiveness of the
Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Firm
Shares or the Option Shares nor has any of such authorities
instituted or threatened to institute any proceedings with
respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the
-6-
<PAGE>
Commission as an exhibit to or has been incorporated as an
exhibit by reference into the Registration Statement.
(vi) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to carry on its business as now being conducted and
in the manner described in the Prospectus. [The Company does
not own, lease or license any property or conduct any business
outside the United States of America.] The Company has no
subsidiary or subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or other business organization, except for those
listed on Schedule III attached hereto and those permitted to
be excluded pursuant to Item 601, Exhibit 21 of Regulation
S-K, including the Founding Companies (as hereinafter defined)
(each such corporation a "Subsidiary" and collectively, the
"Subsidiaries"). Each of the Subsidiaries has been duly
organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
as listed on Schedule III attached hereto. The Company and
each of its Subsidiaries is duly qualified and in good
standing as a foreign corporation in each jurisdiction in
which the character or location of its or any of their
properties (owned, leased or licensed) or the nature of its or
any of their businesses makes such qualification necessary
except for such jurisdictions where the failure to so qualify
would not, either singly or in the aggregate, have a material
adverse effect on the assets or properties, business,
financial condition or results of operations of the Company
and its Subsidiaries, taken as a whole.
(vii) The authorized capital stock of the Company
consists of 15,000,000 of Common Stock, of which
______________ shares are outstanding. Each outstanding share
of Common Stock has been duly and validly authorized and
issued, fully paid, and non-assessable, without any personal
liability attaching to the ownership thereof and has not been
issued and is not owned or held in violation of any preemptive
rights of shareholders. There is no commitment, plan,
preemptive right or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
shares of capital stock of the Company or any security or
other instrument which by its terms is
-7-
<PAGE>
convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as may be properly described in
the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into or
exchangeable for capital stock of the Company, except as may
be properly described in the Prospectus.
(viii) The financial statements of the Company and
each Subsidiary included in the Registration Statement and the
Prospectus fairly present, with respect to the Company and
each Subsidiary the financial position, the results of
operations, and the other information purported to be shown
therein at the respective dates and for the respective periods
to which they apply. Such financial statements have been
prepared in accordance with generally accepted accounting
principles (except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under
the Securities Exchange Act of 1934 (the "Exchange Act"))
consistently applied throughout the periods involved, are
correct and complete, and are in accordance with the books and
records of the Company. The accountants whose report on the
audited financial statements is filed with the Commission as a
part of the Registration Statement are, and during the periods
covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified
public accountants with respect to the Company within the
meaning of the Act and the Regulations. No other financial
statements are required by Form S-1 or otherwise to be
included in the Registration Statement or the Prospectus.
There has at no time been a material adverse change in the
financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the
Company or any Subsidiary from the latest information set
forth in the Registration Statement or the Prospectus, except
as may be properly described in the Prospectus.
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or
board pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any Subsidiary, or
any of its operations, business, properties, or assets, except
as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have and will not
in the future have a material adverse effect upon the
operations, business, properties, assets or financial
condition of the Company or any Subsidiary. Neither the
Company nor any Subsidiary is involved in any labor
-8-
<PAGE>
dispute, nor is such dispute threatened, which dispute would
have a material adverse effect upon the operations, business,
properties, assets or financial condition of the Company or
any Subsidiary. Neither the Company nor any Subsidiary is in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree; nor is the Company or
any Subsidiary required to take any action in order to avoid
any such violation or default.
(x) The Company and each Subsidiary has good and
marketable title in fee simple absolute to all real properties
and good title to all other properties and assets which the
Prospectus indicates are owned by it, and has valid and
enforceable leasehold interests in each of such items, free
and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages (except as may be properly
described in the Prospectus). No real property owned, leased,
licensed or used by the Company lies in an area which is, or
to the knowledge of the Company will be, subject to zoning,
use or building code restrictions which would prohibit, and no
state of facts relating to the actions or inaction of another
person or entity or his or its ownership, leasing, licensing
or use of any real or personal property exists or will exist
which would prevent, the continued effective ownership,
leasing, licensing or use of such real property in the
business of the Company and each Subsidiary as presently
conducted or as the Prospectus indicates it contemplates
conducting (except as may be properly described in the
Prospectus).
(xi) The Company and each Subsidiary, and to the
knowledge of the Company and each Subsidiary, any other party,
is not now or is not expected by the Company and each
Subsidiary to be in violation or breach of, or in default with
respect to, complying with any term, obligation or provision
of any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding which is material to the Company and any
Subsidiary or by which any of its properties or business may
be bound or affected, and no event has occurred which with
notice or lapse of time or both would constitute such a
default, and each such contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding is in full force and is the legal, valid and
binding obligation of the parties thereto and is enforceable
as to them in accordance with its terms. The Company and each
Subsidiary enjoy peaceful and undisturbed possession under all
leases and licenses under which they are operating. Neither
the Company nor any Subsidiary is a party to or bound by any
-9-
<PAGE>
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding,
or subject to any charter or other restriction, which has had
or may in the future have a material adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company or any Subsidiary. Neither the Company nor any
Subsidiary is in violation or breach of, or in default with
respect to, any term of their respective certificates of
incorporation (or other charter document) or by-laws or of any
franchise, license, permit, judgment, decree, order, statute,
rule or regulation.
(xii) The Company and each Subsidiary have filed all
federal, state, local and foreign tax returns which are
required to be filed through the date hereof, or have received
extensions thereof, and have them pay all taxes shown on such
returns and all assessments received by it to the extent that
the same are material and have become due.
(xiii) Neither the Company, nor any Subsidiary, nor
any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any
Subsidiary has, directly or indirectly used any corporate
funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. No transaction has
occurred between or among the Company, any Subsidiary, and any
of its officers or directors or any affiliates or affiliates
of any such officer or director, except as described in the
Prospectus.
(xiv) The Company and each Subsidiary has all
requisite power and authority to execute, deliver and perform
this Agreement. All necessary corporate proceedings of the
Company and each Subsidiary have been duly taken to authorize
the execution, delivery and performance of this Agreement.
This Agreement has been duly authorized, executed, and
delivered by the Company, is the legal, valid and binding
obligation of the Company and each Subsidiary, and is
enforceable as to the Company and each Subsidiary in
accordance with its terms. No consent, authorization,
approval, order, license, certificate or permit of or from, or
declaration or filing with, any federal, state, local or other
governmental authority or any court or other
-10-
<PAGE>
tribunal is required by the Company or any Subsidiary for the
execution, delivery or performance by the Company and each
Subsidiary of this Agreement (except filings under the Act
which have been or will be made before the applicable Closing
Date and such consents consisting only of consents under "blue
sky" or securities laws which have been obtained at or prior
to the date of this Agreement). No consent of any party to any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to
which the Company or any Subsidiary is a party, or to which
any of its respective properties or assets are subject, is
required for the execution, delivery or performance of this
Agreement, and the execution, delivery and performance of this
Agreement, will not violate, result in a breach of, conflict
with, accelerate the due date of any payments under, or (with
or without the giving of notice or the passage of time or
both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement, or
understanding, or violate or result in a breach of any term of
the certificate of incorporation (or other charter document)
or by-laws of the Company or any Subsidiary, or violate,
result in a breach of, or conflict with any law, rule,
regulation, order, judgment or decree binding on the Company
or any Subsidiary or to which any of its operations, business,
properties or assets are subject.
(xv) The Firm Shares and the Company Option Shares
are duly and validly authorized. The Firm Shares and the
Company Option Shares, when delivered in accordance with this
Agreement, will be duly and validly issued, fully paid, and
non-assessable, without any personal liability attaching to
the ownership thereof, and will not be issued in violation of
any preemptive rights of shareholders, optionholders,
warrantholders and any other persons and the Underwriters will
receive good title to the Firm Shares and the Company Option
Shares purchased by them, respectively, free and clear of all
liens, security interests, pledges, charges, encumbrances,
shareholders' agreements and voting trusts.
(xvi) The Firm Shares, the Company Option Shares and
the Common Stock conform to all statements relating thereto
contained in the Registration Statement or the Prospectus.
(xvii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as may otherwise be properly described
therein, there has not been any
-11-
<PAGE>
material adverse change in the assets or properties, business
or results of operations or financial condition of the Company
or any Subsidiary, whether or not arising from transactions in
the ordinary course of business; neither the Company nor any
Subsidiary has sustained any material loss or interference
with its business or properties from fire, explosion,
earthquake, flood or other calamity, whether or not covered by
insurance; since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor any Subsidiary has
undertaken any liability or obligation, direct or contingent,
except for liabilities or obligations undertaken in the
ordinary course of business; and neither the Company nor any
Subsidiary has (A) issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed
money, (B) entered into any transaction not in the ordinary
course of business, or (C) declared or paid any dividend or
made any distribution on any of its capital stock or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase
or otherwise acquire any shares of its capital stock.
(xviii) Neither the Company, nor any Subsidiary, nor
any of its officers, directors or affiliates (as defined in
the Regulations), has taken or will take, directly or
indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed
to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Firm Shares or the Option Shares.
(xix) The Company has obtained from each of its
executive officers and directors and principal shareholders,
their enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a
period of 180 days from the date on which the public offering
of the Shares commences they will not, without the prior
written consent of Rodman, on behalf of the Underwriters,
offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or other securities of the Company
(or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares
of Common Stock or other securities of the Company, including,
without limitation, any shares of Common Stock issuable
-12-
<PAGE>
under any employee stock options), beneficially owned by
them.
(xx) Neither the Company nor any Subsidiary is not,
and does not intend to conduct its business in a manner in
which it would be, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 (the
"Investment Company Act").
(xxi) All offers and sales of the Company's and each
Subsidiary's capital stock prior to the date hereof were at
all relevant times exempt from the registration requirements
of the Act and were the subject of an available exemption from
the registration requirements of all applicable state
securities or blue sky laws.
(xxii) No person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement.
(xxiii) Except as may be set forth in the Prospectus,
neither the Company nor any Subsidiary has incurred any
liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement.
(xxiv) No transaction has occurred between or among
the Company, any Subsidiary, and any of their respective
officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(xxv) The Common Stock, including the Shares, are
authorized for quotation on the Nasdaq National Market.
(xxvi) Neither the Company nor any Subsidiary, nor
any of their affiliates is presently doing business with the
government of Cuba or with any person or affiliate located in
Cuba. If, at any time after the date that the Registration
Statement is declared effective with the Commission or with
the Florida Department of Banking and Finance (the "Florida
Department"), whichever date is later, and prior to the end of
the period referred to in the first clause of Section 4(ii)
hereof, the Company commences engaging in business with the
government of Cuba or with any person or affiliate located in
Cuba, the Company will so inform the Florida Department within
ninety days after such commencement of business in Cuba, and
during the period referred to in Section 4(ii) hereof will
inform the Florida Department within ninety
-13-
<PAGE>
days after any change occurs with respect to previously
reported information.
(b) The Selling Stockholders, severally and not
jointly, represent and warrant to, agree with, the
several Underwriters that:
(i) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or beneficiary, public body or
board pending, threatened, or in prospect (or any basis
therefor known to such Selling Stockholder) with respect to
such Selling Stockholder or any of such Selling Stockholder's
business, properties or assets. Such Selling Stockholder is
not in violation of, or in default with respect to, any law,
rule, regulation, order, judgment, or decree; nor is such
Selling Stockholder required to take any action in order to
avoid such violation or default.
(ii) Each such Selling Stockholder has all requisite
power and authority to execute, deliver, and perform this
Agreement. This Agreement has been duly executed and delivered
by or on behalf of each such Selling Stockholder, is the
legal, valid and binding obligation of each Selling
Stockholder, and is enforceable as to each such Selling
Stockholder in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or
other tribunal is required by each such Selling Stockholder
for the execution, delivery or performance of this Agreement
(except filings under the Act which have been made before the
applicable Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement) by each
such Selling Stockholder. No consent of any party to any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to
which such Selling Stockholder is a party, or to which any of
each such Selling Stockholder's properties or assets are
subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, or violate,
result in a breach of, or conflict with, any law, rule,
regulation, order,
-14-
<PAGE>
judgment or decree binding on each such Selling Stockholder or
to which any of each such Selling Stockholder's operations,
business, properties, or assets are subject.
(iii) Each such Selling Stockholder has good title to
the Selling Stockholder Shares to be sold by such Selling
Stockholder pursuant to this Agreement, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts and when delivered
in accordance with this Agreement, the Underwriters will
receive good title to the Selling Stockholder Shares from such
Selling Stockholder, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts.
(iv) Neither any Selling Stockholder nor any of such
Selling Stockholder's affiliates (as defined in the
Regulations) has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Selling Stockholder Shares.
(v) All information furnished or to be furnished to
the Company by or on behalf of each such Selling Stockholder
for use in connection with the preparation of the Registration
Statement and the Prospectus is true in all respects and does
not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(vi) Except as may be set forth in the Prospectus, no
Selling Stockholder has incurred any liability for a fee,
commission or other compensation on account of the employment
of a broker or finder in connection with the transactions
contemplated by this Agreement.
(vii) Each Selling Stockholder has no knowledge that,
and does not believe that, any representation or warranty of
the Company in Section 4(a) is incorrect.
(viii) Each Selling Stockholder has not, directly or
indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government
-15-
<PAGE>
officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment.
(ix) No transaction has occurred between any Selling
Stockholder and the Company or any Subsidiary that is required
to be described in the Registration Statement or the
Prospectus and is not so properly described.
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several
and not joint. The respective obligations of the Underwriters to
purchase the Shares are subject, in the Representatives' sole
discretion, to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a)(i) of this Agreement; if the
Original Registration Statement or any amendment thereto filed prior to
the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not
later than the earlier of (i) 11:00 a.m. New York time, on the date on
which the amendment to the registration statement originally filed with
respect to the Shares or to the Registration Statement, as the case may
be, containing information regarding the public offering price of the
Shares has been filed with the Commission, and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2) or, with
respect to the Original Registration Statement, such later time and
date as shall have been consented to by the Representatives.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be in
effect and no order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company and the
Selling Stockholders contained in this Agreement and in the
certificates delivered pursuant to Section 5(d) shall be true and
correct when made and on and as of each Closing Date as if made on such
date and the Company and the Selling
-16-
<PAGE>
Stockholders shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each Closing
Date (i) a certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial officer of the Company to the effect that the persons
executing such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company and each Subsidiary in
this Agreement are true and correct on and as of such Closing Date with
the same effect as if made on such Closing Date and the Company and
each Subsidiary has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date and (ii)
certificates, addressed to the Representatives and dated such Closing
Date, of each of the Selling Stockholders to the effect that the
representations and warranties of each such Selling Stockholder are
true and correct on and as of such Closing Date and each such Selling
Stockholder has performed all covenants and agreements and satisfied
all conditions contained in this Agreement required to be performed or
satisfied by each such Selling Stockholder at or prior to such Closing
Date.
(e) The Representatives shall have received at the time this
Agreement is executed and on each Closing Date, signed letters from
Coopers & Lybrand LLP addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and scope reasonably satisfactory to the Representatives, with
reproduced copies or signed counterparts thereof for each of the
Underwriters confirming that they are independent accountants within
the meaning of the Act and the Regulations, that the response to Item
10 of the Registration Statement is correct in so far as it relates to
them and stating in effect that:
(i) in its opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by it comply as to form in all material respects
with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations
thereunder;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the heading "Selected Financial Information" which would
not necessarily reveal matters
-17-
<PAGE>
of significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
shareholders and directors of the Company and each Subsidiary,
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company and each Subsidiary as to transactions and events
subsequent to the date of the latest audited financial
statements, except as disclosed in the Registration Statement
and the Prospectus, nothing came to its attention which caused
it to believe that:
(A) the amounts in "Selected Financial
Information," and included in the Registration
Statement and the Prospectus do not agree with the
corresponding amounts in the audited financial
statements from which such amounts were derived; or
(B) with respect to the Company and each
Subsidiary, there were, at a specified date not more
than five business days prior to the date of the
letter, any decreases in net sales, income before
income taxes and net income or any increases in
long-term debt of the Company or any decreases in the
capital stock, working capital or the shareholders'
equity in the Company and each Subsidiary, as
compared with the amounts shown on the Company's
audited Balance Sheet for the fiscal year ended
December 31, 1995 included in the Registration
Statement or the audited Statement of Operations, for
such year; and
(iii) it has performed certain other procedures as a
result of which it determined that information of an
accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived
from the general accounting records of the Company and each
Subsidiary) set forth in the Registration Statement and the
Prospectus and reasonably specified by the Representatives
agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented at
the date of such letter.
(f) The Representatives shall have received on each Closing
Date from Leonard, Street & Deinard, Professional Association, counsel
for the Company, an opinion, addressed to the Representatives and dated
such Closing Date, and in form and scope satisfactory to counsel for
the Underwriters, with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
-18-
<PAGE>
(i) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority to
own, lease, license and use its properties and assets and to
conduct its business in the manner described in the
Prospectus. To the knowledge of such counsel, the Company has
all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and declarations and
filings with, all federal, state, local and other governmental
authorities and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Prospectus. [The
Company does not own, lease or license any property or conduct
any business outside the United States of America.] The
Company has no subsidiary or subsidiaries and does not
control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization,
except for those listed on Schedule II attached hereto and
those permitted to be excluded pursuant to Item 601, Exhibit
21 of Regulation S-K, including the Founding Companies. Each
of the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, as listed on Schedule III
attached hereto. The Company and each of its Subsidiaries is
duly qualified and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its
or any of their properties (owned, leased or licensed) or the
nature of its or any of their businesses makes such
qualification necessary except for such jurisdictions where
the failure to so qualify would not, either singly or in the
aggregate, have a material adverse effect on the assets or
properties, business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a
whole.
(ii) The Company has authorized, issued and
outstanding capital stock as set forth in the "actual" column
of the capitalization table under the caption "Capitalization"
in the Prospectus. The certificates evidencing the Shares are
in due and proper legal form. Each outstanding share of Common
Stock has been duly and validly authorized and issued, fully
paid, and is non-assessable, without any personal liability
attaching to the ownership thereof, and has not been issued
and is not owned or held in violation of any preemptive right
of shareholders. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
any share of capital stock of the Company or any security or
other instrument which by its terms is convertible into,
exercisable for, or
-19-
<PAGE>
exchangeable for capital stock of the Company, except as may
be properly described in the Prospectus. To the knowledge of
such counsel, there is outstanding no security or other
instrument which by its terms is convertible into, exercisable
for or exchangeable for capital stock of the Company, except
as may be properly described in the Prospectus.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any
court or before any public body or board pending, threatened,
or in prospect (or any basis therefor) with respect to the
Company, any Subsidiary, or any of its operations, businesses,
properties, assets, or financial condition or any of the
Selling Stockholders attached hereto except as may be properly
described in the Prospectus or such as individually or in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, assets, or financial condition of the Company or
any Subsidiary. To the knowledge of such counsel, neither the
Company nor any Subsidiary is involved in any labor dispute,
nor is such dispute threatened, which dispute would have a
material adverse effect upon the operations, business,
properties, assets or financial condition of the Company or
any Subsidiary. Neither the Company nor any Subsidiary is in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be
properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, assets, or financial condition of the Company or
any Subsidiary; nor is the Company or any Subsidiary required
to take any action in order to avoid any such violation or
default.
(iv) To the knowledge of such counsel, the Company
nor any Subsidiary, nor any other party is now or is expected
by the Company or any Subsidiary to be in violation or breach
of, or in default with respect to, complying with any term,
obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to
the Company or any Subsidiary or by which any of its
properties or businesses may be bound or affected and no event
has occurred which with notice or lapse of time or both would
constitute such a default.
(v) Neither the Company nor any Subsidiary is in
violation or breach of, or in default with respect to,
-20-
<PAGE>
any term of their certificates of incorporation (or other
charter documents) or by-laws.
(vi) Each of the Company and the Selling Stockholders
has all requisite power and authority to execute, deliver and
perform this Agreement and to issue and sell the Shares. All
necessary corporate proceedings of the Company and the
Subsidiaries have been taken to authorize the execution,
delivery and performance by the Company and the Subsidiaries
of this Agreement. This Agreement has been duly authorized,
executed and delivered by each of the Company and the Selling
Stockholders, is the legal, valid and binding obligation of
each of the Company and of the Selling Stockholders
enforceable against the Company and the Selling Stockholders
in accordance with its terms, except (x) as enforceability may
be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and court
decisions with respect thereto, (y) no opinion as to the
availability of equitable remedies need be expressed, and (z)
as rights to indemnification or contribution hereunder may be
limited under Federal and state securities laws and the
policies underlying such laws. No consent, authorization,
approval, order, license, certificate or permit of or from, or
declaration or filing with, any federal state, local or other
governmental authority or any court or other tribunal is
required by the Company, any Subsidiary or any of the Selling
Stockholders, for the execution, delivery or performance by
the Company or any of such Selling Stockholders of this
Agreement (except filings under the Act which have been made
prior to the Closing Date and filings or consents under "blue
sky" or securities laws, as to which such counsel need express
no opinion). To the knowledge of such counsel, no consent of
any party to any contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding to which the Company, any Subsidiary or any
of the Selling Stockholders is a party, or to which any of
their respective properties or assets are subject, is required
for the execution, delivery or performance of this Agreement;
and the execution, delivery and performance of this Agreement
will not violate, result in a breach of, conflict with, or
(with or without the giving of notice or the passage of time
or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding, in each case known to such counsel, or
violate or result in a breach of any term of the certificate
of incorporation (or other charter document) or bylaws of the
Company or any
-21-
<PAGE>
Subsidiary, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree
binding on the Company or any Subsidiary or to which any of
their respective operations, businesses, properties or assets
are subject or any of the Selling Stockholders.
(vii) The Company Shares are duly and validly
authorized. Such opinion delivered at each of the Closing
Dates shall state that each Company Share, to be delivered on
that date is duly and validly issued, fully paid, and
non-assessable, with no personal liability attaching to the
ownership thereof, and is not issued in violation of any
preemptive rights of shareholders, optionholders,
warrantholders and any other persons, and each of the Selling
Stockholders has, pursuant to this Agreement, transferred to
each of the several Underwriters who has purchased the Selling
Stockholder Shares, and the Underwriters have received good
title to the Shares purchased by them, respectively, from the
Company and the Selling Stockholders, for the consideration
contemplated herein and in good faith and without notice of
any adverse claim within the meaning of the Uniform Commercial
Code, free and clear of any liens, security interests,
pledges, charges, encumbrances, shareholders' agreements,
voting trusts and other claims. The Common Stock, the Firm
Shares, the Selling Stockholder Shares and the Company Option
Shares conform to all statements relating thereto contained in
the Registration Statement or the Prospectus.
(viii) To the knowledge of such counsel, any
contract, agreement, instrument, lease or license required to
be described in the Registration Statement or the Prospectus
has been properly described therein. To the knowledge of such
counsel, any contract, agreement, instrument, lease or license
required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
or has been incorporated as an exhibit by reference into the
Registration Statement.
(ix) Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases or licenses, such
statements have been prepared or reviewed by such counsel and
to the knowledge of such counsel, accurately reflect the
status of such litigation and provisions purported to be
summarized and are correct in all material respects.
-22-
<PAGE>
(x) Neither the Company nor any Subsidiary is an
"investment company" as defined in Section 3(a) of the
Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, will not become an
"investment company" and will not be required to be registered
under the Investment Company Act.
(xi) To the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement except
such persons or entities from whom written waivers of such
rights have been received prior to the Closing Date.
(xii) The Registration Statement has become effective
under the Act. No Stop Order has been issued and no
proceedings for that purpose has been instituted or are
threatened, pending, or to such counsel's knowledge,
contemplated.
(xiii) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or
supplement thereto (other than financial statements and other
financial data and schedules which are or should be contained
in any thereof, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Act and the Regulations. The conditions
for the use of Form S-1 have been satisfied with respect to
the Registration Statement.
(xiv) To the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement.
(xv) The agreement of each officer, director,
principal shareholder of the Company and each Selling
Stockholder, stating that for a period of 180 days from the
date on which the public offering of the Shares commences,
such officer, director, principal shareholder and each Selling
Stockholder will not, without the prior written consent of
Rodman, on behalf of the Underwriters, offer, pledge, sell,
contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of
Common Stock (or any other securities of the Company or any
security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for shares of Common
Stock or other securities of the Company, including, without
limitation, any shares of Common
-23-
<PAGE>
Stock issuable under any employee stock options), beneficially
owned by such individual, has been duly and validly
authorized, executed and delivered by such individual and
constitutes the legal, valid and binding obligation of such
individual enforceable against such individual in accordance
with its terms.
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto (other
than financial statements and other financial data and schedules which are or
should be contained in any thereof, as to which such counsel need express no
opinion) and in conferences with officers and other representatives of the
Company, each Subsidiary and each Selling Stockholder, representatives of the
Representatives and representatives of the independent accountants of the
Company, at which conferences the contents of the Registration Statement, any
Rule 430A Prospectus, the Prospectus and related matters were discussed and,
although such counsel has not independently verified and is not passing upon and
does not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement, the Prospectus, any Rule
430A Prospectus, or any amendment or supplement thereto (except as specified in
the foregoing opinion), on the basis of the foregoing and relying as to
materiality upon the representations of executive officers of the Company and
each Subsidiary and each Selling Stockholder after conferring with such
executive officers and Selling Stockholders, no facts have come to the attention
of such counsel which lead such counsel to believe that the Registration
Statement at the time it became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, except for the financial statements and other financial and
statistical data included therein as to which counsel need express no opinion,
as amended or supplemented on the date thereof contained any untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by the Company as to laws of any jurisdiction other than the Federal laws of the
United States, the General Corporate Law of the states of Delaware and
Minnesota, provided that (1) each such local counsel is reasonably acceptable to
the Representatives and (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is addressed to the
Representatives and is in form and substance reasonably satisfactory to them and
their counsel. In addition, such counsel may rely, as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company and the Selling Stockholders, provided
-24-
<PAGE>
that executed copies of such certificates are provided to the Representatives.
(g) The Representatives shall have received on each Option
Shares Closing Date on which Selling Stockholder Shares are purchased from
_________________, counsel to the Selling Stockholders, an opinion, addressed to
the Representatives, and dated such Closing Date, to the effect that:
(i) The Selling Stockholders have all requisite power
and authority to execute, deliver and perform this Agreement
and to issue and sell the Shares. The Selling Stockholders
have the power and authority to execute, deliver and perform
this Agreement and to issue and sell the Shares. This
Agreement has been duly authorized, executed and delivered by
the Selling Stockholders, is the legal, valid and binding
obligation of the Selling Stockholders enforceable as to the
Selling Stockholders in accordance with its terms, except (x)
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and court decisions with respect thereto, (y) no
opinion as to the availability of equitable remedies need be
expressed and (z) as rights to indemnification hereunder may
be limited under Federal and state securities laws and the
policies underlying such laws. No consent, authorization,
approval, order, license, certificate or permit of or from, or
declaration or filing with, any federal state, local or other
governmental authority or any court or other tribunal is
required by the Selling Stockholders, for the execution,
delivery or performance by the Selling Stockholders of this
Agreement (except filings under the Act which have been made
prior to the Closing Date and filings or consents under "blue
sky" or securities laws, as to which such counsel need express
no opinion). To the knowledge of such counsel, no consent of
any party to any contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding to which the Trustee is a party, or to which
its property or assets are subject, is required for the
execution, delivery or performance of this Agreement; and the
execution, delivery and performance of this Agreement will not
violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding, in each case known to such counsel.
-25-
<PAGE>
(ii) Such opinion delivered at each of the Option
Shares Closing Dates shall state that each Share, as the case
may be, to be delivered on that date is duly and validly
issued, fully paid, and non-assessable, with no personal
liability attaching to the ownership thereof, and is not
issued in violation of any preemptive or other rights of
stockholders, optionholders, warrantholders and other persons
and such Selling Stockholder has, pursuant to this Agreement,
transferred to each of the several Underwriters who has
purchased such Selling Stockholder Shares in good faith and
without actual notice of any lien, encumbrance, equity or
adverse claim within the meaning of the Uniform Commercial
Code, good and valid title to such Selling Stockholder Shares
free and clear of all liens, encumbrances, equities or claims.
(h) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be
satisfactory in form and substance to the Representatives and its
counsel, and the Underwriters shall have received from Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, a favorable opinion, addressed to
the Representatives and dated such Closing Date, with respect to the
Shares, the Registration Statement and the Prospectus, and such other
related matters, as the Representatives may reasonably request, and the
Company and the Selling Stockholders shall have furnished to Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
6. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause
the Registration Statement to become effective as promptly as
possible. If the Registration Statement has become or becomes
effective with a form of prospectus omitting Rule 430A
information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to
you of such timely filing. The Company shall notify you
immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment
thereto become effective, (B) of the receipt of any comments
from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement
-26-
<PAGE>
thereto, and (C) of the receipt of any notification with
respect to a Stop Order. The Company shall not file any
amendment of the Registration Statement or supplement to the
Prospectus unless the Company has furnished the
Representatives a copy for their review prior to filing and
shall not file any such proposed amendment or supplement to
which the Representatives reasonably object. The Company shall
use its best efforts to prevent the issuance of any Stop Order
and, if issued, to obtain as soon as possible the withdrawal
thereof.
(ii) During the time when a Prospectus relating to
the Shares is required to be delivered hereunder or under the
Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and
as hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit the continuance
of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Shares is required to be delivered
under the Act and the Regulations, any event as a result of
which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Act or the
Regulations, the Company promptly shall prepare and file with
the Commission, subject to the third sentence of paragraph (i)
of this Section 6(a), an amendment or supplement which shall
correct such statement or omission or an amendment which shall
effect such compliance.
(iii) The Company shall make generally available to
its security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date (or 90 days if
such 12-month period coincides with the Company's fiscal
year), an earnings statement (which need not be audited) of
the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Act or Rule 158
of the Regulations.
(iv) The Company shall furnish to the Representatives
and counsel for the Underwriters, without charge, signed
copies of the Registration Statement (including all exhibits
and amendments thereto) and to each other Underwriter a copy
of the Registration Statement (without exhibits thereto) and
-27-
<PAGE>
all amendments thereof and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the
Act or the Regulations, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof and
supplements thereto as the Representatives may reasonably
request.
(v) The Company shall cooperate with the
Representatives and its counsel in endeavoring to qualify the
Shares for offer and sale under the laws of such jurisdictions
as the Representatives may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the
Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to
execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business
in any jurisdiction.
(vi) For a period of five years after the date of
this Agreement, the Company shall supply to the
Representatives, and to each other Underwriter who may so
request in writing, copies of such financial statements and
other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class
of its capital stock and to furnish to the Representatives a
copy of each annual or other report it shall be required to
file with the Commission.
(vii) Without the prior written consent of Rodman, on
behalf of the Underwriters, for a period of 180 days from the
date on which a public offering of the Shares commences, the
Company shall not issue, sell or register with the Commission
or otherwise dispose of, directly or indirectly, any
securities of the Company (or any securities convertible into
or exercisable or exchangeable for securities of the Company),
except for the issuance of the Shares pursuant to the
Registration Statement.
(viii) If the Company elects to rely on Rule 462(b),
the Company shall both file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b)
and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 p.m.
eastern time on the date of this Agreement and (ii) the time
confirmations are sent or given, as specified by Rule
462(b)(2).
(ix) The Company shall make all filings required to
be made under applicable securities laws and by the
-28-
<PAGE>
Nasdaq National Market on or before the last Closing Date.
(x) Prior to each Closing Date and for a period of 25
days thereafter, the Representatives shall be given reasonable
written prior notice of any press release or other direct or
indirect communication and of any press conference with
respect to the Company, the financial conditions, results of
operations, business, properties, assets, liabilities of the
Company, or this offering.
(xi) Until expiration of the Representative's
Warrants, the Company shall keep reserved sufficient shares of
Common Stock for issuance upon exercise thereof.
(b) The Company and the Selling Stockholders agree to pay, or
reimburse if paid by the Representatives, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses relating to the registration and
public offering of the Shares including those relating to: (i) the
preparation, printing, filing and distribution of the Registration
Statement including all exhibits thereto, each preliminary prospectus,
the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and any documents required to be
delivered with any Preliminary Prospectus or the Prospectus, and the
printing, filing and distribution of the Agreement Among Underwriters,
this Agreement and related documents; (ii) the preparation and delivery
of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred
to in Section 6(a)(v), including the fees and disbursements of counsel
for the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and shipment
of preliminary and supplementary Blue Sky memoranda up to a maximum
amount of $25,000; (iv) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of
each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by
this Section to be so furnished, as may be reasonably requested for use
in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (v) the filing
fees of the National Association of Securities Dealers, Inc. in
connection with its review of the terms of the public offering; (vi)
the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of all reports and
information required by Section 6(a)(vi); (vii) inclusion of the Shares
for quotation on the NASDAQ National Market System; and (viii) all
transfer taxes, if any, with respect to the sale
-29-
<PAGE>
and delivery of the Shares by the Company and the Selling Stockholders
to the Underwriters. Except as otherwise contemplated by Section 9
hereof, the Underwriters will pay their own counsel fees and expenses
to the extent not otherwise covered by clause (iii) above, and their
own travel and travel-related expenses in connection with the
distribution of the Shares. Without limiting the Company's obligations
set forth above, it agrees to pay all of its other costs and expenses
incident to the performance of its obligations under this Agreement and
the sale of the Shares by it hereunder.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements
therein not misleading. The Selling Stockholders agree, jointly and
severally, to indemnify each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject
under the Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact with respect
to such Selling Stockholders contained in any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment thereof
or supplement thereto (which amendments or supplements are furnished to
such Selling Stockholders), or which arise out of or are based upon any
omission or alleged omission to state therein such fact required to be
stated therein or necessary to make such statements therein not
misleading, but only with reference to
-30-
<PAGE>
information relating to such Selling Stockholders furnished in writing
to the Company by or on behalf of such Selling Stockholders expressly
for use in connection with the preparation of the Registration
Statement and Prospectus or any amendment thereof or supplement
thereto. Such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of the
Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus,
or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use
therein. The obligations of each of the Selling Stockholders, pursuant
to this Section 7(a) and Section 8, shall be limited to an amount not
exceeding the product of the Per Share Price to Public of the Shares as
set forth on the cover page of the Prospectus and the number of Shares
being sold by each of them. In no event shall the indemnification
agreement contained in this Section 7(a) inure to the benefit of any
Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any losses, claims, damages, liabilities or
actions arising from the sale of the Shares upon the public offering to
any person by such Underwriter if such losses, claims, damages,
liabilities or actions arise out of, or are based upon, a statement or
omission or alleged omission in a preliminary prospectus and if, in
respect to such statement, omission or alleged omission, the Prospectus
differs in a material respect from such preliminary prospectus and a
copy of the Prospectus has not been sent or given to such person at or
prior to the confirmation of such sale to such person. This indemnity
agreement will be in addition to any liability which the Company and
Selling Stockholders may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement and each
Selling Stockholder, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholders to each Underwriter, but only
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, which were made in reliance upon and in conformity
with information furnished in writing to the Company by the
Representatives on behalf of any
-31-
<PAGE>
Underwriter for specific use therein; provided, however, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) and the Selling
Stockholders shall be limited to the net proceeds received by the
Company and the Selling Stockholders, respectively, from such
Underwriter. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus
constitute the only information furnished in writing by or on behalf of
any Underwriter expressly for inclusion in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the Prospectus
or any amendment or supplement thereto.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of
all papers served. No indemnification provided for in Section 7(a) or
7(b) shall be available to any party who shall fail to give notice as
provided in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party otherwise than under this Section. In case any
such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval
by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other
expenses, except as provided below. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have been advised by counsel reasonably
satisfactory to the indemnified party that there may be a conflict of
interest between the indemnifying parties and the indemnified party in
the conduct of the defense of such action (in which case the
indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party),
-32-
<PAGE>
or (iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after notice
of the commencement thereof, in each of which cases the reasonable fees
and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement
of any action, suit, proceeding or claim effected without its written
consent.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Sections 7(a) and (b) is due in accordance with its terms but for any reason
(other than by reason of the failure of the party asserting the right to be
indemnified to give notice as provided in Section 7(c)) is held to be
unavailable from the Company, the Selling Stockholders or the Underwriters, the
Company, the Selling Stockholders and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by the Company from persons other
than the Underwriters, such as the Selling Stockholders, persons who control the
Company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may also be liable for
contribution) to which the Company and the Selling Stockholders and one or more
of the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the offering
of the Shares or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company and the Selling Stockholders
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling Stockholders and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or the Selling Stockholders from the sale of
the Shares, as set forth in the table on the cover page of the Prospectus (but
not taking into account the use of the proceeds of such sale of Shares by the
Company), bear to (y) the underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus. The relative fault
of the Company, the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact related to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to
-33-
<PAGE>
correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter (except as may be provided
in the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter hereunder, (ii) in no case shall any of the
Selling Stockholders be liable or responsible for any amount in excess of the
product of the Per Share Price to Public of the Shares as set forth on the cover
page of the Prospectus and the number of Shares being sold by each of them
subject to the limitation expressed in Section 7(a), and (iii) the Company shall
be liable and responsible for any amount in excess of the underwriting discounts
and commissions and the amount referred to in clause (ii); provided, however
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of the Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i), (ii)
and (iii) in the immediately preceding sentence of this Section 8. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Section, notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its written consent. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to their respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with
respect to the Shares to be purchased on any Closing Date by the
Representatives by notifying the Company at any time prior to the
purchase of the Shares:
-34-
<PAGE>
(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted,
or in the opinion of the Representatives will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the Offering; (iii) if there shall be such
a material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares;
(iv) if trading in the Shares has been suspended by the Commission or
trading generally on the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. or the Nasdaq National Market System has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or
any other governmental or regulatory authority; or (v) if a banking
moratorium has been declared by any state or federal authority, or
(b) at or before any Closing Date, if any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Stockholders shall be under any liability to
any Underwriter, and no Underwriter shall be under any liability to the Company
or the Selling Stockholders, except that no Underwriter who shall have failed or
refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company and the Selling Stockholders or to the other
Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this
-35-
<PAGE>
Agreement. If no such arrangements have been made by the close of
business on the business day following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date does not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event
shall the maximum number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 10
by more than one-ninth of such number of Shares without the written
consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representatives to purchase
such Shares upon the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and the Selling
Stockholders and without liability on the part of the Company and the Selling
Stockholders, except in both cases as provided in Sections 6(b), 7, 8, 9 and 10.
The provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company or the Selling Stockholders or the
nondefaulting Underwriters arising out of such default. A substitute underwriter
hereunder shall become an Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements,
representations, warranties, indemnities and other statements of
the Company or its officers, of the Selling Stockholders and of
the Underwriters set forth in or made pursuant to this Agreement
-36-
<PAGE>
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or the Company or the Selling Stockholders or
any of the officers, directors or controlling persons referred to in Sections 7
and 8 hereof, and shall survive delivery of and payment for the Shares. The
provisions of Sections 6(b), 7, 8, 9 and 10 shall survive the termination or
cancellation of this Agreement.
12. This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors and assigns and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered, or by telefax or telegraph if subsequently confirmed by letter,
(a) if to the Representatives, to Rodman & Renshaw, Inc., 225 Liberty Street, 2
World Financial Center, New York, New York 10281, Attention: Peter Boneparth,
Senior Managing Director, telecopy: (212) 416-7439 and (b) if to the Company, to
the Company's agent for service as such agent's address appears on the cover
page of the Registration Statement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the identity of the
person or persons or entity or entities require.
All section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or inference shall be
derived therefrom.
-37-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
EXPRESSPOINT TECHNOLOGY SERVICE, INC.
By: ______________________________
Name:
Title:
----------------------------------
----------------------------------
-38-
<PAGE>
Confirmed on behalf of itself
and as the Representatives of the several Underwriters
named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By:______________________________
Name: Peter Boneparth
Title: Senior Managing Director
- ---------------------------------
By:______________________________
Name:
Title:
-39-
<PAGE>
SCHEDULE I
Number of Firm
Shares to be
Name of Underwriter Purchased
- ------------------- --------------
Rodman & Renshaw, Inc.....
Total _______________
-40-
<PAGE>
SCHEDULE II
Name of Selling Stockholder Number of Shares
- --------------------------- To be Sold
----------------
-41-
<PAGE>
SCHEDULE III
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
Delta Parts, Inc. Minnesota
Amcom Corporation Minnesota
-42-
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 14th day of October, 1996
by and among
EXPRESSPOINT TECHNOLOGY SERVICES, INC.,
AMCOM ACQUISITION CORP.
and
AMCOM CORPORATION
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 14th day of October, 1996 by and among EXPRESSPOINT TECHNOLOGY SERVICES,
INC., a Delaware Corporation ("ETS"), AMCOM ACQUISITION CORP., a Minnesota
corporation and a wholly-owned subsidiary of ETS ("AAC"), and AMCOM CORPORATION,
a Minnesota corporation (the "COMPANY").
RECITALS
A. ETS is a corporation duly organized and existing under the laws of
the State of Minnesota, having been incorporated on April 23, 1996, AAC is a
corporation duly organized and existing under the laws of the State of
Minnesota, having been incorporated on October 15, 1996 as a wholly-owned
subsidiary of ETS, and both ETS and AAC have been organized solely for the
purpose of completing the transactions set forth herein.
B. The respective Boards of Directors of ETS, AAC and the COMPANY each
deem it advisable and in the respective best interests of ETS, AAC and the
COMPANY and their respective stockholders that AAC merge with and into the
COMPANY (AAC and the COMPANY being hereinafter referred to as the "Constituent
Corporations"), pursuant to this Agreement and the applicable provisions of the
laws of the State of Minnesota, such transaction sometimes being herein called
the "Merger";
C. ETS and DELTA ACQUISITION CORP., a Minnesota corporation and a
wholly-owned subsidiary of ETS ("DAC"), have entered into a separate agreement
substantially similar to this Agreement with Delta Parts, Inc. (the "Delta
Agreement") in order to acquire Delta Parts, Inc. ("Delta;" which, together with
the COMPANY, are collectively referred to as the "Founding Companies").
D. This Agreement, the Delta Agreement and the IPO of ETS Stock (as
defined in Section 4 hereof) constitute the "ETS Plan of Organization."
E. The Boards of Directors of ETS, AAC, DAC and each of the Founding
Companies have approved and adopted the ETS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to ETS
as a tax-free transfer of property under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code").
F. In consideration of the agreements of Delta pursuant to the Amcom
Agreement, the Board of Directors of the COMPANY has approved this Agreement as
part of the ETS Plan of Organization in order to transfer the capital stock of
the COMPANY to ETS.
TERMS AND CONDITIONS
<PAGE>
In consideration of the premises and of the mutual agreements,
representations, warranties, provisions and covenants contained herein, the
parties hereto agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent Corporations
will cause Articles of Merger with respect to the Merger (the "Articles of
Merger") to be signed, verified and delivered to the Secretary of State of the
State of Minnesota on or before the "Consummation Date," as defined in Section
4.
1.2 Effective Time of the Merger. The "Effective Time of the Merger" shall
be the Consummation Date as defined in Section 4. At the Effective Time of the
Merger, the separate existence of AAC shall cease. The COMPANY shall be the
surviving party in the Merger, as a wholly-owned subsidiary of ETS, and is
hereinafter sometimes referred to as the "Surviving Corporation".
1.3 Articles of Incorporation, By-laws and Board of Directors of Surviving
Corporation. At the Effective Time of the Merger:
(i) The Articles of Incorporation of the COMPANY shall be the Articles
of Incorporation of the Surviving Corporation until changed as provided by law.
(ii) The By-laws of the COMPANY shall be the By-laws of the Surviving
Corporation until they shall thereafter be duly amended.
(iii) The Board of Directors of the Surviving Corporation shall consist
of the following persons:
Del M. Johnson Dana J. Pekas
Betsy J. Martin Timothy R. Balko
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Minnesota and of the
Articles of Incorporation and By-laws of the Surviving Corporation.
(iv) The officers of the Surviving Corporation shall be the persons set
forth on Schedule 1.3 (iv) hereto, each of such officers to serve at the
discretion of the Surviving Corporation's Board of Directors.
1.4 Certain Information With Respect to the Capital Stock of The COMPANY,
ETS and AAC. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, ETS and
AAC as of the date of this Agreement are as follows:
2
<PAGE>
(i) The authorized capital stock of the COMPANY consists of 2,500,000
shares of common stock, par value $.01 ("COMPANY Stock"), of which 1,108,647
shares are issued and outstanding.
(ii) The authorized capital stock of ETS consists of 15,000,000 shares
of common stock, par value $.01 ("ETS Stock"), of which 100 shares are issued
and outstanding and 904,892 shares which are subject to outstanding options.
(iii) The authorized capital stock of AAC consists of 100 shares of
common stock, $.01 par value ("AAC Stock"), of which 100 shares are issued and
outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of the
merger shall be as provided in the applicable provisions of the Business
Corporation Act of the State of Minnesota (the "Minnesota BCA"). Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time of the Merger (i) all the rights, privileges, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other choses in action, and all and every other interest of or belonging
to or due to the COMPANY or AAC shall be taken and deemed to be transferred to,
and vested in, the Surviving Corporation without further act or deed; and all
property, privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation, as
they were of COMPANY and AAC, and (ii) the Surviving Corporation shall
thenceforth be responsible and liable for all the debts, liabilities, duties and
obligations of the COMPANY and AAC and neither the rights of creditors nor any
liens upon the property of the COMPANY or AAC shall be impaired by the Merger,
and may be enforced against the Surviving Corporation.
2. CONSIDERATION; CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of COMPANY
Stock and AAC Stock, issued and outstanding immediately prior to the Effective
Time of the Merger, respectively, into shares of common stock of the Surviving
Corporation, shall be as follows:
As of the Effective Time of the Merger:
(i) All of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
converted into, and deemed to represent, that number of shares of ETS Stock
determined pursuant to Sections 2.2 and 2.3 hereof.
(ii) All shares of AAC Stock issued and outstanding immediately prior to
the Effective Time of the Merger shall, by virtue of the Merger and without any
action on the
3
<PAGE>
part of the holder thereof or any Constituent Corporation, be converted into,
and deemed to represent, an equal number of shares of Common Stock of the
COMPANY, such that the COMPANY shall be a wholly-owned subsidiary of ETS.
(iii) All ETS Stock received by the stockholders of the COMPANY (the
"STOCKHOLDERS") as of the Effective Time of the Merger shall, except for
restrictions on resale or transfer described in Section 15 hereof, have the same
rights as all other shares of outstanding ETS Stock. All voting rights of such
ETS Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights.
2.2 Calculation of ETS Shares. Each share of COMPANY Stock shall be
converted, as a result of the Merger, into one share of ETS Stock, subject to
adjustment as set forth in Section 2.3 hereof.
2.3 Adjustment of ETS Shares. In the event that, upon the consummation of
the ETS Plan of Organization, the STOCKHOLDERS and those who have the right to
purchase (pursuant to options granted to Amcom employees under the employment
agreements contemplated by Section 8.9 hereof), in the aggregate, less than
49.9% of the total number of ETS shares issued or subject to a right to
purchase, without giving effect to the IPO, then the STOCKHOLDERS shall receive,
on a pro rata basis, additional Merger consideration (in shares of ETS Stock)
such that they own, in the aggregate, or have a right to purchase, that number
of shares of ETS Stock which represents not less than 49.9% of the total number
of ETS shares issued or subject to a right to purchase, without giving effect to
the IPO.
2.4 Cash Consideration. The Stockholders shall also receive, at the
Effective Time of the Merger, $6,300,000 in cash, to be distributed on a pro
rata basis to the stockholders of the Company.
3. DELIVERY OF SHARES
3.1 At or after the Effective Time of the Merger and at Closing:
(i) The STOCKHOLDERS, as the holders of all outstanding certificates
representing shares of COMPANY Stock, shall, upon surrender of such
certificates, be entitled to receive the number of shares of ETS Stock
calculated pursuant to Sections 2.2 and 2.3 hereof.
(ii) Until the certificates representing the COMPANY Stock have been
surrendered by the STOCKHOLDERS and replaced by the ETS Stock, the certificates
for COMPANY Stock shall, for all corporate and legal purposes be deemed to
evidence the right to receive shares of ETS Stock, as set forth in Sections 2.2
and 2.3 hereof.
3.2 The STOCKHOLDERS shall deliver to ETS at Closing the certificates
representing COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or
4
<PAGE>
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
such COMPANY Stock or with respect to the stock powers accompanying any COMPANY
Stock.
4. CLOSING
The consummation of the Merger and conversion and delivery of shares
referred to in Section 3 hereof and the other transactions contemplated by this
Agreement (hereinafter referred to as the "Closing") shall take place at the
offices of Leonard, Street and Deinard, 150 South Fifth Street, Minneapolis,
Minnesota, contemporaneously with the closing of the initial public offering of
ETS Stock (the "IPO") described in the Registration Statement referred to in
Section 8.6 (the "Registration Statement"), or at such other time, place and
date as ETS, the COMPANY and the STOCKHOLDERS may mutually agree, which date
shall be referred to as the "Consummation Date" or the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(A) Representations and Warranties of the COMPANY
The COMPANY represents and warrants that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and that such representations and warranties as made at the time of
Closing shall survive the Closing for a period of twelve (12) months from the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.16
hereof shall survive until such time as the limitations period has run for all
tax periods ended prior to the Consummation Date, which shall be deemed to be
the Expiration Date for Section 5.16 and (ii) solely for purposes of Section
11.1(iii) hereof, and solely to the extent that ETS actually incurs liability
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a material adverse
effect on the business of the COMPANY taken as a whole.
5
<PAGE>
5.2 Due Authorization. The COMPANY has full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. All acts and other proceedings required to be taken by or on the part of
each of the COMPANY to authorize it to carry out this Agreement and the
transactions contemplated hereby have been duly and properly taken or will be
duly and properly taken prior to the Closing Date. This Agreement has been duly
executed and delivered by the COMPANY and constitutes the legal, valid and
binding obligation of it, enforceable in accordance with its terms.
5.3 Corporate Documents.
(a) True, correct and complete copies of the Articles of Incorporation
and By-laws of the COMPANY, as amended to date and currently in effect, have
been delivered to ETS.
(b) The books of account, asset ledgers, stock ledgers and related
records of the COMPANY are complete and accurate in all material respects, have
been maintained on a consistent basis and fairly reflect all of its income,
expenses, assets, liabilities, obligations and commitments.
(c) The minute books of the COMPANY contain the records of all of the
official actions of its board of directors and its shareholders and there are no
material omissions therefrom or misstatements therein.
5.4 Capitalization. The authorized capitalization of the COMPANY is set
forth in Section 1.4(i) hereof. The outstanding shares of the capital stock of
the COMPANY were duly authorized and validly issued, and are fully paid and
nonassessable and such shares were sold in compliance with all applicable state
and federal laws concerning the issuance of securities. No stockholder or other
person has any preemptive right, right of first refusal or co-sale rights with
respect to the issue or sale of any of such stock that has not been waived by
such stockholder. All of the outstanding shares of capital stock of the COMPANY
are owned free and clear of all security interests, charges, liens, claims,
encumbrances and defects of title and were not issued in violation of any
preemptive right. There are no outstanding options, warrants or other rights,
commitments or arrangements, written or oral, to purchase or otherwise acquire
any authorized but unissued shares of capital stock of the COMPANY or any
security directly or indirectly convertible into or exchangeable for any capital
stock of the COMPANY and none of the capital stock of any Company is reserved
for any purpose. The COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its capital stock or any interests
therein or to pay any dividend or make any distribution in respect thereof.
5.5 No Violation. The COMPANY is not in material violation of any of the
provisions of its Articles of Incorporation or By-laws or any other governing
documents, all as amended to date, and is not in default and will not, with the
giving of notice or lapse of time or both, be in default in the performance or
observance of any obligation, agreement,
6
<PAGE>
covenant, or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, franchise agreement, joint venture or other agreement or instrument
where such default could have a material adverse effect on the business,
condition (financial or other), results of operations, properties, assets, or
liabilities of it. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not materially
conflict with or result in any material breach or violation of, or constitute a
material default (or an event which with notice or lapse of time or both would
become a default) under, or give rise to any right of termination, cancellation
or acceleration under, (a) the Articles of Incorporation or By-laws of the
COMPANY; (b) any statute, rule, regulation, order or decree of any public body
or authority by which the COMPANY or any of its properties or assets, may be
bound; (c) any indenture, mortgage, agreement or other instrument to which the
COMPANY is a party or by which any of it or its properties or assets may be
bound or affected; or (d) any permit, franchise or license held by the COMPANY
or any judgment, decree, order, regulation or rule of any court or governmental
or regulatory authority applicable to the COMPANY result in the creation of a
lien, charge or encumbrance on any of the properties or assets of the COMPANY.
5.6 No Consent. No consent of any person or entity is required to be
obtained by the COMPANY in order for the COMPANY to execute, deliver and perform
this Agreement and the transactions contemplated hereby or for the COMPANY to
undergo a change of control and no approval, authorization, consent, order or
action of, or filing with, any court or governmental or regulatory authority is
required to be obtained by the COMPANY in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, except for consents which have been obtained or will be obtained by the
closing.
5.7 Financial Statements. The COMPANY has delivered to ETS true, complete
and correct copies of its financial statements, which include the audited
financial statements of the COMPANY as of and for the three years ended May 31,
1996 (the "Balance Sheet Date"). Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated (except as may be indicated therein or in the
notes thereto) and fairly present the financial condition, assets and
liabilities (whether accrued, absolute, contingent or otherwise) and results of
operations as of the dates thereof. Except as set forth in the interim or
monthly financial statements, since May 31, 1996, there has not been any
material adverse change in, and there is no fact or circumstance which will
materially adversely affect, the assets or liabilities, or the business or
condition, financial or otherwise, or the results of operations, of the COMPANY.
5.8 No Changes. Except as set forth on Schedule 5.8 hereto, since May 31,
1996, the COMPANY has not:
(a) Incurred any obligations or liabilities of any nature (whether
absolute, accrued, contingent or otherwise and whether due or to become due) in
excess of
7
<PAGE>
$50,000, other than items incurred in the ordinary course of business consistent
with past practice or for which insurance coverage is in effect.
(b) Permitted, allowed or caused any of its property or assets to be
subjected to any mortgage, pledge, lien, encumbrance, restriction or charge of
any kind, other than in the ordinary course of business.
(c) Waived any claims or rights of substantial value, other than in the
ordinary course of business.
(d) Sold, transferred or otherwise disposed of any of its material
assets, other than in the ordinary course of business.
(e) Suffered any loss which would materially adversely affect the assets
or liabilities, or the business or condition (financial or otherwise), or the
results of operations.
(f) Agreed, whether in writing or otherwise, to take any of the actions
set forth in this Section 5.8.
(g) Changed its accounting principles or methods.
(h) Made any declaration, payment or setting aside for payment of any
dividend or any redemption purchase or other acquisition of any shares of
capital stock or securities.
(i) Made any return of any capital or other distribution of assets to
STOCKHOLDERS.
(j) Experienced any other event or condition of any character materially
and adversely affecting the financial condition, business or results of
operations.
(k) Conducted its business other than substantially in the ordinary
course and in a manner consistent with past practice.
5.9 Licenses. All registrations, permits, authorizations, or licenses (the
"Rights") necessary for the operation of the COMPANY'S business are in full
force and effect and there is no reason to believe that any of the Rights will
be revoked or is subject to hearings or proceedings by any regulatory authority
and there is no fact or circumstance presently existing which would, and the
business of the COMPANY has been and is currently being conducted in such manner
that will not, subject any of the Rights to revocation, forfeiture or
restriction, nor to any proceedings for revocation, forfeiture or restriction.
The COMPANY is not in material default under, or in material violation of, the
terms of any of the Rights.
8
<PAGE>
5.10 No Violation of Law. The business of the COMPANY is not being conducted
in material violation of any applicable federal, state, local or foreign law,
ordinance, regulation, judgment, decree, injunction or order or requirement of
any court or other governmental entity. The COMPANY has not been authorized to
receive or make, and is not receiving or making, any bribe, kickback, or other
illegal payment with respect to the business conducted by such company. No
stockholder, officer, director, employee, or agent of the COMPANY has been
authorized to receive or make, nor is any such person receiving or making, any
bribe, kickback, or other illegal payment.
5.11 Litigation.
(a) No investigation or review by any federal, state, local or foreign
body or authority with respect to the COMPANY is pending or threatened, nor has
any such authority or agency indicated an intention to conduct the same and
there is no action, suit, arbitration or proceeding pending or threatened
against or affecting any such company before any federal, state, local, foreign
or other governmental department, commission, board, bureau, agency,
instrumentality or court. There is no basis for any such suit, action,
arbitration, proceeding, investigation or review. There are no judgments,
consent decrees, injunctions or other judicial or administrative mandates
outstanding against the COMPANY.
(b) The COMPANY is not aware of any circumstances which may result in
any material claims being made against the COMPANY, or any of its present or
past officers or employees, which claims are of the nature and type that would
not be covered by any such company's existing errors and omissions insurance
policy.
5.12 Contracts. The COMPANY has made available to ETS copies of all material
agreements, contracts, arrangements and understandings, whether written or oral,
to which it is a party, including, without limiting the generality of the
foregoing, employment contracts; plans or understandings regarding employee
benefits, stock options, severance or bonuses; leases; advisory and management
agreements; agency agreements or arrangements for the provision of services;
commission agreements; and reinsurance agreements and treaties. All of such
agreements, contracts, arrangements and understandings are in full force and
effect without any material default or breach thereof and no event has occurred
which, with the giving of notice or the passage of time or both, would
constitute a material breach or default under any of such contracts or
agreements.
5.13 Subsidiaries. The COMPANY has no subsidiaries and no investment or
ownership interest in any other corporation, joint venture, partnership or other
business entity and has no obligation to make any such investment.
5.14 Real Property. All real property owned by the COMPANY is held free and
clear of any material lien, claim, encumbrance or defect of title and the
COMPANY is not in material default under any lease.
9
<PAGE>
5.15 Guaranties. Except as described in Schedule 5.15 hereto, there are no
material contracts or commitments by the COMPANY guaranteeing the payment or
performance of others, or whereby it is, or may be, in any way liable with
respect to the obligations of any other person, firm, corporation or other
entity.
5.16 Taxes. All federal, state, county, municipal and foreign tax returns,
reports and declarations of the COMPANY, including federal excise tax returns,
if any, which are required to be filed prior to the date hereof have been duly
filed, and no taxes which are shown thereon to be due or any other taxes,
assessments and other governmental charges imposed by law upon each such company
or any of its properties, assets, income, receipts, payrolls, transactions,
purchases, sales, capital, net worth or franchises which have become due and
payable as shown therein are delinquent. Neither the Internal Revenue Service
nor any other taxing authority is now asserting or threatening to assert against
any such company any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith. No tax returns of the COMPANY has
been or is currently under audit by the Internal Revenue Service or by the tax
authorities of any jurisdiction, and the COMPANY has not granted any waiver of
any statute of limitations with respect to, or any extension of a period for the
assessment of, any federal, state, county, municipal or foreign tax except as
the period for such assessment may be extended in conjunction with an authorized
extension of time to file an initial tax return. The accruals and reserves for
taxes reflected in the balance sheets of each such company included in the
Financial Statements are adequate to cover all taxes due and payable or
accruable (including interest and penalties, if any, thereon) as a result of its
operations and investment for all periods prior to the date hereof.
5.17 Employee Benefits.
(a) Copies of each "employee benefit plan," as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), for the
COMPANY which (i) is subject to any provision of ERISA and (ii) is maintained,
administered or contributed to by the COMPANY or any affiliate (as defined
below) and covers any employee or former employee of the COMPANY or any
affiliate or under which the COMPANY or any affiliate has any liability (and, if
applicable, related trust agreements) and all amendments thereto and summary
plan descriptions thereof and any material employee communications with respect
to them have been made available to ETS, together with the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any such plan. Such plans are hereinafter referred to
collectively as the "Employee Plans." For purposes of this Section, "affiliate"
of any person means any other person which, together with any such company, is
treated as a single employer under Section 414 of the Code. Neither the COMPANY
nor any affiliate has terminated or caused to be terminated in whole or in part
or merged any Pension Plan during the period since June 1, 1990. The COMPANY has
provided ETS with complete age, salary, service and related data as of May 31,
1996 for employees and former employees of the COMPANY and any affiliate covered
as of the Closing Date under the Pension Plans.
10
<PAGE>
(b) Except as set forth in Schedule 5.17 hereto:
(i) No Employee Plan constitutes a "multiemployer plan," as defined
in Section 3(37) of ERISA (a "Multiemployer Plan"); there are no reserves,
assets, surpluses or prepaid premiums under any Employee Plan which is a welfare
plan as defined in ERISA Section 3(1); no Employee Plan is subject to Title IV
of ERISA; and there are no unfunded benefit obligations arising in any
jurisdiction which are not accounted for by reserves shown on the Balance Sheet.
Neither the COMPANY nor any disqualified person, as defined in Section 4975 of
the Code, has engaged in any "prohibited transaction," as defined in Section 406
of ERISA or Section 4975 of the Code, with respect to any Employee Plan which is
covered by Title I of ERISA, excluding transactions effected pursuant to a
statutory or administrative exemption. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Employee
Plan has or will make the COMPANY or any affiliate, officer or director of any
such company subject to any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code or could have a material adverse effect
on the business or condition (financial or otherwise) of the COMPANY.
(ii) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is or was the subject of a favorable Internal Revenue
Service determination with respect to such qualification, and the COMPANY has
furnished to ETS copies of the most recent such determination letters, and
nothing has occurred since the date thereof that would have an adverse effect on
such qualification. There are no accrued liabilities under any Employee Plan
which have not been fully provided for by contributions to such Employee Plans.
Each Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plans, including without limitation those
requirements necessary to maintain its qualification and the continuation of
coverage requirements of Code Section 4980B or ERISA Sections 601-608. Other
than for claims in the ordinary course for benefits under the Employee Plans,
there are no suits, actions, claims or proceedings pending or threatened which
would result in any liability with respect to any such Employee Plan of the
COMPANY or any of its affiliates that would have a material adverse effect on
the business or condition (financial or otherwise) of such company.
(iii) There is no contract, agreement, plan or arrangement covering
any employee or former employee of the COMPANY or any affiliate that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G or Section
162(a)(1) of the Code.
(iv) There has been no amendment to, written interpretation or
announcement (whether or not written) by any such company or any of its
affiliates relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement which would increase materially the
expense (whether or not such expense is recognized under generally accepted
accounting principles) of maintaining
11
<PAGE>
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended on May 31, 1996.
(c) The COMPANY has provided ETS with a list of each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits in effect on the Closing Date which (i) is
not an Employee Plan; (ii) is entered into, maintained or contributed to, as the
case may be; and (iii) covers any employee or former employee. Such contracts,
plans and arrangements as are described above, copies or descriptions of all of
which have been furnished previously to the Buyer are hereinafter referred to
collectively as the "Benefit Arrangements." Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement. The COMPANY has no liability with
respect to post-retirement medical or death benefits for retired employees other
than death benefits under any Pension Plan.
5.18 Prospective Change. There are no existing events, actions or
developments which may materially adversely affect the assets or liabilities,
business or condition (financial or otherwise) of the COMPANY.
5.19 Liabilities. The COMPANY has no material liabilities or obligations
(whether absolute, accrued, contingent or otherwise), whether or not required by
generally accepted accounting principles to be reflected on such company's
balance sheet as of May 31, 1996, except (i) liabilities, obligations or
contingencies which are accrued or reserved against on such balance sheet or
reflected in the notes thereto, and (ii) normally recurring liabilities incurred
after May 31, 1996 in the ordinary course of business consistent with past
practice.
5.20 Related Transactions. No director, officer, employee, shareholder or
partner of the COMPANY nor any member of the immediate family of any such
person, is presently a party to any material transaction with any such company
including, but not limited to, any contract, agreement or other arrangement
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any of such persons.
5.21 Accounts Payable. The COMPANY has delivered to ETS a true, correct and
complete aged list of all accounts payable as of June 30, 1996. No account
payable that has arisen subsequent to such date has been otherwise than in the
ordinary course of business.
5.22 Accounts Receivable. All accounts receivable, reflected on balance
sheets of the COMPANY as of May 31, 1996, and all accounts receivable arising
12
<PAGE>
subsequent to such date, have arisen in the ordinary course of business of each
such company, represent valid obligations due to the COMPANY and, subject to an
anticipated uncollectible amount reserved for on the balance sheet of the
COMPANY as of the Closing Date, have been collected or are collectible in the
ordinary course of business of the COMPANY in the aggregate recorded amounts
thereof in accordance with their terms.
5.23 Insurance. All policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, errors and omissions and other
insurance held by or on behalf of the COMPANY are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner generally deemed
appropriate and sufficient by the management of the COMPANY. The COMPANY is not
in material default with respect to any provision contained in any such policy
or binder and has not failed to give any notice or present any claim under any
such policy or binder in due and timely fashion. There are no outstanding unpaid
claims under any such policy or binder. The COMPANY has not received notice of
cancellation or non-renewal of any such policy or binder. The COMPANY has no
knowledge of any inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts that might form
the basis for termination for any such insurance. The COMPANY has not received
any notice from any of its insurance carriers that any insurance premiums will
be materially increased in the future or that any insurance coverage will not be
available in the future on substantially the same terms as now in effect.
5.24 Environmental Matters. The COMPANY has complied materially with and is
in material compliance with all federal, state, local and foreign statutes
(civil and criminal), material laws, ordinances, regulations, rules, notices,
permits, judgments, orders and decrees applicable to any of them or any of their
respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), (ii) the COMPANY has obtained and adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances and have reported, to
the extent required by all Environmental Laws, all past and present sites owned
and operated by the COMPANY where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY or ETS for any clean-up cost, remedial work, damage, to
natural resources or personal injury, including, but not limited
13
<PAGE>
to any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) the COMPANY has no contingent
liability in connection with any release of any Hazardous Waste or Hazardous
Substance into the environment.
5.25 Representations Complete. No representation or warranty made to ETS in
this Agreement, the Schedules, or any other written statement or certificate
furnished or to be furnished to ETS in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
5.26 Due Diligence. The COMPANY has provided, or will by the Closing Date
have provided, true and complete copies of all documents and information
requested by ETS and no document or information provided to ETS contains a
misrepresentation of a material fact or omits to state a material fact necessary
to make the statements made therein not misleading.
5.27 Disclosure. (a) This Agreement, including the schedules hereto,
together with all other documents information made available to ETS and its
representatives pursuant hereto, present fairly the business and operations of
the COMPANY. The COMPANY's rights under the documents delivered pursuant hereto
would not be materially adversely affected by, and no statement made herein
would be rendered untrue by, and any other document to which the COMPANY is a
party, or by which its properties are subject, or by any other fact or
circumstance regarding the COMPANY that is not disclosed pursuant hereto.
(b) This Agreement, including the schedules hereto, shall be made
available to Delta, and Delta shall be a third-party beneficiary of the
representations and warranties contained herein, in accordance with the
provisions of Section 16.2 hereof.
(c) If, prior to the 25th day after the date of the final prospectus of
ETS utilized in connection with the IPO, the COMPANY becomes aware of any fact
or circumstance which would change (or, if after the Consummation Date, would
have changed) a representation or warranty of COMPANY in this Agreement or would
affect the document delivered pursuant hereto in any material respect, the
COMPANY shall immediately give notice of such fact or circumstance to ETS.
However, subject to the provisions of Section 7.8, at the sole option of ETS,
the truth and accuracy of any and all warranties and representation of the
COMPANY, or on behalf of the COMPANY at the date of this Agreement and at the
Closing, shall be a precondition to the consummation of this transaction.
(d) The COMPANY acknowledges and agrees (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
be filed, a Registration Statement will become effective, or that IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or occur at all; (ii) that neither ETS or any of its officers, directors, agents
or representatives nor any prospective underwriters in
14
<PAGE>
the IPO (the "Underwriters") shall have liability to the COMPANY or any other
person affiliated or associated with the COMPANY for any failure of the
Registration Statement to be filed, a Registration Statement to become
effective, the IPO to occur at a particular price or within a particular range
of prices or to occur at all; and (iii) that the decision of the COMPANY to
enter into this Agreement, or of any shareholders thereof to vote in favor of or
consent to the proposed Merger, has been or will be made independent of, and
without reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to ETS or the prospective IPO.
6. REPRESENTATIONS OF ETS AND AAC
ETS and AAC, jointly and severally, represent and warrant that (i) all of
the following representations and warranties shall be true at the time of
Closing and shall survive the Closing for a period of twelve months following
the Closing and (ii) solely for purposes of Section 11.2(iv) hereof, and solely
to the extent that the COMPANY actually incurs liability under the 1933 Act, the
1934 Act, or any other Federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
limitations period.
6.1 Due Organization. ETS is duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly authorized and
qualified under all applicable laws, regulations and ordinances of public
authorities to carry on its business in the places and in the manner as now
conducted, except for where the failure to be so authorized or qualified would
not have a material adverse effect on its business. AAC is duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and is duly authorized and qualified under all applicable laws, regulations and
ordinances of public authorities to carry on its business in the places and in
the manner as now conducted, except for where the failure to be so authorized or
qualified would not have a material adverse effect on its business.
6.2 ETS Stock. The ETS Stock to be issued and delivered to the STOCKHOLDERS
at the Consummation Date will constitute valid and legally issued shares of ETS,
fully paid and nonassessable and, with the exception of restrictions upon
resale, will be legally equivalent in all respects to the ETS Stock issued and
outstanding as of the date hereof. The shares of ETS Stock to be issued to the
STOCKHOLDERS pursuant to this Agreement will not be registered under the 1933
Act.
6.3 Due Authorization. ETS and AAC have full power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. All acts and other proceedings required to be taken by or on the part of
ETS or AAC to authorize them to carry out this Agreement and the transactions
contemplated hereby have been duly and properly taken or will be duly and
properly taken prior to the Closing Date. No other proceedings are necessary to
authorize the execution and delivery of this Agreement by ETS and AAC and the
consummation by them of the transactions
15
<PAGE>
contemplated hereby. This Agreement has been duly executed and delivered by ETS
and AAC and constitutes the legal, valid and binding obligations of such
entities, enforceable in accordance with its terms. The Board of Directors and
stockholders of ETS and AAC have taken all action required by law and by their
respective Certificate or Articles of Incorporation and By-laws, to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. No other act or proceeding on the part of ETS
or AAC is necessary to authorize the execution, delivery and performance of this
Agreement or the transactions contemplated hereby.
6.4 No Violation. Neither ETS or AAC is in material violation of any of the
provisions of their respective Certificate or Articles of Incorporation or
By-laws (or comparable instruments or documents), or any other governing
documents, all as amended to date, and are not in default and will not, with the
giving of notice or lapse of time or both, be in default in the performance or
observance of any obligation, agreement, covenant, or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any material
contract, indenture, mortgage, loan agreement, franchise agreement, joint
venture or other agreement or instrument where such default could have a
material adverse effect on the business, condition (financial or other), results
of operations, properties, assets, or liabilities of ETS or AAC. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in any material breach or
violation of, or constitute a material default (or an event which with notice or
lapse of time or both would become a default) under, or give rise to any right
of termination, cancellation or acceleration under, (a)the Certificate of
Incorporation or By-laws of ETS; (b) the Articles of Incorporation or By-laws of
AAC; (c) any statute, rule, regulation, order or decree of any public body or
authority by which ETS or AAC or any of their properties or assets, may be
bound; (c)any indenture, mortgage, agreement or other instrument to which ETS or
AAC is a party or by which they or their properties or assets may be bound or
affected; or (d)any permit, franchise or license held by ETS or AAC or any
judgment, decree, order, regulation or rule of any court or governmental or
regulatory authority applicable to ETS or AAC or result in the creation of a
lien, charge or encumbrance on any of the properties or assets of ETS.
6.5 No Consent. No consent of any person or entity is required to be
obtained by ETS or AAC in order for it to execute, deliver and perform this
Agreement and the transactions contemplated hereby and no approval,
authorization, consent, order or action of, or filing with, any court or
governmental or regulatory authority is required to be obtained by ETS in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
6.6 Capitalization of ETS and Ownership of ETS Stock. All of the shares of
ETS Stock to be issued to the STOCKHOLDERS in accordance herewith will be, duly
authorized, validly issued, fully paid and nonassessable. All of the shares of
ETS Stock to be issued pursuant to the Plan Of Organization, based on the
representations of the COMPANY contained in this Agreement and representations
contained in the Delta Agreement, were or will be offered, issued, sold and
delivered by ETS in compliance with all applicable state and federal laws
concerning the issuance of securities and
16
<PAGE>
none of such shares were or will be issued in violation of the preemptive rights
of any past or present stockholder.
6.7 No Side Agreements. ETS has not entered into any agreement other than
the Delta Agreement. Upon request, ETS will provide to the COMPANY copies of all
agreements entered into, or to be entered into prior to the Consummation Date,
between ETS and any of its affiliates and Delta.
6.8 Subsidiaries. Except for Delta, which ETS has agreed to purchase as of
the Closing Date, ETS does not presently have any subsidiaries or own, of record
or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, except AAC and DAC. ETS is not,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
6.9 Business; Real Property; Material Agreements; Financial Information.
Neither ETS nor AAC has conducted any business since the date of its inception,
except in connection with this Agreement, the Delta Agreement and the IPO of ETS
Stock. Neither ETS nor AAC own any real property or any material personal
property or is a party to any other material agreement, except that ETS is a
party to the Delta Agreement and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement. ETS and
AAC were formed in April and October 1996, respectively, and have no material
historical financial statements or information. Neither ETS nor AAC have any
material liabilities other than those incurred in connection with this
Agreement, the Delta Agreement and the contemplated IPO of ETS Stock.
6.10 Conformity with Law. Neither ETS nor AAC is in material violation of
any law or regulation or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
material adverse effect on the contemplated business of ETS or AAC. There are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
ETS or AAC, threatened, against or affecting ETS or AAC, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received.
6.11 No Violations. A certified copy of the Certificate or Articles of
Incorporation and a true, complete and correct copy of the By-laws, both as
amended to date, of ETS and AAC have been delivered to the COMPANY. Neither ETS
nor AAC is in violation of any of such documents and the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of
documents. The minute books of ETS and AAC, as made available to the COMPANY,
are true and correct.
17
<PAGE>
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of ETS and Delta access to all of the COMPANY's
sites, properties, books and records and will furnish ETS and Delta with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as ETS or Delta may from time to time reasonably
request. The COMPANY will cooperate with ETS and Delta, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required in connection with any documents or materials required by this
Agreement. ETS, and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to Amcom as confidential in
accordance with the provisions of Section 13 hereof. In addition, ETS will cause
the Delta Agreement to contain a provision similar to this Section 7.1 requiring
Delta and its stockholders to keep confidential any information obtained by them
regarding the COMPANY.
(b) Between the date of this Agreement and the Consummation Date, ETS
will afford to the officers and authorized representatives of the COMPANY access
to all of ETS's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of ETS as the COMPANY may from time to time
reasonably request. ETS will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 13 hereof.
7.2 Conduct of Business Pending Closing. Between the Balance Sheet Date and
the Consummation Date, the COMPANY will, except as set forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) maintain its respective properties and facilities, including those
held under leases, in as good working order and condition as present, ordinary
wear and tear excepted;
18
<PAGE>
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present employees and maintain its
respective relationships with suppliers, customers and others having business
relations with the COMPANY (including the Subsidiaries);
(vi) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders or applicable courts, regulatory agencies
and similar governmental authorities;
(vii) maintain present material debt and lease instruments and not enter
into new or amended debt or lease instruments, without the knowledge and consent
of ETS (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of ETS if such
replacement instruments are on terms at least as favorable to COMPANY as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for all
officers, directors, employees and agents.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 hereto,
between the Balance Sheet Date and the Consummation Date, the COMPANY has not
and, without the prior written consent of ETS, will not:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in connection
with the exercise of options or warrants listed on Schedule 1.4 (i) hereto;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the normal
course of business (consistent with past practice) or involves an amount not in
excess of $30,000, including contracts to provide services to customers;
(v) increase the compensation payable or to become payable to any
officer, director, STOCKHOLDER, employee or agent, or make any bonus or
management fee payment to any such person;
19
<PAGE>
(vi) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$10,000 necessary or desirable for the conduct of the businesses of the COMPANY,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics'
workers', repairmen's employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens");
(vii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the start-up of
any new business;
(ix) merge or consolidate or agree to merge or consolidate with or into
any other corporation other than AAC;
(x) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(xi) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide ETS with proof that any required notice has been sent.
7.5 Authorized Capital. ETS shall maintain its authorized capital stock
substantially as set forth herein, except for such changes in authorized capital
stock as are made to respond to comments made by the Securities and Exchange
Commission ("SEC") or the requirements of any exchange or automated trading
system for which application is made to register the ETS Stock. Except pursuant
to the Amcom Agreement and the agreements contemplated therein and otherwise as
will be disclosed in the Registration Statement, there have been no issuances
of, or agreements regarding the issuance of, any capital stock, warrants,
options or other securities convertible into or exchangeable for capital stock
or rights to acquire the same.
20
<PAGE>
7.6 Notification of Certain Matters. The COMPANY shall give prompt notice to
ETS of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely to cause any representation or warranty of
the COMPANY contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by any such person hereunder. ETS shall give prompt notice to the
COMPANY of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely to cause any representation or warranty of
ETS and (ii) any material failure of ETS to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.6 shall not be deemed to
(i)modify the representations or warranties hereunder of the party delivering
such notice, which modification may only be made pursuant to Section 7.7, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
21
<PAGE>
7.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules, provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the COMPANY (including the Subsidiaries) may be made
unless ETS and Delta consent to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 7.7. In the event that Delta seeks to
amend or supplement a Schedule pursuant to Section 7.7 of the Delta Agreement,
and ETS consents to such amendment or supplement but the COMPANY does not, the
COMPANY may terminate this Agreement pursuant to Section 12.1(v) hereof. In the
event that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.7, and ETS or Delta does not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 12.1(i) hereof. No party to this Agreement shall be liable to any other
party if this Agreement shall be terminated pursuant to the provisions of this
Section 7.7. No amendment or supplement to a schedule shall be made later than
48 hours prior to the anticipated effectiveness of the Registration Statement.
7.8 Cooperation in Preparation of Registration Statement.
(a) The COMPANY shall furnish or cause to be furnished to ETS and the
Underwriters all of the information concerning the COMPANY required for
inclusion in, and will cooperate with ETS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited financial statements prepared in accordance with generally
adopted accounting principles, in form suitable for inclusion in the
Registration Statement). The COMPANY agrees promptly to advise ETS if at any
time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY becomes incorrect or incomplete in any
material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the COMPANY, the
COMPANY represents and warrants that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(b) Provided that ETS shall have complied with Section 7.8(e), the
COMPANY shall make the following representation directly to the Underwriters in
connection with the IPO:
There is no untrue statement of a material fact relating to the COMPANY
contained in any preliminary prospectus, the Registration Statement or any
prospectus
22
<PAGE>
forming a part thereof, or any amendment thereof or supplement thereto, or any
omission to state therein a material fact relating to such COMPANY required to
be stated therein or necessary to make the statements therein not misleading.
(c) Provided that ETS shall have complied with Section 7.8(e), the
COMPANY shall indemnify the Underwriters directly in connection with the IPO as
follows:
The COMPANY covenants and agrees that it will indemnify, defend, protect
and hold harmless the Underwriters at all times from and after the date
of the Underwriting Agreement entered into between ETS and the
Underwriters in connection with the IPO from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) under the 1933
Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to COMPANY, contained in any preliminary
prospectus, the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a
material fact relating to COMPANY required to be stated therein or
necessary to make the statements therein not misleading, provided, that
the COMPANY shall not be liable for any amount in excess of the
aggregate amount of the proceeds received by the STOCKHOLDERS of the
COMPANY in connection with the Merger. For purposes of calculating the
amount of any proceeds received by the STOCKHOLDERS of the COMPANY, ETS
Stock received by such STOCKHOLDER shall be valued at its initial public
offering price.
(d) The representation contained in Section 7.8(b) and the
indemnification contained in Section 7.8(c) shall be null and void and of no
force and effect in the event comparable provisions are contained in the
Underwriting Agreement executed in connection with the IPO.
(e) ETS agrees that it will provide to the COMPANY and its counsel
copies of the drafts of the Registration Statement as they are prepared and will
not (i) file with the SEC, (ii) request the acceleration of the effectiveness of
or (iii) circulate any prospectus forming a part of, the Registration Statement
(or any amendment thereto) that contains information with respect to the COMPANY
that varies materially from the last draft of the Registration Statement (or any
amendment thereto) reviewed by the COMPANY and its counsel unless the COMPANY
and such counsel (x) have had at least two days to review such revised
information and (y) have not objected to the substance of the information
contained therein.
7.9 Shareholder Meetings. The Company, promptly upon execution of this
Agreement, shall call a meeting of shareholders to vote on this Agreement and
Plan of Reorganization and shall cooperate with ETS, Delta and their
representatives in
23
<PAGE>
preparing informative materials to be provided to the STOCKHOLDERS and the
Participants and shall hold such meeting within thirty days of the date of this
Agreement. Certain STOCKHOLDERS, concurrently with the execution of this
Agreement, shall execute and deliver to ETS duly executed irrevocable proxies,
coupled with an interest in the form of Exhibit A hereto, with respect to the
voting of such STOCKHOLDER'S shares held in their individual capacities and not
as trustees at such meeting. The immediately preceding sentence shall be deemed
to be a Shareholder Voting Agreement pursuant to Section 302A.455 of the BCA
and, without been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of the STOCKHOLDERS as
provided in Section 5 hereof.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
The obligations of the COMPANY hereunder are, at the option of the COMPANY,
subject to the following conditions. Upon consummation of this Agreement, all
conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of ETS and DAC contained in Section 6 hereof.
8.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of ETS and DAC contained in Section 6 shall be
true and correct as of the Consummation Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by ETS and DAC on
or before the Consummation Date shall have been duly complied with and
performed; and a certificate to the foregoing effect dated the Consummation Date
and signed by the President or any Vice President of each of ETS and DAC shall
have been delivered to the COMPANY.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The COMPANY
shall be satisfied that the Registration Statement or any prospectus forming a
part thereof, including the preliminary prospectus or any amendment thereof or
supplement thereto, shall not contain any untrue statement of a material fact
relating to the COMPANY or omit to state therein a material fact relating to the
COMPANY required to be stated therein or necessary to make the statements
therein related to the COMPANY not misleading, provided, that the condition
contained in this sentence shall be deemed satisfied if (i) ETS shall have
complied with its obligations under Section 7.8(e) and (ii) the COMPANY failed
to inform ETS in writing of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact (a) in the case of
any printed "red herring" preliminary prospectus, prior to the distribution
thereof or (b) in the case of any final prospectus, prior to the second day
preceding the effectiveness of the Registration Statement.
24
<PAGE>
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the merger of DAC with and into the COMPANY or the offering and sale
by ETS of ETS Stock pursuant to the Registration Statement and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. The COMPANY shall have received an opinion from
counsel for ETS, dated the Closing Date, in form and substance reasonably
satisfactory to the COMPANY.
8.5 Registration Statement. ETS shall have filed with the SEC a registration
statement on Form S-1 covering the offer and sale of shares of ETS Stock having
a value (the "Offered Value") of at least $16 million. The Registration
Statement shall have been declared effective by the SEC and the Underwriters
named therein shall have agreed to acquire, subject to the conditions set forth
in the underwriting agreement, shares of ETS Stock at a price not less that
$8.00 per share (prior to any underwriters' discount) and having a value at
least equal to the Offered Value. The closing of the sale of the ETS Stock to
the Underwriters shall have occurred simultaneously with the Closing hereunder.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit
ETS's acquisition of the COMPANY Stock and no governmental agency or body shall
have taken any other action or made any request of COMPANY as a result of which
COMPANY deems it inadvisable to proceed with the transactions hereunder.
8.7 Good Standing Certificates. ETS and DAC shall have delivered to the
COMPANY a certificate, dated as of a date no later than five days prior to the
Closing Date, duly issued by the Secretary of State of each state in which ETS
and DAC is organized or authorized to do business, showing that ETS and DAC are
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes, for all periods prior to the Closing, have
been filed and paid.
8.8 Plan of Reorganization. All conditions precedent to the consummation of
the Plan of Organization shall have been satisfied or waived and the merger of
AAC and Delta shall have occurred simultaneously with the Closing hereunder.
8.9 Employment Agreements. Effective on the Closing Date, ETS shall have
entered into employment agreements with the persons specified on Schedule 8.9
hereto, certain of which agreements shall have provided for cash payments and
option grants, as specified therein.
25
<PAGE>
8.10 Board of Directors. The Board of Directors of ETS, effective the
Closing Date, shall include Del M. Johnson and Dana Pekas.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ETS
The obligations of ETS and AAC hereunder are, at their option, subject to
the satisfaction, on or prior to the Consummation Date, of the following
conditions. Upon consummation of this Agreement, all conditions not satisfied
shall be deemed to have been waived, except that no such waiver shall be deemed
to affect the survival of the representations and warranties of the STOCKHOLDERS
as provided in Section 5 hereof.
9.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the COMPANY contained in this Agreement shall
be true on and as of the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except for
matters expressly disclosed in the certificate or a schedule thereto), each and
all of the agreements of the COMPANY to be performed on or before the
Consummation Date pursuant to the terms hereof shall have been performed and the
COMPANY shall have delivered to ETS a certificate dated the Consummation Date
and signed by its Chief Executive Officer and Chief Financial Officer to such
effect.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the merger of AAC with and into the COMPANY or the offering and sale
by ETS of the ETS Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which the management of the ETS deems it
inadvisable to proceed with the transactions hereunder.
9.3 Examination of Final Financial Statements. Prior to the Consummation
Date, ETS shall have had sufficient time to review, if available, the unaudited
consolidated balance sheets of the COMPANY as of September 30, 1996, and any
following fiscal quarters, and the unaudited consolidated statements of any
earnings, cash flows and retained earnings of the COMPANY for the fiscal quarter
ended September 30, 1996, and any following fiscal quarters, disclosing no
material adverse change in the financial condition of the COMPANY or the results
of its operations from the financial statements as of the Balance Sheet Date.
9.4 No Material Adverse Change. No material adverse change in the results of
operations, financial conditions or business of the COMPANY shall have occurred,
and the COMPANY shall not have suffered any material loss or damages to any of
its properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the COMPANY to conduct its business; and ETS shall have received a
certificate signed by the COMPANY's CEO and CFO dated the Consummation Date to
such effect.
26
<PAGE>
9.5 Regulatory Review. ETS, through its authorized representatives, shall
have completed a satisfactory review of the practices and procedures of the
COMPANY including, but not limited to, compliance with contracts and federal,
state and local laws and regulations governing the respective operations of
COMPANY, disclosing no material actual or probable violations, compliance
problems, required capital expenditures or other substantive concerns.
9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to ETS.
9.7 Consents and Approvals. ETS shall have received an opinion from counsel
to the COMPANY, dated the Closing Date, in form and substance reasonably
satisfactory to ETS, and the Underwriters shall have received a copy of the same
opinion addressed to them.
9.8 Good Standing Certificates. The COMPANY shall have delivered to ETS a
certificate, dated as of a date no later than five days prior to the Closing
Date, duly issued by the appropriate governmental authority in the COMPANY's
state of incorporation and, unless waived by ETS, in each state in which the
COMPANY is authorized to do business, showing the COMPANY is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the COMPANY for all periods prior to the Closing have been
filed and paid.
9.9 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire, subject to the conditions set forth in the underwriting
agreement, shares of ETS stock at a price not less than $8.00 per share (prior
to any underwriters' discount) and having value of not less than $16 million.
9.10 Plan of Reorganization. All conditions precedent to the closing of the
Plan of Organization shall have been satisfied or waived and the merger of DAC
and Delta shall have occurred simultaneously with the Closing hereunder.
9.11 ESOP Matters. The COMPANY shall have taken all steps necessary to
terminate the COMPANY'S employee stock option plan (the "ESOP") as of the
Effective Time of the Merger. The ESOP trustees shall have received an opinion
of Summit Investment Corp. that the consideration to be received by the
Participants is fair to them, from a financial point of view and the
Participants shall have approved the transactions contemplated hereby by the
affirmative vote of at least 75% in interest of the Participants.
9.12 Termination of Buy-Sell Agreements. That certain Buy-Sell Agreement,
dated June 7, 1989, among certain STOCKHOLDERS, shall have been terminated.
27
<PAGE>
9.13 Dissenter's Rights. Dissenter's rights shall not have been exercised by
Stockholders or Participants holding, in the aggregate, more
than 2% of the outstanding shares of the Company.
10. COVENANTS OF ETS AND THE COMPANY
10.1 ESOP Matters. As soon as practicable, subsequent to the Effective Time
of the Merger, the Company shall, following termination of the ESOP, prepare and
file a request to the Internal Revenue Service for a determination letter that
the termination of the ESOP does not adversely affect the tax qualified status
of the Plan of which the ESOP is a part, including the 401(K) Plan. ETS will use
its best efforts to file a registration statement on Form S-8 covering the ESOP
shares.
10.2 Company Governance. For a period of two (2) years following the
Effective Time of the Merger, no significant operational changes in the Company
shall be made by ETS without the consent of Del M. Johnson, which consent may be
given by his affirmative vote as a member of ETS' Board of Directors.
10.3 Option Plan. ETS shall have established an option plan, under which
options which are ETS Convertible Securities (as defined in the Delta
Agreement), shall be issued.
10.4 Profit Sharing. ETS shall establish an employee benefit plan, such as a
401(k) Plan, pursuant to which contributions shall be made by ETS for the
benefit of employees.
11. INDEMNIFICATION
11.1 Indemnification by ETS.
ETS and AAC, jointly and severally, covenant and agree that they will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
("Losses") incurred by the COMPANY and the STOCKHOLDERS as a result of or
arising from (i) any breach by ETS or AAC of their representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any agreement on the part of ETS or AAC under this
Agreement, (iii) any liabilities which the COMPANY may incur due to or AAC under
this Agreement, (iv) any liabilities which the COMPANY may incur due to the
failure of the Surviving Corporation to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that ETS or AAC has claims against the COMPANY by reason of such liabilities) or
any liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged
28
<PAGE>
untrue statement of a material fact relating to ETS or AAC contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to ETS or AAC required to be stated therein or necessary to make the
statements therein not misleading ("Securities Liabilities").
11.2 Indemnification by the COMPANY. The COMPANY will indemnify, defend,
protect and hold harmless ETS, until the Expiration Date from all Losses as a
result of or arising out of (i) any breach by the COMPANY of its representations
and warranties set forth herein, (ii) any nonfulfillment of any agreement on the
part of the COMPANY hereunder or (iii) any Securities Liabilities, relating to
statements or omissions regarding the COMPANY.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, such
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the expenses of its counsel. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a
29
<PAGE>
final and complete settlement of any such Third Person claim and the Indemnified
Party refuses to consent to such settlement, then the Indemnifying Party's
liability under this Section with respect to such Third Person claim shall be
limited to the amount so offered in settlement by said Third Person and the
Indemnified Party shall reimburse the Indemnifying Party for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy. All indemnification payments
under this section shall be deemed adjustments to the Merger consideration
provided for herein.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to the
Consummation Date solely:
(i) by mutual consent of the Boards of Directors of ETS, AAC and the
COMPANY;
(ii) by the COMPANY or ETS (acting through their respective boards
of directors) at any time prior to the time at which the Registration
Statement is declared effective by the SEC if the IPO price (without
regard to any underwriters' discount) of the Shares of ETS Stock into
which the COMPANY Stock is to be converted shall be less than $8.00 per
share;
(iii) by the COMPANY (acting through its board of directors), on the
one hand, or by ETS (acting through its board of directors), on the
other hand, if the transactions contemplated by this Agreement to take
place at the Closing
30
<PAGE>
shall not have been consummated by March 31, 1997, unless the
failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any
of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Consummation Date;
(iv) by the COMPANY, on the one hand, or by ETS, on the other hand,
if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Consummation Date and
shall not reasonably be expected to occur;
(v) pursuant to Section 7.7 hereof; or
(vi) by the COMPANY (acting through its board of directors) at any
time prior to the date the Registration Statement is filed with the SEC
(the "Filing Date") if (a) in the course of their investigations of or
due diligence with respect to ETS or Delta, or its stockholders, they
shall be dissatisfied with any information learned or issues that arose
concerning ETS, Delta or the stockholders thereof, (b) on or prior to
the Filing Date, the COMPANY shall have given written notice to ETS of
such dissatisfaction and of the particular information and/or issues
from which such dissatisfaction results and (c) ETS or Delta shall have
failed to reasonably satisfy the COMPANY with respect to the information
and/or issues identified in such notice. Without limiting their right to
terminate under Section 12.1(iv), if this Agreement shall not have been
terminated in accordance with this Section 12.1(vi), the COMPANY shall
have no right to refuse to consummate the transactions contemplated
hereby as a result of any information learned or issues that arose
during the course of or as a result of any investigation of or due
diligence with respect to ETS or Delta, or the stockholders thereof and
the condition set forth in the first sentence of Section 8.2, to the
extent that it applies to such information about ETS and Delta, shall be
deemed to have been waived by the COMPANY with respect to all matters
with respect to which this Agreement could have been terminated pursuant
to this Section 12.1(vi).
12.2 Liabilities in Event of Termination. Except as otherwise provided
herein, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out-of-pocket expenses.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
31
<PAGE>
13.1 ETS and AAC. ETS and AAC recognize and acknowledge that they had in the
past and currently have access to certain confidential information of the
COMPANY, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
ETS and AAC agree that, prior to the Closing, they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to their authorized
representatives, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
13.1 and (c) to Amcom and their representatives pursuant to Section 7.1(a)
hereof, unless (i) such information becomes known to the public generally
through no fault of ETS or AAC, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), ETS and AAC shall, if
possible, give prior written notice thereof to the COMPANY and provide the
COMPANY with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by ETS or AAC of the provisions of this Section, the
COMPANY shall be entitled to an injunction restraining ETS and AAC from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the COMPANY and the CONTROLLING STOCKHOLDERS
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
13.2 Survival. The obligations of the parties under this Article 13 shall
survive the termination of this Agreement.
14. REORGANIZATION ACCOUNTING AND TRANSFER RESTRICTIONS
14.1 Tax-Free Transfer of Property. ETS and the COMPANY are entering into
this Agreement with the intention that it qualify as a tax-free transfer of
property pursuant to Section 351 of the Code for federal income tax purposes
(except to the extent of any boot received).
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON ETS STOCK
The COMPANY acknowledges that the shares of ETS Stock to be delivered to the
STOCKHOLDERS pursuant to this Agreement have not been and will not be registered
under the Act and, therefore, may not be resold without compliance with the Act.
The ETS Stock to be acquired by such STOCKHOLDERS pursuant to this Agreement is
being acquired solely for their own respective accounts, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
15.1 Compliance with Law. None of the shares of ETS Stock issued to the
STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated, transferred
32
<PAGE>
or otherwise disposed of except after full compliance with all of the applicable
provisions of the Act and the rules and regulations of the SEC. All of the ETS
Stock shall bear the following legend:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE
HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
15.2 Economic Risk; Sophistication. The STOCKHOLDERS have had an adequate
opportunity to ask questions and receive answers from the officers of ETS
concerning any and all matters relating to this Agreement, the Plan of
Organization and the IPO, and have been informed that any investment decision
involves risks. They have had the opportunity to obtain professional assistance
in making an investment decision to the extent desired.
16. GENERAL
16.1 Cooperation. The COMPANY, ETS and AAC shall each deliver or cause to be
delivered to the other on the Consummation Date, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement. The
COMPANY shall cooperate and use its reasonable efforts to have the present
officers, directors and employees of the COMPANY cooperate with ETS on and after
the Consummation Date in furnishing information, evidence, testimony and other
assistance in connection with any Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Consummation Date.
16.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, and their successors.
The stockholders of Delta have relied upon the representations of the COMPANY
contained in Section 5 hereof, are third-party beneficiaries of such
representations and warranties and of the provisions of Section 7.1(a) hereof
and are Indemnified Parties, as such term is used with respect to the
indemnification provided for in Section 11.2 hereof. The STOCKHOLDERS are
Indemnified Parties with respect to Section 11.1 hereof. Except as set forth
herein, no person other than the parties hereto shall have any rights under this
Agreement.
16.3 Entire Agreement. This Agreement (including the schedules, exhibits and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding among the COMPANY, ETS and AAC and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by the
COMPANY, ETS
33
<PAGE>
and AAC, acting through their respective officers, duly authorized by their
respective Board of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby.
16.4 Counterparts. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
16.5 Brokers and Agents. Except as disclosed on Schedule 16.5 hereto, each
party represents and warrants that it employed no broker or agent in connection
with the transactions contemplated hereby and agrees to indemnify the other
against all loss, costs, damages or expense arising out of claims for fees or
commission of brokers employed or alleged to have been employed by such
indemnifying party.
16.6 Expenses. Whether or not the transactions contemplated hereby shall be
consummated, each party shall pay its fees, expenses and disbursements and those
of its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed under this Agreement, except that Delta shall pay for
the costs and fees associated with the audit of the financial statements of the
Company by Coopers & Lybrand. If the transactions herein contemplated shall be
consummated, ETS shall pay the fees, expenses and disbursements of the COMPANY
and their respective agents, representatives, financial advisors, accountants
and counsel incurred in connection with the subject matter of this Agreement and
any amendments hereto and all other costs and expenses incurred in the
performance and compliance with all conditions to be performed by the COMPANY
under this Agreement.
16.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be made (a) by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, (b) by delivering the same to an
overnight courier service of national reputation, (c) by facsimile transmission
with transmission confirmed, or (d) by delivering the same in person to an
officer or agent of such party.
(a) If to ETS, addressed to them at:
ExpressPoint Technology Services, Inc.
11401 Rupp Drive
Burnsville, MN 55337
34
<PAGE>
with copies to:
Roger Barzun, Esq.
60 Hubbard Street
Concord, MA 01742
(b) If to the COMPANY, addressed to it at:
Amcom Corporation
6205 Bury Drive
Eden Prairie, MN 55346
with copies to:
Jeffrey Cairns
Popham Haik Schnobrich & Kaufman Ltd.
222 South Ninth Street, Suite 3300
Minneapolis, MN 55402
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 16.7 from time to time.
16.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Minnesota.
16.9 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date. The
covenants contained in Section 10 hereof shall survive the closing.
16.10 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any rights, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.11 Time. Time is of the essence with respect to this Agreement.
16.12 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability
35
<PAGE>
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMCOM CORPORATION
By:
------------------------------
Its:
-------------------------
EXPRESSPOINT TECHNOLOGY
SERVICES, INC.
By:
------------------------------
Its:
-------------------------
AMCOM ACQUISITION CORP.
By:
------------------------------
Its:
-------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
SCHEDULES 2.4, 5.8, 5.15, 5.17, 7.2, 7.3
1. The ESOT owes the Company a balance of approximately $68,000 on an exempt
loan for the purchase of shares from Jack Collins on November 4, 1993. This
obligation must be repaid from Company contributions or earnings of the ESOT
prior to termination of the ESOP.
2. The pending Merger and exchange of ESOP shares in part, for cash
consideration, may possibly be considered a "taxable event" described in Code
Sections 4978 or 4978B with respect to some of the ESOP shares acquired in a
December 1993 transaction to which Code Sections 1042 and 133 applied. This tax,
if applicable, would be a liability of the Company as of the Closing.
3. Until the shares of the Company's stock are readily tradeable or are
exchanged for shares of employer securities that are readily traceable on a
public stock exchange, the Company is subject to a statutory put option in favor
of the ESOP participants with respect to shares distributed from the ESOP. The
termination of the ESOP anticipates a distribution of shares following the
receipt of a favorable IRS determination letter except for any shares that must
be distributed earlier as required by law. Exercise of a put option by a
participant would be considered a redemption of the Company's shares.
4. It is anticipated that a cash bonus will be awarded to the Company's outside
directors for service during the period through September 30, 1996 prior to the
Consummation Date. This payment will not exceed $25,000.
2
AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 14th day of October, 1996
by and among
EXPRESSPOINT TECHNOLOGY SERVICES, INC.,
DELTA ACQUISITION CORP.
And
DELTA PARTS, INC.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 14th day of October, 1996 by and among EXPRESSPOINT TECHNOLOGY SERVICES,
INC., a Delaware Corporation ("ETS"), DELTA ACQUISITION CORP., a Minnesota
corporation and a wholly-owned subsidiary of ETS ("DAC"), and DELTA PARTS, INC.,
a Minnesota corporation (the "COMPANY").
RECITALS
A. ETS is a corporation duly organized and existing under the
laws of the State of Minnesota, having been incorporated on April 23, 1996, DAC
is a corporation duly organized and existing under the laws of the State of
Minnesota, having been incorporated on October 15, 1996 as a wholly-owned
subsidiary of ETS, and both ETS and DAC have been organized solely for the
purpose of completing the transactions set forth herein.
B. The respective Boards of Directors of ETS, DAC and the
COMPANY each deem it advisable and in the respective best interests of ETS, DAC
and the COMPANY and their respective stockholders that DAC merge with and into
the COMPANY (DAC and the COMPANY being hereinafter referred to as the
"Constituent Corporations"), pursuant to this Agreement and the applicable
provisions of the laws of the State of Minnesota, such transaction sometimes
being herein called the "Merger";
C. ETS and AMCOM ACQUISITION CORP., a Minnesota corporation
and a wholly-owned subsidiary of ETS ("AAC"), have entered into a separate
agreement substantially similar to this Agreement with Amcom Corporation (the
"Amcom Agreement") in order to acquire Amcom Corporation ("Amcom;" which,
together with the COMPANY, are collectively referred to as the "Founding
Companies").
D. This Agreement, the Amcom Agreement and the IPO of ETS
Stock (as defined in Section 4 hereof) constitute the "ETS Plan of
Organization."
E. The Boards of Directors of ETS, DAC, AAC and each of the
Founding Companies have approved and adopted the ETS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to ETS
as a tax-free transfer of property under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code").
F. In consideration of the agreements of the other Founding
Company pursuant to the Amcom Agreement, the Board of Directors of the COMPANY
has approved this Agreement as part of the ETS Plan of Organization in order to
transfer the capital stock of the COMPANY to ETS.
<PAGE>
TERMS AND CONDITIONS
In consideration of the premises and of the mutual agreements,
representations, warranties, provisions and covenants contained herein, the
parties hereto agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause Articles of Merger with respect to the Merger (the
"Articles of Merger") to be signed, verified and delivered to the Secretary of
State of the State of Minnesota on or before the "Consummation Date," as defined
in Section 4.
1.2 Effective Time of the Merger. The "Effective Time of the Merger"
shall be the Consummation Date as defined in Section 4. At the Effective Time of
the Merger, the separate existence of DAC shall cease. The COMPANY shall be the
surviving party in the Merger, as a wholly-owned subsidiary of ETS, and is
hereinafter sometimes referred to as the "Surviving Corporation".
1.3 Articles of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) The Articles of Incorporation of the COMPANY shall be the
Articles of Incorporation of the Surviving Corporation until changed as provided
by law.
(ii) The By-laws of the COMPANY shall be the By-laws of the
Surviving Corporation until they shall thereafter be duly amended.
(iii) The Board of Directors of the Surviving Corporation shall
consist of the following persons:
Michael F. Cibulka
Roger Barzun
The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Minnesota and of the
Articles of Incorporation and By-laws of the Surviving Corporation.
(iv) The officers of the Surviving Corporation shall be the
persons set forth on Schedule 1.3 (iv) hereto, each of such officers to serve at
the discretion of the Surviving Corporation's Board of Directors.
1.4 Certain Information With Respect to the Capital Stock of The
COMPANY, ETS and DAC. The respective designations and numbers of outstanding
shares and voting
2
<PAGE>
rights of each class of outstanding capital stock of the COMPANY, ETS and DAC as
of the date of this Agreement are as follows:
(i) The authorized capital stock of the COMPANY consists of
10,000,000 shares of common stock, par value $.01 ("COMPANY Stock"), of which
1,345,798 shares are issued and outstanding; 334,532 shares which are subject to
outstanding options; 222,926 shares which are subject to outstanding warrants
and 102,629 shares which are subject to issuance upon conversion of convertible
debt (the "Notes;" such options, warrants and Notes being hereinafter referred
to collectively as the "Convertible Securities").
(ii) The authorized capital stock of ETS consists of 15,000,000
shares of common stock, par value $.01 ("ETS Stock"), of which 100 shares are
issued and outstanding and 904,892 shares which are subject to outstanding
options.
(iii) The authorized capital stock of DAC consists of 100 shares
of common stock, $.01 par value ("DAC Stock"), of which 100 shares are issued
and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect
of the merger shall be as provided in the applicable provisions of the Business
Corporation Act of the State of Minnesota (the "Minnesota BCA"). Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time of the Merger (i) all the rights, privileges, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all other chooses in action, and all and every other interest of or
belonging to or due to the COMPANY or DAC shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the Surviving
Corporation, as they were of COMPANY and DAC, and (ii) the Surviving Corporation
shall thenceforth be responsible and liable for all the debts, liabilities,
duties and obligations of the COMPANY and DAC and neither the rights of
creditors nor any liens upon the property of the COMPANY or DAC shall be
impaired by the Merger, and may be enforced against the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of
COMPANY Stock and Convertible Securities and DAC Stock, issued and outstanding
immediately prior to the Effective Time of the Merger, respectively, into shares
of common stock of the Surviving Corporation, shall be as follows:
3
<PAGE>
As of the Effective Time of the Merger:
(i) All of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the Merger
and without any action on the part of the holder thereof, automatically shall be
converted into, and deemed to represent, that number of shares of ETS Stock
determined pursuant to Sections 2.2 and 2.3 hereof.
(ii) All Notes shall be converted into an aggregate of 102,629
shares of ETS Stock, subject to adjustment as set forth in Section 2.3 hereof.
All holders of other Convertible Securities who, prior to the Effective Time of
the Merger, have not exercised their rights under their respective Convertible
Securities to become stockholders of the COMPANY, shall be issued options or
warrants in ETS, as the case may be, with substantially the same rights, terms,
conditions and obligations as are set forth in their respective Convertible
Securities (collectively, "ETS Convertible Securities"), except that such ETS
Convertible Securities shall provide for the issuance of a number of shares of
ETS Stock determined pursuant to Sections 2.2 and 2.3 hereof.
(iii) All shares of DAC Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof or any Constituent
Corporation, be converted into, and deemed to represent, an equal number of
shares of Common Stock of the COMPANY, such that the COMPANY shall be a
wholly-owned subsidiary of ETS.
(iv) All ETS Stock received by the stockholders of the COMPANY
(the "STOCKHOLDERS") as of the Effective Time of the Merger shall, except for
restrictions on resale or transfer described in Section 15 hereof, have the same
rights as all other shares of outstanding ETS Stock. All voting rights of such
ETS Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights.
2.2 Calculation of ETS Shares. Each share of COMPANY Stock shall be
converted, as a result of the Merger, into one share of ETS Stock, and each
right to purchase shares of COMPANY Stock pursuant to Convertible Securities
shall be converted, as a result of the Merger, into a like ETS Convertible
Security representing a right to purchase an equal number of shares of ETS
Stock, in each case subject to adjustment as set forth in Section 2.3 hereof.
2.3 Adjustment of ETS Shares. In the event that, upon the consummation
of the ETS Plan of Organization, the holders of COMPANY Stock and Convertible
Securities (collectively, "Company Holders") own or have the right to purchase,
in the aggregate, less than 51.5% of the total number of ETS shares issued or
subject to a right to purchase, without giving effect to the IPO, then the
Company Holders shall receive, on a pro rata basis, additional Merger
consideration (in shares of ETS Stock or in additional ETS Convertible
Securities, as is appropriate) such that the Company Holders, in the aggregate,
own or have a right to purchase that number of shares of ETS Stock which
represents not less than 51.5% of the total number of ETS shares issued or
subject to a right to purchase, without giving effect to the IPO.
4
<PAGE>
3. DELIVERY OF SHARES
3.1 At or after the Effective Time of the Merger and at Closing:
(i) The STOCKHOLDERS, as the holders of all outstanding
certificates representing shares of COMPANY Stock, shall, upon surrender of such
certificates, be entitled to receive the number of shares of ETS Stock
calculated pursuant to Sections 2.2 and 2.3 hereof.
(ii) The Notes shall, upon surrender thereof, be entitled to
receive the number of shares of ETS Stock calculated pursuant to Sections 2.2
and 2.3 hereof.
(iii) The holders of other Convertible Securities shall, upon
surrender of such instruments, be entitled to receive like ETS Convertible
Securities to purchase a number of shares of ETS Stock calculated pursuant to
Sections 2.2 and 2.3 hereof.
(iv) Until the certificates representing the COMPANY Stock and
Notes have been surrendered by the STOCKHOLDERS and replaced by the ETS Stock
and Convertible Securities have been surrendered by the holders thereof and
replaced by ETS Convertible Securities, the certificates for COMPANY Stock, the
Notes and instruments for Convertible Securities shall, for all corporate and
legal purposes be deemed to evidence the right to receive shares of ETS Stock
and ETS Convertible Securities, as set forth in Sections 2.2 and 2.3 hereof.
3.2 The STOCKHOLDERS shall deliver to ETS at Closing the certificates
representing COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled. The
STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
such COMPANY Stock or with respect to the stock powers accompanying any COMPANY
Stock. The holders of Convertible Securities shall deliver to ETS at Closing the
instruments representing the Convertible Securities.
4. CLOSING
The consummation of the Merger and conversion and delivery of shares
referred to in Section 3 hereof and the other transactions contemplated by this
Agreement (hereinafter referred to as the "Closing") shall take place at the
offices of Leonard, Street and Deinard, 150 South Fifth Street, Minneapolis,
Minnesota, contemporaneously with the closing of the initial public offering of
ETS Stock (the "IPO") described in the Registration Statement referred to in
Section 8.6 (the "Registration Statement"), or at such other time, place and
date as ETS, the COMPANY and the STOCKHOLDERS may mutually agree, which date
shall be referred to as the "Consummation Date" or the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5
<PAGE>
The COMPANY represents and warrants that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and that such representations and warranties as made at the time of
Closing shall survive the Closing for a period of twelve (12) months from the
Consummation Date (which date is hereinafter called the "Expiration Date"),
except that (i) the warranties and representations set forth in Section 5.16
hereof shall survive until such time as the limitations period has run for all
tax periods ended prior to the Consummation Date, which shall be deemed to be
the Expiration Date for Section 5.16 and (ii) solely for purposes of Section
11.1(iii) hereof, and solely to the extent that ETS actually incurs liability
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or any other Federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period.
5.1 Due Organization. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a material
adverse effect on the business of the COMPANY taken as a whole.
5.2 Due Authorization. The COMPANY has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All acts and other proceedings required to be taken by or
on the part of the COMPANY to authorize it to carry out this Agreement and the
transactions contemplated hereby have been duly and properly taken or will be
duly and properly taken prior to the Closing Date. This Agreement has been duly
executed and delivered by the COMPANY and constitutes the legal, valid and
binding obligation of it, enforceable in accordance with its terms.
5.3 Corporate Documents.
(a) True, correct and complete copies of the Articles of
Incorporation and Bylaws of the COMPANY, as amended to date and currently in
effect, have been delivered to ETS.
(b) The books of account, asset ledgers, stock ledgers and related
records of the COMPANY are complete and accurate in all material respects, have
been maintained on a consistent basis and fairly reflect all of its income,
expenses, assets, liabilities, obligations and commitments.
(c) The minute books of the COMPANY contain the records of all of
the official actions of its board of directors and its shareholders and there
are no material omissions therefrom or misstatements therein.
5.4 Capitalization. The authorized capitalization of the COMPANY
is set forth in Section 1.4(i) hereof. The outstanding shares of the capital
stock of the COMPANY were duly authorized and validly issued, and are fully
paid and nonassessable and such shares were sold in
6
<PAGE>
compliance with all applicable state and federal laws concerning the issuance of
securities. No stockholder or other person has any preemptive right, right of
first refusal or co-sale rights with respect to the issue or sale of any of such
stock that has not been waived by such stockholder. All of the outstanding
shares of capital stock of the COMPANY are owned free and clear of all security
interests, charges, liens, claims, encumbrances and defects of title and were
not issued in violation of any preemptive right. There are no outstanding
options, warrants or other rights, commitments or arrangements, written or oral,
to purchase or otherwise acquire any authorized but unissued shares of capital
stock of the COMPANY or any security directly or indirectly convertible into or
exchangeable for any capital stock of the COMPANY except as set forth in Section
1.4(i) hereto and none of the capital stock of any Company is reserved for any
purpose. The COMPANY has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its capital stock or any interests therein or
to pay any dividend or make any distribution in respect thereof, except for
certain put rights held by holders of warrants.
5.5 No Violation. The COMPANY is not in material violation of any of
the provisions of its Articles of Incorporation or By-laws or any other
governing documents, all as amended to date, and the COMPANY is not in material
default and will not, with the giving of notice or lapse of time or both, be in
material default in the performance or observance of any obligation, agreement,
covenant, or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, franchise agreement, joint venture or other agreement or instrument
where such default could have a material adverse effect on the business,
condition (financial or other), results of operations, properties, assets, or
liabilities of it. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not materially
conflict with or result in any material breach or violation of, or constitute a
material default (or an event which with notice or lapse of time or both would
become a default) under, or give rise to any right of termination, cancellation
or acceleration under, (a) the Articles of Incorporation or By-laws of the
COMPANY; (b) any statute, rule, regulation, order or decree of any public body
or authority by which the COMPANY or any of its respective properties or assets,
may be bound; (c) any indenture, mortgage, agreement or other instrument to
which the COMPANY is a party or by which it or its properties or assets may be
bound or affected; or (d) any permit, franchise or license held by the COMPANY
or any judgment, decree, order, regulation or rule of any court or governmental
or regulatory authority applicable to the COMPANY or result in the creation of a
lien, charge or encumbrance on any of the properties or assets of the COMPANY.
5.6 No Consent. No consent of any person or entity is required to be
obtained by the COMPANY in order for the COMPANY to execute, deliver and perform
this Agreement and the transactions contemplated hereby or for the COMPANY to
undergo a change of control and no approval, authorization, consent, order or
action of, or filing with, any court or governmental or regulatory authority is
required to be obtained by the COMPANY in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, except for consents which have been obtained or will be obtained by
Closing.
5.7 Financial Statements. The COMPANY has delivered to ETS true
complete and correct copies of its financial statements, which include the
audited financial statements of the
7
<PAGE>
COMPANY as of and for the three years ended December 31, 1995 (the "Balance
Sheet Date"); and interim financial statements for the COMPANY as of June 30,
1996 and for the six months ended June 30, 1996. Such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated (except as may be
indicated therein or in the notes thereto) and fairly present the financial
condition, assets and liabilities (whether accrued, absolute, contingent or
otherwise) and results of operations as of the dates thereof. Except as set
forth in the interim or monthly financial statements, since December 31, 1995,
there has not been any material adverse change in, and there is no fact or
circumstance which will materially adversely affect, the assets or liabilities,
or the business or condition, financial or otherwise, or the results of
operations, of the COMPANY.
5.8 No Changes. Except as set forth on Schedule 5.8 hereto,
since December 31, 1995, the COMPANY has not:
(a) Incurred any obligations or liabilities of any nature (whether
absolute, accrued, contingent or otherwise and whether due or to become due) in
excess of $50,000, other than items incurred in the ordinary course of business
consistent with past practice or for which insurance coverage is in effect.
(b) Permitted, allowed or caused any of its property or assets to
be subjected to any mortgage, pledge, lien, encumbrance, restriction or charge
of any kind, other than in the ordinary course of business.
(c) Waived any claims or rights of substantial value, other than in
the ordinary course of business.
(d) Sold, transferred or otherwise disposed of any of its material
assets, other than in the ordinary course of business.
(e) Suffered any loss which would materially adversely affect the
assets or liabilities, or the business or condition (financial or otherwise), or
the results of operations.
(f) Agreed, whether in writing or otherwise, to take any of the
actions set forth in this Section 5.8.
(g) Changed its accounting principles or methods.
(h) Made any declaration, payment or setting aside for payment of
any dividend or any redemption purchase or other acquisition of any shares of
capital stock or securities.
(i) Made any return of any capital or other distribution of assets
to STOCKHOLDERS.
(j) Experienced any other event or condition of any character
materially and adversely affecting the financial condition, business or results
of operations.
8
<PAGE>
(k) Conducted its business other than substantially in the ordinary
course and in a manner consistent with past practice.
5.9 Licenses. All permits, authorizations, registrations or licenses
(collectively, the "Rights") necessary for the operation of the COMPANY's
business are in full force and effect and there is no reason to believe that any
of the Rights will be revoked or is subject to hearings or proceedings by any
regulatory authority and there is no fact or circumstance presently existing
which would, and the business of each such company has been and is currently
being conducted in such manner that will not, subject any of the Rights to
revocation, forfeiture or restriction, nor to any proceedings for revocation,
forfeiture or restriction. The COMPANY is not in material default under, or in
material violation of, the terms of any of the Rights.
5.10 No Violation of Law. The business of the COMPANY is not being
conducted in material violation of any applicable federal, state, local or
foreign law, ordinance, regulation, judgment, decree, injunction or order or
requirement of any court or other governmental entity. The COMPANY has not been
authorized to receive or make, and is not receiving or making, any bribe,
kickback, or other illegal payment with respect to the business conducted by
such company. No stockholder, officer, director, employee, or agent of the
COMPANY has been authorized to receive or make, nor is any such person receiving
or making, any bribe, kickback, or other illegal payment.
5.11 Litigation.
(a) Except as set forth in Schedule 5.11 hereto, no investigation
or review by any federal, state, local or foreign body or authority with respect
to the COMPANY is pending or threatened, nor has any such authority or agency
indicated an intention to conduct the same and there is no action, suit,
arbitration or proceeding pending or threatened against or affecting any such
company before any federal, state, local, foreign or other governmental
department, commission, board, bureau, agency, instrumentality or court. There
is no basis for any such suit, action, arbitration, proceeding, investigation or
review. There are no judgments, consent decrees, injunctions or other judicial
or administrative mandates outstanding against the COMPANY.
(b) Except as disclosed on Schedule 5.11 hereof, the COMPANY is
not aware of any circumstances which may result in any material claims being
made against the COMPANY, or any of its present or past officers or employees,
which claims are of the nature and type that would not be covered by any such
COMPANY's existing errors and omissions insurance policy.
5.12 Contracts. The COMPANY has made available to ETS copies of all
material agreements, contracts, arrangements and understandings, whether written
or oral, to which it is a party, including, without limiting the generality of
the foregoing, employment contracts; plans or understandings regarding employee
benefits, stock options, severance or bonuses; leases; advisory and management
agreements; agency agreements or arrangements for the provision of services;
commission agreements; and reinsurance agreements and treaties. All of such
agreements, contracts, arrangements and understandings are in full force and
effect without any material default
9
<PAGE>
or breach thereof and no event has occurred which, with the giving of notice or
the passage of time or both, would constitute a material breach or default under
any of such contracts or agreements..
5.13 Subsidiaries. The COMPANY has no subsidiaries and investment or
ownership interest in any other corporation, joint venture, partnership or other
business entity and has no obligation to make any such investment.
5.14 Real Property. All real property owned by the COMPANY is held
free and clear of any lien, claim, encumbrance or defect of title and the
COMPANY is not in material default under any lease.
5.15 Guaranties. There are no material contracts or commitments by the
COMPANY guaranteeing the payment or performance of others, or whereby it is, or
may be, in any way liable with respect to the obligations of any other person,
firm, corporation or other entity.
5.16 Taxes. All federal, state, county, municipal and foreign tax
returns, reports and declarations of the COMPANY, including federal excise tax
returns, if any, which are required to be filed prior to the date hereof have
been duly filed, and no taxes which are shown thereon to be due or any other
taxes, assessments and other governmental charges imposed by law upon each such
company or any of its properties, assets, income, receipts, payrolls,
transactions, purchases, sales, capital, net worth or franchises which have
become due and payable as shown therein are delinquent. Neither the Internal
Revenue Service nor any other taxing authority is now asserting or threatening
to assert against any such company any deficiency or claim for additional taxes
or interest thereon or penalties in connection therewith. No tax returns of the
COMPANY have been or are currently under audit by the Internal Revenue Service
or by the tax authorities of any jurisdiction, and the COMPANY has not granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any federal, state, county, municipal or foreign
tax except as the period for such assessment may be extended in conjunction with
an authorized extension of time to file an initial tax return. The accruals and
reserves for taxes reflected in the balance sheets of each such company included
in the Financial Statements are adequate to cover all taxes due and payable or
accruable (including interest and penalties, if any, thereon) as a result of its
operations and investment for all periods prior to the date hereof.
5.17 Employee Benefits.
(a) Copies of each "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), for the
COMPANY and each Subsidiary which (i) is subject to any provision of ERISA and
(ii) is maintained, administered or contributed to by the COMPANY or any
affiliate (as defined below) and covers any employee or former employee of such
company or any affiliate or under which the COMPANY or any affiliate has any
liability (and, if applicable, related trust agreements) and all amendments
thereto and summary plan descriptions thereof and any material employee
communications with respect to them have been made available to ETS, together
with the three most recent annual reports (Form 5500 including, if applicable,
Schedule B thereto) prepared in connection with any such plan. Such plans are
hereinafter referred to collectively as the "Employee Plans." For purposes of
this Section,
10
<PAGE>
"affiliate" of any person means any other person which, together with any such
company, is treated as a single employer under Section 414 of the Code. The only
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the "Pension Plans")
are identified as such in Schedule 5.17. Neither the COMPANY nor any affiliate
has terminated or caused to be terminated in whole or in part or merged any
Pension Plan during the period since January 1, 1990. Each such company has
provided ETS with complete age, salary, service and related data as of December
31, 1995 for employees and former employees of the COMPANY and any affiliate
covered as of the Closing Date under the Pension Plans.
(b) Except as set forth in Schedule 5.17 hereto:
(i) No Employee Plan constitutes a "multiemployer plan," as
defined in Section 3(37) of ERISA (a "Multiemployer Plan"); there are no
reserves, assets, surpluses or prepaid premiums under any Employee Plan which is
a welfare plan as defined in ERISA Section 3(1); no Employee Plan is subject to
Title IV of ERISA; and there are no unfunded benefit obligations arising in any
jurisdiction which are not accounted for by reserves shown on the Balance Sheet.
Neither the COMPANY nor any disqualified person, as defined in Section 4975 of
the Code, has engaged in any "prohibited transaction," as defined in Section 406
of ERISA or Section 4975 of the Code, with respect to any Employee Plan which is
covered by Title I of ERISA, excluding transactions effected pursuant to a
statutory or administrative exemption. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Employee
Plan has or will make any such company or any affiliate, officer or director of
the COMPANY subject to any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code or could have a material adverse effect
on the business or condition (financial or otherwise) of the COMPANY.
(ii) Each Employee Plan which is intended to be qualified
under Section 401(a) of the Code is or was the subject of a favorable Internal
Revenue Service determination with respect to such qualification, and the
COMPANY has furnished to the Buyer copies of the most recent such determination
letters, and nothing has occurred since the date thereof that would have an
adverse effect on such qualification. There are no accrued liabilities under any
Employee Plan which have not been fully provided for by contributions to such
Employee Plans. Each Employee Plan has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such Employee Plans, including without limitation those
requirements necessary to maintain its qualification and the continuation of
coverage requirements of Code Section 4980B or ERISA Sections 601-608. Other
than for claims in the ordinary course for benefits under the Employee Plans,
there are no suits, actions, claims or proceedings pending or threatened which
would result in any liability with respect to any such Employee Plan of any such
company or any of its affiliates that would have a material adverse effect on
the business or condition (financial or otherwise) of the COMPANY.
(iii) There is no contract, agreement, plan or arrangement
covering any employee or former employee of any such company or any affiliate
that, individually or
11
<PAGE>
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G or Section 162(a)(1) of the
Code.
(iv) There has been no amendment to, written interpretation
or announcement (whether or not written) by any such company or any of its
affiliates relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement which would increase materially the
expense (whether or not such expense is recognized under generally accepted
accounting principles) of maintaining such Employee Plan or Benefit Arrangement
above the level of the expense incurred in respect thereof for the fiscal year
ended on December 31, 1995.
(c) The COMPANY has provided ETS with a list of each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits in effect on the Closing Date which (i) is
not an Employee Plan; (ii) is entered into, maintained or contributed to, as the
case may be; and (iii) covers any employee or former employee. Such contracts,
plans and arrangements as are described above, copies or descriptions of all of
which have been furnished previously to the Buyer are hereinafter referred to
collectively as the "Benefit Arrangements." Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement. The COMPANY has no any liability with
respect to post-retirement medical or death benefits for retired employees other
than death benefits under any Pension Plan.
5.18 Prospective Change. Except as set forth on Schedule 5.18 hereto or
as contemplated herein, there are no existing events, actions or developments
which may materially adversely affect the assets or liabilities, business or
condition (financial or otherwise) of the COMPANY.
5.19 Liabilities. The COMPANY has no material liabilities or
obligations (whether absolute, accrued, contingent or otherwise), whether or not
required by generally accepted accounting principles to be reflected on the
COMPANY's balance sheet as of December 31, 1995, except (i) liabilities,
obligations or contingencies which are accrued or reserved against on such
balance sheet or reflected in the notes thereto, and (ii) normally recurring
liabilities incurred after December 31, 1995 in the ordinary course of business
consistent with past practice.
5.20 Related Transactions. Except as set forth on Schedule 5.20 hereto,
no director, officer, employee, shareholder or partner of the COMPANY nor any
member of the immediate family of any such person, is presently a party to any
material transaction with the COMPANY including, but not limited to, any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any of such persons.
12
<PAGE>
5.21 Accounts Payable. The COMPANY has delivered to ETS a true, correct
and complete aged list of all accounts payable of such company as of June 30,
1996. No account payable by such a company that has arisen subsequent to such
date has been otherwise than in the ordinary course of business.
5.22 Accounts Receivable. All accounts receivable, reflected on balance
sheets of the COMPANY as of December 31, 1995, and all accounts receivable
arising subsequent to such date, have arisen in the ordinary course of business
of each such company, represent valid obligations due to the COMPANY and,
subject to an anticipated uncollectible amount reserved for on the balance sheet
as of the Closing Date, have been collected or are collectible in the ordinary
course of business of such company in the aggregate recorded amounts thereof in
accordance with their terms.
5.23 Insurance. All policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, errors and omissions and other
insurance held by or on behalf of the COMPANY are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner generally deemed
appropriate and sufficient by the management. The COMPANY is not in material
default with respect to any provision contained in any such policy or binder and
has not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. There are no outstanding unpaid claims under
any such policy or binder. The COMPANY has not received notice of cancellation
or non-renewal of any such policy or binder. The COMPANY has no knowledge of any
inaccuracy in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts that might form the basis for
termination for any such insurance. The COMPANY has not received any notice from
any of its insurance carriers that any insurance premiums will be materially
increased in the future or that any insurance coverage will not be available in
the future on substantially the same terms as now in effect.
5.24 Environmental Matters. The COMPANY has materially complied with
and is in material compliance with all federal, state, local and foreign
statutes (civil and criminal), laws, ordinances, regulations, rules, notices,
permits, judgments, orders and decrees applicable to any of them or any of their
respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), (ii) the COMPANY has obtained and adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances and have reported, to
the extent required by all Environmental Laws, all past and present sites owned
and operated by the COMPANY where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
13
<PAGE>
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY or ETS for any clean-up cost, remedial work, damage, to
natural resources or personal injury, including, but not limited to any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) the COMPANY has no contingent liability in
connection with any release of any Hazardous Waste or Hazardous Substance into
the environment.
5.25 Representations Complete. No representation or warranty made to
ETS in this Agreement, the Schedules, or any other written statement or
certificate furnished or to be furnished to ETS in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the statements contained therein not misleading.
5.26 Due Diligence. The COMPANY has provided, or will by the Closing
Date have provided, true and complete copies of all documents and information
requested by ETS and no document or information provided to ETS contains a
misrepresentation of a material fact or omits to state a material fact necessary
to make the statements made therein not misleading.
5.27 Disclosure. (a) This Agreement, including the schedules hereto,
together with all other documents information made available to ETS and its
representatives pursuant hereto, present fairly the business and operations of
the COMPANY. The COMPANY's rights under the documents delivered pursuant hereto
would not be materially adversely affected by, and no statement made herein
would be rendered untrue by, and any other document to which the COMPANY is a
party, or by which its properties are subject, or by any other fact or
circumstance regarding the COMPANY that is not disclosed pursuant hereto.
(b) This Agreement, including the schedules hereto, shall be made
available to Amcom, and Amcom shall be a third-party beneficiary of the
representations and warranties contained herein, in accordance with the
provisions of Section 16.2 hereof.
(c) If, prior to the 25th day after the date of the final prospectus of
ETS utilized in connection with the IPO, the COMPANY becomes aware of any fact
or circumstance which would change (or, if after the Consummation Date, would
have changed) a representation or warranty of COMPANY in this Agreement or would
affect the document delivered pursuant hereto in any material respect, the
COMPANY shall immediately give notice of such fact or circumstance to ETS.
However, subject to the provisions of Section 7.8, at the sole option of ETS,
the truth and accuracy of any and all warranties and representation of the
COMPANY, or on behalf of the COMPANY at the date of this Agreement and at the
Closing, shall be a precondition to the consummation of this transaction.
(d) The COMPANY acknowledges and agrees (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
be filed, a Registration Statement will become effective, or that IPO pursuant
thereto will occur at a particular price or within a particular range of prices
or
14
<PAGE>
occur at all; (ii) that neither ETS or any of its officers, directors, agents or
representatives nor any prospective underwriters in the IPO (the "Underwriters")
shall have liability to the COMPANY or any other person affiliated or associated
with the COMPANY for any failure of the Registration Statement to be filed, a
Registration Statement to become effective, the IPO to occur at a particular
price or within a particular range of prices or to occur at all; and (iii) that
the decision of the COMPANY to enter into this Agreement, or of any shareholders
thereof to vote in favor of or consent to the proposed Merger, has been or will
be made independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or will be
made or performed by any prospective Underwriter, relative to ETS or the
prospective IPO.
6. REPRESENTATIONS OF ETS AND DAC
ETS and DAC, jointly and severally, represent and warrant that (i) all
of the following representations and warranties shall be true at the time of
Closing and shall survive the Closing for a period of twelve months following
the Closing and (ii) solely for purposes of Section 11.2(iv) hereof, and solely
to the extent that STOCKHOLDERS actually incur liability under the 1933 Act, the
1934 Act, or any other Federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
limitations period.
6.1 Due Organization. ETS is duly organized, validly existing and in
good standing under the laws of the State of Delaware, and is duly authorized
and qualified under all applicable laws, regulations and ordinances of public
authorities to carry on its business in the places and in the manner as now
conducted, except for where the failure to be so authorized or qualified would
not have a material adverse effect on its business. DAC is duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and is duly authorized and qualified under all applicable laws, regulations and
ordinances of public authorities to carry on its business in the places and in
the manner as now conducted, except for where the failure to be so authorized or
qualified would not have a material adverse effect on its business
6.2 ETS Stock. The ETS Stock to be issued and delivered to the
STOCKHOLDERS at the Consummation Date and which will be issued and delivered
pursuant to the terms of the ETS Convertible Securities will constitute valid
and legally issued shares of ETS, fully paid and nonassessable and, with the
exception of restrictions upon resale, will be legally equivalent in all
respects to the ETS Stock issued and outstanding as of the date hereof. The
shares of ETS Stock to be issued to the STOCKHOLDERS pursuant to this Agreement
and which will be issued pursuant to the terms of the ETS Convertible Securities
will not be registered under the 1933 Act.
6.3 Due Authorization. ETS and DAC have full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All acts and other proceedings required to be taken by or
on the part of ETS or DAC to authorize them to carry out this Agreement and the
transactions contemplated hereby have been duly and properly taken or will be
duly and properly taken prior to the Closing Date. No other proceedings are
necessary to authorize the execution and delivery of this Agreement by ETS and
DAC and the consummation by
15
<PAGE>
them of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by ETS and DAC and constitutes the legal, valid and
binding obligations of such entities, enforceable in accordance with its terms.
The Board of Directors and stockholders of ETS and DAC have taken all action
required by law and by their respective Certificate or Articles of Incorporation
and By-laws, to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. No other act or proceeding
on the part of ETS or DAC is necessary to authorize the execution, delivery and
performance of this Agreement or the transactions contemplated hereby.
6.4 No Violation. Neither ETS or DAC is in material violation of any of
the provisions of their respective Certificate or Articles of Incorporation or
By-laws (or comparable instruments or documents), or any other governing
documents, all as amended to date, and are not in default and will not, with the
giving of notice or lapse of time or both, be in default in the performance or
observance of any obligation, agreement, covenant, or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any material
contract, indenture, mortgage, loan agreement, franchise agreement, joint
venture or other agreement or instrument where such default could have a
material adverse effect on the business, condition (financial or other), results
of operations, properties, assets, or liabilities of ETS or DAC. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in any material breach or
violation of, or constitute a material default (or an event which with notice or
lapse of time or both would become a default) under, or give rise to any right
of termination, cancellation or acceleration under, (a)the Certificate of
Incorporation or By-laws of ETS; (b) the Articles of Incorporation or By-laws of
DAC; (c) any statute, rule, regulation, order or decree of any public body or
authority by which ETS or DAC or any of their properties or assets, may be
bound; (c)any indenture, mortgage, agreement or other instrument to which ETS or
DAC is a party or by which they or their properties or assets may be bound or
affected; or (d)any permit, franchise or license held by ETS or DAC or any
judgment, decree, order, regulation or rule of any court or governmental or
regulatory authority applicable to ETS or DAC or result in the creation of a
lien, charge or encumbrance on any of the properties or assets of ETS.
6.5 No Consent. No consent of any person or entity is required to be
obtained by ETS or DAC in order for it to execute, deliver and perform this
Agreement and the transactions contemplated hereby and no approval,
authorization, consent, order or action of, or filing with, any court or
governmental or regulatory authority is required to be obtained by ETS in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
6.6 Capitalization of ETS and Ownership of ETS Stock. All of the shares
of ETS Stock to be issued to the STOCKHOLDERS in accordance herewith will be,
duly authorized, validly issued, fully paid and nonassessable. All of the shares
of ETS Stock to be issued pursuant to the Plan Of Organization, based on the
representations of the COMPANY contained in this Agreement and representations
contained in the Amcom Agreement, were or will be offered, issued, sold and
delivered by ETS in compliance with all applicable state and federal laws
concerning the issuance of securities and none of such shares were or will be
issued in violation of the preemptive rights of any past or present stockholder.
16
<PAGE>
6.7 No Side Agreements. ETS has not entered into any agreement other
than the Amcom Agreement and the agreements contemplated by the Amcom Agreement,
including the employment agreements referred to therein. Upon request, ETS will
provide to the COMPANY copies of all agreements entered into, or to be entered
into prior to the Consummation Date, between ETS and any of its affiliates and
Amcom.
6.8 Subsidiaries. Except for Amcom, which ETS has agreed to purchase as
of the Closing Date, ETS does not presently have any subsidiaries or own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, except DAC and AAC. ETS is not,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
6.9 Business; Real Property; Material Agreements; Financial
Information. Neither ETS nor DAC has conducted any business since the date of
its inception, except in connection with this Agreement, the Amcom Agreement and
the IPO of ETS Stock. Neither ETS nor DAC own any real property or any material
personal property or is a party to any other material agreement, except that ETS
is a party to the Amcom Agreement and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement. ETS
and DAC were formed in April and October 1996, respectively, and have no
material historical financial statements or information. Neither ETS nor DAC
have any material liabilities other than those incurred in connection with this
Agreement, the Amcom Agreement and the contemplated IPO of ETS Stock.
6.10 Conformity with Law. Neither ETS nor DAC is in material violation
of any law or regulation or any order of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
material adverse effect on the contemplated business of ETS or DAC. There are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
ETS or DAC, threatened, against or affecting ETS or DAC, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received.
6.11 No Violations. A certified copy of the Certificate or Articles of
Incorporation and a true, complete and correct copy of the By-laws, both as
amended to date, of ETS and DAC have been delivered to the COMPANY. Neither ETS
nor DAC is in violation of any of such documents and the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of
documents. The minute books of ETS and DAC, as made available to the COMPANY,
are true and correct.
7. COVENANTS PRIOR TO CLOSING
17
<PAGE>
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Consummation Date, the COMPANY will afford to the officers and
authorized representatives of ETS and Amcom access to all of the COMPANY's
sites, properties, books and records and will furnish ETS and Amcom with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as ETS or Amcom may from time to time reasonably
request. The COMPANY will cooperate with ETS and Amcom, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required in connection with any documents or materials required by this
Agreement. ETS, party hereto and the COMPANY will treat all information obtained
in connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to Amcom as confidential in
accordance with the provisions of Section 13 hereof. In addition, ETS will cause
the Amcom Agreement to contain a provision similar to this Section 7.1 requiring
Amcom and its stockholders to keep confidential any information obtained by them
regarding the COMPANY.
(b) Between the date of this Agreement and the Consummation Date, ETS
will afford to the officers and authorized representatives of the COMPANY access
to all of ETS's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of ETS as the COMPANY may from time to time
reasonably request. ETS will cooperate with the COMPANY, its representatives,
engineers, auditors and counsel in the preparation of any documents or other
material which may be required in connection with any documents or materials
required by this Agreement. The COMPANY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 13 hereof.
7.2 Conduct of Business Pending Closing. Between the Balance Sheet Date
and the Consummation Date, the COMPANY will, except as set forth on Schedule
7.2:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as present,
ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its
business organization intact, retain its respective present employees and
maintain its respective
18
<PAGE>
relationships with suppliers, customers and others having business relations
with the COMPANY (including the Subsidiaries);
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders or applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present material debt and lease instruments and not
enter into new or amended debt or lease instruments, without the knowledge and
consent of ETS (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of ETS if such
replacement instruments are on terms at least as favorable to COMPANY as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 hereto,
between the Balance Sheet Date and the Consummation Date, the COMPANY has not
and, without the prior written consent of ETS, will not:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 1.4 (i)
hereto;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an amount
not in excess of $30,000, including contracts to provide services to customers;
(v) increase the compensation payable or to become payable to any
officer, director, STOCKHOLDER, employee or agent, or make any bonus or
management fee payment to any such person;
(vi) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not in
excess of $10,000 necessary or desirable for the conduct of the businesses of
the COMPANY (including the Subsidiaries), (2) (A) liens for taxes either not yet
due or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are being
maintained) or (B) materialmen's,
19
<PAGE>
mechanics' workers', repairmen's employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being referred to
herein as "Statutory Liens"), or (3) liens set forth on Schedule 5.14 hereto;
(vii) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(viii) negotiate for the acquisition of any business or the
start-up of any new business;
(ix) merge or consolidate or agree to merge or consolidate with or
into any other corporation other than DAC;
(x) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(xi) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xii) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide ETS with proof that any required notice has been sent.
7.5 Authorized Capital. ETS shall maintain its authorized capital stock
substantially as set forth herein, except for such changes in authorized capital
stock as are made to respond to comments made by the Securities and Exchange
Commission ("SEC") or the requirements of any exchange or automated trading
system for which application is made to register the ETS Stock. Except pursuant
to the Amcom Agreement and the agreements contemplated therein and otherwise as
will be disclosed in the Registration Statement, there have been no issuances
of, or agreements regarding the issuance of, any capital stock, warrants,
options or other securities convertible into or exchangeable for capital stock
or rights to acquire the same.
7.6 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to ETS of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by any such person hereunder. ETS shall give prompt notice to the COMPANY of (i)
the occurrence or non-occurrence of any event the occurrence or non-
20
<PAGE>
occurrence of which would likely to cause any representation or warranty of ETS
and (ii) any material failure of ETS to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to
(i)modify the representations or warranties hereunder of the party delivering
such notice, which modification may only be made pursuant to Section 7.8, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
7.7 Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules, provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the COMPANY (including the Subsidiaries) may be made
unless ETS and Amcom consent to such amendment or supplement. For all purposes
of this Agreement, including without limitation for purposes of determining
whether the conditions set forth in Sections 8.1 and 9.1 have been fulfilled,
the Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 7.7. In the event that Amcom seeks to
amend or supplement a Schedule pursuant to Section 7.7 of the Amcom Agreement,
and ETS consents to such amendment or supplement but the COMPANY does not, the
COMPANY may terminate this Agreement pursuant to Section 12.1(v) hereof. In the
event that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.7, and ETS or Amcom does not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 12.1(i) hereof. No party to this Agreement shall be liable to any other
party if this Agreement shall be terminated pursuant to the provisions of this
Section 7.7. No amendment or supplement to a schedule shall be made later than
48 hours prior to the anticipated effectiveness of the Registration Statement.
7.8 Cooperation in Preparation of Registration Statement.
(a) The COMPANY shall furnish or cause to be furnished to ETS and
the Underwriters all of the information concerning the COMPANY required for
inclusion in, and will cooperate with ETS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited financial statements prepared in accordance with generally
adopted accounting principles, in form suitable for inclusion in the
Registration Statement). The COMPANY agrees promptly to advise ETS if at any
time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY becomes incorrect or incomplete in any
material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the COMPANY or the
COMPANY represents and warrants that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
21
<PAGE>
(b) Provided that ETS shall have complied with Section 7.8(e), the
COMPANY shall make the following representation directly to the Underwriters in
connection with the IPO:
There is no untrue statement of a material fact relating to
the COMPANY contained in any preliminary prospectus, the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or any omission to state therein a material fact relating to such
COMPANY required to be stated therein or necessary to make the statements
therein not misleading.
(c) Provided that ETS shall have complied with Section 7.8(e), the
COMPANY shall indemnify the Underwriters directly in connection with the IPO as
follows:
The COMPANY covenants and agrees that it will indemnify, defend,
protect and hold harmless the Underwriters at all times from and after
the date of the Underwriting Agreement entered into between ETS and the
Underwriters in connection with the IPO from and against all claims,
damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation)
under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon
any untrue statement of a material fact relating to COMPANY, contained
in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or
alleged omission to state therein a material fact relating to COMPANY
required to be stated therein or necessary to make the statements
therein not misleading, provided, that the Company shall not be liable
for any amount in excess of the amount of the proceeds received by the
STOCKHOLDERS in connection with the Merger. For purposes of calculating
the amount of any proceeds received by a STOCKHOLDER, ETS Stock
received by such STOCKHOLDER shall be valued at its initial public
offering price.
(d) The representation contained in Section 7.8(b) and the
indemnification contained in Section 7.8(c) shall be null and void and of no
force and effect in the event comparable provisions are contained in the
Underwriting Agreement executed in connection with the IPO.
(e) ETS agrees that it will provide to the COMPANY and its counsel
copies of the drafts of the Registration Statement as they are prepared and will
not (i) file with the SEC, (ii) request the acceleration of the effectiveness of
or (iii) circulate any prospectus forming a part of, the Registration Statement
(or any amendment thereto) that contains information with respect to the COMPANY
or the STOCKHOLDERS that varies materially from the last draft of the
Registration Statement (or any amendment thereto) reviewed by the COMPANY and
its counsel unless the COMPANY and such counsel (x) have had at least two days
to review such revised information and (y) have not objected to the substance of
the information contained therein.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
22
<PAGE>
The obligations of the COMPANY hereunder are, at the option of the
COMPANY, subject to the following conditions. Upon consummation of this
Agreement, all conditions not satisfied shall be deemed to have been waived,
except that no such waiver shall be deemed to affect the survival of the
representations and warranties of ETS and DAC contained in Section 6 hereof.
8.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of ETS and DAC contained in Section 6 shall be
true and correct as of the Consummation Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by ETS and DAC on
or before the Consummation Date shall have been duly complied with and
performed; and a certificate to the foregoing effect dated the Consummation Date
and signed by the President or any Vice President of each of ETS and DAC shall
have been delivered to the Company.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The COMPANY
shall be satisfied that the Registration Statement or any prospectus forming a
part thereof, including the preliminary prospectus or any amendment thereof or
supplement thereto, shall not contain any untrue statement of a material fact
relating to the COMPANY, or omit to state therein a material fact relating to
the COMPANY required to be stated therein or necessary to make the statements
therein related to the COMPANY not misleading, provided, that the condition
contained in this sentence shall be deemed satisfied if (i) ETS shall have
complied with its obligations under Section 7.8(e) and (ii) the COMPANY failed
to inform ETS in writing of the existence of an untrue statement of a material
fact or the omission of such a statement of a material fact (a) in the case of
any printed "red herring" preliminary prospectus, prior to the distribution
thereof or (b) in the case of any final prospectus, prior to the second day
preceding the effectiveness of the Registration Statement.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the merger of DAC with and into the COMPANY or the offering and sale
by ETS of ETS Stock pursuant to the Registration Statement and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. The COMPANY shall have received an opinion from
counsel for ETS, dated the Closing Date, in form and substance reasonably
satisfactory to the COMPANY.
8.5 Registration Statement. ETS shall have filed with the SEC a
registration statement on Form S-1 covering the offer and sale of shares of ETS
Stock having a value (the "Offered Value") of at least $16 million. The
Registration Statement shall have been declared effective by the SEC and the
Underwriters named therein shall have agreed to acquire, subject to
23
<PAGE>
the conditions set forth in the underwriting agreement, shares of ETS Stock at a
price not less that $8.00 per share (prior to any underwriters' discount) and
having a value at least equal to the Offered Value. The closing of the sale of
the ETS Stock to the Underwriters shall have occurred simultaneously with the
Closing hereunder.
8.6 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
ETS's acquisition of the COMPANY Stock and no governmental agency or body shall
have taken any other action or made any request of COMPANY as a result of which
COMPANY deems it inadvisable to proceed with the transactions hereunder.
8.7 Good Standing Certificates. ETS and DAC shall have delivered to the
COMPANY a certificate, dated as of a date no later than five days prior to the
Closing Date, duly issued by the Secretary of State of each state in which ETS
and DAC is organized or authorized to do business, showing that ETS and DAC are
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes, for all periods prior to the Closing, have
been filed and paid.
8.8 Plan of Reorganization. All conditions precedent to the
consummation of the Plan of Organization shall have been satisfied or waived and
the merger of AAC and Amcom shall have occurred simultaneously with the Closing
hereunder.
8.9 Dissenter's Rights. Dissenter's rights shall not have been
exercised by Stockholders holding more than 2% of the outstanding shares of the
Company.
8.10 Employment Agreements. Effective on the Closing Date, ETS
shall have entered into employment agreements with the persons specified on
Schedule 8.10 hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ETS
The obligations of ETS and DAC hereunder are, at their option, subject
to the satisfaction, on or prior to the Consummation Date, of the following
conditions. Upon consummation of this Agreement, all conditions not satisfied
shall be deemed to have been waived, except that no such waiver shall be deemed
to affect the survival of the representations and warranties as provided in
Section 5 hereof.
9.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of the COMPANY contained in this Agreement shall
be true on and as of the Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date (except for
matters expressly disclosed in the certificate or a schedule thereto), and the
COMPANY's CEO and CFO shall have delivered to ETS a certificate dated the
Consummation Date to such effect; each and all of the agreements of
24
<PAGE>
the COMPANY to be performed on or before the Consummation Date pursuant to the
terms hereof shall have been performed.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the merger of DAC with and into the COMPANY or the offering and sale
by ETS of the ETS Stock pursuant to the Registration Statement and no
governmental agency or body shall have taken any other action or made any
request of the COMPANY as a result of which the management of the ETS deems it
inadvisable to proceed with the transactions hereunder.
9.3 Examination of Final Financial Statements. Prior to the
Consummation Date, ETS shall have had sufficient time to review, if available,
the unaudited consolidated balance sheets of the COMPANY as of September 30,
1996, and any following fiscal quarters, and the unaudited consolidated
statements of any earnings, cash flows and retained earnings of the COMPANY for
the fiscal quarter ended September 30, 1996, and any following fiscal quarters,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date.
9.4 No Material Adverse Change. No material adverse change in the
results of operations, financial conditions or business of the COMPANY shall
have occurred, and the COMPANY shall not have suffered any material loss or
damages to any of its properties or assets, whether or not covered by insurance,
since the Balance Sheet Date, which change, loss or damage materially affects or
impairs the ability of the COMPANY to conduct its business; and ETS shall have
received a certificate signed by the COMPANY's CEO AND CFO dated the
Consummation Date to such effect.
9.5 Regulatory Review. ETS, through its authorized representatives,
shall have completed a satisfactory review of the practices and procedures of
the COMPANY including, but not limited to, compliance with contracts and
federal, state and local laws and regulations governing the respective
operations of COMPANY, disclosing no material actual or probable violations,
compliance problems, required capital expenditures or other substantive
concerns.
9.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to ETS.
9.7 Consents and Approvals. ETS shall have received an opinion from
counsel to the COMPANY, dated the Closing Date, in form and substance reasonably
satisfactory to ETS, and the Underwriters shall have received a copy of the same
opinion addressed to them.
9.8 Good Standing Certificates. The COMPANY shall have delivered to ETS
a certificate, dated as of a date no later than five days prior to the Closing
Date, duly issued by the appropriate governmental authority in the COMPANY's
state of incorporation and, unless waived by ETS, in each state in which the
COMPANY is authorized to do business, showing the COMPANY is in good standing
and authorized to do business and that all state franchise and/or
25
<PAGE>
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.9 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire, subject to the conditions set forth in the underwriting
agreement, shares of ETS stock at a price not less than $8.00 per share (prior
to any underwriters' discount) and having value of not less than $16 million.
9.10 Plan of Reorganization. All conditions precedent to the closing of
the Plan of Organization shall have been satisfied or waived and the merger of
AAC and Amcom shall have occurred simultaneously with the Closing hereunder.
10. COVENANTS OF ETS
10.1 Release From Guarantees; Repayment of Certain Obligations. ETS
shall use its best efforts to have each STOCKHOLDER released from any and all
guarantees on any indebtedness that he personally guaranteed for the benefit of
the COMPANY, with all such guarantees on indebtedness being assumed by ETS. In
the event that ETS cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to ninety (90) days subsequent to the
Closing, ETS shall pay off or otherwise refinance or retire such indebtedness
and, in the event that ETS cannot obtain releases on or prior to the Closing,
ETS agrees to indemnify the STOCKHOLDERS against any and all claims made by
lenders under such guarantees which arise as a result of ETS's failure to cause
such guarantees to be released on or prior to the Closings.
11. INDEMNIFICATION
11.1 Indemnification by ETS.
ETS and DAC, jointly and severally, covenant and agree that they will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
("Losses") incurred by the COMPANY and the STOCKHOLDERS as a result of or
arising from (i) any breach by ETS or DAC of their representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any nonfulfillment of any agreement on the part of ETS or DAC under this
Agreement, (iii) any liabilities which the STOCKHOLDERS may incur due to or DAC
under this Agreement, (iv) any liabilities which the STOCKHOLDERS may incur due
to the failure of the Surviving Corporation to be responsible for the
liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that ETS or DAC has claims against the COMPANY by reason
of such liabilities); or (v) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact
26
<PAGE>
relating to ETS or DAC or Amcom contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to ETS or
DAC or Amcom required to be stated therein or necessary to make the statements
therein not misleading ("Securities Liabilities").
11.2 Indemnification by the Company. The COMPANY will indemnify,
defend, protect and hold harmless ETS until the Expiration Date from all Losses
as a result of or arising out of (i) any breach by the COMPANY of its
representations and warranties set forth herein, (ii) any nonfulfillment of any
agreement on the part of the COMPANY hereunder or (iii) any Securities
Liabilities relating to statements or omissions regarding the COMPANY.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, such
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the expenses of its counsel. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section with respect to such Third
Person claim shall be limited to the amount so offered in settlement by said
Third Person and the Indemnified Party shall reimburse the Indemnifying Party
for any additional
27
<PAGE>
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy. All indemnification payments
under this section shall be deemed adjustments to the Merger consideration
provided for herein.
11.4 Exclusive Remedy. The indemnification provided for in this Section
11 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time
prior to the Consummation Date solely:
(i) by mutual consent of the Boards of Directors of ETS,
DAC and the COMPANY;
(ii) by the COMPANY or ETS (acting through their respective
boards of directors) at any time prior to the time at which the
Registration Statement is declared effective by the SEC if the IPO
price (without regard to any underwriters' discount) of the Shares of
ETS Stock into which the COMPANY Stock is to be converted shall be less
than $8.00 per share;
(iii) by the COMPANY (acting through its board of directors),
on the one hand, or by ETS (acting through its board of directors), on
the other hand, if the transactions contemplated by this Agreement to
take place at the Closing shall not have been consummated by March 31,
1997, unless the failure of such transactions to be consummated is due
to the willful failure of the party seeking to terminate this Agreement
to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Consummation Date;
28
<PAGE>
(iv) by the COMPANY on the one hand, or by ETS, on the other
hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Consummation
Date and shall not reasonably be expected to occur;
(v) pursuant to Section 7.7 hereof; or
(vi) by the COMPANY (acting through its board of directors) at
any time prior to the date the Registration Statement is filed with the
SEC (the "Filing Date") if (a) in the course of their investigations of
or due diligence with respect to ETS or Amcom, or its stockholders,
they shall be dissatisfied with any information learned or issues that
arose concerning ETS, Amcom or the stockholders thereof, (b) on or
prior to the Filing Date, the COMPANY shall have given written notice
to ETS of such dissatisfaction and of the particular information and/or
issues from which such dissatisfaction results and (c) ETS or Amcom
shall have failed to reasonably satisfy the COMPANY with respect to the
information and/or issues identified in such notice. Without limiting
their right to terminate under Section 12.1(iv), if this Agreement
shall not have been terminated in accordance with this Section
12.1(vi), the COMPANY shall have no right to refuse to consummate the
transactions contemplated hereby as a result of any information learned
or issues that arose during the course of or as a result of any
investigation of or due diligence with respect to ETS or Amcom, or the
stockholders thereof and the condition set forth in the first sentence
of Section 8.2, to the extent that it applies to such information about
ETS and Amcom, shall be deemed to have been waived by the COMPANY with
respect to all matters with respect to which this Agreement could have
been terminated pursuant to this Section 12.1(vi).
12.2 Liabilities in Event of Termination. Except as otherwise provided
herein, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out-of-pocket expenses.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 ETS and DAC. ETS and DAC recognize and acknowledge that they had
in the past and currently have access to certain confidential information of the
COMPANY, such as lists of customers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
ETS and DAC agree that, prior to the Closing, they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to their authorized
representatives, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
13.1 and (c) to Amcom and their representatives pursuant to Section 7.1(a)
hereof, unless (i) such information becomes known to the public generally
through no fault of ETS or DAC, (ii) disclosure is required by law or the
29
<PAGE>
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), ETS and DAC shall, if
possible, give prior written notice thereof to the COMPANY and provide the
COMPANY with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by ETS or DAC of the provisions of this Section, the
COMPANY shall be entitled to an injunction restraining ETS and DAC from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the COMPANY from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
13.2 Survival. The obligations of the parties under this Article 13
shall survive the termination of this Agreement.
14. REORGANIZATION ACCOUNTING AND TRANSFER RESTRICTIONS
14.1 Tax-Free Transfer of Property. ETS and the COMPANY are entering
into this Agreement with the intention that it qualify as a tax-free transfer of
property pursuant to Section 351 of the Code for federal income tax purposes
(except to the extent of any boot received).
15. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON ETS STOCK
The COMPANY acknowledges that the shares of ETS Stock to be delivered
to the STOCKHOLDERS pursuant to this Agreement have not been and will not be
registered under the Act and, therefore, may not be resold without compliance
with the Act. The ETS Stock to be acquired by such STOCKHOLDERS pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
15.1 Compliance with Law. None of the shares of ETS Stock issued to
such STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the Act and the rules and regulations of the SEC.
All of the ETS Stock shall bear the following legend:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAW.
15.2 Economic Risk; Sophistication. The STOCKHOLDERS have had an
adequate opportunity to ask questions and receive answers from the officers of
ETS concerning any and all matters relating to this Agreement, the Plan of
Organization and the IPO, and have been
30
<PAGE>
informed that any investment decision involves risks. They have had the
opportunity to obtain professional assistance in making an investment decision
to the extent desired.
16. GENERAL
16.1 Cooperation. The COMPANY, ETS and DAC shall each deliver or cause
to be delivered to the other on the Consummation Date, and at such other times
and places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement. The
COMPANY shall cooperate and use its reasonable efforts to have the present
officers, directors and employees of the COMPANY cooperate with ETS on and after
the Consummation Date in furnishing information, evidence, testimony and other
assistance in connection with any Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Consummation Date.
16.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, and their
successors. The stockholders of Amcom have relied upon the representations of
the COMPANY contained in Section 5 hereof, are third-party beneficiaries of such
representations and warranties and of the provisions of Section 7.1(a) hereof
and are Indemnified Parties, as such term is used with respect to the
indemnification provided for in Section 11.2 hereof. The STOCKHOLDERS are
Indemnified Parties with respect to Section 11.1 hereof. Except as set forth
herein, no person other than the parties hereto shall have any rights under this
Agreement.
16.3 Entire Agreement. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among, the COMPANY, ETS
and DAC and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance with
its terms and may be modified or amended only by a written instrument executed
by the COMPANY, ETS and DAC, acting through their respective officers, duly
authorized by their respective Board of Directors. Any disclosure made on any
Schedule delivered pursuant hereto shall be deemed to have been disclosed for
purposes of any other Schedule required hereby.
16.4 Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
16.5 Brokers and Agents. Except as disclosed on Schedule 16.5 hereto,
each party represents and warrants that it employed no broker or agent in
connection with the transactions contemplated hereby and agrees to indemnify the
other against all loss, costs, damages or expense arising out of claims for fees
or commission of brokers employed or alleged to have been employed by such
indemnifying party.
31
<PAGE>
16.6 Expenses. Whether or not the transactions contemplated hereby
shall be consummated, each party shall pay its fees, expenses and disbursements
and those of its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed under this Agreement. If the transactions herein
contemplated shall be consummated, ETS shall pay the fees, expenses and
disbursements of the COMPANY and their respective agents, representatives,
financial advisors, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments hereto and all other costs
and expenses incurred in the performance and compliance with all conditions to
be performed by the COMPANY under this Agreement.
16.7 Notices. All notices of communication required or permitted
hereunder shall be in writing and may be made (a) by depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (b) by delivering the
same to an overnight courier service of national reputation, (c) by facsimile
transmission with transmission confirmed, or (d) by delivering the same in
person to an officer or agent of such party.
(a) If to ETS, addressed to them at:
ExpressPoint Technology Services, Inc.
11401 Rupp Drive
Burnsville, MN 55337
with copies to:
Roger Barzun, Esq.
60 Hubbard Street
Concord, MA 01742
(b) If to the COMPANY, addressed to it at:
Delta Parts, Inc.
11401 Rupp Drive
Burnsville, MN 55337
with copies to:
Mark S. Weitz
Leonard, Street and Deinard
150 South Fifth Street
Minneapolis, MN 55402
32
<PAGE>
or to such other address or counsel as any party hereto shall specify
pursuant to this Section 16.7 from time to time.
16.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Minnesota.
16.9 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
16.10 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any rights, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.11 Time. Time is of the essence with respect to this Agreement.
16.12 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
33
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
DELTA PARTS, INC.
By:___________________________
Its:_________________________
EXPRESSPOINT TECHNOLOGY
SERVICES, INC.
By:___________________________
Its: ________________________
DELTA ACQUISITION CORP.
By:___________________________
Its:_________________________
34
CERTIFICATE OF INCORPORATION
OF
XENYX TECHNOLOGY CORPORATION
FIRST: The name of the corporation is XENYX TECHNOLOGY CORPORATION (the
"Corporation").
SECOND: The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle 19801.
The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 1,000, and the par value of each of
such shares is One Cent ($0.01), amounting in the aggregate to $10 of
capital stock.
FIFTH: The name and mailing address of the sole incorporator is as follows:
Roger M. Barzun
P.O. Box 767
Concord, Massachusetts 01742-0767
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation; and for
defining and regulating the powers of the Corporation and its
directors and stockholders and are in furtherance and not in
limitation of the powers conferred upon the Corporation by statute:
(a) The election of directors need not be by written ballot.
(b) The Board of Directors shall have the power and authority --
(1) to adopt, amend or repeal by-laws of the Corporation,
subject only to such limitation, if any, as may be from
time to time imposed by law or by the by-laws;
(2) to the full extent permitted or not prohibited by law, and
without the consent of, or other action by, the
stockholders, to authorize or create mortgages, pledges or
other liens or encumbrances upon any or all of the assets,
real, personal or mixed, and franchises of the
Corporation, including after-acquired property, and to
exercise all of the powers of the Corporation in
connection therewith; and
(3) subject to any provision of the by-laws, to determine
whether, to what extent, at what times and places and
under what conditions and regulations the accounts, books
and papers of the Corporation (other
Page 1 of 2
<PAGE>
than the stock ledger), or any of them, shall be open to
the inspection of the stockholders; and no stockholder
shall have any right to inspect any account, book or paper
of the Corporation except as conferred by statute or
authorized by the by-laws or by the Board of Directors.
SEVENTH: No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for
breach of fiduciary duty as a director, notwithstanding any provision
of law imposing such liability; provided, however, that to the extent
required from time to time by applicable law, this Article SEVENTH
shall not eliminate or limit the liability of a director to the
extent such liability is provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii)
under Section 174 of Title 8 of the Delaware Code; or (iv) for any
transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article SEVENTH shall
apply to or have any effect on the liability or alleged liability of
any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or
repeal.
I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly have hereunto set my hand on the date set forth below.
Date: April 23, 1996
/s/ Roger M. Barzun
-----------------------------
Roger M. Barzun
Page 2 of 2
<PAGE>
Certificate of Amendment
of the
Certificate of Incorporation
of
XENYX TECHNOLOGY CORPORATION
In accordance with the provisions of
Section 242 of the
General Corporation Law of the State of Delaware
The undersigned officers of Xenyx Technology Corporation (the "Corporation"), a
corporation organized and existing under the laws of the State of Delaware, do
hereby certify as follows:
FIRST: On September 23, 1996, the Board of Directors of the Corporation by
unanimous written consent adopted the following resolution:
RESOLVED:
(a) That Article FOURTH of the Corporation's Certificate of
Incorporation is hereby amended to read as follows:
"Fourth: The total number of shares of all classes of stock
which the Corporation has authority to issue is fifteen
million (15,000,000) shares consisting of common stock, par
value one cent ($0.01) per share."
(b) That the foregoing proposed amendment is hereby declared advisable.
(c) That the foregoing proposed amendment shall be submitted for
approval by written consent of the sole stockholder of the
Corporation.
SECOND: The amendment was approved by the sole stockholder of the Corporation on
September 23, 1996.
THIRD: Accordingly, the foregoing amendment of the Corporation's Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
In Witness Whereof, the undersigned, have executed this Certificate of
Amendment, hereby declaring and certifying that this is the act and deed of the
Corporation and that the facts herein stated are true, and accordingly, we have
hereunto set our hands this 27th day of September, 1996.
ATTEST:
Michael F. Cibulka Roger M. Barzun
President Secretary
<PAGE>
Certificate of Amendment
of the
Certificate of Incorporation
of
XENYX TECHNOLOGY CORPORATION
In accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware
The undersigned officers of Xenyx Technology Corporation (the "Corporation"), a
corporation organized and existing under the laws of the State of Delaware, do
hereby certify as follows:
FIRST: On October 4, 1996, the Board of Directors of the Corporation by
unanimous written consent adopted the following resolution:
"RESOLVED:
(a) That Article FIRST of the Corporation's Certificate of Incorporation
is hereby amended to read as follows:
FIRST: The name of the corporation is EXPRESSPOINT TECHNOLOGY
SERVICES, INC. (the "Corporation")"
(b) That the foregoing proposed amendment is hereby declared advisable.
(c) That the foregoing proposed amendment shall be submitted for approval
by written consent of the sole stockholder of the Corporation."
SECOND: The amendment was approved by the sole stockholder of the Corporation on
October 7, 1996
THIRD: Accordingly, the foregoing amendment of the Coporation's Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
In Witness Whereof, the undersigned, have executed this Certificate of
Amendment, hereby declaring and certifying that this is the act and deed of the
Corporation and that the facts herein stated are true, and accordingly, we have
hereunto set our hands this 8th day of October, 1996.
/s/ Michael F. Cibulka /s/ Roger M. Barzun
- -------------------------------- ATTEST:----------------------
Michael F. Cibulka Roger M. Barzun
President Secretary
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
B Y - L A W S
April 23, 1996
(As amended through October 8, 1996)
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
B Y - L A W S
TABLE OF CONTENTS
Section 1. - General...........................................................1
1.1.Offices...............................................................1
1.2.Seal..................................................................1
1.3.Fiscal Year...........................................................1
Section 2. - Stockholders......................................................1
2.1.Place of Meetings.....................................................1
2.2.Annual Meeting........................................................1
2.3.Quorum................................................................1
2.4.Right to Vote; Proxies................................................2
2.5.Voting................................................................3
2.6.Notice of Annual Meetings.............................................3
2.7.Stockholders' List....................................................3
2.8.Special Meetings......................................................3
2.9.Notice of Special Meetings............................................3
2.10.Inspectors...........................................................3
2.11.Stockholders' Consent in Lieu of Meeting.............................3
Section 3. - Directors.........................................................3
3.1.Number of Directors...................................................3
3.2.Change in Number of Directors; Vacancies..............................3
3.3.Resignation...........................................................4
3.4.Removal...............................................................4
3.5.Place of Meetings and Books...........................................4
3.6.General Powers........................................................4
3.7.Executive Committee...................................................4
3.8.Other Committees......................................................4
3.9.Powers Denied to Committees...........................................4
3.10.Substitute Committee Member..........................................5
3.11.Compensation of Directors............................................5
3.12.Annual Meeting.......................................................5
3.13.Regular Meetings.....................................................5
3.14.Special Meetings.....................................................5
3.15.Quorum...............................................................5
3.16.Telephonic Participation in Meetings.................................6
3.17.Action by Consent....................................................6
- i -
<PAGE>
Section 4. - Officers..........................................................6
4.1.Selection; Statutory Officers.........................................6
4.2.Time of Election......................................................6
4.3.Additional Officers...................................................6
4.4.Terms of Office.......................................................6
4.5.Compensation of Officers..............................................6
4.6.Chairman of the Board.................................................6
4.7.Vice Chairman of the Board............................................6
4.8.President.............................................................7
4.9.Vice-Presidents.......................................................7
4.10.Treasurer............................................................7
4.11Secretary.............................................................7
4.12.Assistant Secretary..................................................8
4.13.Assistant Treasurer..................................................8
4.14.Subordinate Officers.................................................8
Section 5. - Stock.............................................................8
5.1.Stock.................................................................8
5.2.Fractional Share Interests............................................8
5.3.Transfers of Stock....................................................9
5.4.Record Date...........................................................9
5.5.Transfer Agent and Registrar..........................................9
5.6.Dividends.............................................................9
5.7.Inspection of Books..................................................10
Section 6. - Miscellaneous Management Provisions..............................10
6.2.Notices..............................................................10
6.3.Conflict of Interest.................................................10
6.4.Voting of Securities owned by this Corporation.......................11
Section 7. - Indemnification..................................................11
7.1.Right to Indemnification.............................................11
7.2.Right of Indemnitee to Bring Suit....................................12
7.3.Non-Exclusivity of Rights............................................13
7.4.Insurance............................................................13
7.5.Indemnification of Employees and Agents of the Corporation...........13
Section 8. - Amendments.......................................................13
- ii -
<PAGE>
XENYX TECHNOLOGY CORPORATION
B Y - L A W S
1 General.
1.1 Offices. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation may also have
offices at such other places both within and without the State of
Delaware as the Board of Directors may from time to time determine or
the business of the Corporation may require.
1.2 Seal. The Corporation may, but need not, have a seal and the seal of
the Corporation may be in the form of a circle and may have inscribed
thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware".
1.3 Fiscal Year. The fiscal year of the Corporation shall end on December
31 in each year.
2 Stockholders.
2.1 Place of Meetings. All meetings of the stockholders shall be held at
the office of the Corporation in Delaware except such meetings as the
Board of Directors expressly determine shall be held elsewhere, in
which case meetings may be held upon notice as hereinafter provided at
such other place or places within or without the State of Delaware as
the Board of Directors shall have determined and as shall be stated in
such notice.
2.2 Annual Meeting. The annual meeting of the stockholders shall be held
in the month of June each year on such date, or on such other date not
in the month of June and at such time as the Board of Directors may
determine. At each annual meeting the stockholders entitled to vote
shall elect a Board of Directors by plurality vote, and they may
transact such other corporate business as may properly be brought
before the meeting. At the annual meeting, any business may be
transacted irrespective of whether the notice calling such meeting
shall have contained a reference thereto, except where notice is
required by law, the Certificate of Incorporation, or these by-laws.
2.3 Quorum. At all meetings of the stockholders the holders of a majority
of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum
requisite for the transaction of business except as otherwise provided
by law, by the Certificate of Incorporation or by these by-laws. If,
however, such majority shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or by proxy, by a majority vote, shall have
power to adjourn the meeting from time to time without notice other
than announcement at the meeting until the requisite amount of voting
stock shall be present. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
At such adjourned meeting, at which the requisite amount of voting
stock shall be represented, any business may be transacted which might
have been transacted if the meeting had been held as originally
called.
2.4 Right to Vote; Proxies. Each holder of a share or shares of capital
stock of the Corporation having the right to vote at any meeting shall
be entitled to one vote for each such share of stock so held. Any
stockholder entitled to vote at any meeting of stockholders may vote
either in person or by proxy, but no proxy which is dated more than
three years prior to the meeting at which it is offered shall confer
the right to vote
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 1 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
thereat unless the proxy provides that it shall be effective for a
longer period. A proxy may be granted by a writing executed by the
stockholder or his authorized officer, director, employee or agent or
by transmission or authorization of transmission of a telegram,
cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such
transmission, subject to the conditions set forth in Section 212 of
the Delaware General Corporation Law, as it may be amended from time
to time (the "Delaware GCL").
2.5 Voting. At all meetings of stockholders, except as otherwise expressly
provided for by statute, the Certificate of Incorporation or these
by-laws, (i) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or
represented by proxy at the meeting and entitled to vote on such
matter shall be the act of the stockholders and (ii) directors shall
be elected by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the
election of directors. Except as otherwise expressly provided by law,
the Certificate of Incorporation or these by-laws, at all meetings of
stockholders the voting shall be by voice vote, but any stockholder
qualified to vote on the matter in question may demand a stock vote,
by shares of stock, upon such question, whereupon such stock vote
shall be taken by written ballot, each of which shall state the name
of the stockholder voting and the number of shares voted by him, and,
if such ballot be cast by a proxy, it shall also state the name of the
proxy.
2.6 Notice of Annual Meetings. Written notice of the annual meeting of the
stockholders shall be mailed to each stockholder entitled to vote
thereat at such address as appears on the stock books of the
Corporation at least ten (10) days (and not more than sixty (60) days)
prior to the meeting. It shall be the duty of every stockholder to
furnish to the Secretary of the Corporation or to the transfer agent,
if any, of the class of stock owned by him, his post-office address
and to notify said Secretary or transfer agent of any change therein.
2.7 Stockholders' List. A complete list of the stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order
and showing the address of each stockholder, and the number of shares
registered in the name of each stockholder, shall be prepared by the
Secretary and filed either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting
is to be held, at least ten (10) days before such meeting, and shall
at all times during the usual hours for business, and during the whole
time of said election, be open to the examination of any stockholder
for a purpose germane to the meeting.
2.8 Special Meetings. Special meetings of the stockholders for any purpose
or purposes, unless otherwise provided by statute, may be called by
the Board of Directors, the Chairman of the Board, or by the
President.
2.9 Notice of Special Meetings. Written notice of a special meeting of
stockholders, stating the time and place and object thereof shall be
mailed, postage prepaid, not less than ten (10) nor more than sixty
(60) days before such meeting, to each stockholder entitled to vote
thereat, at such address as appears on the books of the Corporation.
No business may be transacted at such meeting except that referred to
in said notice, or in a supplemental notice given also in compliance
with the provisions hereof, or such other business as may be germane
or supplementary to that stated in said notice or notices.
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 2 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
2.10 Inspectors.
2.10.1 One or more inspectors may be appointed by the Board of
Directors before or at any meeting of stockholders, or, if no
such appointment shall have been made, the presiding officer
may make such appointment at the meeting. At the meeting for
which the inspector or inspectors are appointed, he, she or
they shall open and close the polls, receive and take charge
of any proxies and ballots, and decide all questions touching
on the qualifications of voters, the validity of proxies and
the acceptance and rejection of votes. If any inspector
previously appointed shall fail to attend or refuse or be
unable to serve, the presiding officer shall appoint an
inspector in his place.
2.10.2 At any time at which the Corporation has a class of voting
stock that is (i) listed on a national securities exchange,
(ii) authorized for quotation on an inter-dealer quotation
system of a registered national securities association, or
(iii) held of record by more than 2,000 stockholders, the
provisions of Section 231 of the Delaware GCL with respect to
inspectors of election and voting procedures shall apply, in
lieu of the provisions of paragraph (l) of this Subsection
2.10.
2.11 Stockholders' Consent in Lieu of Meeting. Unless otherwise provided in
the Certificate of Incorporation, any action required by law to be
taken at any annual or special meeting of stockholders of the
Corporation, or any action that may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted
and if all other requirements of the Delaware GCL with respect to such
a written consent shall be complied with.
3 Directors.
3.1 Number of Directors. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, the property and
business of the Corporation shall be managed by or under the direction
of a board of not less than one (1) nor more than thirteen (13)
directors. Within the limits specified, the number of directors shall
be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting. Directors need not be
stockholders, residents of Delaware or citizens of the United States.
The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify or until his earlier
resignation or removal; provided that in the event of failure to hold
such meeting or to hold such election at such meeting, such election
may be held at any special meeting of the stockholders called for that
purpose. If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal, failure to elect, or
otherwise, the remaining directors, whether more or less than a
quorum, by a majority vote of such remaining directors may elect a
successor or successors who shall hold office until the next annual
meeting of stockholders.
3.2 Change in Number of Directors; Vacancies. The maximum number of
directors may be increased by an amendment to these by-laws adopted by
a majority vote of the
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 3 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
Board of Directors or by a majority vote of the capital stock having
voting power, and if the number of directors is so increased by action
of the Board of Directors or of the stockholders or otherwise, then
the additional directors may be elected in the manner provided above
for the filling of vacancies in the Board of Directors or at the
annual meeting of stockholders or at a special meeting called for that
purpose.
3.3 Resignation. Any director of this Corporation may resign at any time
by giving written notice to the Chairman of the Board, the President
or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, at the time of receipt if no
time is specified therein and at the time of acceptance if the
effectiveness of such resignation is conditioned upon its acceptance.
Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
3.4 Removal. Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.5 Place of Meetings and Books. The Board of Directors may hold their
meetings and keep the books of the Corporation outside the State of
Delaware, at such places as they may from time to time determine.
3.6 General Powers. In addition to the powers and authority expressly
conferred upon them by these by-laws, the board may exercise all such
powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation or by these
by-laws directed or required to be exercised or done by the
stockholders.
3.7 Executive Committee. There may be an executive committee of one or
more directors designated by resolution passed by a majority of the
whole board. The act of a majority of the members of such committee
shall be the act of the committee. Said committee may meet at stated
times or on notice to all by any of their own number, and shall have
and may exercise those powers of the Board of Directors in the
management of the business affairs of the Company as are provided by
law and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular
meeting or at a special meeting called for that purpose.
3.8 Other Committees. The Board of Directors may also designate one or
more committees in addition to the executive committee, by resolution
or resolutions passed by a majority of the whole board; such committee
or committees shall consist of one or more directors of the
Corporation, and to the extent provided in the resolution or
resolutions designating them, shall have and may exercise specific
powers of the Board of Directors in the management of the business and
affairs of the Corporation to the extent permitted by statute and
shall have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
3.9 Powers Denied to Committees. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the
Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the
issuance of shares adopted by the Board of Directors as provided in
Section 151(a) of the Delaware GCL, fix the designations and any of
the preferences or rights of such shares relating to dividends,
redemption, dissolution,
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 4 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
any distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes
of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any
series), adopt an agreement of merger or consolidation, recommend to
the stockholders the sale, lease or exchange of all or substantially
all of the Corporation's property and assets, recommend to the
stockholders a dissolution of the Corporation or a revocation of a
dissolution or to amend the by-laws of the Corporation. Further, no
committee of the Board of Directors shall have the power or authority
to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such
committee expressly so provides.
3.10 Substitute Committee Member. In the absence or on the disqualification
of a member of a committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such
absent or disqualified member. Any committee shall keep minutes of its
proceedings and report the same to the board as may be required by the
board.
3.11 Compensation of Directors. The Board of Directors shall have the power
to fix the compensation of directors and members of committees of the
Board. The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and of other activities
carried in connection with their duties as directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or
a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee
meetings.
3.12 Annual Meeting. The newly elected board may meet at such place and
time as shall be fixed and announced by the presiding officer at the
annual meeting of stockholders for the purpose of organization or
otherwise, and no further notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or they may meet at such
place and time as shall be stated in a notice given to such directors
two (2) days prior to such meeting, or as shall be fixed by the
consent in writing of all the directors.
3.13 Regular Meetings. Regular meetings of the board may be held without
notice at such time and place as shall from time to time be determined
by the board.
3.14 Special Meetings. Special meetings of the board may be called by the
Chairman of the Board or the President, on two (2) days notice to each
director, or such shorter period of time before the meeting as will
nonetheless be sufficient for the convenient assembly of the directors
in person or by telephone so notified; special meetings shall be
called by the Secretary in like manner and on like notice, on the
written request of two or more directors.
3.15 Quorum. At all meetings of the Board of Directors, a majority of the
total number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be
otherwise specifically permitted or provided by statute, or by the
Certificate of
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 5 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
Incorporation, or by these by-laws. If at any meeting of the board
there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained,
and no further notice thereof need be given other than by announcement
at said meeting which shall be so adjourned.
3.16 Telephonic Participation in Meetings. Members of the Board of
Directors or any committee designated by such board may participate in
a meeting of the board or committee by means of conference telephone
call or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in
a meeting pursuant to this section shall constitute presence in person
at such meeting.
3.17 Action by Consent. Unless otherwise restricted by the Certificate of
Incorporation or these by-laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if written consent thereto is
signed by all members of the board or of such committee as the case
may be and such written consent is filed with the minutes of
proceedings of the board or committee.
4 Officers.
4.1 Selection; Officers. The officers of the Corporation shall be chosen
by the Board of Directors. There shall be a President, a Secretary, a
Treasurer, a Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers, as the
Board of Directors may elect. Any number of offices may be held by the
same person, except that the offices of President and Secretary shall
not be held by the same person simultaneously.
4.2 Time of Election. The officers above named shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3 Additional Officers. The board may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board.
4.4 Terms of Office. Each officer of the Corporation shall hold office
until his successor is chosen and qualified, or until his earlier
resignation or removal. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors.
4.5 Compensation of Officers. The Board of Directors (or a committee of
the Board appointed for such purpose) shall have power to fix the
compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may
have been conferred, to fix the compensation of such subordinate
officers.
4.6 Chairman of the Board. The Chairman of the Board of Directors shall
preside at all meetings of the stockholders and directors, and shall
have such other duties as may be assigned to him from time to time by
the Board of Directors.
4.7 Vice Chairman of the Board. The Vice Chairman of the Board of
Directors shall perform all of the duties of the Chairman of the Board
of Directors in the absence of the Chairman.
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 6 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
4.8 President. Unless the Board of Directors otherwise determines, the
President shall be the chief executive officer of the Corporation. In
the absence of the Chairman and Vice Chairman of the Board, the
President shall preside at meetings of directors and stockholders.
Under the supervision of the Board of Directors and of the executive
committee, if any, the President shall have the general control and
management of its business and affairs, subject, however, to the right
of the Board of Directors and of the executive committee, if any, to
confer any specific power, except such as may be by statute
exclusively conferred on the President, upon any other officer or
officers of the Corporation. The President shall perform and do all
acts and things incident to the position of President and such other
duties as may be assigned to him from time to time by the Board of
Directors or the executive committee.
4.9 Vice-Presidents. The vice presidents shall perform such of the duties
of the President on behalf of the Corporation as may be respectively
assigned to them from time to time by the Board of Directors or by the
executive committee, if any, or by the President. The Board of
Directors or the executive committee, if any, may designate one of the
vice presidents as an Executive Vice President and in the absence or
inability of the President to act, Such Executive Vice President shall
have and possess all of the powers and discharge all of the duties of
the President, subject to the control of the board and of the
executive committee, if any.
4.10 Treasurer. The Treasurer shall have the care and custody of all the
funds and securities of the Corporation which may come into his hands
as Treasurer, and the power and authority to endorse checks, drafts
and other instruments for the payment of money for deposit or
collection when necessary or proper and to deposit the same to the
credit of the Corporation in such bank or banks or depository as the
Board of Directors or the executive committee, if any, or the officers
or agents to whom the Board of Directors or the executive committee,
if any, may delegate such authority, may designate, and he may endorse
all commercial documents requiring endorsements for or on behalf of
the Corporation. He may sign all receipts and vouchers for the
payments made to the Corporation. He shall render an account of his
transactions to the Board of Directors or to the executive committee,
if any, as often as the board or the committee shall require the same.
He shall enter regularly in the books to be kept by him for that
purpose full and adequate account of all moneys received and paid by
him on account of the Corporation. He shall perform all acts incident
to the position of Treasurer, subject to the control of the Board of
Directors and of the executive committee, if any. He shall when
requested, pursuant to vote of the Board of Directors or the executive
committee, if any, give a bond to the Corporation conditioned for the
faithful performance of his duties, the expense of which bond shall be
borne by the Corporation.
4.11 Secretary. The Secretary shall keep the minutes of all meetings of the
Board of Directors, board committees and of the stockholders; he shall
attend to the giving and serving of all notices of the Corporation.
Except as otherwise ordered by the Board of Directors or the executive
committee, if any, he shall attest the seal of the Corporation upon
all contracts and instruments executed under such seal and shall affix
the seal of the Corporation thereto and to all certificates of shares
of capital stock of the Corporation. He shall have charge of the stock
certificate book, transfer book and stock ledger, and such other books
and papers as the Board of Directors or the executive committee, if
any, may direct. He shall, in general, perform all the duties of
Secretary, subject to the control of the Board of Directors and of the
executive committee, if any.
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 7 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
4.12 Assistant Secretary. The Board of Directors may appoint or remove one
or more Assistant Secretaries of the Corporation. Any Assistant
Secretary upon his appointment shall perform such duties of the
Secretary, and also any and all such other duties as the executive
committee, if any, or the Board of Directors or the President or any
Executive Vice President or the Treasurer or the Secretary may
designate.
4.13 Assistant Treasurer. The Board of Directors or any two of the officers
of the Corporation acting jointly may appoint or remove one or more
Assistant Treasurers of the Corporation. Any Assistant Treasurer upon
his appointment shall perform such of the duties of the Treasurer, and
also any and all such other duties as the executive committee, if any,
or the Board of Directors or the President or the Executive
Vice-President or the Treasurer or the Secretary may designate.
4.14 Subordinate Officers. The Board of Directors may select such
subordinate officers as it may deem desirable. Each such officer shall
hold office for such period, have such authority, and perform such
duties as the Board of Directors may prescribe. The Board of Directors
may, from time to time, authorize any officer to appoint and remove
subordinate officers and to prescribe the powers and duties thereof.
5 Stock.
5.1 Stock. Each stockholder shall be entitled to a certificate or
certificates of stock of the Corporation in such form as the Board of
Directors may from time to time prescribe. The certificates of stock
of the Corporation shall be numbered and shall be entered in the books
of the Corporation as they are issued. They shall certify the holder's
name and number and class of shares and shall be signed by both the
President and the Secretary and shall be sealed with the corporate
seal of the Corporation, if any. If such certificate is countersigned
(l) by a transfer agent other than the Corporation or its employee,
or, (2) by a registrar other than the Corporation or its employee, the
signature of the officers of the Corporation and the corporate seal
may be facsimiles. In case any officer or officers who shall have
signed, or whose facsimile signature or signatures shall have been
used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers of the
Corporation.
5.2 Fractional Share Interests. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not
issue fractions of a share, it shall (i) arrange for the disposition
of fractional interests by those entitled thereto, (ii) pay in cash
the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined, or (iii) issue
scrip or warrants in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon the surrender of
such scrip or warrants aggregating a full share. A certificate for a
fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting
rights, to receive dividends thereon, and to participate in any of the
assets of the Corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the
conditions
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 8 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
that they shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the
conditions that the shares for which scrip or warrants are
exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any
other conditions which the Board of Directors may impose.
5.3 Transfers of Stock. Subject to any transfer restrictions then in
force, the shares of stock of the Corporation shall be transferable
only upon its books by the holders thereof in person or by their duly
authorized attorneys or legal representatives and upon such transfer
the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and transfer
books and ledgers or to such other person as the directors may
designate by whom they shall be cancelled and new certificates shall
thereupon be issued. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable
or other claim to or interest in such share on the part of any other
person whether or not it shall have express or other notice thereof
save as expressly provided by the laws of Delaware.
5.4 Record Date. For the purpose of determining the stockholders entitled
to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any
other action. If no such record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; the record date
for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders
for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
5.5 Transfer Agent and Registrar. The Board of Directors may appoint one
or more transfer agents or transfer clerks and one or more registrars
and may require all certificates of stock to bear the signature or
signatures of any of them.
5.6 Dividends.
5.6.1 Power to Declare. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the
Certificate of Incorporation and the laws of Delaware.
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 9 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
5.6.2 Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to
time, in their absolute discretion, think proper as a reserve
or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of
the Corporation, or for such other purpose as the directors
shall think conducive to the interest of the Corporation, and
the directors may modify or abolish any such reserve in the
manner in which it was created.
5.6.3 Lost, Stolen or Destroyed Certificates. No certificates for
shares of stock of the Corporation shall be issued in place
of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of the
loss, theft or destruction and upon indemnification of the
Corporation and its agents to such extent and in such manner
as the Board of Directors may from time to time prescribe.
5.7 Inspection of Books. The stockholders of the Corporation, by a
majority vote at any meeting of stockholders duly called, or in case
the stockholders shall fail to act, the Board of Directors shall have
power from time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the
accounts and books of the Corporation (other than the stock ledger) or
any of them, shall be open to inspection of stockholders; and no
stockholder shall have any right to inspect any account or book or
document of the Corporation except as conferred by statute or
authorized by the Board of Directors or by a resolution of the
stockholders.
6 Miscellaneous Management Provisions.
6.1 Checks, Drafts and Notes. All checks, drafts or orders for the payment
of money, and all notes and acceptances of the Corporation shall be
signed by such officer or officers, agent or agents as the Board of
Directors may designate.
6.2 Notices.
6.2.1 Notices to directors may, and notices to stockholders shall,
be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the
books of the Corporation. Notice by mail shall be deemed to
be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram, facsimile, by
telephone, in person or orally.
6.2.2 Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of
Incorporation of the Corporation of the Corporation or of
these by-laws, a written waiver of notice, signed by the
person or persons entitled to said notice, whether before or
after the time stated therein or the meeting or action to
which such notice relates, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute
a waiver of notice of such meeting except when the person
attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or
convened.
6.3 Conflict of Interest. No contract or transaction between the
Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association,
or other organization in which one or more of
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 10 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
the directors or officers of the Corporation are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board of or committee
thereof which authorized the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (i) the
material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his
relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders of the Corporation entitled
to vote thereon, and the contract or transaction as specifically
approved in good faith by vote of such stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a
committee or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the
Board of Directors or of a committee which authorizes the contract or
transaction.
6.4 Voting of Securities owned by this Corporation. Subject always to the
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other Corporation and owned or controlled by
this Corporation may be voted in person at any meeting of security
holders of such other corporation by the President, Treasurer or
Secretary of the Corporation if he is present at such meeting, or in
his absence by the Treasurer of this Corporation if he is present at
such meeting, and (ii) whenever, in the judgment of the President, it
is desirable for this Corporation to execute a proxy or written
consent in respect to any shares or other securities issued by any
other Corporation and owned by this Corporation, such proxy or consent
shall be executed in the name of this Corporation by the President,
the Treasurer or the Secretary, without the necessity of any
authorization by the Board of Directors, affixation of corporate seal
or countersignature or attestation by another officer. Any person or
persons designated in the manner above stated as the proxy or proxies
of this Corporation shall have full right, power and authority to vote
the shares or other securities issued by such other corporation and
owned by the Corporation to the same extent as such shares or other
securities might be voted by this Corporation.
7 Indemnification.
7.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a
director or officer of the Corporation or serving or having served at
the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
an employee benefit plan (an "Indemnitee"), whether the basis of such
proceeding is alleged action or failure to act in an official capacity
as a director, trustee, officer, employee or agent or in any other
capacity while serving as a director, trustee, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 11 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
permitted prior thereto) (as used in this Section 7, the "Delaware
Law"), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee
in connection therewith and such indemnification shall continue as to
an Indemnitee who has ceased to be a director, trustee, officer,
employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except
as provided in Subsection 7.2 hereof with respect to Proceedings to
enforce rights to indemnification, the Corporation shall indemnify any
such Indemnitee in connection with a Proceeding (or part thereof)
initiated by such Indemnitee only if such Proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right
to indemnification conferred in this Section 7 shall be a contract
right and shall include the right to be paid by the Corporation the
expenses (including attorneys' fees) incurred in defending any such
Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires,
an Advancement of Expenses incurred by an Indemnitee shall be made
only upon delivery to the Corporation of an undertaking (an
"Undertaking"), by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (a
"Final Adjudication") that such Indemnitee is not entitled to be
indemnified for such expenses under this Section 7 or otherwise.
7.2 Right of Indemnitee to Bring Suit. If a claim under Subsection 7.1
hereof is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in
the case of a claim for an Advancement of Expenses, in which case the
applicable period shall be twenty (20) days, the Indemnitee may at any
time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the
Indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the Indemnitee to enforce a right to an Advancement
of Expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking the Corporation shall be entitled to recover
such expenses upon a Final Adjudication that, the Indemnitee has not
met the applicable standard of conduct set forth in the Delaware Law.
Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set
forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal
counsel, or its stockholders) that the Indemnitee has not met such
applicable standard of conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the Indemnitee, be a defense to such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is
not entitled to be indemnified, or to such Advancement of Expenses,
under this Section 7 or otherwise shall be on the Corporation.
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 12 of 13
<PAGE>
ExpressPoint Technology Services, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
7.3 Non-Exclusivity of Rights. The rights to indemnification and to the
Advancement of Expenses conferred in this Section 7 shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, the Corporation's Certificate or
Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
7.4 Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person
against such expense, liability or loss under this Section 7 or under
the Delaware Law.
7.5 Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and to the
Advancement of Expenses, to any employee or agent of the Corporation
to the fullest extent of the provisions of this Section 7 with respect
to the indemnification and Advancement of Expenses of directors and
officers of the Corporation.
8 Amendments. The by-laws of the Corporation may be altered, amended or
repealed at any meeting of the Board of Directors upon notice thereof in
accordance with these by-laws, or at any meeting of the stockholders by the
vote of the holders of the majority of the stock issued and outstanding and
entitled to vote at such meeting, in accordance with the provisions of the
Certificate of Incorporation of the Corporation and of the laws of Delaware.
-------------------
Adopted by the Incorporator on April 23, 1996
As amended by the Board of Directors October 8, 1996
- --------------------------------------------------------------------------------
Rev. October 8, 1996
Page 13 of 13
IRREVOCABLE PROXY COUPLED WITH AN INTEREST
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a stockholder of
Amcom Corporation ("Amcom"), a Minnesota corporation, holding ________ shares of
Amcom's Common Stock, $0.01 par value per share, (the "Stock") and all shares
held in the undersigned's ESOP account (the "ESOP Stock") does hereby make,
constitute and appoint Mark S. Weitz, with full power of substitution, the true
and lawful attorney and proxy of the undersigned for and in his name, place and
stead to attend all meetings of the stockholders of Amcom, to receive notices
thereof and to vote any and all shares of the Stock at all times standing in the
name of the undersigned at all meetings of the stockholders or any adjournment
or adjournments thereof, solely for the purpose of voting on that certain
Agreement and Plan of Reorganization, dated as of October 15, 1996, by and among
ExpressPoint Technology Services, Inc., Amcom Acquisition Corp. and Amcom (the
"Agreement") and to exercise all consensual or other voting rights with respect
to the Stock with regard to such matter. The undersigned further agrees to
direct the ESOP Trustees to vote the ESOP Stock for the Agreement. The
undersigned hereby confirms that this proxy is given in connection with the
Agreement, that the undersigned will receive substantial consideration for the
Stock and the ESOP Stock under the Agreement and that this proxy is coupled with
an interest and is irrevocable, for the period from the date hereof until the
termination of the Agreement. The undersigned hereby ratifies and confirms all
that the said proxy may lawfully do or cause to be done by virtue hereof.
GIVEN AT Minneapolis, Minnesota this ______ day of October, 1996.
---------------------------------------
IRREVOCABLE PROXY COUPLED WITH AN INTEREST
Know All Men by These Presents, that the undersigned, a stockholder of
Delta Parts, Inc. ("DPI"), a Minnesota corporation, holding shares of DPI's
Common Stock, $0.01 par value per share (herein called the "Stock") does hereby
make, constitute and appoint Mark S. Weitz, a partner in the Minneapolis,
Minnesota law firm of Leonard, Street & Deinard PA, special counsel to DPI, with
full power of substitution, the true and lawful attorney and proxy of the
undersigned for and in his name, place and stead to attend all meetings of the
stockholders of DPI, to receive notices thereof and to vote any and all shares
of the Stock at all times standing in the name of the undersigned at all
meetings of the stockholders or any adjournment or adjournments thereof for the
purpose of voting on that certain Agreement and Plan of Reorganization, dated as
of October 15, 1996, by and among ExpressPoint Technology Services, Inc., Delta
Acquisition Corp. and DPI (the "Agreement") and to exercise all consensual or
other voting rights with respect to such shares of Stock with regard to such
matter. The undersigned hereby confirms that this proxy is given in connection
with the Agreement, that the undersigned will receive substantial consideration
for the Stock under the Agreement and that this proxy is coupled with an
interest and is irrevocable, for the period from the date hereof until the
termination of the Agreement. The undersigned hereby ratifies and confirms all
that the said proxy may lawfully do or cause to be done by virtue hereof. Given
at , this th day of October, 1996.
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 EMPLOYEE STOCK OPTION PLAN
--------------------------------------------------------
1 Purpose of the Plan. The purpose of this plan (the "Plan") is to secure for
ExpressPoint Technology Services, Inc. (the "Company") and its shareholders
the benefits arising from capital stock ownership by employees, officers,
directors, consultants and advisors of the Company and its parent and
subsidiary corporations who are expected to contribute to the Company's
future growth and success. Except where the context otherwise requires, the
term "Company" shall include the parent and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan that make express reference to
Section 422 of the Code shall apply only to incentive stock options (as
defined below).
2 Types of Options and Administration.
2.1 Types of Options. Options granted pursuant to the Plan may be
either incentive stock options meeting the requirements of Section
422 of the Code ("Incentive Stock Options") or Non- Statutory
Options, which are not intended to meet the requirements of Section
422 of the Code ("Non-Statutory Options").
2.2 Administration.
2.2.1 The Plan shall be administered by the Board of Directors of
the Company, whose construction and interpretation of the
terms and provisions of the Plan shall be final and
conclusive. The Board of Directors may in its sole
discretion grant options to purchase shares of the Company's
Common Stock ("Common Stock") and issue shares upon exercise
of such options as provided in the Plan. The Board shall
have authority, subject to the express provisions of the
Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions
of the respective option agreements, which need not be
identical, and to make all other determinations which are,
in the judgment of the Board of Directors, necessary or
desirable for the administration of the Plan. The Board of
Directors may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or
person acting pursuant to authority delegated by the Board
of Directors shall be liable for any action or determination
under the Plan made in good faith.
2.2.2 The Board of Directors, to the full extent permitted by, or
consistent with, applicable laws or regulations and Section
3.2 of the Plan may delegate any or all of its powers under
the Plan to a committee appointed by it (the "Committee"),
and if the Committee is so appointed, all references to the
Board of Directors in the Plan shall mean and relate to such
Committee, except as expressly otherwise provided herein.
2.3 Applicability of Rule 16b-3. Those provisions of the Plan that make
express reference to Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any successor rule
("Rule 16b-3"), or that are required in order for certain option
transactions to qualify for exemption under Rule 16b-3, shall apply
only to such persons as are required to file reports under Section
16(a) of the Exchange Act (a "Reporting Person").
Rev. October 8, 1996
Page 1 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
3 Eligibility.
3.1 General. Options may be granted to persons who are, at the time of
grant, employees, officers, directors, consultants or advisors of
the Company; provided, that the class of persons to whom Incentive
Stock Options may be granted shall be limited to employees of the
Company. A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board
of Directors shall so determine. Subject to adjustment as provided
in Section 16, below, the maximum number of shares with respect to
which options may be granted during the ten-year term of the Plan
to any one employee under the Plan shall not exceed 500,000 shares
of common stock during the ten-year term of the Plan. For the
purpose of calculating such maximum number, (a) an option shall
continue to be treated as outstanding notwithstanding its
repricing, cancellation or expiration and (b) the repricing of an
outstanding option or the issuance of a new option in substitution
for a canceled option shall be deemed to constitute the grant of a
new additional option separate from the original grant of the
option that is repriced or canceled.
3.2 Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange
Act, the selection of a director or an officer (as the terms
"director" and "officer" are defined for purposes of Rule 16b-3) as
a recipient of an option, the timing of the option grant, the
exercise price of the option and the number of shares subject to
the option shall at a minimum be determined in such manner and with
such terms as qualifies such grant for exemption under Rule 16b-3
as the same is in effect from time to time (or any successor rule
thereto).
4 Stock Subject to Plan. Subject to adjustment as provided in Section 16
below, the maximum number of shares of Common Stock which may be issued and
sold under the Plan is 700,000 shares. If an option granted under the Plan
shall expire or terminate for any reason without having been exercised in
full, the un-purchased shares subject to such option shall again be
available for subsequent option grants under the Plan. If shares issued
upon exercise of an option under the Plan are tendered to the Company in
payment of the exercise price of an option granted under the Plan, such
tendered shares shall again be available for subsequent option grants under
the Plan; provided, that in no event shall such shares be made available
for issuance to a Reporting Person or pursuant to the exercise of an
Incentive Stock Option.
5 Forms of Option Agreements. As a condition to the grant of an option under
the Plan, each recipient of an option shall execute an option agreement in
such form not inconsistent with the Plan as may be approved by the Board of
Directors. The terms and conditions of such option agreements need not be
the same for all option recipients.
6 Option Price.
6.1 General. Subject to Section 3.2, the exercise (purchase) price per
share of stock deliverable upon the exercise of an option shall be
determined by the Board of Directors; provide, however, that in the
case of an Incentive Stock Option, the exercise price shall not be
less than 100% of the fair market value of such stock (as
determined pursuant to Section 7) on the grant date, or less than
110% of such fair market value in the case of Incentive Stock
Options.
6.2 Payment of the Purchase Price. Options granted under the Plan may
provide for the payment of the purchase price by delivery of cash
or a check to the order of the Company in an amount equal to such
purchase price or, to the extent expressly authorized by the Board
of Directors
Rev. October 8, 1996 Page 2 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
on the date of grant or on any date subsequent thereto (a) by
delivery to the Company of shares of Common Stock of the Company
already owned by the optionee having a fair market value equal on
the date of exercise in amount to the exercise price of the options
being exercised; or (b) by any other means (including, but without
limitation thereto, by delivery of a promissory note of the
optionee payable on such terms as are specified by the Board of
Directors) which the Board of Directors determines are consistent
with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of
Regulation T promulgated by the Federal Reserve Board). The fair
market value of any shares of the Company's Common Stock or other
non-cash consideration which may be delivered upon exercise of an
option shall be determined by the Board of Directors.
7 Fair Market Value. The fair market value of a share of Common Stock on a
given date shall be determined as follows:
7.1 If the Common Stock is listed on the Nasdaq National Market, the
Nasdaq SmallCap Market or other nationally recognized exchange or
trading system on the date as of which a determination of fair
market value is to be made, the fair market value per share of
Common Stock shall be deemed to be the last reported sale price or
closing price per share on such market, exchange or system on the
trading day immediately preceding such date (or, if no such price
is reported on such date, the price on the nearest preceding date
on which such a price is reported).
7.2 If the Common Stock is not listed on the Nasdaq National Market,
the Nasdaq SmallCap Market or other nationally recognized exchange
or trading system on the date as of which a determination of fair
market value is to be made, the fair market value per share shall
be determined by the Board of Directors based on all factors deemed
relevant for such purpose.
8 Option Period. Each option and all rights thereunder shall expire on such
date as shall be set forth in the applicable option agreement, except that
in the case of an Incentive Stock Option, such expiration date shall not be
later than ten years after the date on which the option was granted and, in
all cases, options shall be subject to earlier termination as provided in
the Plan.
9 Exercise of Options. Each option granted under the Plan shall be
exercisable either in full or in installments at such time or times and
during such period as shall be established at the time of the grant,
subject, however, to the provisions of the Plan.
10 Transferability of Options. No option shall be assignable or transferable
by the person to whom it was granted, either voluntarily or by operation of
law, except (a) to immediate members of such person's family; or (b) by
such person's will or by the laws of descent and distribution. "Immediate
family members" shall consist only of a person's father and mother; sisters
and brothers; spouse; and children and grandchildren (in both cases,
including by adoption). A transfer of an Incentive Stock Option as such
pursuant to this provision will only be permissible if and to the extent
that Section 422 of the Code, as in effect from time to time, does not
cause such Incentive Stock Option to be treated as a non-statutory stock
option that does not meet the requirements of Section 422 of the Code.
Rev. October 8, 1996
Page 3 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
11 Effect of Termination of Employment or Other Relationship. Except as
provided in Section 12.4 with respect to Incentive Stock Options, and
subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an
option following (a) the termination of the optionee's employment or other
relationship with the Company;
or (b) the death or disability of the optionee. Such periods shall be
set forth in the agreement evidencing such option.
12 Incentive Stock Options. Options granted under the Plan that are intended
to be Incentive Stock Options shall be subject to the following additional
terms and conditions:
12.1 Express Designation. Each Incentive Stock Option granted under the
Plan shall, at the time of grant, be specifically designated as
such and in the option agreement covering such Incentive Stock
Option.
12.2 Ten Percent Shareholders. If any employee to whom an Incentive
Stock Option is to be granted under the Plan is, at the time of the
grant of such option, the owner of stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company (after taking into account the attribution of stock
ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
12.2.1 The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than
110% of the fair market value of one share of Common
Stock at the time of grant; and
12.2.2 Such Incentive Stock Option shall expire not later than
five years after the date on which the option was
granted.
12.3 Dollar Limitations. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other
incentive stock option plans of the Company) that are intended to
constitute Incentive Stock Options shall not constitute Incentive
Stock Options to the extent that such options, in the aggregate,
become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more
than $100,000.
12.4 Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised as such unless, at the time of such
exercise, the optionee is, and has been continuously employed by
the Company since the date of grant, except that:
12.4.1 an Incentive Stock Option may be exercised within such
period as may be specified in the applicable option
agreement or in any applicable employment agreement to
the extent that the option was exercisable at the date of
cessation of employment, provided, that if such exercise
occurs more than three months after such cessation of
employment, it shall be treated as the exercise of a
Non-Statutory Option under the Plan;
12.4.2 if the optionee dies while in the employ of the Company,
or within three months after he or she ceases to be an
employee, the Incentive Stock Option will be accelerated
in full and may be fully exercised by the person to whom
it is transferred by will or the laws of descent and
distribution within one year immediately following the
date of death (or within such lesser period as may be
specified in the applicable option agreement); and
Rev. October 8, 1996
Page 4 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
12.4.3 if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the
Incentive Stock Option will be accelerated in full and
fully exercisable within the period of one year after the
date the optionee ceases to be such an employee because
of such disability (or within such lesser period as may
be specified in the applicable option agreement).
12.4.4 An Incentive Stock Options shall not be affected by any
change of employment within or among the Company and any
parent or subsidiary corporation, so long as the optionee
continues to be an employee of either the Company or such
parent or subsidiary corporation.
12.5 Employment. For all purposes of the Plan and any option granted
hereunder, "employment" shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax Regulations (or
any successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its
expiration date.
13 Additional Provisions, Acceleration and Extension. The Board of Directors
may, in its sole discretion, include additional provisions in option
agreements covering options granted under the Plan and after the grant date
may take other actions with respect to options granted under the Plan. Such
provisions and actions may include, but shall not be limited to the
following:
13.1 Restrictions on transfer, repurchase rights, commitments to pay
cash bonuses, to make, arrange for, or guaranty loans, or to
transfer other property to optionees upon exercise of options;
provided that such additional provisions or actions shall not be
inconsistent with any other express term or condition of the Plan
and such additional provisions shall not cause any Incentive Stock
Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code; and
13.2 To accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised and to
extend the period during which all, or any particular, option or
options granted under the Plan may be exercised.
14 Securities Laws.
14.1 Investment Representations. The Company may require any optionee as
a condition of exercising his or her option, to give written
assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to
the option for his or her own account for investment and not with
any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary,
appropriate or advisable in order to comply with federal and
applicable state securities laws, or with covenants or
representations made by the Company in connection with any public
offering of its Common Stock.
14.2 Compliance With Securities Laws. Each option shall be subject to
the requirement that if at any time counsel to the Company shall
determine that the listing, registration or qualification of the
shares subject to such option upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such option may not be exercised,
in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such
condition shall
Rev. October 8, 1996
Page 5 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
have been effected or obtained on conditions
acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such
listing, registration or qualification, or to satisfy such
condition.
15 Rights as a Shareholder. An optionee shall have no rights as a shareholder
with respect to any shares covered by the option (including, without
limitation, any rights to receive dividends or non-cash distributions with
respect to such shares) until the date of issue of a stock certificate to
him or her for such shares. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
16 Adjustment Provisions for Recapitalization and Related Transactions.
16.1 General. If through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company; any
reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split; or any other similar transaction
(a) the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number or kind of shares or other
securities of the Company; or (b) additional shares or new or
different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of
Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares
reserved for issuance under the Plan; (y) the number and kind of
shares or other securities subject to any then outstanding options
under the Plan; and (z) the price for each share subject to any
then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be
made pursuant to this Section 16 if such adjustment would cause the
Plan as it relates to Incentive Stock Options to fail to comply
with Section 422 of the Code.
16.2 Board Authority to Make Adjustments. Any adjustments under this
Section 16 will be made by the Board of Directors (but the
Committee), whose determination as to what adjustments, if any,
will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
17 Merger, Consolidation, Asset Sale, Liquidation etc.
17.1 General. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities,
cash or other property of any other corporation or business entity
or in the event of a liquidation of the Company, the Board of
Directors of the Company, (but not the Committee) or the board of
directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the
following actions, as to outstanding options:
17.1.1 Provide that such options shall be assumed, or equivalent
options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof),
provided that any such options substituted for Incentive
Stock Options shall meet the requirements of Section
424(a) of the Code;
17.1.2 Upon written notice to the optionees, provide that all
exercisable but unexercised options will terminate
immediately prior to the consummation of such transaction
Rev. October 8, 1996
Page 6 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
unless exercised by the optionee within a specified
period following the date of such notice;
17.1.3 In the event of a merger under the terms of which holders
of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the
difference between (a) the Merger Price times the number
of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not
in excess of the Merger Price); and (b) the aggregate
exercise price of all such outstanding options in
exchange for the termination of such options; and
17.1.4 Provide that all or any outstanding options shall become
exercisable in full immediately prior to such event.
17.2 Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation
who become employees of the Company, or a subsidiary of the
Company, as the result of a merger or consolidation of the
employing corporation with the Company or a subsidiary of the
Company, or as a result of the acquisition by the Company, or one
of its subsidiaries, of property or stock of the employing
corporation. The Company may direct that substitute options be
granted on such terms and conditions as the Board of Directors (but
not the Committee) considers appropriate in the circumstances.
18 No Special Employment Rights. Nothing contained in the Plan or in any
option shall (a) confer upon any optionee any right with respect to the
continuation of his or her employment by the Company; (b) interfere in any
way with the right of the Company at any time to terminate such employment
or to increase or decrease the compensation of the optionee; or (c)
restrict the right of an optionee to resign his or her employment.
19 Other Employee Benefits. The amount of any compensation deemed to be
received by an employee as a result of the exercise of an option or the
sale of shares received upon such exercise shall not constitute
compensation with respect to which any other employee benefits of such
employee are determined, including, but without limitation thereto,
benefits under any bonus, pension, profit-sharing, life insurance or salary
continuation plan, except as to plans which by their terms include such
amounts as compensation, and except as otherwise specifically determined by
the Board of Directors.
20 Termination and Amendment of the Plan and Option Agreements.
20.1 The Board of Directors (but not the Committee) may at any time
terminate the Plan and may from time to time modify or amend the
Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required by any federal or state law
or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or
quoted, the Board of Directors may not effect such modification or
amendment without such approval.
20.2 The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights
under an option previously granted. With the consent of the
optionee, the Board of Directors may amend any outstanding option
agreement in a manner not inconsistent with the Plan. The Board of
Directors shall have
Rev. October 8, 1996
Page 7 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
the right to amend or modify (a) the terms and provisions of the
Plan and of any outstanding Incentive Stock Options granted under
the Plan to the extent necessary to qualify any or all such options
for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock
options under Section 422 of the Code; and (b) the terms and
provisions of the Plan and of any outstanding option to the extent
necessary to ensure the qualification of the Plan or any such
option under Rule 16b-3.
21 Withholding.
21.1 The Company shall have the right to deduct from payments of any
kind otherwise due to an optionee any federal, state or local taxes
of any kind required by law to be withheld with respect to any
shares issued upon exercise of options under the Plan. Subject to
the prior approval of the Company, which may be withheld by the
Company in its sole discretion, the optionee may elect to satisfy
such obligations, in whole or in part (a) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the
exercise of an option; or (b) by delivering to the Company shares
of Common Stock already owned by the optionee. The shares so
delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to
satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to
be determined. An optionee who has made an election pursuant to
this Section 21.1 may only satisfy his or her withholding
obligation with shares of Common Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
21.2 Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes
shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3 (unless it is intended that the
transaction not qualify for exemption under Rule 16b-3).
22 Cancellation and New Grant of Options etc. The Board of Directors shall
have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (a) the cancellation of any or all
outstanding options under the Plan and the grant in substitution therefor
of new options under the Plan covering the same or different numbers of
shares of Common Stock and having an option exercise price per share which
may be lower or higher than the exercise price per share of the canceled
options; or (b) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share that
is higher or lower than the then- current exercise price per share of such
outstanding options.
23 Effective Date and Duration of the Plan.
23.1 Effective Date. The Plan shall become effective upon its adoption
by the Board of Directors (not the Committee), but no option
granted under the Plan shall become exercisable unless and until
the Plan shall have been approved by the Company's shareholders. If
such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options
previously granted under the Plan shall not vest and shall
terminate and no options shall be granted thereafter.
23.2 Amendments to the Plan not requiring shareholder approval shall
become effective when adopted by the Board of Directors; amendments
requiring shareholder approval
Rev. October 8, 1996
Page 8 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC. 1996 STOCK OPTION PLAN - continued
- --------------------------------------------------------------------------------
(as provided in Section 20.1) shall become effective upon their
adoption by the Board of Directors, but no option granted after the
date of such amendment shall become exercisable (to the extent that
such amendment to the Plan was required to enable the Company to
grant such option to a particular person) unless and until such
amendment shall have been approved by the Company's shareholders.
If such shareholder approval is not obtained within twelve months
of the Board's adoption of such amendment, any options granted on
or after the date of such amendment shall terminate to the extent
that such amendment was required to enable the Company to grant
such option to a particular optionee. Subject to this limitation,
options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the
Plan.
23.3 Termination. Unless sooner terminated in accordance with the Plan,
the Plan shall terminate upon the close of business on the day next
preceding the tenth anniversary of the date of its adoption by the
Board of Directors. Options outstanding on such date shall
nevertheless continue in full force and effect in accordance with
the provisions of the instruments evidencing such options.
24 Provision for Foreign Participants. The Board of Directors may, without
amending the Plan, modify awards or options granted to participants who are
foreign nationals or employed outside the United States to recognize
differences in laws, rules, regulations or customs of such foreign
jurisdictions with respect to tax, securities, currency, employee benefit
or other matters.
--------------------------------------------------
Adopted by the Board of Directors this 27th day of
September, 1996 Approved by the Sole Shareholder
of the Company on September 27, 1996
As Amended by the Board of Directors on October 8, 1996
Rev. October 8, 1996
Page 9 of 9
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE 1996 EMPLOYEE STOCK OPTION PLAN
- --------------------------------------------------------------------------------
Grantee:
Grant Date:
Number of Option Shares:
Option Price Per Share:
Last Day to Exercise Option:
- --------------------------------------------------------------------------------
This Option Agreement dated as of the Grant Date set forth above is made between
ExpressPoint Technology Services, Inc. and you, ________________________, and
evidences the Company's grant to you of an incentive stock option (the "Option")
to purchase the number of Option Shares of the Company's Common Stock, $0.01 par
value, per share, set forth above at the Option Price Per Share set forth above
pursuant to the terms and conditions of this Option Agreement and the option
plan noted above (the "Plan").
A copy of the Plan is furnished to you with this Agreement unless you have
already been given one. An additional copy may be obtained on request to the
Secretary of the Company.
The terms of the Plan and any rules and regulations of the Compensation
Committee of the Board of Directors of the Company (which administers the Plan)
are incorporated in this Agreement as if fully set forth in it. In the case of
any ambiguity or any conflict between the terms of this Option Agreement and the
Plan, the provisions of the Plan shall govern.
1. Exercisability.
(a) The Option Shares shall become exercisable in ____________________
substantially equal installments as follows:
(b) You may purchase any one or more of the Option Shares that become
exercisable on a given date from that date through and including the
Last Day to Exercise Option, set forth above, unless this Option is
sooner terminated as provided herein or in the Plan.
2. Exercises. For an exercise to be effective, the Company must receive from
you:
(a) A written notice directed to the Treasurer of the Company, signed by
you stating the Option Grant Date and the number of whole Option Shares
to be purchased; and
(b) Payment for the Option Shares either (a) by cashier's or certified
check; or (b) with the consent of the Committee, by the transfer to the
Company of Company common stock having a fair market value (as defined
in the Plan) equal to the purchase price of the Option Shares being
purchased, all according to the rules and regulations of the Committee.
3. Issuance of Option Shares.
(a) You will have no rights as a shareholder of the Company with respect to
any Option Shares purchased under this Option until a certificate
representing such shares has been issued and delivered to you.
(b) The Company will not be obligated to deliver to you a certificate for
any Option Shares unless --
i. Provision acceptable to the Company has been made for the payment
of any federal, state and local taxes that are due or that are
required to be withheld by the Company because
10/12/96 PLAN________ Grant # _________
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT ___________________ DATED ____________ - PAGE 2
-------------------------------
of the purchase of the Option Shares; and
ii. There has been compliance with all federal and state laws and
regulations, in particular, the Securities Act of 1933 and the
Securities Exchange Act of 1934 and the rules and regulations
promulgated under those acts, that the Company deems applicable,
and all other legal matters in connection with the issuance and
delivery of the Option Shares have been approved by the Company's
counsel.
4. Transferability. This Option may not be assigned or transferred except (a)
to immediate family members (as defined in the Plan), or (b) by your will
or according to the laws of descent and distribution in the absence of a
will.
5. Termination of Employment. If your employment (as defined in Section
1.421-7(h) of the Income Tax Regulations) terminates --
(a) by reason of your death while employed by the Company, or within three
months after you cease to be an employee of the Company, this Option
will be accelerated in full and may be fully exercised by your estate,
personal representative or beneficiary, as the case may be, at any time
prior to the Last Day to Exercise Option or one year from the date of
your death, whichever date occurs first;
(b) by reason of your disability while employed by the Company, this Option
will be accelerated in full and may be fully exercised by you at any
time prior to the Last Day to Exercise Option or one year from the date
of the termination of your employment, whichever date occurs first;
(c) for Cause (as defined below), this Option shall terminate effective
upon the termination of your employment; or
(d) for any other reason, this Option shall terminate three months after
your employment terminates.
6. Termination of this Option For Cause. This Option may be terminated by the
Company at any time for Cause effective upon written notice thereof given
to you by the Company.
7. Cause. For purposes of this Option, termination of employment for "Cause"
means for willful misconduct by you in connection with your employment;
willful failure by you to perform your responsibilities as an employee; any
act of dishonesty or fraud; the commission of a felony; or for the breach
by you of any obligation to the Company including, but not limited to any
obligation of confidentiality, non-disclosure or non-competition.
8. Not an Employment Agreement. Nothing in this Option Agreement shall in any
way affect your right to resign from the Company's employ or the Company's
right to terminate your employment.
9. Adjustments. As more fully described in the Plan, the number and kind of
shares issuable under this Option and the Option Price Per Share will be
adjusted to account for reorganizations, mergers, recapitalizations, or the
like.
In Witness Whereof, the parties have executed this Option Agreement as of the
Grant Date.
ExpressPoint Technology Services, Inc. Grantee
By: _______________________________ _______________________________
[President] or [Chairman of the Board of Directors]
10/12/96 PLAN________ Grant # _________
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
UNDER THE 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
- --------------------------------------------------------------------------------
Grantee:
Grant Date:
Number of Option Shares:
Option Price Per Share:
Date All Shares are Exercisable:
Last Day to Exercise Option:
This Option Agreement dated as of the Grant Date set forth above is made between
and you, _________________, and evidences the Company's grant to you of a
non-statutory stock option (the "Option") to purchase the number of Option
Shares of the Company's Common Stock, $0.01 par value, per share, at the Option
Price Per Share set forth above pursuant to the terms and conditions of this
Option Agreement and the option plan noted above (the "Plan").
A copy of the Plan is furnished to you with this Agreement unless you have
already been given one. An additional copy may be obtained on request to the
Secretary of the Company.
The terms of the Plan and any rules and regulations of the Board of Directors of
the Company (which administers the Plan) are incorporated in this Agreement as
if fully set forth in it. In the case of any ambiguity or any conflict between
the terms in this Option Agreement and the Plan, the provisions of the Plan
shall govern:
1. Exercisability.
(a) The Option Shares shall become exercisable in two (2) substantially
equal installments on the firns and second anniversary of the Grant
Date as follows:
_________ Option Shares from and after ____________
_________ Option Shares from and after ____________
(b) You may purchase any one or more of the Option Shares that become
exercisable on a given date from that date through and including the
Last Day to Exercise Option, set forth above, unless this Option is
sooner terminated as provided herein or in the Plan.
2. Exercises. For an exercise to be effective, the Company must receive from
you:
(a) A written notice signed by you stating the Option Grant Date and the
number of Option Shares you wish to purchase; and
(b) Payment for the Option Shares either (i) by personal, cashier's or
certified check; or (ii) by the surrender of Company Common Stock
having a fair market value equal to the purchase price of the Option
Shares being purchased, all according to the rules and regulations of
the Board of Directors.
3. Issuance of Option Shares.
(a) You will have no rights as a shareholder of the Company with respect to
any Option Shares purchased under this Option until a certificate
representing such shares has been issued and delivered to you.
10/12/96 PLAN #: 12/Grant #: 10
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT (2 1 )DATED 11 - PAGE 2
-------------------------------
(b) The Company will not be obligated to deliver a certificate for any
Option Shares unless --
i. Provision acceptable to the Company has been made for the payment
of any federal, state and local taxes that are due or that are
required to be withheld by the Company because of the purchase of
the Option Shares; and
ii. There has been compliance with all federal and state laws and
regulations, in particular, the Securities Act of 1933 and the
Securities Exchange Act of 1934 and the regulations promulgated
under those acts, that the Company deems applicable, and all
other legal matters in connection with the issuance and delivery
of the Option Shares have been approved by the Company's counsel.
4. Transferability. This Option is transferrable only to the extent and in the
manner provided in the Plan.
5. Adjustments. As more fully described in the Plan, the number and kind of
shares issuable under this Option and the Option Price Per Share will be
adjusted to account for any reorganization, merger, recapitalization, or
the like that affects the Company's shares.
6. Acceleration of Vesting. As more fully described in the Plan, the
exercisability of this Option will be accelerated in the event of a Change
in Control of the Company (as defined in the Plan).
7. Termination. As more fully described in the Plan, this Option terminates
under certain circumstances and in certain respects if you cease to be a
member of the Board of Directors. In addition, this Option may be
terminated by the Company for Cause effective upon written notice thereof
given to you by the Company.
In Witness Whereof, the parties have executed this Option Agreement as of the
Grant Date set forth above.
ExpressPoint Technology Services, Inc. Grantee
By: _______________________________ _______________________________
Chairman of the Board of Directors
10/12/96 PLAN #: 12/Grant #: 10
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
---------------------------------------------------------
1 Purpose. The purpose of the 1996 Non-Employee Director Stock Option Plan
(the "Plan") of ExpressPoint Technology Services, Inc. (the "Company") is
to encourage stock ownership in the Company by directors of the Company who
are not employees of the Company ("non-employee directors"), and to retain
existing directors and to attract new knowledgeable and experienced persons
who as directors can make a significant contribution to the success of the
Company.
2 Administration. The Board of Directors shall supervise and administer the
Plan. Grants of stock options under the Plan and the amount and nature of
the options to be granted shall be automatic in accordance with Section 6.
However, all questions concerning the interpretation of the Plan or any
options granted under it shall be resolved by the Board of Directors and
such resolution shall be final and binding upon all persons having an
interest in the Plan.
3 Participation in the Plan. Only non-employee directors of the Company shall
be eligible to receive options under the Plan.
4 Stock Subject to the Plan.
4.1 A maximum of 75,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock") may be issued under the Plan,
subject, however, to adjustment as provided in Section 13.
4.2 If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares
covered by the unexercised portion of such option shall again become
available for issuance pursuant to the Plan.
4.3 All options granted under the Plan shall be non-statutory options
(options not granted under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code")).
5 Options Agreements. Each option granted under the Plan shall be evidenced
by a written agreement in such form as the Chairman of the Board of
Directors shall from time to time approve, but which shall comply with and
be subject to the terms and conditions set forth in the Plan.
6 Option Grants.
6.1 Option Grants. Each person who is serving as a non-employee director
of the Company at the close of business on June 1, 1996 shall be
automatically granted an option to purchase 3,000 shares of Common
Stock on such date and an additional option to purchase 3,000 shares
of Common Stock on each anniversary thereof, provided that on such
anniversary he or she is then serving as a non-employee director.
6.2 Newly Elected or Appointed Non-Employee Directors. Each person who
becomes a non-employee director after June 1, 1996 shall be
automatically granted an option to purchase 3,000 shares of Common
Stock effective upon his or her election or appointment to the Board
of Directors and shall be automatically granted an option to
purchase an additional 3,000 shares of Common Stock on each
anniversary of the date of his or her election or appointment to the
Board of Directors, providing that on such anniversary he or she is
then serving as a non-employee director.
Rev. October 8, 1996
Page 1 of 4
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN - continued
---------------------------
7 Vesting and Acceleration of Options.
7.1 Vesting. Each option granted under the Plan shall become
exercisable, on a cumulative basis so long as the optionee remains a
non-employee director in two approximately equal installments on the
first and second anniversary of the grant date.
7.2 Acceleration Upon Change in Control. Notwithstanding the foregoing,
each outstanding option granted under the Plan shall become
immediately exercisable in full in the event a Change in Control (as
defined in Section 14) of the Company occurs and shall remain so
until its expiration date.
7.3 Acceleration Upon Death or Disability. If an optionee dies or
becomes disabled (within the meaning of Section 22(e)(3) of the
Code) while he or she is serving as a non-employee director of the
Company, each then un-expired option granted hereunder shall
thereupon become exercisable in full until the expiration of one
year following the date of death or disability of the optionee or
until the expiration date of such option, whichever occurs first.
During such period, each such option may be exercised by the
optionee, by his or her personal representative, or by the person to
whom such option is transferred by will or the laws of descent and
distribution. Except as otherwise indicated by the context, the term
"optionee" as used in the Plan shall be deemed to include the estate
of the optionee or any person who acquires the right to exercise his
or her options by bequest or inheritance or otherwise by reason of
the death of the optionee.
8 Exercise of Options. An option may be exercised only by written notice to
the Company at its principal office accompanied by payment in cash, by
check or in shares of Common Stock of the full consideration for the shares
as to which the option is exercised. If shares of Common Stock are tendered
as payment, the value of such shares shall be the fair market value thereof
on the date of exercise determined as provided in Section 10.
9 Duration of Options. Each option shall expire and may no longer be
exercised on the earlier to occur of--
9.1 the close of business on the tenth anniversary of the date of grant,
or
9.2 the close of business on the first anniversary of the date the
optionee ceases to serve as a non-employee director of the Company
for any reason, whether by death, resignation, removal or otherwise.
10 Option Exercise Price and Fair Market Value. The option exercise price per
share for each option granted under the Plan shall be equal to the fair
market value per share of Common Stock on the date of grant, which shall be
determined as follows:
10.1 If the Common Stock is listed on the Nasdaq National Market, the
Nasdaq SmallCap Market or other nationally recognized exchange or
trading system on the date on which a determination of fair market
value is to be made, the fair market value per share of Common Stock
shall be deemed to be the last reported sale price or closing price
per share on such market, exchange or system on the trading day
immediately preceding such date (or, if no such price is reported on
such date, the price on the nearest preceding date on which such a
price is reported).
10.2 If the Common Stock is not listed on the Nasdaq National Market, the
Nasdaq SmallCap Market or other nationally recognized exchange or
trading system on the date on which a
Rev. October 8, 1996
Page 2 of 4
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN - continued
---------------------------
determination of fair market value is to be made, the fair market
value per share shall be determined by the Board of Directors based
on all factors deemed relevant for such purpose.
11 Transferability of Options. No option shall be assignable or transferable
by the non-employee director to whom it was granted, either voluntarily or
by operation of law, except (a) to immediate members of such person's
family; or (b) by such person's will or by the laws of descent and
distribution. "Immediate family members" shall consist only of a person's
father and mother; sisters and brothers; spouse; and children and
grandchildren (in both cases, including by adoption).
12 Limitation of Rights.
12.1 No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the
Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the optionee shall be
entitled to continue as a director for any period of time.
12.2 No Stockholder Rights for Options. An optionee shall have no rights
as a stockholder with respect to the shares covered by an option
until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for dividends or other rights (except as
provided in Section 13) for which the record date is prior to the
date such certificate is issued.
13 Adjustment Provisions for Mergers, Recapitalization and Related
Transactions. If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction the outstanding
shares of Common Stock are exchanged for a different number or kind of
securities of the Company or of another entity, or additional shares or new
or different shares or other securities of the Company or of another entity
are distributed with respect to such shares of Common Stock, the Board of
Directors shall make an appropriate and proportionate adjustment in --
13.1 the maximum number and kind of shares reserved for issuance under
the Plan;
13.2 the number and kind of shares or other securities subject to then
outstanding options under the Plan; and/or
13.3 the price for each share subject to any then outstanding options
under the Plan (without changing the aggregate purchase price for
such options);
to the end that each option shall be exercisable for the same aggregate
exercise price for such securities as such option holder would have held
immediately following such event if he or she had exercised such option
immediately prior to such event. No fractional shares will be issued under
the Plan on account of any such adjustments.
14 Change in Control. For purposes of the Plan, a "Change in Control" shall be
deemed to have occurred only if any of the following events occurs:
14.1 any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Rev. October 8, 1996
Page 3 of 4
<PAGE>
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN - continued
---------------------------
Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities;
14.2 the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation;
14.3 the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
14.4 individuals who, on the date on which the Plan was adopted by the
Board of Directors, constituted the Board of Directors of the
Company, together with any new director whose election by the Board
of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors then still in office who were directors on the date on
which the Plan was adopted by the Board of Directors or whose
election or nomination was previously so approved, cease for any
reason to constitute at least a majority of the Board of Directors.
15 Modification, Extension and Renewal of Options. The Board of Directors
shall have the power to modify or amend outstanding options; provided,
however, that no modification or amendment may (a) have the effect of
altering or impairing any rights or obligations of any option previously
granted without the consent of the optionee; or (b) modify the number of
shares of Common Stock subject to the option (except as provided in Section
13).
16 Termination and Amendment of the Plan. The Board of Directors may at any
time terminate the Plan and may from time to time modify or amend the Plan
in any respect, except that if at any time the approval of the shareholders
of the Company is required by any federal or state law or regulation or by
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted, the Board of Directors may not
effect such modification or amendment without such approval.
17 Effective Date. The Plan shall become effective upon its adoption by the
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, options
previously granted under the Plan shall not vest and shall terminate and no
options shall be granted thereafter.
------------------------------------------------------------------
Adopted by the Board of Directors this 27th day of
September, 1996 Approved by the Sole Stockholder of the
Company on September 27, 1996
As Amended by the Board of Directors on October 8, 1996
Rev. October 8, 1996
Page 4 of 4
EXPRESSPOINT TECHNOLOGY SERVICES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
1. Purpose of the Plan.......................................................1
2. Administration of the Plan................................................1
3. Eligible Employees........................................................1
4. Offerings.................................................................1
5. Price.....................................................................1
6. Fair Market Value.........................................................2
7. Exercise of Rights and Method of Payment..................................2
8. Shares Subject to the Plan................................................2
9. Limitations on Grants.....................................................2
10. Limit on Participation....................................................3
11. Cancellation of Election to Participate...................................3
12. Termination of Employment.................................................3
13. Employee's Right as Stockholder...........................................3
14. Rights not Transferable...................................................3
15. Limits on Sale of Stock Purchased Under the Plan..........................3
16. Amendments to or Discontinuance of the Plan...............................4
17. Effective Date and Approval...............................................4
18. Termination of the Plan...................................................4
<PAGE>
1 PURPOSE OF THE PLAN. The purpose of this Employee Stock Purchase Plan (the
"Plan") is to provide employees of ExpressPoint Technology Services, Inc.,
a Delaware corporation, (hereinafter, the "Company") and its subsidiaries,
who wish to become stockholders of the Company an opportunity to purchase
shares (a "Share" or "Shares") of the Common Stock of the Company ("Common
Stock"). The Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended (the "Code").
2 ADMINISTRATION OF THE PLAN.
2.1 The Plan shall be administered by the Board of Directors itself (the
"Board") until such time as it appoints a committee to administer
the Plan in connection with the Company's initial public offering
(the "Committee"). References to the Committee shall be deemed
references to the Board if no such committee is in existence.
2.2 The Committee may waive such provisions of the Plan as it deems
necessary to meet special circumstances not anticipated or covered
expressly by the Plan, but nothing herein shall be deemed to
authorize the Committee to alter or administer the provisions of the
Plan in a manner inconsistent with the provisions of Section 423 of
the Code.
2.3 No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan
or any right granted under it.
3 ELIGIBLE EMPLOYEES. Subject to provisions of Sections 8, 9, and 10, below,
any individual who is in the full-time employment (as defined below) of
the Company, or any of its subsidiaries (as defined in Section 424(f) of
the Code) the employees of which are designated by the Committee as
eligible to participate in the Plan, is eligible to participate in any
Offering of Shares (as defined in Section 4, below) made by the Company
hereunder. Full-time employment shall include all employees whose
customary employment is --
3.1 in excess of 20 hours per week; and
3.2 more than five months in the relevant calendar year.
4 OFFERINGS.
4.1 From time to time the Company, by action of the Board, will grant
rights to purchase Shares to employees eligible to participate in
the Plan pursuant to one or more offerings (each of which is
referred to herein as an "Offering") on a date or series of dates
(each of which is referred to herein as an "Offering Date")
designated for this purpose by the Board, subject, however to
Section 17, below.
4.2 Rights granted on any Offering Date shall be exercisable upon the
expiration of such period (the "Offering Period") as determined by
the Board when it authorizes the Offering, provided that an Offering
Period shall in no event be longer than 27 months.
5 PRICE. The price per Share with respect to each grant of rights hereunder
shall be the lesser of--
5.1 eighty-five percent (85%) of the fair market value of a Share on the
Offering Date on which such right was granted; or
5.2 eighty-five percent (85%) of the fair market value of a Share on the
date such right is exercised.
Rev. October 8, 1996
Page 1 of 4
<PAGE>
ExpressPoint Technology Services, Inc. 1996
Employee Stock Purchase Plan - continued
--------------------------
At its discretion, the Committee may determine a higher price for a grant
of rights.
6 FAIR MARKET VALUE. For purposes of the Plan, the term "fair market value"
on any date means--
6.1 the closing price (on that date) of the Common Stock on the
principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities
exchange; or
6.2 the last reported sale price (on that date) of the Common Stock on
the Nasdaq National Market or SmallCap Market, if the Common Stock
is then traded in one of such markets; or
6.3 the average of the closing bid and asked prices last quoted (on that
date) by an established quotation service for over-the-counter
securities, if the Common Sock is not reported on a national
securities exchange, the Nasdaq National Market or the Nasdaq
SmallCap market.
7 EXERCISE OF RIGHTS AND METHOD OF PAYMENT.
7.1 Rights granted under the Plan will be exercisable periodically on
the dates determined by the Board.
7.2 The method of payment for Shares purchased upon exercise or rights
granted hereunder shall be through regular payroll deductions or by
lump sum cash payment, or both, as determined by the Committee. No
interest shall be paid on payroll deductions unless specifically
provided for by the Committee.
7.3 Any payments received by the Company from a participating employee
and not utilized for the purchase of Shares upon exercise of a right
granted hereunder shall be promptly returned to such employee by the
Company after termination of the right to which the payment relates.
8 SHARES SUBJECT TO THE PLAN. No more than 150,000 Shares may be sold
pursuant to rights granted under the Plan; provided, however, that
appropriate adjustment shall be made in such number, in the number of
Shares covered by outstanding rights granted hereunder, in the exercise
price of the rights and in the maximum number of Shares that an employee
may purchase (pursuant to Section 9, below) to give effect to any mergers,
consolidations, reorganizations, recapitalization, stock splits, stock
dividends or other relevant changes in the capitalization of the Company
occurring after the effective date of the Company's initial public
offering of its common stock. Unless the Committee determines otherwise,
no fractional Shares shall be subject to a right and each right shall be
adjusted downward to the nearest full Share. Any agreement of merger or
consolidation will include provisions for protection of the then existing
rights of participating employees under the Plan. Either authorized and
unissued Shares or issued Shares heretofore or hereafter reacquired by the
Company may be made subject to rights under the Plan. If for any reason
any right under the Plan terminates in whole or in part, Shares subject to
such terminated right may again be subjected to a right under the Plan.
9 LIMITATIONS ON GRANTS.
9.1 No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to
purchase stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, or of any
subsidiary,
Rev. October 8, 1996
Page 2 of 4
<PAGE>
ExpressPoint Technology Services, Inc. 1996
Employee Stock Purchase Plan - continued
--------------------------
computed in accordance with Sections 423(b)(3) and 424(d) of the
Code.
9.2 No employee shall be granted a right that permits his or her right
to purchase shares under all employee stock purchase plans of the
Company and its subsidiaries to accrue at a rate which
exceeds $25,000 (or such other maximum as may be prescribed from
time to time by the Code) of in fair market value of such shares
(determined at the time such right is granted) for each calendar
year in which such right is outstanding at any time in accordance
with the provisions of Section 423(b)(8) of the Code.
9.3 No right granted to any participating employee under a single
Offering shall cover more shares than may be purchased at an
exercise price equal to 10% of the compensation payable to the
employee during the Offering not taking into consideration any
changes in the employee's rate of compensation after the date the
employee elects to participate in the Offering, or such other
percentage as determined by the Committee of Directors from time to
time.
10 LIMIT ON PARTICIPATION. Participation in an Offering shall be limited to
eligible employees who elect to participate in such Offering in the manner
and within the time limitation established by the Committee after the
Board has authorized the offering.
11 CANCELLATION OF ELECTION TO PARTICIPATE. An employee who has elected to
participate in an Offering may, unless the employee has waived this
cancellation right at the time of such election in a manner established by
the Committee, cancel such election as to all (but not less than all) of
the rights granted under such Offering by giving written notice of such
cancellation to the Company before the expiration of the Offering Period.
Any amounts paid by the employee for the Shares or withheld for the
purchase of Shares from the employee's compensation through payroll
deductions shall be paid to the employee, without interest, upon such
cancellation.
12 TERMINATION OF EMPLOYMENT. Upon termination of employment for any reason,
including the death of the employee, before the date on which any rights
granted under the Plan are exercisable, all such rights shall immediately
terminate and amounts paid by the employee for the Shares or withheld for
the purchase of Shares from the employee's compensation through payroll
deductions shall be paid to the employee or to the employee's estate,
without interest.
13 EMPLOYEE'S RIGHTS AS STOCKHOLDER. No participating employee shall have any
rights as a stockholder in the Shares covered by a right granted hereunder
until such right has been exercised, full payment has been made for the
corresponding Shares and the Share certificate is actually issued.
14 RIGHTS NOT TRANSFERABLE. Rights under the Plan are not assignable or
transferable by a participating employee and are exercisable only by the
employee during his lifetime.
15 LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is intended to
provide Shares for investment and not for resale. The Company does not,
however, intend to restrict or influence any employee in the conduct of
his or her own affairs. An employee may, therefore, sell stock purchased
under the Plan at any time the employee chooses, subject to compliance
with any applicable Federal or state securities laws; provided, however,
that because of certain federal tax requirements, each employee agrees by
entering the Plan, promptly to give the Company notice of any such stock
disposed of within two years after the date of grant of the applicable
right, showing the number of such shares disposed of.
Rev. October 8, 1996
Page 3 of 4
<PAGE>
ExpressPoint Technology Services, Inc. 1996
Employee Stock Purchase Plan - continued
--------------------------
16 AMENDMENTS TO OR DISCONTINUANCE OF THE PLAN. The Board of Directors may at
any time terminate or amend the Plan without notice and without further
action on the part of stockholders of the Company, provided --
16.1 that no such termination or amendment shall adversely affect the
then existing rights of any participating employee; and
16.2 that any such amendment that increases the number of Shares subject
to the Plan, other than pursuant to the adjustment provisions of
Section 8; changes the class of persons eligible to participate
under the Plan; or materially increases the benefits accruing to
participants under the Plan shall be subject to the approval of the
stockholders of the Company.
17 EFFECTIVE DATE AND APPROVALS.
17.1 The Plan is to become effective on the date of its adoption by the
Board.
17.2 The Company's obligation to offer, sell and deliver its Shares under
the Plan is subject to the approval of its stockholders within 12
months thereafter and the approval of any governmental authority
required in connection with the authorized issuance or sale of such
Shares.
17.3 No Offering shall be made under the Plan prior to the Company's
initial public offering of Common Stock and prior to the receipt of
an opinion of counsel that all applicable securities laws have been
complied with.
18 TERM OF THE PLAN. No rights shall be granted under the Plan after tenth
anniversary of the date the
Board adopted the Plan.
------------------------------------------------------------
Adopted by the Board of Directors this 23rd day of
September, 1996 Approved by the Sole Stockholder on
September 27, 1996 As Amended by the Board of
Directors on October 8, 1996
Rev. October 8, 1996
Page 4 of 4
AMCOM CORPORATION
CONTRACT ADDENDUM
IBM 4680 P.O.S. SYSTEM
*** REWORK AGREEMENT EXTENSION
AUGUST 1, 1996
This addendum extension is made and entered into on the 1st day of August, 1996,
by and between NCR CORPORATION and AMCOM CORPORATION. It is intended to amend
(extend) the May 16, 1995 IBM P.O.S. SYSTEM *** REWORK AGREEMENT made by and
between AT&T GLOBAL INFORMATION SOLUTIONS (heretofore known as NCR CORPORATION).
The May 16, 1995 agreement was an addendum to the NCR/AMCOM SUPPORT AGREEMENT,
dated July 1, 1991. This addendum, August 1, 1996, is intended to extend the ***
REWORK AGREEMENT beyond the July 1996 end date, through November 30, 1996. This
agreement includes the right to automatic extension beyond November 30, 1996
with mutual written consent of both companies. AMCOM CORPORATION requires a
60-day notice to convert to any new programs. AMCOM agrees to provide depot
repair/rework services according to the following schedule:
August 1996 ***
September 1996 ***
October 1996 ***
November 1996 ***
December 1996 ***
To ensure accurate and timely billing, NCR CORPORATION agrees to provide AMCOM
CORPORATION accurate equipment counts for all associated P.O.S. terminals.
Except where otherwise noted, this ADDENDUM EXTENSION does not alter or change
each parties obligations and responsibilities under the SUPPORT AGREEMENT, dated
July 1, 1991 or original ADDENDUM dated May 16,1995.
IN WITNESS THEREOF of the parties hereto have caused this ADDENDUM EXTENSION to
be executed as of the day and year first set forth.
NCR CORPORATION AMCOM CORPORATION
BY: ______________________________ BY: ______________________________
(Date) Dana Pekas (Date)
Vice President-Point of Sale
BY: ______________________________ BY: ______________________________
(Date) Del Johnson (Date)
President
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a Confidentiality Treatment Request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933, as amended
AMCOM CORPORATION
CONTRACT ADDENDUM
IBM 4680 P.O.S. SYSTEM
*** REWORK AGREEMENT
MAY 16, 1995
This addendum is made and entered into on the 16th day of May, 1995 by and
between AT&T GLOBAL INFORMATION SOLUTIONS and AMCOM CORPORATION. It is intended
to revise the rework section of our SUPPORT AGREEMENT dated JULY 1, 1991
DEFINITIONS
AT&T refers to AT&T GLOBAL INFORMATION SOLUTIONS
AMCOM refers to AMCOM CORPORATION
*** refers to the IBM 4680 POS SYSTEM see attachment for complete listing of
all parts included in this product.
TERM OF THIS ADDENDUM
The term of this Addendum shall commence ONE WEEK after AT&T GLOBAL INFORMATION
SOLUTIONS presents to AMCOM CORPORATION the list of serial numbers desired to be
included under this ADDENDUM and shall continue until JULY 31, 1996.
*** PRICE SCHEDULE
AMCOM agrees to provide depot repair/rework services according to the following
schedule.
JUNE, 1995 ***
JULY, 1995 ***
AUGUST, 1995 ***
SEPTEMBER, 1995 ***
OCTOBER, 1995 ***
NOVEMBER, 1995 ***
DECEMBER, 1995 ***
JANUARY, 1996 ***
FEBRUARY, 1996 ***
MARCH, 1996 ***
APRIL, 1996 ***
MAY, 1996 ***
JUNE, 1996 ***
JULY, 1996 ***
AMCOM CORPORATION further agrees to work with AT&T GLOBAL INFORMATION SOLUTIONS
to make additional cost reductions whenever possible.
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a Confidentiality Treatment Request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933, as amended
<PAGE>
PAYMENT
AT&T GLOBAL INFORMATION SOLUTIONS shall make payment to AMCOM CORPORATION on a
monthly basis.
REWORK TURN AROUND
It is AMCOM's goal to maintain a 24 - 48 hour turn around time on all repairs.
AMCOM shall maintain salable stock, at their expense, to meet this commitment.
AT&T shall provide forecasts, usage and demand history to assist AMCOM'S
inventory management function.
UNREPAIRABLE PARTS
AMCOM and AT&T shall actively work to eliminate unrepairables. Any unrepairable
part AMCOM receives will be maintained in a defective location at AMCOM'S site
until AMCOM and AT&T can review and make proper disposition. AMCOM and AT&T
shall conduct a monthly review of unrepairable inventory. During each review
both parties should be prepared to discuss, quality issues, root causes of
unrepairables, cost to make needed repairs and AT&T'S and AMCOM'S need for the
inventory.
NEW CUSTOMERS
AT&T's primary customer for this product is ***. It is anticipated AT&T will
expand this program to include other customers. AT&T may add new customers to
this program at the rate in effect at the time the customer is added. Should
this ADDENDUM not be renewed on AUGUST 1, 1996 AMCOM agrees to maintain the ***
price in effect on July 3l, 1996 until the each customer's first anniversary in
this program.
AMCOM shall enter into discussions with AT&T regarding the continuing
development of this program. These discussions may include, but, are not limited
to: Help Desk Services, Level I, Level II, and Level II hardware and software
support services, other technical services and special pricing when warranted.
Except where otherwise noted this ADDENDUM does not alter or change each party's
obligations and responsibilities under our SUPPORT AGREEMENT dated July 1, 1991.
IN WITNESS THEREOF the parties hereto have caused this ADDENDUM to be executed
as of the day and year first set forth.
AT&T GLOBAL INFORMATION SOLUTIONS AMCOM CORPORATION
BY: ______________________________ BY: ______________________________
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a Confidentiality Treatment Request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933, as amended
2
<PAGE>
DISCLOSURE AGREEMENT
AT&T GLOBAL INFORMATION SOLUTIONS COMPANY ("AT&T") of Dayton, Ohio, and AMCOM
CORPORATION of Eden Prairie, Minnesota plan to exchange specific information on
a confidential basis. This Agreement sets forth the terms and restrictions which
will apply to that information and to other information they exchange.
1. Discloser and Recipient. "Discloser" means both AT&T and AMCOM and
"Recipient" means both AT&T and AMCOM.
2. Confidential Information. "Confidential Information" means all information
reasonably related to Spare Parts, Spare Parts Repair, and Technical Support of
AT&T's Multi-Vendor Customers in the form of trade secrets which the Discloser
first discloses to the Recipient between March, 1994, and February, 1997: (i) in
documents or other tangible materials clearly marked CONFIDENTIAL or the like,
or (ii) orally or in any other intangible form, if at the time of first
disclosure the Discloser tells the Recipient that the information is
confidential, and within 10 calendar days after that first disclosure the
Discloser delivers to the Recipient documents or other tangible materials
clearly marked CONFIDENTIAL or the like which disclose or describe that
information.
"Confidential Information" does not include information which: (a) is
or becomes publicly known or readily ascertainable by the public through no
wrongful act of the Recipient; (b) is independently developed by or for the
Recipient; (c) the Recipient receives from a third party, if the Recipient does
not know of any restrictions on the disclosure of that information; or (d) the
Discloser discloses to a third party without similar restrictions on disclosure.
3. Sole Obligations. For a period of 36 months from the date of last signing of
this Agreement below, the Recipient will use reasonable efforts to prevent the
disclosure of Confidential information to any other person, unless disclosure is
required by law. AT&T may disclose Other Party's Confidential Information to
AT&T's affiliates (AT&T's parent corporation, AT&T Corp. and the companies it
directly or indirectly owns or controls), if the Confidential Information so
disclosed remains subject to this Agreement and AT&T remains liable for any
unauthorized disclosures by its affiliates. All materials containing
Confidential information delivered by the Discloser under this Agreement are and
will remain the Discloser's property; at the Discloser's written request the
Recipient must promptly return to the Discloser all those materials and any
copies, except a single archival copy.
4. Product Development and Marketing. This Agreement does not: (i) restrict
either party from developing new products, improving existing products, or
marketing any new, improved, or existing products; or (ii) commit either party
to disclose any particular information, or to develop, make, use, buy, sell, or
otherwise dispose of any existing or future product or to favor or recommend any
product or service of the other party. To be binding, any such restriction or
commitment must be in writing and signed by both parties.
<PAGE>
5. Other Information Not Confidential Unless Otherwise Agreed; No Patent or
Copyright Licenses Implied. This Agreement does not enlarge, diminish, or affect
the rights and obligations that either party may have or come to have under any
other written agreement signed by both parties, or with respect to any patent or
copyright of either party. Except as this Agreement or any such other written
agreement specifically provides, there are no restrictions on the use or
disclosure of any information exchanged at any time between the parties, in the
past or in the future, except restrictions that either party may independently
have a right to assert under the patent or copyright laws.
6. Limitation on Actions and Applicable Law. Any claim arising under this
Agreement will be barred and unenforceable unless the party asserting it files
an action on that claim within one year after that party knew or should have
known of the grounds for the claim. New York law (executing its choice of law
rules) governs the interpretation and enforcement of this Agreement.
7. Entire Agreement. This is the complete agreement between the parties
regarding the confidential treatment of any information exchanged between them
and may be changed only by a written agreement.
AMCOM CORPORATION AT&T GLOBAL INFORMATION SOLUTIONS
COMPANY
By: ______________________________ By: _____________________________
Title: ___________________________ Title: __________________________
Facility: ________________________ Facility: _______________________
Date: ____________________________ Date: ___________________________
NCR PUERTO RICO/AMCOM CORPORATION
IBM POS *** REPAIR PRICING AGREEMENT
THIS AGREEMENT is entered into and made effective as of March 01, 1996 by and
between NCR - PUERTO RICO and AMCOM CORPORATION.
1. DEFINITIONS -
A. Product is defined as IBM Point of Sale (POS) equipment.
B. Rework is defined as the process of testing, diagnosing, and repairing
failed Product to a like-new condition.
C. The standard configuration of the IBM POS terminals is defined in
Table 2, paragraph 9.\
D. The corporate names NCR and NCR - Puerto Rico are used interchangeably
in this agreement.
2. TERM OF AGREEMENT - The term of this agreement shall commence on the date
specified above and shall continue for an initial period of one (1) year.
This initial contract is for *** stores with a total of *** terminals.
Additional terminals can be added to the term of this agreement by mutual
consent of NCR and AMCOM. NCR agrees to provide equipment inventories
(counts) and serial numbers to AMCOM prior to inclusion of this agreement.
This will permit AMCOM to ensure adequate spares are on hand.
3. PRICING - This agreement is a one-year (renewable) 24 hour repair contract.
The pricing for the IBM POS Terminal *** Repair is listed in Table 1.
Both the annualized cost and per month cost is indicated.
4. SHIPMENTS - AMCOM shall ship all repaired Product back to NCR via Federal
Express. All shipping charges are NCR's responsibility.
5. REWORK TURNAROUND CYCLES - AMCOM agrees to a 24 hour turnaround on repairs.
See paragraph 8 for explanation of maintenance contract 24 hour repair
cycle and paragraph 12 for rework/unrepairables procedures. AMCOM will
maintain the quantity indicated on Table 2 in a separate warehouse to
ensure a 24 hour turnaround. If AMCOM receives more than this quantity in
any 10 day period, those parts will enter into the normal 10 day repair
cycle. This plan is only successful if the parts are shipped as they fail,
not as bulk repair orders.
Note, that the annual *** price is broken down into a monthly charge. Each
month the annualized rate goes down by ***.
TABLE 1. *** PRICING
- ------------------------ --------------------- ------------------------
MONTH ANNUAL *** EQUIVALENT
RATE MONTHLY ***
RATE
- ------------------------ --------------------- ------------------------
March 1996 *** ***
- ------------------------ --------------------- ------------------------
April 1996 *** ***
- ------------------------ --------------------- ------------------------
May 1996 *** ***
- ------------------------ --------------------- ------------------------
June 1996 *** ***
- ------------------------ --------------------- ------------------------
July 1996 *** ***
- ------------------------ --------------------- ------------------------
August 1996 *** ***
- ------------------------ --------------------- ------------------------
September 1996 *** ***
- ------------------------ --------------------- ------------------------
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a Confidentiality Treatment Request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933, as amended
<PAGE>
- ------------------------ --------------------- ------------------------
MONTH EQUIVALENT
ANNUAL *** MONTHLY ***
RATE RATE
- ------------------------ --------------------- ------------------------
October 1996 *** ***
- ------------------------ --------------------- ------------------------
November 1996 *** ***
- ------------------------ --------------------- ------------------------
December 1996 *** ***
- ------------------------ --------------------- ------------------------
January 1997 *** ***
- ------------------------ --------------------- ------------------------
February 1997 *** ***
- ------------------------ --------------------- ------------------------
6. PARTS NUMBERS - AMCOM is to return the Product to NCR with part numbers and
labels according to manufacturer's specifications. If necessary, AMCOM will
utilize NCR 10-digit part numbers.
7. MAINTENANCE CONTRACTS - NCR is signing this agreement as a one (1) year
(renewable) maintenance contract. The pricing is detailed in paragraph 3.
8. MAINTENANCE CONTRACT - AMCOM's maintenance contract rates are designed for
the 24 hour repair turnaround cycle.
9. IBM POS TERMINAL STANDARD CONFIGURATION - The standard configuration for
the IBM POS terminals is detailed in Table 2.
10. IBM POS SPARE PARTS - Refer to Table 3 for current IBM POS piece part
pricing.
11. PAYMENTS - AMCOM will provide month-to-month invoicing. Invoices are due on
the first (1st) of each month.
NCR WILL PROVIDE DETAILED
CONFIGURATIONS PRIOR TO CONTRACT FINALIZATION
Table 2. POS Terminal Configuration
- ----------------- ---------------------------------------- --------------------
PART FEATURE QTY ON HAND
NUMBER DESCRIPTION
- ----------------- ---------------------------------------- --------------------
53F4900 Model 3 Printer W/O Printhead 3
- ----------------- ---------------------------------------- --------------------
93F0533 Printer Cable 2
- ----------------- ---------------------------------------- --------------------
4783888 40-Character Display 2
- ----------------- ---------------------------------------- --------------------
6316834 Display Cable 2
- ----------------- ---------------------------------------- --------------------
69F7943 Cash Drawer 2
- ----------------- ---------------------------------------- --------------------
6316831 Cash Drawer Cable 2
- ----------------- ---------------------------------------- --------------------
4783896 Keyboard/Display 2
- ----------------- ---------------------------------------- --------------------
6316858 Keyboard Cable 2
- ----------------- ---------------------------------------- --------------------
04H7619 Power Supply 2
- ----------------- ---------------------------------------- --------------------
74F9921 P21 Main Board 1
- ----------------- ---------------------------------------- --------------------
96X6308 002 Main Board 1
- ----------------- ---------------------------------------- --------------------
93F0248 4683-3 Printhead 2
- ----------------- ---------------------------------------- --------------------
This *** contract is all-inclusive and covers whatever configuration is
found on site. NCR must provide the results of site surveys to ensure
required spares are always available for rapid shipment.
*** Denotes confidential information that has been omitted from the Exhibit and
filed separately, accompanied by a Confidentiality Treatment Request, with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of
1933, as amended
2
<PAGE>
12. REWORK - AMCOM agrees to rework/repair Product to a "like-new" condition
and reserves the right to determine if a defective subassembly, returned by
NCR, is non-repairable (unrepairable) part. AMCOM will notify NCR weekly of
the unrepairable defective subassemblies and discuss NCR's options.
13. WARRANTY - AMCOM warranties all Products reworked/repaired under this
agreement shall be functionally new for 365 days for electronic components
(Products) and 180 days for mechanical components (Products) from the date
NCR receives the Product.
14. PACKAGING - All Products shall be packaged with appropriate protection to
ensure safe arrival at NCR.
15. ARBITRATION - Any controversy or claim arising out of this agreement, or
breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association and the judgment upon the
award rendered by the Arbitrators may be entered in any court having
jurisdiction thereof.
16. NOTICES - Notices and other communications by a Party under this Agreement,
other than invoices and notices as to shipments and insurance shall be
deemed given when deposited in the United States Mail, postage prepaid, and
addressed as follows:
Felipe Basilis Dana Pekas
NCR Corporation Vice President
556 Munoz Rivera Avenue AMCOM Corporation
Hato Rey, PR 00917 6205 Bury Drive
Eden Prairie, Minnesota 55346
17. CANCELLATION - NCR holds the option of contact cancellation, for any
reason, with a 30-day written notice.
IN WITNESS THEREOF the parties hereto have caused this Agreement to be
executed as of the day and year first set forth on Page 1 of this
Agreement.
NCR CORPORATION AMCOM CORPORATION
By:_______________________ By:__________________
Title:______________________ Title:_______________
3
NCR/AMCOM SUPPORT AGREEMENT
Contract # 63-181-89
This agreement is made and entered into the 1st day of July, 1989 by and between
NCR Corporation, and Amcom Corporation.
Scope of This Agreement
Amcom is in the primary business of buying used and excess computer equipment
manufactured by IBM and other manufacturers to tear down for spare parts. It is
anticipated that NCR will purchase spare parts, maintenance service and rework
service from Amcom in order to support NCR's third party customer base.
Definitions
A. Part is defined as any spare part, detailed part, sub assembly or
assembly.
B. Product is defined as any end unit.
C. Maintenance is defined as any prepaid rework function where all parts
and labor are covered for a blanket fee.
D. Rework is defined as the process of testing and repairing a part or
product to like new condition.
E. Rework is defined as the process by which an NCR field location will
return a part directly to Amcom for rework and then Amcom will rework
and return the part directly to the NCR location. This process is
described in detail in Attachment A.
Term of This Agreement
The term of this agreement shall commence on the date specified above and shall
continue for an initial period of six months to one year, at which time the
parties may renew this agreement, or renegotiate an agreement to cover a long
relationship.
Emergency Orders
Amcom shall use its best effort to drop ship Emergency Spare Parts to locations
specified by NCR within twenty-four (24) hours following receipt of purchase
order. Amcom will notify NCR of the following information at the time of
shipment.
Air Bill Number Flight Number
Carrier Name Departure and arrival times
Airline and/or freight forwarder
<PAGE>
If an order cannot ship within 24 hours, Amcom will advise NCR of all details
within 24 hours of order placement. Amcom will accept emergency orders by
telephone or fax.
Purchase Orders
Amcom agrees to accept and acknowledge purchase orders for parts and rework.
Amcom shall accept purchase orders via telephone, facsimile, telex or mail.
Rework
Amcom agrees to rework parts returned to NCR to a like new condition and to
maintain the necessary tools, test equipment, documentation, and detailed parts
to perform this service. Pricing for rework shall be in accordance with
Attachment B of this agreement.
Spare Parts Sales
Amcom agrees to sell NCR spare parts. Amcom will perform testing on these parts
to insure parts function like new. All parts sold to NCR will be clearly labeled
with both the NCR and manufacturers part number. Pricing for parts will be in
accordance with Attachment C of this agreement.
Maintenance
A. Amcom will accept any of the products listed on Attachment D under a
maintenance agreement. Charges for maintenance will be in accordance
with Attachment D.
B. NCR agrees to provide Amcom with a list of serial numbers to be placed
under maintenance no later than August 31, 1989. Amcom agrees to allow
NCR to make additions and deletions from the list as conditions require
and will make appropriate adjustments in charges.
Packaging
All shipments to NCR shall be packed individually except in the case of small
parts such as screws, resistors, etc. Electronic components should be shipped
with appropriate protective materials to guarantee safe arrival (i.e.,
plug-in-boards should be in static controlled packaging and foam-lined packs or
padded cartons). No more than one purchase order shall be shipped inside a box,
but, multiple boxes may be placed inside a larger container.
Warranty
Amcom warranties that all parts and products sold to or reworked for NCR shall
be functionally new for a period of 90 days more the date NCR installs the parts
or parts at a customers location.
2
<PAGE>
Payment
Payment terms shall be net 30 days after the receipt of the parts or the receipt
of the invoice, which ever is later.
Sell Back of Excess Parts
Amcom agrees to negotiate with NCR to reach a fair and reasonable price for
spare parts purchased under this agreement which NCR considers excess.
Arbitration
Any controversy or claim arising out of or related to this Agreement, or the
breach thereof, shall be settled by arbitration in accordance with the Rules of
the American Arbitration Association and the judgment upon the award rendered by
the Arbitrator(s) may be entered in any court having jurisdiction thereof.
Notices
Notices and other communications by a party under this agreement, other than
invoices and notices as to shipments and insurance, shall be deemed given when
deposited in the United States, or in the mails of the applicable country in
which Product(s) Units have or are being purchased, postage prepaid, addressed
as follows:
NCR CORPORATION AMCOM CORPORATION
Attention Purchasing Manager 5555 West 78th Street
200 Highway 74 South Minneapolis, MN 55435
Peachtree City, GA 30269
Quality Control
NCR has significant interest in the quality of the product because it has a
useful life longer than the obligation of this agreement and because good will
lost by malfunctioning products even though they may be corrected at Amcom's
expense. Therefore, Amcom will take all necessary steps to see that all
products, assembles and spare parts purchased by NCR meet NCR's quality control
standards.
IN WITNESS THEREOF the parties hereto have caused this Agreement to be executed
as of the day and year first above set forth.
BY: _________________________________ BY: ________________________________
(Date) (Date)
TITLE: ______________________________ TITLE: _____________________________
3
<PAGE>
ATTACHMENT "A"
SUPPLIER LOOPING
DEFINITION
Supplier Looping occurs when NCR's locations or districts send defective parts
directly to you, our rework source. When you complete the repair, you return the
part to the service location and then bill NCR Worldwide Service Parts Center
(WSPC), Peachtree City, GA for the repair.
NCR has 111 districts in the United States than can participate in supplier
looping. International sites are not currently set up to participate in this
program.
INSTRUCTIONS
1. You will receive parts from each district once a week.
2. Each part will have a Defective Part ID Tag (Form F-6718) attached. Refer
to Figure 1 for an example of this tag.
In the top left corner, there is a preprinted document number that
identifies the part as it moves in and out of NCR's inventory. This
document number also identifies receipts for WSPC allowing our Finance
Department to promptly pay invoices. This tag must accompany the repaired
part back to the sending location.
3. A Return Authorization Report will accompany each shipment. Refer to
Figure 2 for an example of this report.
This report is your packing list and contains a list of all parts that
were sent to you in this shipment. The district number of the originating
district (1 in the example), the document number (2 in the example), the
NCR part number (3 in the example), and the part description (4 in the
example) are included in this report. This report also contains other
information that is used by NCR.
The document number on the Return Authorization Report should match the
document number that is printed on the Defective Part ID Tag.
4. After repairing the part, return it (with the Defective Part ID Tag
attached) to the originating district.
We will provide a numeric listing of all United States locations that
includes the following information.
o Servicing locations and their addresses.
o Parts room contacts and their telephone numbers.
4
<PAGE>
Parts can be batched and shipped weekly. Please ship Federal Express and
bill freight charges to NCR's Federal Express third party account number
1373-4850-0.
5. When you have shipped the parts to the district, invoice WSPC. We will
pay you within the terms of your invoice, but not until the district
notifies us that they have received the parts. If you prefer, you may
send a weekly or monthly summary invoice accompanied by back-up
documentation.
6. Your invoice should contain the following information.
o The document number and the location code from the Defective
Part ID Tag for each repaired item
o The location code from the Defective Part ID Tag
o The quantity repaired
o The rework charges for each item repaired
7. Notify your normal WSPC contact when parts require upgrades other than
the ones known by NCR.
8. Return items that are discrepancies (wrong part numbers, parts that did
not match the paper work, etc.) and parts that could not be repaired to
the originating district with an explanation attached to the part.
5
BASIC ORDER AGREEMENT
between
DIGITAL EQUIPMENT CORPORATION
and
AMCOM CORPORATION
for
SPARES, REPAIRS, EXPENDABLES, EXCHANGES
<PAGE>
I. BASIC ORDER AGREEMENT
A. This Basic Order Agreement 22398 and all attachments (called "the
Agreement") is made by Digital Equipment Corporation ("Buyer") and
Amcom Corporation ("Seller"). Buyer's worldwide subsidiaries may
place Purchase Orders under this Agreement per Section - III A.
The Terms and Conditions herein exclusively govern the purchase
and sale of the Spare Parts, and/or Repair Parts, and/or
Expendable Parts, and/or Exchange Parts more fully described in
Attachment - A, and in applicable specifications, attached hereto
and incorporated herein by reference; ("Spares, and/or Repairs,
and/or Expendables, and/or Exchanges").
B. This Agreement does not specify a quantity of Spares, and/or
Repairs, and/or Expendables, and/or Exchanges to be procured by
Buyer, NOR DOES THIS AGREEMENT OBLIGATE BUYER TO PURCHASE ANY
Spares, and/or Repairs, and/or Expendables, and/or Exchanges. All
such quantities will be specified on Buyer's Purchase Orders as
defined in Section - III A, Purchase Orders, issued under the
provisions of this Agreement and incorporated herein by reference.
C. If any term of this Agreement conflicts with any term of an issued
Purchase Order, this Agreement shall take precedence.
II. PURCHASE ORDERS
A. For the purposes of this Agreement, Purchase Order shall mean
Buyer's written Purchase Order form and Purchase Orders
transmitted electronically via Electronic Data Interchange (EDI),
and any documents incorporated therein by reference. Written
Purchase Order shall mean Buyer's standard Purchase Order form.
Electronic Purchase Order shall mean only those Purchase Orders
transmitted electronically. Acceptance by Seller is limited to the
provisions of the Agreement and the Purchase Order. No additional
or different provisions proposed by Seller shall apply. In
addition, the parties agree that this Agreement and issued
Purchase Orders constitute a Contract for the Sale of Goods and
satisfy all statutory and legal formalities of a contract. Each
Purchase Order will specify items such as: item description,
quantity, delivery schedule, destination, and total price of the
Purchase Order. Each Purchase Order issued under this Agreement
shall be made part of, and be incorporated into this Agreement,
and shall reference this Agreement number on the face of each
Purchase Order issued pursuant to this Agreement.
B. Buyer will order Spares, and/or Repairs, and/or Expendables,
and/or Exchanges by issuing telex, or facsimile, or telephonic
orders, or Purchase Orders. For Purchase Orders with a total value
in excess of five thousand dollars ($5,000), unless otherwise
requested by Seller, Buyer will issue either written or facsimile
confirming Purchase Order within ten (10) days after issuing such
telex, or facsimile, or telephonic orders. Seller shall have five
(5) days after receipt to reject the Purchase Order. By not
rejecting the Purchase Order within five (5) days, Seller will
have accepted the Purchase Order.
<PAGE>
C. Buyer may, at it's option, order parts on a priority-one ("P-1")
basis by issuing facsimile, or electronic mail, or telephone
orders for P1 orders only, or by issuing a Purchase Order form
(collectively referred to as "P-1 Purchase Orders"). If
authorization is other than the Purchase Order form, Buyer will
use reasonable efforts to issue either written or facsimile
confirming Purchase Order(s) within ten (10) days after issuing
such telex, or facsimile, or telephonic orders. Seller shall
confirm and acknowledge such authorizations within two (2) days,
or within four (4) hours of receipt of P-1 Purchase Orders placed
via facsimile, or electronic mail, or telephonic means. Seller
shall be obligated to comply with all P-1 Purchase Orders issued
in accordance with this Agreement. Accordingly, any failure of
Seller to acknowledge any such P-1 Purchase Orders shall not be
deemed a rejection of such order.
D. If Buyer's Purchase Order specifies export after passage of title,
Seller shall furnish Buyer with all necessary Export/Import
documentation. If Buyer's Purchase Order specifies export before
passage of title, Seller shall prepare all export/import
documentation and furnish a copy to Buyer. Export/Import
documentation shall be in accordance with the INCOTERMS then in
force.
E. If Seller has more than one (1) geographic location which could
supply Spares, and/or Repairs, and/or Expendables, and/or
Exchanges Seller shall make such Spares, and/or Repairs, and/or
Expendables, and/or Exchanges available to Buyer from Seller's
closest location to Buyer's ship to location. Any of Buyer's
locations outside the United States may place orders with Seller's
specified United States and/or foreign facilities for such Spares,
and/or Repairs, and/or Expendables, and/or Exchanges.
F. Electronic Purchase Orders
1. Buyer may order Spares, and/or Repairs, and/or Expendables,
and/or Exchanges by issuing Electronic Purchase Orders, which
include, without limitation, EDI Purchase Orders. Each
Electronic Purchase Order will specify items such as: item
description, quantity, delivery schedule, destination, and
total price of the Electronic Purchase Order. Each Electronic
Purchase Order issued under this Agreement shall be made part
of, and be incorporated into, this Agreement.
2. Seller shall electronically "Verify" receipt of the Electronic
Purchase Orders within one (1) day of the Electronic Purchase
Order transmission by Buyer. As used herein, "Verify" shall
mean Seller's notification to Buyer that all necessary
Electronic Purchase Order information has been received in a
readable and understandable format, or that discrepancies, as
noted, require clarification.
2
<PAGE>
3. Seller shall have five (5) days after receipt to reject the
Electronic Purchase Order. By not rejecting the Electronic
Purchase Order within five (5) days, Seller will have accepted
the Purchase Order. Acceptance by Seller is limited to the
provisions of this Agreement and the Purchase Order. No
additional or different provisions proposed by Seller shall
apply.
4. Electronic Purchase Order transmissions shall contain
information in a specified format, in accordance with
prevailing applicable Buyer policies, or as otherwise mutually
agreed in writing. Such policies will state specific generally
available non-proprietary content and transmission standards.
5. The parties acknowledge that hard (written) copies of
Electronic Purchase Orders will not be issued. The parties
agree not to contest the validity or enforceability of
Electronic Purchase Orders under the provisions of applicable
law requiring that contracts be in writing and signed by the
party to be bound. In addition, the parties further agree that
this Agreement and transmitted Electronic Purchase Orders
constitute a Contract for the Sale of Goods and satisfy all
statutory and legal formalities of contract, including,
without limitation, the Statute of Frauds.
6. The parties acknowledge that the Electronic Purchase Orders
covered by this Agreement may be offered in evidence at any
trial or other evidentiary proceeding. The parties agree that
Electronic Purchase Orders, when produced in hard copy, shall
constitute business records, and shall be admissible to the
same extent as other generally recognized business records.
III. PURCHASE PERIOD
A. The period during which Buyer may issue Purchase Orders for
Spares, and/or Repairs, and/or Expendables, and/or Exchanges under
this Agreement (Purchase Period) shall last from 3/4/96 and expire
on 6/28/97.
B. The Purchase Period may be extended by Buyer for one (1)
additional year upon no less than sixty (60) days written notice
to the Seller prior to the end of the current Purchase Period.
IV PRICING
A. Buyer may purchase all Spares, and/or Repairs, and/or Expendables,
and/or Exchanges listed in Sellers then current catalog. Such
Spares, and/or Repairs, and/or Expendables and/or Exchanges shall
be sold to Buyer at Sellers Cost (market price or less) plus
fifteen percent (15%).
3
<PAGE>
B. Price changes only apply to Purchase Orders issued on or after the
agreed upon effective date of change.
C. Prices include all charges such as packaging, packing, handling,
customs duties imposed before passage of title, and all taxes
except sales, use, and other such taxes imposed upon the sale or
transfer of Spares, and/or Repairs, and/or Expendables, and/or
Exchanges for which Buyer is solely responsible under applicable
law and for which Buyer is properly invoiced by Seller.
D. Seller represents that prices established herein, to be paid by
Buyer, shall not exceed the prices charged to any other customer
of Seller for materials which are the same or substantially
similar to the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges taking into account the quantities and the Terms and
Conditions of this Agreement, and Seller will forthwith refund any
excess amounts paid by Buyer.
V DELIVERY/LEAD-TIME/FLEXIBILITY
A. Buyer's Purchase Orders shall state Seller's committed delivery
dates for Spares, and/or Repairs, and/or Expendables, and/or
Exchanges. TIME AND RATE OF DELIVERY ARE OF THE ESSENCE OF ALL
PURCHASES MADE UNDER THIS AGREEMENT. The minimum agreed period
between Buyer's issuance of a Purchase Order and the scheduled
delivery date ("Lead-time") shall be as stated in Attachment - A.
B. All deliveries shall be designated by Buyer as Collect, FOB
Origin, (INCOTERMS, 1980). Delivery date shall mean the date the
Spares, and/or Repairs, and/or Expendables, and/or Exchanges are
shipped Collect, FOB Origin, (INCOTERMS, 1980).
C. If Seller delivers Spares, and/or Repairs, and/or Expendables,
and/or Exchanges more than three (3) days in advance of the
scheduled delivery date, Buyer may either return such Spares,
and/or Repairs, and/or Expendables, and/or Exchanges at Seller's
expense for subsequent delivery on the original delivery date or
retain such Spares, and/or Repairs, and/or Expendables, and/or
Exchanges and postpone payment until it would have been due if
Seller had delivered Spares, and/or Repairs, and/or Expendables,
and/or Exchanges as scheduled. Without limiting any of Buyer's
rights and remedies in equity or at law, if Seller is late in
meeting the scheduled delivery date, Buyer may require that Seller
ship the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges via premium means at Seller's expense, or may cancel the
order for such Spares, and/or Repairs, and/or Expendables, and/or
Exchanges without liability to Buyer.
D. Seller shall deliver the exact quantity of Spares, and/or Repairs,
and/or Expendables, and/or Exchanges scheduled. If Seller delivers
less than the scheduled requirement, Seller shall correct the
shortage within a two (2) day period. If Seller fails to correct
4
<PAGE>
such shortage within this period, without limiting any of Buyer's
rights and remedies in equity or at law, Buyer may cancel and/or
return all or part of the order without cost or liability. If
Seller delivers more than the quantity ordered, Buyer may return
any excess Spares, and/or Repairs, and/or Expendables, and/or
Exchanges at Seller's expense.
E. Buyer may without cost or liability: reschedule delivery of any
Spares, and/or Repairs, and/or Expendables, and/or Exchanges,
and/or cancel Purchase Orders, or parts of them, by giving notice
as specified below, Reschedule and Cancellation Notice Period:
Reschedule Notice - 7 days prior to ship date
Cancellation Notice - 5 days prior to ship date
(all or partial)
Buyer may reschedule or cancel orally provided written
notification issued to Seller within five (5) days.
F. Buyer may require that shipments of Spares, and/or Repairs, and/or
Expendables, and/or Exchanges under this Agreement be shipped by
Seller to various destinations. The Purchase Order will clearly
specify the "SHIP TO" location for each order placed with Seller.
G. Spares Emergency Lead-time
1. Seller shall accept and process Purchase Order(s) for P-1
requirements twenty four (24) hours a day, three hundred
sixty-five (365) calendar days a year. All P-1 Purchase Orders
will be delivered to Buyer's designated carrier or freight
agent within twenty-four (24) hours of authorization.
2. Invoices for P-1 Purchase Order(s) must be accompanied by a
copy of the waybill(s) for the shipment(s).
3. If Buyer places a P-1 Purchase Order because Seller has failed
to meet any requirement of this Agreement or Buyer's Purchase
Order(s) as they relate to the required delivery date or
quantity of conforming Spares, and/or Repairs, and/or
Expendables, and/or Exchanges to be delivered, Seller shall
pay transportation charges for such order.
4. If requested item(s) is/are available, Seller shall have
requested Spares, and/or Repairs, and/or Expendables, and/or
Exchanges available for shipment/pickup within one (1) hour of
request, between the hours of:
5
<PAGE>
Standard Hours - 8:30 a.m. thru S:30 p.m. Eastern
- Monday thru Friday
Standby Hours - 5:31 p.m. thru 8:29 a.m. Eastern
Monday thru Friday
- 24 hour weekend pager coverage
- 24 hour holiday pager coverage
Emergency Order - call back within 1 hour of page
5. As required, Seller shall make Spares, and/or Repairs, and/or
Expendables, and/or Exchanges available through the following:
Drop Shipment - Seller shall drop ship Spares, and/or Repairs
and/or Expendables, and/or Exchanges to Buyers customer
site(s) and/or service delivery location(s). Buyer may at
times designate the carrier that best meets delivery
requirements, i.e.; the Seller shall have available, and
as necessary will utilize courier services for local
delivery, and/or pickup by Buyer.
Advance Exchange - Seller shall offer Advanced Exchange
capability for certain items as deemed Advance Exchange by
Buyer. Advance Exchange is defined as; Seller assigning a
Core Credit for defective Spares, and/or Repairs, and/or
Expendables prior to Seller's receipt of defective units
from Buyer. "Core Credit" is defined as the Sellers value
of the defective unit(s). "Advance Exchange Price" is
calculated as "Buyer Price" less "Core Credit".
Seller agrees to provide a weekly Outstanding Core Report,
of cores not returned within fourteen (14) days of the
Advance Exchange Purchase Order Date, to the Buyer. Buyer
shall return the core(s) within thirty (30) calendar days
of the respective Advance Exchange Purchase Order Date. If
Buyer fails to return the core(s) within the thirty (30)
calendar days, then Seller shall invoice Buyer for one
hundred percent (100%) of the respective core(s)
previously credited. Seller must notify Buyer of core(s)
received after thirty (30) calendar days, enabling Buyer
to Debit the respective Advance Exchange Purchase Order by
twenty five percent (25%) of the original Core Credit.
Failure by Seller to notify Buyer of non-returned
defective within sixty (60) days will result in core
charge forfeiture. Seller shall ship to Buyer, the most
current revision level/part number available to Seller. If
Buyer returns a core which is not the most current
revision level/part number as part of this "Advance
Exchange" process, then Seller shall determine the
appropriate core value credit per Sellers Material Review
Board process. Seller agrees to maintain an "Advance
Exchange" file
6
<PAGE>
concurrent with the first material receipt/shipment and
continues through all subsequent activity.
H. Buyer will measure Seller's performance against commitments, for
the purpose of establishing Seller's rate of on-time delivery and
lead-time improvement against Buyer's requirements.
I. A copy of Seller's packing list shall accompany all Spares, and/or
Repairs, and/or Expendables, and/or Exchanges shipments and shall
indicate Buyer's Purchase Order Number, Part Number, and Serial
Number.
VI QUALITY, INSPECTION, AND ACCEPTANCE
A. Prior to delivery, Seller shall insure that all Spares, and/or
Repairs, and/or Expendables, and/or Exchanges are in accordance
with the provisions of this Agreement, including but not limited
to: Attachment - C Packaging, Requirements, Attachment - D Quality
Requirements, Attachment - E Product Specification, and all other
quality requirements specified in the Purchase Specifications for
Spares, and/or Repairs, and/or Expendables, and/or Exchanges
purchased under this Agreement, are incorporated herein by
reference.
B. Seller authorizes and agrees to assist Buyer in performing source
inspection and quality assurance reviews at Seller's manufacturing
facilities, but this shall in no way relieve Seller of its
obligation to deliver conforming Spares, and/or Repairs, and/or
Expendables, Exchanges nor waive Buyer's right of inspection; nor
does said right of inspection waive any rights under the warranty
provisions.
C. During the inspection period of sixty (60) days after Buyer's
receipt of the shipment of Spares, and/or Repairs, and/or
Expendables, and/or Exchanges Buyer will return Spares, and/or
Repairs, and/or Expendables, and/or Exchanges which fails to pass
inspection per Acceptance Quality Level (AQL) criteria defined in
Attachment - D, for at Buyer's option, credit:, refund of purchase
price, or repair/replacement within five (5) days of Buyer's
notice to Seller of nonconformance. Seller shall designate carrier
and pickup of rejected Spares, and/or Repairs, and/or Expendables,
and/or Exchanges and the pickup shall occur within five (5) days
of notice, or Buyer may select a carrier and return rejected
Spares, and/or Repairs, and/or Expendables, and/or Exchanges Cash
On Delivery (COD), and risk of loss will pass to Seller for
rejected Spares, and/or Repairs, and/or Expendables, and/or
Exchanges FOB Buyer's dock.
VII PAYMENT AND SET-OFF
A. Buyer shall issue payment net thirty (30) calendar days after the
later of the scheduled delivery date and receipt of a correct
packing list, correct invoice, and conforming Spares, and/or
Repairs, and/or Expendables, and/or Exchanges.
7
<PAGE>
B. Amounts owed to Buyer due to rejections of Spares, and/or Repairs,
and/or Expendables, and/or Exchanges or discrepancies on paid
invoices will be, at Buyer's option, fully credited against future
invoices payable by Buyer, or paid by Seller within thirty (30)
calendar days from Seller's receipt of a debit memo or other
written request for payment from Buyer.
C. Buyer shall have the right at any time to set-off any amount owed
from Seller to Buyer or its subsidiaries or affiliates against any
amount payable by Buyer pursuant to this Agreement and/or any P.O.
issued hereunder, provided such set-off does not contravene
applicable exchange control laws or any other applicable statute.
D. Seller and Buyer agree that Buyer may at its sole discretion
utilize for its own purpose or assign to third-parties all content
credits for the value, in whole or in part, of purchases made
pursuant to this Agreement. Such utilization or assignment of
offset credits may be in furtherance of fulfilling international
offset obligations to any government. Seller agrees to make
available the maximum offset credits by the laws of the government
in question and for which Buyer is entitled, including those
assignable to either party.
VIII WARRANTY
A. Seller warrants Spares, and/or Expendables, and/or Exchanges for
twelve (12) months from date of acceptance of Spares, and/or
Expendables, and/or exchanges by Buyer or Buyer's customer. Seller
warrants Repairs for twelve (12) months from the later of the date
of acceptance or balance of original warranty. Seller warrants
that Spares, and/or Repairs, and/or Expendables, and/or Exchanges
shall be free from defects in material, workmanship, design, and
shall conform to applicable specifications, drawings, samples, and
descriptions referred to in this Agreement, and shall be suitable
for the purpose for which intended. Seller warrants it has the
right to convey the Spares, and/or Repairs, and/or Expendables,
and/or Exchanges, and that the Spares, and/or Repairs, and/or
Expendables, and/or Exchanges are free of all liens and
encumbrances, and do not infringe on any intellectual property
interest. These warranties shall survive any inspection, delivery,
payment, and termination of this Agreement, and shall run to
Buyer, its customers, successors, and assigns. Seller agrees to
date code with the expiration date of warranty, on all Spares,
and/or Repairs, and/or Expendables, and/or Exchanges. Buyer has
the right to enforce these warranties on behalf of any of its
customers.
B. Seller shall correct defects in Spares, and/or Repairs, and/or
Expendables, and/or Exchange at its facility. At Buyer's option,
Seller shall repair or replace all defective Spares, and/or
Repairs, and/or Expendables, and/or Exchanges within ten (10) days
of receipt of such Spares, and/or Repairs, and/or Expendables,
and/or Exchanges. Seller shall bear all warranty costs such as
labor, material, inspection, and shipping to and from Buyer's
facility or Buyer's customer's facility, whichever is the location
8
<PAGE>
of the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges. If Buyer or Buyer's customer incurs any such costs,
Buyer may either recover them directly from Seller or deduct them
from any amounts due Seller. Seller agrees to date code with
expiration date of warranty on all Spares, and/or Repairs, and/or
Expendables, and/or Exchanges.
IX CONFIDENTIAL INFORMATION AND ADVERTISING
A. Seller shall maintain as confidential and shall not disclose to
any person outside its employ, nor use for purposes other than
performance of this Agreement, any specifications, drawings,
blueprints, data, business information, or other confidential
information which Seller learns by virtue of this Agreement,
except as required by law, and after written notice to Buyer. Upon
termination of this Agreement, Seller shall promptly return to
Buyer all confidential material and all copies.
B. Without Buyer's prior written consent, Seller shall not in any
manner disclose, advertise, or publish the existence or terms of
transactions under this Agreement.
C. Buyer may reproduce and use Seller's manuals, schematics, and
merchandising literature provided by Seller under this Agreement.
X INTELLECTUAL PROPERTY INDEMNITY
Seller shall defend, at its expense, any claim against Buyer alleging
that Spares, and/or Repairs, and/or Expendables, and/or Exchanges or
any part thereof infringes any patent, copyright, trademark, trade
secret, mask work, or other intellectual property interest in any
country and shall pay all costs and damages awarded, if Seller is
notified promptly in writing of such a claim. If an injunction against
Buyer's or Buyer's customer's use, sale, lease, license, or other
distribution of the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges or any part there of results from such a claim (or if Buyer
reasonably believes such an injunction is likely), Seller shall, at its
expense, (and in addition to the Seller's other obligations, hereunder)
and as Buyer requests: obtain for Buyer and/or Buyer's customers the
right to continue using, selling, leasing, licensing, or otherwise
distributing the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges; or replace or modify it so it becomes noninfringing but
functionally equivalent. The provisions of this Section shall not apply
to any claim for infringement resulting solely from Seller's compliance
with Buyer's detailed written design specifications, where provided.
9
<PAGE>
XI NO IMPLIED LICENSE
The parties understand that, except as may be otherwise expressly
stated herein, neither the terms and conditions of this Agreement, nor
the acts of either party arising out of this Agreement or related to
Buyer's purchase, use, sale, or other distribution of Material, Spares,
Repairs, or Expendables may be considered in any way as a grant of any
license whatsoever under any of Buyer's present or future patents,
copyrights, trademarks, trade secrets, or other proprietary rights, nor
is any such license granted by implication, estoppel, or otherwise.
XII CHANGES
A. Buyer must be advised in writing of ANY and ALL product or process
changes prior to implementation. Seller shall make no changes
during the Purchase Period for Spares, and/or Repairs, and/or
Expendables, and/or Exchanges which affect design, form, fit, or
function, appearance, reliability, or packing and packaging
specified by this Agreement without Buyer's prior written
approval. Buyer will review Seller's written request for such
changes within forty (40) days of Buyer's receipt of such request
and whatever documentation Buyer reasonably requires to evaluate
such request, which shall include all maintenance related
information and samples which incorporate the proposed change(s).
Buyer agrees to use reasonable efforts to issue to Seller, Buyers
final acceptance or rejection of Seller's proposed change within
an additional forty (40) day period.
B. As a part of Seller's internal engineering process, prior to
release of any change, Seller shall demonstrate, to Buyer's
satisfaction, that the change has not affected the operation and
functional performance of the Spares, and/or Repairs, and/or
Expendables, and/or Exchanges stated in Attachment - A hereto.
C. For all changes approved by Buyer, Seller shall furnish to Buyer
all necessary documentation to enable installation and
implementation of the changes and make available for purchase by
Buyer hereunder, parts in kit form and at reasonable prices for
nonmandatory changes.
D. If Seller fails to comply with Section XII, this Section, Clauses
- A through C, then Seller shall bear all of Buyer's costs to
correct all changes affecting Spares, and/or Repairs, and/or
Expendables, and/or Exchanges.
E. Change Notices: Any notice given under this Section shall be
initially transmitted by means agreed to between the parties, to
addressees specified in Section XIX, this Agreement, herein.
10
<PAGE>
XIII TERM OF AVAILABILITY
A. In consideration for Buyer's purchase of any Spares, and/or
Repairs, and/or Expendables, and/or Exchanges hereunder, Seller
grants to Buyer the option to purchase Spares, and/or Repairs,
and/or Expendables, and/or Exchanges at the last revision level
purchased under this Agreement, for the period of ten (10) years
after the expiration date of this Agreement or any extension
thereof, or for as long as said Spares, and/or Repairs, and/or
Expendables, and/or Exchanges are made available to any of
Seller's other customers, whichever is the later.
B. Thereafter, Seller may discontinue availability of Spares, and/or
Repairs, and/or and Expendables and/or Exchanges by giving Buyer
twelve (l2) months prior written notice, provided that, at Buyer's
option, Seller shall sell Buyer sufficient quantities of Spares,
and/or Repairs, and/or Expendables and/or Exchanges as Buyer deems
necessary.
XIV U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
A. Country of Origin
1. "Country of Origin" Marking: The Seller shall mark, in
English, all Spares, and/or Repairs, and/or Expendables,
and/or Exchanges with the Country of Origin (manufacture), in
compliance with Section 304 of the United States Tariff Act.
Both the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges and its container must be conspicuously marked with
the Country of Origin. If the Spares, and/or Repairs, and/or
Expendables, and/or Exchanges itself cannot be marked legibly
due to size, then its immediate container must be marked.
2. For each delivery against purchases made under this Agreement,
Seller shall furnish Buyer with a signed certificate stating
Country of Origin (manufacture) by quantity and part number
(Buyer's and Seller's).
B. Duty Drawback
1. For each purchase under this Agreement, and for each item of
Spares, and/or Repairs, and/or Expendables, and/or Exchanges
delivered hereunder for each U.S. Customs import duties have
been paid upon importation, or for items that contain parts
for which import duties have been paid, Seller shall furnish
Buyer with a signed "Manufacturing Drawback Entry and/or
Certificate" (U.S. Customs Form #CF331 or its successor).
Seller warrants that information contained in such Form #CF331
shall be accurate and shall comply with the United States Duty
Drawback and Customs laws and regulations. Seller shall
indemnify and hold Buyer harmless from and
11
<PAGE>
against any claims, costs, or damages resulting from or
arising out of Buyers reliance on such information and/or Form
#CF331.
2. Seller shall provide such required Form(s) #CF331, and/or
information at the end of each fiscal quarter, unless
otherwise agreed in writing by both parties.
3. Buyer reserves its first right to claim Duty Drawback on all
purchases made under this Agreement.
XV FORCE MAJEURE
Neither party shall be liable for failure to perform any of its
obligations under this Agreement during any period in which such party
cannot perform due to fire, flood, or other natural disaster, war,
embargo, riot, or the intervention of any government authority,
provided that the party so delayed immediately notifies the other party
of such delay. If Seller's performance is delayed for these reasons for
a cumulative period of twenty (20) days or more, Buyer may terminate
this Agreement and/or any Purchase Order hereunder by giving Seller
written notice, which termination shall become effective upon receipt
of such notice. If Buyer terminates, its sole liability under this
Agreement or any Purchase Orders issued hereunder will be to pay any
balance due for conforming Spares, and/or Repairs, and/or Expendables,
and/or Exchanges: (1) delivered by Seller before receipt of Buyer's
termination notice; and (2) ordered by Buyer for delivery and actually
delivered within fifteen (15) days after receipt of Buyer's termination
notice.
XVI COMPLIANCE WITH LAWS
A. All Spares, and/or Repairs, and/or Expendables, and/or Exchanges
supplied and work performed under this Agreement shall comply with
all applicable United States and foreign laws and regulations
including, but not limited to, emission and safety standards, the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et
seq.), the Fair Labor Standards Act of 1938 (29 U.S.C. Sections
201-219), the Toxic Substance Control Act of 1976 (15 U.S C.
Section 2601), all laws restraining the use of convict labor, and
Worker's Compensation Laws. Upon request, Seller agrees to certify
compliance with any applicable law or regulations. Seller's
failure to comply with any of the requirements of this Section may
result in a material breach of this Agreement.
B. The following provisions and clauses of the Federal Acquisition
Regulation (FAR), 48 CFR Chapter 1, are hereby incorporated by
reference, with the same force and effect as if they were given in
full text and are hereby made binding upon the subcontractor or
vendor. Where the clauses or provisions say "Contractor",
substitute "subcontractor or vendor".
12
<PAGE>
1) Nonexempt Subcontracts and Purchase Orders over $2,500:
52.222-36 Affirmative Action for Handicapped Workers (APR.
1984)
2) Nonexempt Subcontracts and Purchase Orders over $10,000 or
subcontracts and purchase orders the aggregate value of which
in any twelve month period exceeds or can be expected to
exceed $10,000: 52.222-26 Equal Opportunity (APR. 1984)
3) Nonexempt Subcontracts and Purchase Orders over $10,000:
52.222-21 Certification of Nonsegregated Facilities (APR.
1984) 52.222-35 Affirmative Action for Special Disabled and
Vietnam Era Veterans (AP.R 1984)
4) Subcontracts and Purchase Orders cover the small purchase
limitation, $25,000: 52.219-13 Utili-zation of Women-Owned
Small Business (AUG. 1986)
5) Subcontracts over $500,000, except for small business
concerns: 52.219-8 Utilization of Small Business Concerns and
Small Disadvantaged Business Concerns (FEB. 1990)
A copy of the Filing Standard Form 100 (EEO-1) and Development
of Affirmative Action Compliance Program is attached as
Attachment - J, this Agreement, and incorporated herein by
reference.
C. The provisions of the Clean Air Act (42 U.S.C. Sections 7401 et
seq.) and the Clean Water Act (33 U.S.C Sections 1251 et seq.) is
attached as Attachment - I, this Agreement, and incorporated
herein by reference.
D. The provisions of any applicable State "Right-to-Know" laws and
regulations are made a part of this Agreement. A copy of the
applicable Material Safety Data Sheets as required under such laws
and regulations shall be provided by Seller upon delivery of
Spares, and/or Repairs, and/or Expendables, and/or Exchanges and
updated as necessary.
E. This Agreement is subject to all applicable United States laws and
regulations relating to exports and to all administrative acts of
the U.S. Government pursuant to such laws and regulations.
XVII TERMINATION FOR CAUSE
A. The occurrence of any of the following constitutes a breach and is
cause for Buyer's termination of this Agreement and/or its
Purchase Orders.
13
<PAGE>
1. Seller fails to deliver Spares, and/or Repairs, and/or
Expendables and/or Exchanges on time.
2. Spares, and/or Repairs, and/or Expendables, and/or Exchanges
do not conform to the applicable descriptions or
specification.
3. Seller fails to perform any material provision of this
Agreement.
4. Seller assigns this Agreement, or any obligation or right
hereunder. (The word "assign" to include, without limitation,
a transfer of major interest in Seller.)
5. Seller merges with a third-party (not a parent or subsidiary
company), without the prior written consent of Buyer.
6. Seller becomes insolvent or makes an assignment for the
benefit of creditors, or a receiver or similar officer is
appointed to take charge of all or part of Seller's assets.
B. Seller must cure any of the above breaches except late delivery
pursuant to Section - XVII, this Section, Clause A, Paragraph 1,
for which there shall be no cure period, and notify Buyer of such
cure within ten (10) days from receipt of a notice to cure from
Buyer. If Seller fails to so cure, Buyer may terminate this
Agreement and/or any Purchase Orders under it by giving Seller
written notice. Buyer shall have no liability except for payment
of any balance due for conforming Spares, and/or Repairs, and/or
Expendables, and/or Exchanges delivered before the date of Buyer's
notice to cure.
XVIII TERMINATION FOR CONVENIENCE
Buyer may terminate this Agreement for convenience thirty (30) days
after giving Seller written notice. Buyer's sole liability to Seller
for such termination shall be to pay Seller any unpaid balance due for
conforming material:
1. Delivered against Buyer's Purchase Order(s) before receipt of
Buyer's termination notice; or
2. Ordered by Buyer and scheduled for delivery within the
cancellation notice period specified in Section - XII, this
Agreement, hereto.
XIX NOTICES
Any notice given under this Agreement shall be written or sent by telex
or facsimile. Written notice shall be sent by registered mail or
certified mail, postage prepaid, return receipt requested, or by any
other overnight delivery service which delivers to the noticed
14
<PAGE>
destination, and provides proof of delivery to the sender. Any telex or
facsimile notice must be followed within three (3) days by written
notice. All notices shall be effective when first received at the
following addresses:
If to Seller: If to Buyer:
Amcom Corporation Digital Equipment Corporation
Attn: Steve Ryan Attn: Duane J. Steil
6205 Bury Drive, 165 Dascomb Road,
Eden Prairie, MN 55346 Andover, MA 01810-5897
XX DOCUMENTATION, TRAINING & TECH SUPPORT
Seller hereby grants Buyer the right to reproduce, in whole or in part,
all documentation and training material provided to Buyer in order for
Buyer's organization to effectively service Sellers products.
XXI BUYER OWNED MATERIAL
A. Buyer shall furnish gratuitously to Seller the tooling, test
equipment, products and/or documentation ("Buyer-Owned Material")
listed in Section XXI, this Section, Clause - B, subject to the
following:
1. Title and ownership of all Buyer-Owned Material shall at all
times rest solely in Buyer, and Seller shall do nothing
inconsistent with Buyer's title thereto.
2. Seller shall, while such Buyer-Owned Material is in its
possession and control (including transit to and from Seller's
facility), be responsible for its safekeeping and for any loss
and/or destruction. Seller agrees to insure the Buyer-owned
Material at its expense in an amount equal to its replacement
value with Buyer as the named payee.
3. Seller shall use Buyer-Owned Material solely and exclusively
for the performance of its obligations under this Agreement.
4. At its own expense, Seller shall be responsible to maintain
Buyer-Owned Material in good working order and condition. This
maintenance shall include but not be limited to calibrating
test equipment and having service and preventive maintenance
performed as appropriate.
5. Seller shall promptly return to Buyer all Buyer-Owned Material
in good working order, reasonable and normal wear and tear
expected, upon expiration or earlier termination of this
Agreement.
15
<PAGE>
6. Seller also grants Buyer's authorized repre-sentative(s)
permission to enter Seller's facility at any time during
normal business hours for the purpose of repossessing all or
part of the Buyer-Owned Material, if Buyer, in its sole
discretion, deems this to be a more desirable way of providing
for the return of the Buyer-Owned Material.
B. If any Spares, and/or Repairs, and/or Expendables, and/or
Exchanges owned by the Buyer ("Buyer Owned Material") is returned
to Seller, it will be identified in Buyer's accompanying Shipping
and Billing Authorization form ("SBA"). Buyer will retain title to
all such items. While Buyer Owned Material is in Seller's care,
custody, and control, Seller shall insure it at Seller's own
expense in the amount of the Buyer Owned Material's full
replacement value against all risks of physical loss excluding
nuclear risks or acts of war. Seller shall keep such material
separate and identified as Buyer-Owned Material and shall use such
material solely under the terms of this Agreement. Upon request
from Buyer, Seller shall promptly return all Buyer Owned Material.
XXII SURVIVAL
The provisions of this Agreement dealing with Delivery, Payment and
Set-off, Warranty, Confidential Information and Advertising,
Intellectual Property Indemnity, Changes, Term of Availability, U.S.
Customs, Marking, and Duty Drawback Requirements, Compliance with Laws,
General, and Attachment(s) - A through J shall survive termination or
expiration of this Agreement.
XXIII BUSINESS REVIEWS
A. Buyer and Seller shall, each at their own expense, meet
periodically to review performance and business transacted, and to
identify and resolve those issues which have arisen since the last
business review meeting. Buyer and Seller agenda items shall
address compliance to the following goals:
1. Order Processing Turn Around Time - Place all orders the same
day
2. Order Processing Accuracy - A1l orders 100% accurate
3. Defective Returns Processing - Same day as received
4. Delivery - All orders shipped the same day
5. Backorders - (0) zero
6. Metric Reporting - Incoming and Outgoing orders, pieces, lines
7. Pricing Review
8. Quarterly Reports - See Section XXVI
B. Buyer and Seller shall furnish agenda items not later than two (2)
weeks prior to scheduled business review meetings. Minutes shall
document action items, open items, and committed dates which may
result from such business review meetings,
16
<PAGE>
and shall be sent by the drafting party to the other party within
ten (10) days after each meeting.
C. Seller shall provide records upon request of Buyer to demonstrate
compliance to the required quality specifications and effective
operation of the quality system as described in Attachment - D.
D. The Buyer, per the Terms and Conditions of this Agreement has the
right to examine the records of the Seller which pertain to Buyers
transactions with Seller.
XXIV LIMITATION OF LIABILITY
Except as otherwise provided in this Agreement, neither party shall be
liable for special, indirect, incidental, or consequential damages. The
foregoing limitation shall not limit Seller's liability for any costs,
expenses, and damages arising out of or in connection with claims
brought by third-parties; Sellers unauthorized disclosure of Buyer's
confidential information; or any indemnification (including Section X,
Intellectual Property Indemnity) granted by Seller in connection with
this Agreement.
XXV GOOD (MATERIAL) RETURN/ SELLBACK
A. During the Purchase Period of this Agreement, and any extension,
Buyer may return unused Spares, and/or Repairs, and/or
Expendables, and/or Exchanges purchased hereunder to Seller for
credit or refund of purchase price, to be determined at time of
incident. Buyer shall have the option of requesting credit or
refund, no matter what method of payment is chosen, the basis of
calculating such credit or refund shall be the original purchase
cost incurred by Buyer, less a 15% restocking fee.
B. Seller shall accept return of Spares, and/or Repairs, and/or
Expendables, and/or Exchanges using its standard "return material
authorization" process.
C. If the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges Buyer desires to return to Seller are in any way
determined to be in a "not new" but used condition, the value of
such Spares, and/or Repairs, and/or Expendables, and/or Exchanges
shall be determined by mutual agreement with Buyer.
D. Buyer shall pay all shipping costs, including insurance and other
related costs, to return such Spares, and/or Repairs, and/or
Expendables, and/or Exchanges to Seller's designated receiving
facility.
E. Spares, and/or Repairs, and/or Expendables, and/or Exchanges
returned under this Section shall be credited at fifteen percent
(15%) of original purchase price, provided, such Spares, and/or
Repairs, and/or Expendables, and/or Exchanges:
1) were purchased from Seller under this Agreement; and
17
<PAGE>
2) are unused, and in their original containers or packaging; and
3) are in Seller's then current product line; and
4) are subject to Seller's quality inspection.
XXVI QUARTERLY REPORTS
Seller agrees on a quarterly basis to provide Buyer with a written
report of purchases that shall contain the following data:
1) Part Number and revision level.
2) Quantity purchased.
3) Purchase Order number.
4) The Buyer's facility (from which purchase order was released).
5) Current Stocking levels.
6) P1 Activity (Part Number, P.O. number, Facility) and shipment
performance.
7) Total units shipped to date by purchase location/by product.
8) NPF (No Problem Found) data
9) NFF (No Failure Found) data
XXVII PERIODIC AUDIT/EXAMINATION OF RECORDS
A. The Buyer or its representative shall, until the termination of
this Agreement or any extension thereof, have access to and the
right to examine any of the Seller's directly pertinent books,
documents, papers, or other records involving transactions related
to this Agreement. In addition, the Buyer or its representative,
during the time period referenced above, shall have the right to
interim financial statements and can conduct an audit of the
aforementioned financial statements.
B. The Seller shall maintain and the Buyer or its representative
shall have the right to examine and audit -- books, records,
documents, and other evidence and accounting procedures and
practices, regardless of form (e.g. data bases, applications
software, data base management software, utilities, etc.)
sufficient to reflect properly all costs, claimed to have been
incurred or anticipated to be incurred in performing this
contract.
C. This right of examination shall include inspection at all
reasonable times of the Sellers plants, facilities, or parts of
them, engaged in performing the contract.
XXVIII GENERAL
A. This Agreement is the complete and entire understanding between
the parties on this subject matter and supersedes all prior
agreements, discussions, proposals, representations, statements,
or understandings whether written or oral on this subject between
them. The provisions of this Agreement may be amended or waived
only by a writing executed by the authorized representatives of
the parties hereto.
18
<PAGE>
B. In the event that either party to this Agreement shall, on any
occasion, fail to perform any provision of this Agreement, and the
other party does not enforce that provision, the failure to
enforce shall not prevent enforcement of the provision on any
other occasion.
C. As used in this Agreement, except where otherwise noted, the term
"days" shall mean business days.
D. Seller, including its servants, agents, and employees, is an
independent contractor and not an agent or employee of Buyer.
Without limiting the generality of the foregoing, Seller is not
authorized to represent or make any commitments on behalf of
Buyer, and Buyer expressly disclaims any liability therefore.
E. Supplemental terms are included in Attachments) - A through J, and
are incorporated herein by reference.
F. All rights and remedies conferred by this Agreement, by any other
instrument, or by law are cumulative and may be exercised
singularly or concurrently. If any provision of this Agreement is
held invalid by any law or regulation of any government or by any
court, such invalidity shall not effect the enforceability of any
other provisions hereof. This Agreement and any Purchase Orders
issued hereunder shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the authorized representatives of the parties have
executed this Agreement under seal as of the date(s) set forth below.
Amcom Corporation Digital Equipment Corporation
(Seller) (Buyer)
/s/ Del M. Johnson /s/ Duane J. Steil
- ----------------------------- ------------------------------
(Signature) (Signature)
_____________________________ DUANE J. STEIL/MCS CONTACTS MGR.
(Name/Title)
_______3/27/96_______________ _________3/12/96 _________________
(Date) (Date)
19
<PAGE>
ATTACHMENT - A
PRODUCTS AND LEAD-TIME
1. Products
The Material, Spares, and/or Repairs, and/or Expendables, and/or Exchanges
available from Seller for purchases by Buyer under this Agreement shall include
all products currently offered by Seller as well as any Material, Spares, and/or
Repairs, and/or Expendables, and/or Exchanges added by mutual consent in the
future.
2. Lead Time
Delivery for Material, Spares, and/or Repairs, and/or Expendables, and/or
Exchanges shall be as discussed and mutually agreed to by consenting business
segments of both parties, including provisions for material delivery as
incorporated in this Agreement.
20
Division Repair/Refurbishment Agreement
Support Materials Organization
Contract Number C2-603
Revision A
This Divisional Repair/Refurbishment Agreement is entered into by and between
Support Materials Organization referenced as "SMO" a division of the
Hewlett-Packard Company referenced as "HP", located at 8000 Foothills Boulevard,
Roseville, CA 95747, and Delta Parts, Inc., referenced as "DPI", located at 3625
Cincinnati Avenue, Rocklin, CA 95677. This agreement is as follows:
The purpose of this agreement is to provide for an arrangement between HP and
DPI pursuant to which DPI will provide to HP repair, refurbishment, and
disassembly services and develop written processes therefor with respect to HP's
personal computer, netserver, and network products.
1. Precedence
1.1 The provisions of this agreement and the attached exhibits take
precedence over HP's or DPI's additional or different terms and
conditions, to which notice of objection is hereby given. No change or
modification of any of the terms or conditions herein shall be valid or
binding on either party unless in writing and signed by an authorized
representative of each party.
1.2 In the event of any conflict between the provisions of this
agreement and any release or exhibit, the order of precedence is as
follows:
a) This agreement;
b) The exhibits to this agreement;
c) Any instructions on the front of HP's written or electronic
release;
1.3 All instruments such as purchase orders, releases, order
acceptances, confirmations, invoices and the like used in connection
with this agreement shall be for the sole purpose of describing,
defining or identifying products, services, quantities, prices, amounts
due, delivery dates and destinations. and to this extent only are
incorporated into this Agreement All of the printed or other terms on
the front and reverse side of any such instrument shall be void and of
no force or effect.
1.4 All references in this agreement to "HP" shall mean only the
Support Materials Organization (SMO).
2. Notices
2.1 Any notices sent by DPI pursuant to this agreement are to be sent
to Hewlett-Packard, Support Materials Organization. 8000 Foothills
Blvd., Roseville, CA 95747, and to the attention to the Account
Manager.
2.2 Releases, order information and other routine notices shall be sent
to DPI at 3625 Cincinnati Avenue, Rocklin, CA 95677. All other notices
shall be sent to both DPI's Rocklin, California address as well as to
its headquarters at 11401 Rupp Drive, Burnsville, MN 55337.
<PAGE>
3. Governing Law
3.1 Both parties shall comply with all applicable federal, state, local
and foreign laws, rules, regulations, or orders issued by any public
authority having jurisdiction over their respective obligations under
this agreement, and furnish to HP any information required to enable HP
to comply with such laws, rules and regulations in its use of services
including without limitation:
(a) The Williams-Steiger Occupational Safety Health Act of 1970, as
amended, and any rules, regulations, or order issued thereunder;
(b) All applicable nondiscrimination requirements, including without
limitation the provisions of Presidential Executive Order 11246
and the rules and regulations issued thereunder;
(c) The Fair Labor Standards Act. as amended, including all applicable
requirements of sections 6, 7 and 12 of the act and the
regulations and orders of the U.S. Department of Labor issued
under section 14; and
(d) Vocational Rehabilitation Act and the Vietnam Era Veterans'
Readjustment Act.
3.2 The agreement and all rights and obligations hereunder. including
matters of construction, validity, and performance, shall be governed
by the laws of California without giving effect to the conflict of laws
provisions thereof. As a pre-condition to bringing any action, each
party shall try to settle the dispute in good faith. If that does not
resolve the dispute, each party shall appoint a senior official to
attempt in good faith to settle the dispute.
4. Product and Process Scope
This agreement covers the repair, test, refurbishment, disassembly, and
packaging processes for HP Materials to the specifications supplied to
DPI by HP. The processes may take place on and within HP property or in
a DPI leased or owned facility that has been approved by HP. Changes in
the pricing or processes associated with DPI's process location shall
be reviewed and agreed to by both parties in writing prior to their
implementation. While in an HP owned or leased facility and/or using HP
owned or leased equipment systems, and processes, DPI shall notify HP
in writing within sixty (60) days of its intent to provide services to
other entities, and any such notice will be reviewed and agreed to in
writing by both parties.
4.1 Supervision
All persons engaged in the work described in this agreement shall be
subject to the direction, supervision, and control of DPI. DPI shall
ensure that all persons involved in the work are appropriately skilled
for that portion of the work assigned to them.
4.2 Relationship of the Parties
The relationship of the parties to this agreement is that of owner and
independent contractor, and not that of master and servant, principle
and agent, employer and employee, partners, or joint venturers.
4.3 DPI's Employee Obligations and Assignment of Rights
All employees of DPI are obliged and required to follow all
written/verbal HP plant, safety and security rules in place while on
the premises of HP. DPI shall neither assign any rights nor delegate
any duties
2
<PAGE>
under this agreement without the prior written consent of HP. DPI shall
not subcontract any of the work without the prior written consent of
HP; if HP consents to the use of a subcontractor, such subcontractor
shall be bound to the terms and conditions of this Agreement as an
agent of DPI.
4.4 General Responsibilities
DPI shall:
(a) Be solely responsible for the means, methods, techniques,
sequences, and/or results of the work and all acts and
omissions of DPI's employees and agents;
(b) Obtain all permits required to perform the work;
(c) Abide by all written/verbal safety. environmental
guideline, and security procedures of HP;
(d) Coordinate all work without unreasonable interference with
HP's employees or operations in areas around the work site:
and
(e) Proceed in good faith to comply with Presidential Order
11246 and all rules and regulations issued thereunder.
4.5 Releases
(a) HP will initiate a request for refurbishment or
disassembly services by issuing a purchase order to DPI
specifying quantity of product and due date for project. Each
purchase order will be accompanied by project specific
instructions and expected material condition (good, supposed
to be good, defective, or ready for resale).
(b) Repair services will be triggered by demand shown on the
Real-time Production Scheduling (RPS) on-line report or
subsequent replacement reports. DPI will process repairs based
upon the demand and availability of defective material.
5. Term
5.1 This shall be a forty eight (48) month agreement for the period of
February 20, 1996 to February 28, 2000, inclusive. Either party may, at
any time, except as stated in section 22, on or after the first
anniversary of the commencement date, terminate this agreement in
writing upon one hundred twenty (120) days prior written notice. If no
such notice is given, this agreement will expire on February 28, 2000.
In such event, HP shall be liable only for payment in accordance with
the provisions of this agreement for work performed prior to the
effective date of termination, and DPI shall deliver to HP all work
completed or in progress up to the date of termination. In the event
DPI terminates this agreement, HP may require that DPI complete work in
progress; such complete work shall be subject to approval by HP before
payment is made.
5.2 Upon the expiration of the original 48-month term of this Agreement
or of any extension hereof, or upon an earlier termination of this
Agreement by HP as provided above, the parties recognize that DPI will
incur costs for canceling or fulfilling agreements, commitments, or
contracts and will have continuing obligations that it cannot satisfy
out of revenues theretofore provided by HP under this Agreement. It is
the
3
<PAGE>
intention of the parties that HP shall pay or reimburse to DPI such
costs and shall assume or satisfy such obligations. Such costs and
obligations are hereinafter referred to each as an "Obligation" and
collectively as "Obligations."
5.3 Without limiting the generality of Section 5.2, upon such
expiration or early termination, HP shall assume DPI's then remaining
Obligations under any lease or leases on any facility or facilities
being used (in whole or in part) by DPI to provide services to HP (to
the extent DPI vacates the same), and shall pay, or reimburse to DPI,
as the case may be, the out-of-pocket costs actually incurred or
payable by DPI for canceling or fulfilling any other Obligations to the
extent they extend beyond the date of such expiration or early
termination.
5.4 In the event of a termination by notice as provided above, or in
the event that HP gives DPI advance notice that it will not renew or
extend this Agreement upon its expiration, DPI will use commercially
reasonable efforts to cancel any Obligations with respect to any period
after such termination or expiration in a manner designed to minimize
the cost of such Obligations to be paid or assumed by HP.
5.5 No Obligation incurred by DPI, except for Obligations incurred in
the normal and ordinary course of its day-to-day business shall be
paid, reimbursed or assumed by HP unless such Obligation was approved
by HP in advance. However, DPI shall obtain HP's prior consent and
approval before entering into any real estate lease, any obligation to
pay for real estate leasehold improvements, any single equipment lease
with annual lease payments in excess of $6,000. or any single purchase
commitment for delivery of goods or services over greater than a twelve
(12) month period.
6. Pricing
The price for repair, testing, refurbishment, disassembly, and
packaging shall be in U. S. dollars, unless otherwise stated, and shall
remain in effect during the Term as defined in section 5. Prices and
volumes will be reviewed two times per year. Price changes must be
agreed to by both HP and DPI.
6.1 Payment
Payment by HP for services shall be net fifteen (15) days, after
receipt by HP of an appropriate invoice from DPI.
6.2 Costing Data
DPI agrees to help HP understand DPI's costs. DPI further agrees to
disclose the cost components of its repair, testing, refurbishment.
disassembly, and packaging processes with the intent of reducing
overall costs. HP agrees to provide assistance and information
necessary to enable DPI to reduce its costs with the understanding that
such cost savings shall be shared with HP. DPI and HP may enter into a
DPI employee incentive program (gain sharing) at some future date.
6.3 Profit Margin
Refer to Exhibit IV, Compensation.
7. Compensation
4
<PAGE>
7.1 Rates
Refer to Exhibit IV, Compensation.
7.2 List of Personnel
Prior to the start of work and subsequently as personnel are added, DPI
shall maintain a list of all current employees who perform or who are
expected to perform any portion of the work. This list shall state the
names and classifications of each employee and will be provided to HP
monthly. Upon termination of any employee DPI will inform HP and take
all necessary actions to remove that person's ability to access DPI or
HP property or information.
7.3 Limit on Compensation and Expenses
HP's compensation to DPI will not exceed the total expenditure by DPI
for all previously approved expenses, including all labor for
value-added services with a 12% (twelve percent) profit and operating
expenses at cost over a six month period. For value-added services,
compensation will be based upon a maximum hourly rate determined
quarterly. Any expenditures for capital or operating equipment and
labor services for non-value added processes that exceed $2000 will be
reviewed by HP prior to DPI committing funds for said equipment or
labor services.
8. Invoice Processing
HP's invoicing guidelines shall be followed as stated in Exhibit III.
9. Delivery and Performance
DPI commits to repairing, testing, refurbishment, disassembly. and
packaging assemblies within the time frame defined in Exhibit 1. If DPI
consistently fails to meet these requirements, HP shall so inform DPI
in writing, and if DPI is unable to remedy the problem within sixty
(60) days, HP may in addition to any other rights it may have,
terminate this agreement without further liability, except as noted in
sections 5.2 and 5 3.
10. Supplier Status Reports
10.1 Upon reasonable request from HP, DPI shall furnish information
concerning its financial status (i.e.; balance sheet, income statement,
and statement of cash flows) to HP. A copy of all public filings (SEC
10K's and annual reports) will be provided to HP when they are provided
to the public.
10.2 On a weekly basis, written reports of the cumulative quantities of
materials processed or in process will be provided to the HP Account
Manager. Such reports shall be submitted on a form agreed upon by HP
and DPI, and shall be returned to HP in accordance with the mutually
agreed upon reporting schedule.
11. DPI Access to HP Proprietary Databases and Documentation
DPI will have access to HP confidential and proprietary databases and
documentation which is necessary for the successful completion of work
under this agreement. DPI will not disclose any information derived
from such databases and documentation to any source external to HP,
including other Hewlett-Packard
5
<PAGE>
Company entities or to anyone other than those employees of DPI who are
directly involved in the processes being performed under this
agreement.
12. Inspection
HP shall have the right to physically inspect at will, during normal
business hours, the repair, testing, refurbishment, disassembly, and
packaging processes being performed by DPI. HP shall also have the
right to perform audits and processes to ensure that inventory.
quality, process, and business controls are maintained and as to DPI's
compliance to pre-established Electro Static Discharge (ESD) handling
procedures. HP's inspection may be for any purpose reasonably related
to this agreement, including without limitation to ensure DPI's
compliance with HP's quality requirements, referenced in Exhibit II. If
requested to do so, DPI will use commercially reasonable efforts to
extend HP inspection rights to any vendor or supplier of DPI.
13. HP Property
13.1 DPI shall ensure that its employees do not remove any HP Property
from the work premises without HP's written permission. Upon the
request of HP, DPI shall return any HP Property to HP. Upon the
departure of a DPI employee, DPI shall ensure that such employee has
returned all HP Property to DPI. In the event DPI is unable to secure
the return of HP's Property from a departing DPI employee, DPI shall be
responsible for making diligent efforts to effect the return of the
item and for reimbursing HP for the value of the HP Property should it
not be returned or replaced within a reasonable time period not to
exceed sixty (60) days after the employee's termination date.
13.2 Any work product directly created for and funded by HP in the
course of performing services under this agreement (including, for
example, reports) shall be the property of HP and HP shall have the
sole right to use, sell, license, publish or otherwise disseminate or
transfer rights of such work product. As long as this contract is in
effect DPI will have the right to use the work product in its
performance of this contract.
13.3 DPI will be diligent in its efforts to protect HP Property (such
as products for repair, disassembly or refurbishment, component
inventory, tools and test equipment) in the care, custody, and control
of DPI from theft by DPI's agents, employees and subcontractors for
from any event due to DPI's negligence. If loss beyond $500 per
incident occurs, DPI will be liable for reimbursing HP for such loss.
The funds for reimbursement to HP will be fully funded by DPI. HP
agrees to limit DPI's liability to HP for loss of real and personal
property and consequential damages to a maximum of $1,000,000 per
occurrence.
13.4 DPI shall provide all security posting instructions to HP and
updates of any changes. DPI will also insure that HP is notified of all
security breaches though the incident report process.
6
<PAGE>
14. Tooling / Equipment
14.1 All designs, materials and equipment finished to DPI by HP or paid
for by HP in connection with this agreement (collectively "HP
Property") shall:
a) Be clearly marked or tagged as property of HP;
b) Be subject to inspection by HP at any time during normal
business hours;
c) Be used only in filling releases from HP;
d) Be kept reasonably separate from other materials, tools, or
property of DPI or held by DPI;
e) Not he modified in any manner by DPI without prior agreement
by HP;
f) Have periodic maintenance performed by DPI; and
g) Be kept free of liens and encumbrances which may arise due to
actions of DPI.
14.2 In the event HP is willing to release any equipment or tools for
DPI's use during this agreement, the parties shall execute a separate
Equipment Loan Agreement.
14.3 DPI agrees that persons operating HP Property will be fully
trained in the proper use thereof. DPI hereby releases HP of all
liability arising out of the misuse, or damage caused by DPI or DPI's
agents to HP equipment or tools.
15. Insurance
During the term and at all times that DPI performs services for HP, DPI
shall maintain in full force and effect, at DPI's expense, the
following minimum insurance coverages.
15.1 Workers' Compensation and Employer's Liability Insurance.
Workers' Compensation insurance shall be provided as required by law or
regulation.
Employer's Liability insurance shall be provided in amounts not less
than $500,000 per accident for bodily injury by accident, $500,000
policy limit by disease, and $500,000 per employee for bodily injury by
disease.
15.2 General Liability Insurance
DPI shall carry either comprehensive general liability insurance or
commercial general Liability insurance with limits of liability and
coverage as indicated below:
(a) Premises, operations, and equipment;
(b) Products and completed operations;
(c) Contractual liability;
(d) Bodily injury Liability;
(e) Personal injury liability.
Comprehensive general liability policy limits shall be not less than
combined single limits of $1,000,000 per occurrence and general
aggregate of $2,000,000.
7
<PAGE>
Commercial general liability (occurrence) policy limits shall not be
less than $1,000,000 per occurrence (combined single limit for bodily
injury and property damage), $1,000,000 for personal injury liability,
$1,000,000 aggregate for products and completed operations, and
$2,000,000 general aggregate.
Except with respect to products and completed operations coverage, the
aggregate limits shall apply separately to DPI's services under this
agreement.
Such policies shall name HP, its officers, directors and employees as
Additional Insureds and shall stipulate that the insurance offered
Additional Insureds shall apply as primary insurance and that no other
insurance carried by any of them shall be called upon to contribute to
a loss covered thereunder. Such policies shall not be construed to
imply that DPI offers insurance to or on behalf of HP employees. During
the Term and at all times that DPI performs services for HP, DPI shall
maintain in full force and effect, at DPI's own expense, insurance
coverage to include
If "claims made" policies are provided, DPI shall maintain such
policies without endangering aggregate limits at the above stated
minimums, for at least five years after the expiration of the term.
15.3 Automobile Liability Insurance
DPI shall carry bodily injury, property damage, and automobile
contractual liability coverage for owned, hired. and non-owned autos
with a combined single limit of liability for each accident of not less
than $1,000,000.
15.4 Fidelity / Crime Bond
DPI will be covered by Fidelity Insurance or Commercial Crime Bond as
respects DPI's agents, employees, and subcontractors performing under
this Agreement with blanket limits of at least $1,000,000 per
occurrence.
15.5 Certificate of Insurance
Certificates of Insurance evidencing the required coverage and limits
shall be furnished to HP before any services are commenced hereunder
and shall provide that there will be no cancellation or reduction of
coverage without thirty (30) days prior written notice to HP. All
insurance policies shall be written by a company authorized to do
business in the state where the services are rendered. DPI shall
furnish copies of any endorsements subsequently issued which amend
coverage or limits.
16. Indemnification
16.1 HP, as one party, and DPI, as another party (as the case may
be, the "Indemnifying Party"), shall defend, indemnify and hold
harmless the other party (as the case may be, the "Benefited Party")
from and against any and all claims, losses, demands, attorney fees,
damages, liabilities, costs, expenses, obligations, causes of action or
suits;
8
<PAGE>
(a) For damage or injury (including death) to any person
(including employees) or damage to or loss of any property
arising out of or resulting from any negligent act or omission
by the Indemnifying Party or its employees or agents
(provided, however, where both parties are negligent,
liability shall be apportioned between the parties based upon
the relative negligence of each);
(b) Arising out of labor, materials, services or supplies
furnished by the Indemnifying Party, or its subcontractor(s)
(it being understood that DPI shall be responsible to HP,
relating to any such defective DPI work performed as a
subcontractor for HP) and from all laborer's, materialmen's or
mechanics liens arising from work performed by or for the
Indemnifying Party;
(c) Arising out of or resulting from breach by the
Indemnifying Party of its obligations under this agreement:
and
(d) Arising out of or relating to a failure by the
Indemnifying party to comply with any applicable federal,
state or local law, regulation, order, judgment or decree.
(e) From any claims by a third party of infringement of
intellectual properties resulting from the acts of
indemnifying party pursuant to this agreement, provided that
the other party
(1) gives the indemnifying party prompt notice of any such
claims,
(2) renders reasonable assistance to the indemnifying
party thereon, and
(3) permits the indemnifying party to direct the defense
or settlement of such claims This indemnification
shall not include any consequential damages sustained
by the other party as result of any such third party
claims.
16.2 The Indemnifying Party shall promptly notify the Benefited Party
in writing of any matter as to which the above indemnification
obligation relates.
16.3 The Benefited Party shall promptly, and in all events within sixty
(60) days of obtaining actual knowledge thereof, notify the
Indemnifying Party of the existence of any claim, demand, or other
matter requiring a defense to which the Indemnifying Party's
obligations under this section 16 would apply. The Benefited Party
shall give the Indemnifying Party a reasonable opportunity to defend
the claim, demand or matter at the Indemnifying Party's own expense and
with counsel selected by the Indemnifying Party and satisfactory to the
Benefited Party; provided that the Benefited Party shall at all times
also have the right to fully participate in the defense at its own
expense. Any such claim, demand or other matter shall not be settled or
compromised without the consent of the Benefited Party; provided,
however, if the Benefited Party does not consent to such settlement or
compromise, such claim, demand or other matter shall not be settled or
compromised, but the Indemnifying Party's obligation to indemnify with
respect hereto shall be limited to the amount for which such claim,
demand, or other matter could have been settled or compromised,
together with the cost of defense through the date such matter could
have been settled or compromised. If the Indemnifying Party shall,
within a reasonable time after the receipt of the notice, fail to
defend, the Benefited Party shall have the right, but not the
obligation, to undertake the defense, and to compromise or settle,
exercising reasonable business judgment, the claim, demand or other
matter on behalf, for the account and at the risk of the Indemnifying
Party. If the claim is one that cannot by its nature
9
<PAGE>
he defended solely by the Indemnifying Party (including, without
limitation, any federal or state proceeding) the Benefited Party shall
make available, or cause to be made available, all information and
assistance that the Indemnifying Party may reasonably request.
17. Packaging
Product packaging for Finished Goods Inventory (FGI) material shall be
in accordance with the SMO packaging guidelines part number 5181-1981.
For Hardware Recycling Organization (HRO) material packaging will be
specified by project.
18. Cancellation
HP may postpone, decrease, or cancel any release by verbal notice to
DPI if business needs dictate. If DPI incurs expenses due to a
cancellation or to any changes that are not covered by a current
purchase order, DPI and HP will mutually agree to the compensation DPI
will receive.
19. Proprietary Rights
19.1 DPI shall use commercially reasonable efforts to ensure that its
employees respect and protect HP's proprietary rights in connection
with the services performed.
(a) DPI shall use commercially reasonable efforts to ensure that
its employees agree not to make any unauthorized use or
disclosure, during or subsequent to their employment by DPI, of
any knowledge or information of any unpublished confidential or
proprietary nature respecting HP's inventions, designs, process or
methods, systems, improvements, trade secrets or other private or
confidential matter of HP to which DPI's employees are exposed, or
observe or which is generated or otherwise acquired by them during
their employment by DPI.
(b) Any HP confidential information received by DPI s employees
shall be held in trust and confidence by them and DPI, and shall
not be disclosed without the prior written consent of HP.
(c) DPI warrants and represents that it has, through agreements
with its employees or otherwise, the right and power to effect the
foregoing obligations.
(d) DPI shall not make or use any copies, synopses, or summaries
of oral or written material, photographs or any other
documentation or information made available or supplied by HP to
DPI. unless authorized in writing by HP, except as necessary to
perform work under this agreement.
19.2 HP retains all rights and remedies afforded it under the patent
and other laws of the United States and the states thereof which are
designed to protect property or confidential information.
19.3 DPI will protect HP's processes and knowledge transferred from
being used in a competitive nature in repairing, disassembling, or
refurbishing HP products for other customers. Services under this
clause include repair, refurbishment, or disassembly processes of HP
products for customers other than HP that have been learned through the
services DPI is providing to HP in California and subsequent locations.
This
10
<PAGE>
clause does not include services that DPI has developed solely in their
operations in Minneapolis, Minnesota to service HP products.
20. Confidential Information
20.1 The provisions of Sections 11, 13, 19 and 20 of this agreement
serve as the Confidential Disclosure Agreement between DPI and HP.
20.2 DPI shall not disclose to any person or entity, except as
necessary to perform work under this agreement, any confidential
information of HP, whether written or oral, which DPI may obtain from
HP or otherwise, discover. As used in this article, the term
"confidential information" shall include, without limitation:
o All information or data concerning or related to HP products
(including the discovery, invention, research, improvement,
development, manufacture, or sale of HP products) or business
operations (including sales costs, profits, pricing methods,
organizations, employee or customer lists, and processes);
o All forecasts for production, support, or service requirements
submitted by HP pursuant to this agreement, whether oral, written,
or communicated in computer-readable format; and
o All other HP property of a confidential nature.
20.3 DPI shall maintain all confidential information in strict
confidence. DPI shall take all reasonable steps to ensure that no
unauthorized person or entity has access to confidential information,
and that all authorized persons having access to confidential
information refrain from any unauthorized disclosure. DPI shall
maintain a signed copy of DPI's "Invention and Non-Disclosure Letter
Agreement", attached as Exhibit V, for each person employed for work
pertaining to this agreement.
20.4 The provisions of sections 11, 13, 19 and 20 shall not apply to
any information that:
o Is rightfully known to DPI prior to disclosure by HP;
o Is rightfully obtained by DPI from any third-party without any
obligation of confidentiality;
o Is made available by HP to the public without restrictions;
o Is disclosed by DPI with the prior written approval of HP;
o Is independently developed by DPI; or o Is required to be
disclosed by court order or any judicial or administrative
procedure.
20.5 HP shall provide any proprietary or non-proprietary documentation
to DPI regarding the products deemed necessary by HP to service and
support the products, including but not limited to schematics, material
lists and engineering change orders.
21. Contingencies
11
<PAGE>
21.1 DPI shall not be liable for any delay in performance under this
agreement caused by an act of God or any other cause beyond DPI's
control and without DPI's fault or negligence (collectively "delaying
cause"). DPI shall, in the event of a delaying cause, immediately give
notice to HP of that cause.
21.2 In the event of a delaying cause, HP may elect to suspend the
agreement in whole or in part for the duration of the delaying cause.
22. Default
22.1 If either party fails to perform or breaches any material
provision of this agreement, and if the damaged party provides written
notice to the offending party of such failure to perform or breach and
if the offending party fails to provide a written response within ten
(10) days from receipt of the damaged party's written notice, and fails
to cure the failure to perform or the breach within sixty (60) days,
from the receipt of such written notice, then the damaged party may,
except as otherwise prohibited by the United States Bankruptcy laws,
terminate the whole or any part of this agreement. Further, if
voluntary bankruptcy proceedings are instituted against DPI and not
discharged within sixty (60) days, HP may, except as otherwise
prohibited by United States Bankruptcy laws, terminate the whole or any
part of the agreement.
22.2 In the event that HP terminates this agreement in whole or in part
as provided in Section 22.1 above, HP may procure, upon such terms and
in such manner as HP deems appropriate, services similar to the
services as to which this agreement is terminated. DPI shall reimburse
HP upon demand for all additional costs incurred by HP in purchasing
such similar services.
22.3 The rights and remedies granted to the parties pursuant to this
agreement are in addition to. and shall not be deemed to limit or
affect, any other rights or remedies available at law or in equity.
23. Miscellaneous
Unless otherwise stated all references to "days" shall mean calendar
days.
24. Exhibits Attached
All exhibits attached to this agreement shall be deemed a part of this
agreement and incorporated herein. Terms which are defined in this
agreement, and used in any exhibit, have the same meaning in the
exhibit as in the agreement.
The following exhibits are hereby made a part of this agreement:
12
<PAGE>
Exhibit I Purchased Product Provisions
Exhibit II Special Quality Provisions
Exhibit III Invoicing / HP Part Return Billing Process
Exhibit IV Compensation
Exhibit V DPI Invention and Non-Disclosure Letter Agreement
This agreement, including all exhibits, is approved and agreed to by:
Hewlett-Packard Company - SMO Delta Parts, Inc.
----------------------------- ----------------
Name: Rick Oliveira Name: Mike Cibulka
Title: SMO Manufacturing Manager Title: President
Signature: /s/ Rick Oliveira Signature: /s/ Mike Cibulka
----------------------- ---------------------
Date Signed: _____________________ Dated Signed: __________________
13
<PAGE>
Exhibit I
Purchased Product Provisions
1. Quality
1.1 DPI warrants that all work and resulting material shipped to
HP shall:
a) Be in conformance with HP's Quality Workmanship Standards,
and HP's Packaging Standards;
b) Conform to the specified requirements for all releases;
c) Be processed by DPI or by companies authorized by DPI under
DPI s direction and HP's prior approval.
1.2 DPI shall designate an appropriate technical person as the
principle technical contact on repair, test, refurbishment,
disassembly, and packaging issues, should support be needed.
2. Shipment/Delivery
2.1 Upon request from HP, DPI shall use commercially reasonable efforts
to accommodate fluctuations in HP's production schedule which includes
expediting, pull-in and/or push outs. Any/all charges for this service
will be negotiated and mutually agreed upon.
2.2 If requested by HP, DPI will provide emergency delivery service
("Hotline Service") during normal business hours. DPI will make
diligent efforts to meet HP's customer requirements during the same day
and not-to-exceed twenty-four (24) hours of the original request. HP
will pay a negotiated and mutually agreed upon service charge provided
there are no past due orders.
2.3 All products processed for the Hardware Recycling Organization
(HRO) will follow the specific instructions for that project.
2.4 DPI shall, for any proposed variances in completing work schedules,
give HP no less than twenty-four (24) hours advance notice. This notice
will be accompanied by a mutually agreed upon recovery plan describing
corrective actions necessary, a proposed completion plan, and a
"recovery date". If DPI's completions are less than seventy (70%)
percent on time, a corrective action meeting will be arranged by HP, at
a mutual place and time, with the appropriate representatives of both
parties. During HP's consideration of any proposed variance, DPI shall
use commercially reasonable efforts to continue to ship products
released according to the then agreed upon lead time.
2.5 Material for repair will be processed in accordance with the
procedure / instructions for the Real-Time Production Scheduling
Report. IF DPI is unable to provide material volumes in accordance with
the plan they will notify the appropriate HP buyer within twelve (12)
hours.
14
<PAGE>
Exhibit II
Special Quality Provisions
1. Purpose
The purpose of these Special Quality Provisions is to establish an
understanding and agreement between HP and DPI regarding Shipping
Inspection, Ship To Stock (STS), and Reliability Programs.
2. Requirements
2.1 DPI shall initially inspect a percentage of their finished product
at the shipping inspection area until Ship to Stock (STS) yields are
achieved. STS yields are defined to be a minimum of ninety nine percent
(99%), allowing a maximum of one percent for both major or minor
defects. Major defects are specification violations that HP believes
will result in a customer complaint upon installation. A minor defect
is a specification violation of a lesser nature which may not result in
a customer complaint. HP shall tabulate and present all specification
violations to DPI as a major portion of the general Supplier profile.
Profile information will be utilized as a means to generate continuous
improvement.
2.2 HP shall return rejected units to DPI for analysis, corrective
action, and repair. HP expects that STS quality will be attained within
one hundred twenty (120) days of first production receipts.
2.3 Upon request, DPI shall supply HP with monthly analysis data and
corrective action reports. Failures categorized by HP as high priority
require such reports in forty-eight (48) hours.
2.4 A rejected unit is defined to be a unit that does not meet the
agreed upon specified requirement.
2.5 If units are rejected due to gross negligence by DPI then all
rework costs for those units will he at DPI's expense.
2.6 HP reserves the right to exercise "MIL STD 105D Sampling Plan" or
other mutually agreed quality verification program as a means of
verifying the ninety-nine (99%) percent shipping inspection yield at
DPI.
3. Supplier Responsibility
3.1 DPI shall strive to ship defect-free material as measured at
Shipping Inspection at DPI.
3.2 DPI shall analyze all units returned by HP, and document timely
corrective action instituted to prevent any further rejects. For all
corrective action, DPI shall provide HP with written analysis, results,
and implementation date.
3.3 DPI shall be Electro-Static Discharge (ESD) compliant as defined by
HP.
3.4 DPI shall document all failed units and lots. This documentation
will be provided to HP upon request.
15
<PAGE>
4. HP Responsibility
4.1 HP shall provide written specifications for DPI to utilize within
their processes that will be used for measuring their compliance with
this exhibit.
4.2 HP shall inform DPI of any customer complaints that are due
to DPI's processing of product under this agreement.
4.3 HP shall, as instructed by DPI, arrange to ship defective
units or lots to the appropriate DPI facility.
16
<PAGE>
Exhibit III
Invoicing / HP Part Return Billing Process
1. Invoicing
1.1 DPI is required to generate an invoice twice monthly. One invoice
shall cover the first through the fifteenth day of the month. The
second shall cover the sixteenth day of the month through the month's
end. Each invoice will reference the purchase order number for the
appropriate work and time frame. All invoices are to be sent to the HP
Account Manager for review and approval prior to mailing to the
following address:
Hewlett-Packard Company
Financial Service Center
PO Box 2810
Colorado Springs, CO 80901-2810
The HP Account manager will review all invoices within two (2) working
days of receipt. If DPI has not received a response from HP on the
approval of the invoices within the two (2) working days they may
process the invoices for payment. If discrepancies are discovered, DPI
and HP will provide diligent efforts to resolve the discrepancies in a
timely manner.
1.2 DPI shall send all invoices to HP within thirty (30) days of
completion of work. Any open invoices that DPI has not sent for payment
within ninety (90) days of completion of work require approval by the
HP Account Manager prior to submittal for payment.
2. Defective Material Processing
Upon notification of defective material in HP's FGI stock, that was
repaired by DPI, DPI will rework the material in accordance with the
original specifications. If the defective material is due to DPI's
gross negligence, DPI will incur the costs thereof and not bill HP.
Under all other circumstances HP and DPI will mutually agree as to the
compensation to DPI for the rework.
3. Supplier Account Status Report
Upon request from HP, DPI shall furnish HP with a statement detailing
the outstanding invoices issued to HP.
17
<PAGE>
Exhibit IV
Compensation
Area Process for Determining Payment
Repair -
April & May 1996 Actual Costs for all labor and expenses incurred. No
profit to be added.
- --------------------------------------------------------------------------------
June 1, 1996 - 12 % profit margin applied to value-added labor rates
May 31, 1997 Value-added labor is composed of direct labor.
engineering labor, and direct administrative labor.
Additional labor and expenses will be passed through
at cost. Billing will be based upon actual expenses
incurred.
- --------------------------------------------------------------------------------
June 1 1997 - 12 % profit margin applied to value-added labor rates
duration Value-added labor is composed of: direct labor,
engineering labor, and direct administrative labor.
Additional labor and expenses will be passed through
at cost.
On a quarterly basis HP and DPI will agree to a labor
rate which will cover all DPI expenses for the
California facility that is operated for HP. This
labor rate will be applied to the standard time
established for each product being repaired. Billing
will he based upon the number of pieces of each
assembly flowed into FGI at HP. On a monthly basis
all expenses incurred by DPI will be mutually
reviewed to ensure that the proper profit has been
earned by DPI. In the event of over or under recovery
by DPI, a mutual agreement will be reached as to
disposition of such funds.
- --------------------------------------------------------------------------------
Disassembly, Test Prior to the beginning of each project, a time
and Refurbishment estimate for processing a single unit will be
established. This time estimate will he
applied to an appropriate hourly rate that has been
mutually determined by HP and DPI on a quarterly
basis. Billing will be based upon the number of items
processed for the specific project. On a quarterly
basis all expenses incurred by DPI will be mutually
reviewed to ensure that the proper profit has been
earned by DPI. In the event of over or under recovery
by DPI, a mutual agreement will be reached as to
disposition of such funds.
- --------------------------------------------------------------------------------
Process Development DPI is to estimate labor costs for process
(Labor Services) development so HP can select certain options.
Labor will include a 12% profit margin.
Options:
1. Charge costs to a special account number for
process development and include with monthly invoices
as noted above (similar to training and meetings), or
2. Spread costs over a number of months, or
3. Recover costs in a lump sum payment following the
start up.
18
<PAGE>
- --------------------------------------------------------------------------------
Start Up or Process DPI to estimate start up costs for process
Development Costs development so HP can select certain options.
(Equipment, Tooking No profit margin on start up costs or equipment.
and Test Equipment) Options:
1. Spread costs over certain number of months and
keep within HP's fiscal year to avoid a carry over,
or
2. Recover costs in a lump sum payment following the
start up.
- --------------------------------------------------------------------------------
Repair Material, HP has certain options.
Packaging Material 1. No DPI risk if we follow agreed to order
And Orders policies: Subcontract actual costs, no profit
margin, direct bill to HP weekly and pass along any
material acquisition costs not covered in
DPI overhead (i.e., inspection time, handling
discrepant material, etc.)
2. Full DPI risk: Actual costs plus 12% profit
margin, billed separately as material is consumed.
19
<PAGE>
Exhibit V
Delta Parts, Inc.
INVENTION AND NON-DISCLOSURE LETTER AGREEMENT
Delta Parts, Inc.
3625 Cincinnati Avenue
Rocklin, California 95677
In consideration of my employment with Delta Parts, Inc. (the Company"), I
hereby agree as follows:
1. Definitions. As used in this letter agreement -
1.1 Confidential Information means all information (whether or not
patentable and whether or not copyrightable) owned, possessed, or
used by the Company including, but without limitation thereto, any
Invention (as defined below), formula, vendor information,
customer information, non-public financial information, apparatus,
equipment, trade secret, research report, technical data,
know-how, computer program, software, software documentation,
hardware design, technology, or business plan that is communicated
to, learned of, developed, or otherwise acquired by me in the
course of my employment with the Company and that is not generally
known to the public. Without limiting the generality of the
foregoing, Confidential Information shall expressly include, but
not be limited to -
1.1.1 All Hewlett Packard Company ("HP") information marked
"proprietary" and/or "confidential"; 1.1.2 All information
acquired through access to any HP computer system or database; and
1.1.3 All information received by the Company or me from HP's
Hardware Recycling Organization for processing of HP equipment.
1.2 Employment Period means the period during which I am employed by
the Company.
1.3 Invention means any invention, discovery, computer program,
software, data technology, design, innovation or improvement
(whether or not patentable and whether or not copyrightable) that
is related to the Business of the Company (as defined below) and
that is made, conceived, reduced to practice, created, written,
designed or developed by me alone or jointly with others, whether
during normal working hours or otherwise, either (a) during the
Employment Period, or (b) following the expiration of the
Employment Period if resulting or directly derived from the
Company's Confidential Information.
1.4 Business of the Company means any research. development,
application or other activity related to, or in the field of, the
repair of technology products, the sale and exchange of
replacement parts for such products, the disassembly of such
products, and the refurbishment of such products.
20
<PAGE>
2. Inventions, Patents, Copyrights etc.
2.1 I will promptly disclose to the Company all Inventions and will
maintain a laboratory and research notebook or equivalent record
in order to document the conception and/or first actual reduction,
to practice of any Invention.
2.2 Each Invention shall be the property of the Company.
2.3 I hereby assign to the Company all Inventions and any and all
related patents, copyrights, trademarks, trade names. and any
other industrial and intellectual property rights and applications
therefor, in the United States and elsewhere, and I hereby appoint
any officer of the Company as my duly authorized attorney to
execute, file, prosecute and protect the same before any
government agency, court or authority.
2.4 Upon request of the Company and at the Company s expense, I shall
execute such further assignments documents and other instruments
as may be necessary or desirable in order to fully and completely
assign all Inventions to the Company and to assist the Company in
applying for and obtaining and enforcing patents or copyrights or
other rights in the United States and in any foreign country with
respect to any Invention.
3. Confidential Information
3.1 I agree that I will not during the employment period or at any
time thereafter, disclose, communicate or divulge to another, or
use for my own benefit or for the benefit of another, any
confidential Information or Invention.
3.2 My obligations under this Paragraph 3 will not apply to any
information that (a) is or becomes known to the general public
under circumstances involving no breach by me or others of the
terms of this Paragraph 3; (b) is generally disclosed to third
parties by the Company without restriction on such third parties;
or (c) that is approved for release by written authorization of
the Board of Directors of the Company.
3.3 Upon termination of my employment with the Company or at any other
time upon request by the Company, I will promptly deliver to the
Company all records, files, memoranda, notes, designs, data,
reports, price lists, customer lists, drawings, plans, computer
programs, software, software documentation, sketches, laboratory
and research notebooks and other documents (and all copies or
reproductions of such materials) relating to the business of the
Company in my possession or control. However, I shall not be
required to deliver to the Company my personal copies of reference
or educational materials that are not Confidential Information and
materials distributed generally to Customers or other persons
outside the Company that are not Confidential Information.
3.4 I represent that my employment with the Company and my performance
under this letter agreement do not and will not breach any
agreement which obligates me to keep in confidence any trade
secrets of confidential or proprietary information of mine or of
any other party, or obligates me to refrain from competing,
directly or indirectly, with the business of any other person or
organization I further represent that I shall not disclose to the
Company any trade secrets or confidential or proprietary
information of mine or of any other person or organization.
21
<PAGE>
3.5. I agree to submit to the Company any proposed publication that
contains any discussion relating to the Company or any work
performed by me during the course of my employment with the
Company related to the Business of the Company, and I will not
proceed with such publication without the prior written consent of
the Company.
3.6 During the Employment Period, I will not emerge in any activity
that is in conflict with the interests of the Company, including
any employment, business or other activity that is competitive
with the Business of the Company, and I will not assist any other
person or organization which competes or intends to compete with
the Company.
4. Covenant Not to Solicit. For a period of one (1) year after my
employment with the Company terminates, in order to permit the Company
to protect Confidential Information, I shall not directly or indirectly
recruit or otherwise solicit or induce any employees of the Company or
of any of its subsidiaries to terminate their employment with, or
otherwise cease their relationships with, the Company or any of its
subsidiaries.
5. General Provisions
5.1 This letter agreement shall be binding upon and inure to my
benefit and the benefit of the Company and our respective heirs,
executors, administrators, legal representatives, successors and
assigns.
5.2 In case any provision of this letter agreement shall, for any
reason, be held invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other
provision, and this letter agreement shall be construed as if such
invalid or unenforceable provision had not been included herein.
5.3 Any waiver or accommodation by the Company at any time shall not
act as or be deemed to be a continuing waiver or accommodation and
shall not require the Company to provide any future or later
waiver or accommodation.
5.4 I acknowledge and agree that a breach by me of the provisions of
this letter agreement will cause the Company irreparable injury
and damage. I therefore expressly agree that the Company shall be
entitled to injunctive and/or other equitable relief in any court
of competent jurisdiction to prevent or otherwise restrain a
breach of this letter agreement.
5.5 This letter agreement may be amended only by a written document
executed by me and the Company.
Very truly yours,
/s/ Rick Oliveira
-------------------------------- Date_______________________________
Accepted and Agreed as of the date set forth above:
Delta Parts, Inc.
By: /s/ Mike Cibulka
----------------------------
22
This Agreement, made this 25th day of June, 1996, between (Seller)
Digital Equipment Corporation, with its principal place of business at
165 Dascomb Road, Andover, MA., 01810-5897, and (Buyer) Delta Parts
Inc. with its' principle place of business at 11401 Rupp Drive
Burnsville, MN 55337, exclusively governs the purchase and sale of
computer equipment (Material). The following terms and conditions
exclusively govern the sale of all Material covered by this Agreement.
Section I - Offer and Acceptance
1. This Agreement constitutes an offer by Seller for the sale of
Material, expressly limited to the terms herein. Digital reserves the
right to revoke this offer at any time prior to its acceptance. This
offer shall expire five (5) days after its issue date unless accepted
by Buyer or extended in writing by Seller. Acceptance shall be
accomplished by return of an executed copy of this Agreement.
Acceptance by Buyer is limited to the provisions of this Agreement. No
additional or different provisions proposed by Buyer shall apply.
2. Delivery of Material shall be FOB Destination. Seller shall select
the carrier and shall pay all transportation charge. Shipment of said
material shall occur within ten (10) days of execution of this
agreement.
Section II - Pricing/Payment
1. The inventory purchase price shall be $600,000.00 as per attached.
Said payment schedule shall be as follows:
a. The initial payment of TWO HUNDRED THOUSAND DOLLARS
($200,000.00) must be paid upon execution of this Agreement
b. The second installment payment of TWO HUNDRED THOUSAND
DOLLARS ($200,000.00) will be paid via Digital Debit Memo upon
execution of this Agreement.
c. The final installment payment of the remaining balance,
estimated to be TWO HUNDRED THOUSAND DOLLARS ($200,000.00),
must be paid no later than ninety (90) days from execution of
the Agreement. Final Payment must be received by Digital no
later than September 24, 1996.
2. Buyer agrees to pay the Seller the referenced amounts commencing the
day the Sales Agreement is signed by both Buyer and Seller. Seller and
Buyer agree that inventory balances may change and said payment by
Buyer to Seller will reflect said adjustments. Buyer must reference
"Account #" (FSL) on the Check and remit to:
Digital Equipment Corporation,
165 Dascomb Rd.
Andover, MA 01810
Mail Stop 1-2/N1
Attention: John Bloomer
<PAGE>
3. Buyer acknowledges and agrees that payment shall be non-refundable,
if Buyer fails to fulfill any of its obligations set forth in this
Agreement. Further Buyer acknowledges that Material will be available
to the next highest bidder should Buyer fail to fulfill its obligations
set forth in this Agreement.
4. Buyer shall be responsible for the payment of any and all taxes
imposed upon the sale, use, or transfer of the Material purchased.
5. Buyer will pay full standard cost for material considered to be
finished goods inventory and fifteen percent (15%) of standard for
material in the defective state.
Section III - Warranties
1. Buyer acknowledges: Sale of Material is not within the normal course
of Seller's business; Material has been inspected and/or tested by
Seller to ascertain its condition, and has been refurbished or
reconditioned by Seller, and is in good, ready to use condition.
2. OTHER THAN SET FORTH ABOVE SECTION III(1),BUYER AGREES TO PURCHASE
AND ACCEPT ALL MATERIAL "AS IS" AND "WITH ALL FAULTS" AND WAIVES ALL
WARRANTIES, EXPRESS AND IMPLIED IN LAW, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN
NO EVENT SHALL SELLER HAVE ANY LIABILITY WHATSOEVER FOR DIRECT,
CONSEQUENTIAL, SPECIAL, INDIRECT, OR INCIDENTAL DAMAGES, INCLUDING
WITHOUT LIMITATION, ANY DAMAGES RESULTING FROM LOSS OF DATA OR USE OR
LOSS OF PROFITS AS A RESULT OF ITS PERFORMANCE THEREUNDER OR THE USE OR
OPERATION OF THE MATERIAL PURCHASED. IN NO EVENT SHALL SELLER'S
LIABILITY FOR ANY CAUSE WHATSOEVER EXCEED THE PURCHASE PRICE PAID TO
SELLER THEREUNDER.
3. Buyer shall defend, indemnify, and hold harmless the Seller from any
claims, losses, damages, costs, and expenses (including reasonable
attorney's fees and settlement costs) against Seller resulting from
Buyer's sale, transfer, or distribution of Material.
Section IV - Confidentiality; Intellectual Property
1. Buyer shall not, without obtaining the prior written consent of
Seller, disclose, advertise, or publish the fact that Seller has
furnished, or contracted to furnish, to Buyer the Material or any other
material.
2. Seller shall have no obligations with respect to any claim that any
Material purchased under this Agreement infringes a patent, copyright,
trademark, trade secret, or any other intellectual property right in
any country where Buyer sells, directly or indirectly, the Material.
3. Buyer shall indemnify and hold Seller harmless from and against any
and all claims, losses, damages, costs and expenses (including
reasonable attorney's fees and settlement costs) arising out of or
relating to Buyer's failure to perform its obligations under this
Section IV or Buyer's possession, use, sale. or other disposition of
the Material.
2
<PAGE>
Section VI - Resale of Material
1. The Buyer will stock said inventory per the attached Program
Requirements with the expectation that a portion of said procured
inventory will be purchased back from Seller to meet Seller's business
requirements.
2. Buyer acknowledges that Seller makes no representation, express or
implied, that Material may be available for sale in the future.
Section VII - Audit
During the term of this Agreement and for six (6) months after final
payment to Seller, Seller shall have the right to audit all of Buyer's
records, accounts and inventory with respect to Buyer's performance
under this Agreement upon reasonable notice during normal business
hours. Seller shall have the right at any time during normal business
hours to enter Buyer's premises for the purposes of making an
inspection to ensure Buyer's compliance with its obligations under this
Agreement.
Section VIII - General
1. Material is sold to Buyer for commercial uses only and is not
intended to be sold or resold for use in critical safety systems or
nuclear facilities.
2. Buyer hereby acknowledges that it will not export any Material, any
written or other technical information relating thereto, or any product
incorporating the Material, without first obtaining required U.S.
Government export licenses. Buyer further acknowledges that it is
knowledgeable about U.S. Government export licensing requirements or
that it will become so prior to engaging, directly or indirectly, in
any export transaction involving the Material.
3. Buyer may not assign, transfer, or subcontract any of its rights,
duties, or obligations thereunder without the prior written consent of
Seller.
4. Buyer is an independent contractor and not an agent or employee of
Seller, and Buyer may not represent or make any commitments on behalf
of Seller.
5. Buyer agrees to ensure that all Materials and components will be
dispositioned in compliance with all applicable federal, state, local
laws, standards and requirements.
6. If any provision of this Agreement is held invalid by any law or
regulation of any government or by any court, such invalidity shall not
affect the enforceability of the other provisions herein. Any action
against Seller must be brought within eighteen (18) months after the
cause of action arises.
7. This Agreement is in addition to all prior agreements and
understandings between the parties. No change, termination, or
attempted waiver of any of the provisions hereof shall be binding
unless in writing and signed by the party against whom enforcement is
sought.
8. This Agreement and the rights and obligations of the parties hereto
shall be interpreted and enforced in accordance with the laws of the
Commonwealth of Massachusetts.
3
<PAGE>
9. Before sale of Material, Seller will verify Buyer is not found on
the Denied Parties List. No Material will be sold to any Buyer found on
this list. SBA/invoice will show verification of check by Buyer.
IN WITNESS WHEREOF, the parties have set their hands and seals this
_____________. (Month/Day/Year)
DIGITAL EQUIPMENT CORPORATION DELTA PARTS INC.
(Seller) (Buyer)
By: /s/ John Gough By: /s/ Mark P. Duffy
----------------------------- ----------------------------
John Gough Mark P. Duffy
By: /s/ John Gottwald
-----------------------------
John Gottwald
By: /s/ Rick Catino
-----------------------------
Rick Catino
By: /s/ Rick Egan
-----------------------------
Rick Egan
4
Author: Duane Steil @DAS
Date: 30-Jan-1996
Posted date: 30-Jan-1996
Subject: Delta 19649 Amendment 03
AMENDMENT AND EXTENSION AGREEMENT
This Amendment (the "Amendment") 03 to Agreement 19649 is entered into by and
between Digital Equipment Corporation (the "Buyer") and Delta Parts Inc. (the
"Seller").
Whereas, Buyer and Seller entered into that certain Basic Order Agreement
numbered 19649 and dated 1/8/96 (the "Agreement"); and is extended to 6/28/97.
Whereas, Buyer and Seller wish to amend the terms of the Agreement pursuant to
the terms of this Amendment.
NOW THEREFORE, in consideration of the promises and mutual covenants contained
herein, as well as for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Buyer and Seller agree as
follows:
1) Not withstanding the foregoing provision, the Agreement is hereby amended
as follows:
Delete Section II.C. - Purchase Period
Change Section II.B. - Purchase Period
B. The period during which Buyer may issue Purchase Orders for Material
(Spares, and/or Repairs, and/or Expendables, and/or Exchanges) under this
Agreement (Purchase Period) shall expire June 28, 1997.
Delete Section IV - Emergency Lead-time
Add Section IV - Delivery/Lead-time/Flexibility
A. Buyer's Purchase Orders shall state Seller's committed delivery dates for
Spares, and/or Repairs, and/or Expendables, and/or Exchanges. TIME AND
RATE OF DELIVERY ARE OF THE ESSENCE OF ALL PURCHASES MADE UNDER THIS
AGREEMENT.
B. All deliveries shall be designated by Buyer as Collect, FOB Origin,
(INCOTERMS, 1980). Delivery date shall mean the date the Spares, and/or
Repairs, and/or Expendables, and/or Exchanges are shipped collect, FOB
Origin, (INCOTERMS, 1980).
C. If Seller delivers Spares, and/or Repairs, and/or Expendables, and/or
Exchanges more than three (3) days in advance of the scheduled delivery
date, Buyer may either return such Spares, and/or Repairs, and/or
Expendables and/or Exchanges at Seller's expense for subsequent delivery
on the original delivery date or retain such Spares, and/or Repairs,
and/or Expendables, and/or Exchanges and postpone payment until it would
have been due
<PAGE>
if Seller had delivered Spares, and/or Repairs, and/or Expendables, and/or
Exchanges as scheduled. Without limiting any of Buyer's rights and
remedies in equity or at law, if Seller is late in meeting the scheduled
delivery date, Buyer may require that Seller ship the Spares, and/or
Repairs, and/or Expendables, and/or Exchanges via premium means at
Seller's expense, or may cancel the order for such Spares, and/or Repairs,
and/or Expendables, and/or Exchanges without liability to Buyer.
D. Seller shall deliver the exact quantity of Spares, and/or Repairs, and/or
Expendables, and/or Exchanges scheduled. If Seller delivers less than the
scheduled requirement, Seller shall correct the shortage within a two (2)
day period. If Seller fails to correct such shortage within this period,
without limiting any of Buyer's rights and remedies in equity or at law,
Buyer may cancel and/or return al or part of the order without cost or
liability. If Seller delivers more than the quantity ordered, Buyer may
return any excess Spares, and/or Repairs, and/or Expendables, and/or
Exchanges at Seller's expense.
E. Buyer may without cost or liability: reschedule delivery of any Spares,
and/or Repairs, and/or Expendables, and/or Exchanges, and/or cancel
Purchase orders, or parts of them, by giving notice as specified below,
Reschedule and Cancellation Notice Period:
Reschedule Notice - 7 days prior to ship date
Cancellation Notice - 5 days prior to ship date
(all or partial)
Buyer may reschedule or cancel orally provided written notification
issued to Seller within five (5) days.
F. Buyer may require that the shipments of Spares, and/or Repairs, and/or
Expendables, and/or Exchanges under this Agreement be shipped by Seller
to various destinations. The Purchase Order will clearly specify the
"SHIP TO" location for each order placed with Seller.
G. Spares Emergency Lead-time
1. Seller shall accept and process Purchase Order(s) for P-1
requirements twenty four (24) hours a day, three hundred sixty-five
(365) calendar days a year. All P-1 Purchase Orders will be
delivered to Buyer's designated carrier or freight agent within
twenty-four (24) hours of authorization.
2. Invoices for P-1 Purchase Order(s) must be accompanied by a copy of
the waybill(s) for the shipment(s).
3. If Buyer places a P-1 Purchase Order because Seller has failed to
meet any requirement of this Agreement or Buyer's Purchase Order(s)
as they relate to the required delivery date or quantity of
conforming Spares, and/or Repairs, and/or Expendables, and/or
Exchanges to be delivered, Seller shall pay transportation charges
for such orders.
4. If requested item(s) is/are available, Seller shall have requested
Spares, and/or Repairs, and/or Expendables, and/or Exchanges
available for shipment/pickup within one (1) hour of request,
between the hours of
2
<PAGE>
Standard Hours - 8:00 a.m. thru 7:00 p.m. Eastern
- Monday thru Friday
Standby Hours - 7:01 p.m. thru 7:59 a.m. Eastern
- Monday thru Friday
- 24 hour weekend pager coverage
- 24 hour holiday pager coverage
Emergency Order - Call back within 1 hour of page
5. As required, Seller shall make Spares, and/or Repairs, and/or
Expendables, and/or Exchanges available through the following
delivery mechanisms:
Drop Shipment - Seller shall drop ship Spares, and/or
Repairs, and/or Expendables, and/or Exchanges to
Buyer's customer site(s) and/or service delivery
location(s). Buyer may at times designate the
carrier that best meets delivery requirements, i.e.,
the Seller shall have available, and as necessary
will utilize courier service for local delivery
and/or pickup by Buyer.
Advance Exchange- Seller shall offer Advanced Exchange
capability for certain items as deemed Advance
Exchange by Buyer. Advance Exchange is defined as;
Seller assigning a Core Credit for defective Spares,
and/or Repairs, and/or Expendables prior to Seller's
receipt of defective units from Buyer. "Core Credit"
is defined as the Seller's value of the defective
unit(s). "Advance Exchange Price" is calculated as
"Buyer Price" minus "Core Credit". Seller agrees to
provide a weekly Outstanding Core Report, of cores
not returned within fourteen (14) days of the
Advance Exchange Purchase Order Date, to the MLMC
Buyer. Buyer shall return the core(s) within thirty
(30) calendar days of the respective Advance
Exchange Purchase Order Date. If Buyer fails to
return the core(s) within the thirty (30) calendar
days, then Seller shall invoice Buyer for one
hundred (100%) of the respective core(s) previously
credited. Seller must notify Buyer of core(s)
received after thirty (30) calendar days, enabling
Buyer to Debit the respective Advance Exchange
Purchase Order by ten (10%) of the original Core
Credit. Failure by Seller to notify Buyer of
non-returned defectives within sixty (60) days will
result in core charge forfeiture. Seller shall ship
to Buyer, the most current revision level/part
number available to Seller. If Buyer returns a core
which is not the most current revision level/part
number as part of this "Advance Exchange" process,
then Seller shall determine the appropriate core
value credit per Seller's Material Review Board
process. Seller agrees to maintain an "Advance
Exchange" file concurrent with the first material
receipt/shipment and continues through all
subsequent activity.
3
<PAGE>
H. Buyer will measure Seller's performance against commitments, for the
purpose of establishing Seller's rate of on-time delivery and lead-time
improvement against Buyer's requirements.
I. A copy of Seller's packing list shall accompany all Spares, and/or
Repairs, and/or Expendables, and/or Exchanges shipments and shall
indicate Buyer's Purchase Order Number, Part Number, and Serial Number.
Delete Section XVI - Advance Exchange
Add Section XVI - Purchase Orders
A. For the purposes of this Agreement, Purchase Order shall mean Buyer's
written Purchase Order form and Purchase Orders transmitted
electronically via Electronic Data Interchange (EDI), and any documents
incorporated therein by reference. Written Purchase Order shall mean
Buyer's standard Purchase Order form. Electronic Purchase Order shall
mean only those Purchase Orders transmitted electronically. Acceptance
by Seller is limited to the provisions of the Agreement and the
Purchase Order. No additional or different provisions proposed by
Seller shall apply. In addition, the parties agree that this Agreement
and issued Purchase Orders constitute a Contract for the Sale of Goods
and satisfy all statutory and legal formalities of a contract. Each
Purchase Order will specify items such as: item description, quantity,
delivery schedule, destination, and total price of the Purchase Order.
Each Purchase Order issued under this Agreement shall be made part of,
and be incorporated into this Agreement, and shall reference this
Agreement number on the face of each Purchase Order issued pursuant to
this Agreement.
B. Buyer will order Spares, and/or Repairs, and/or Expendables, and/or
Exchanges by issuing telex, or facsimile, or telephonic orders, or
Purchase Orders. For Purchase Orders with a total value in excess of
five thousand dollars ($5,000), unless otherwise requested by Seller,
Buyer will issue either written or facsimile confirming Purchase Orders
within ten (10) days after issuing such telex, or facsimile, or
telephonic orders. Seller shall have five (5) days after receipt to
reject the Purchase Order. By not rejecting the Purchase Order within
five (5) days, Seller will have accepted the Purchase Order.
C. Buyer may, at its option, order parts on a priority-one ("P-1") basis
by issuing facsimile, or electronic mail, or telephone orders for P1
orders only, or by issuing a Purchase Order form (collectively referred
to as "P-1 Purchase Orders"). If authorization is other than the
Purchase Order form, Buyer will use reasonable efforts to issue either
written or facsimile confirming Purchase Order(s) within ten (10) days
after issuing such telex, or facsimile, or telephonic orders. Seller
shall confirm and acknowledge such authorizations within two (2) days,
or within four (4) hours of receipt of P-1 Purchase Orders placed via
facsimile, or electronic mail, or telephonic means. Seller shall be
obligated to comply with all P-1 Purchase Orders issued in accordance
with this Agreement. Accordingly, any failure of Seller to acknowledge
any such P-1 Purchase Orders shall not be deemed a rejection of such
order.
4
<PAGE>
D. If Buyer's Purchase Order specifies export after passage of title,
Seller shall furnish Buyer will all necessary Export/Import
documentation. If Buyer's Purchase Order specifies export before
passage of title, Seller shall prepare all export/import documentation
and furnish a copy to Buyer. Export/Import documentation shall be in
accordance with the INCOTERMS then in force.
E. If Seller has more than one (1) geographic location which could supply
Spares, and/or Repairs, and/or Expendables, and/or Exchanges Seller
shall make such Spares, and/or Repairs, and/or Expendables, and/or
Exchanges available to Buyer from Seller's closest location to Buyer's
ship to location. Any of Buyer's locations outside the United States
may place orders with Seller's specified United States and/or foreign
facilities for such Spares, and/or Repairs, and/or Expendables, and/or
Exchanges.
F. Electronic Purchase Orders
1. Buyer may order Spares, and/or Repairs, and/or Expendables,
and/or Exchanges by issuing Electronic Purchase Orders, which
include, without limitation, EDI Purchase Orders. Each
Electronic Purchase Order will specify items such as: item
description, quantity, delivery schedule, destination, and
total price of the Electronic Purchase Order. Each Electronic
Purchase Order issued under this Agreement shall be made part
of, and be incorporated into, this Agreement.
2. Seller shall electronically "Verify" receipt of the
Electronic Purchase Orders within one (1) day of the
Electronic Purchase Order transmission by Buyer. As used
herein, "Verify" shall mean Seller's notification to Buyer
that all necessary Electronic Purchase Order information has
been received in a readable and understandable format, or that
discrepancies, as noted, require clarification.
3. Seller shall have five (5) days after receipt to reject the
Electronic Purchase Order. By not rejecting the Electronic
Purchase Order within five (5) days, Seller will have accepted
the Purchase Order. Acceptance by Seller is limited to the
provisions of this Agreement and the Purchase Order. No
additional or different provisions proposed by Seller shall
apply.
4. Electronic Purchase Order transmissions shall contain
information in a specified format, in accordance with
prevailing applicable Buyer policies, or as otherwise mutually
agreed in writing. Such policies will state specific generally
available non-proprietary content and transmission standards.
5. The parties acknowledge that hard (written) copies of
Electronic Purchase Orders will not be issued. The parties
agree not to contest the validity or enforceability of
Electronic Purchase Orders under the provisions of applicable
law requiring that contracts be in writing and signed by the
party to be bound. In addition, the parties further agree that
this Agreement and transmitted Electronic Purchase Orders
constitute a Contract for the Sale of Goods and satisfy all
statutory and legal formalities of contract, including,
without limitation, the Statute of Frauds.
6. The parties acknowledge that the Electronic Purchase Orders
covered by this Agreement may be offered in evidence at any
trial or other evidentiary proceeding. The parties agree that
Electronic Purchase Orders, when produced in
5
<PAGE>
hard copy, shall constitute business records, and shall be
admissible to the same extent as other generally recognized
business records.
Add Section XVII - Quality, Inspection, and Acceptance
A. Prior to delivery, Seller shall insure that all Spares, and/or Repairs,
and/or Expendables, and/or Exchanges are in accordance with the
provisions of this Agreement, including but not limited to:
Attachment - C Packaging, Requirements,
Attachment - D Quality Requirements,
Attachment - E Product Specifications,
and all other quality requirements specified in the Purchase
Specifications for Spares, and/or Repairs, and/or Expendables, and/or
Exchanges purchased under this Agreement, are incorporated herein by
reference.
B. Seller authorizes and agrees to assist Buyer in performing source
inspection and quality assurance reviews at Seller's manufacturing
facilities, but this shall in no way relieve Seller of its obligation
to deliver conforming Spares, and/or Repairs, and/or Expendables,
Exchanges nor waive Buyer's right of inspection; nor does said right of
inspection waive any rights under the warranty provisions.
C. During the inspection period of sixty (60) days after Buyer's receipt
of the shipment of Spares, and/or Repairs, and/or Expendables, and/or
Exchanges Buyer will return Spares, and/or Repairs, and/or Expendables,
and/or Exchanges which fails to pass inspection per Acceptance Quality
Level (AQL) criteria defined in Attachment - D, for a Buyer's option,
credit, refund of purchase price, or repair/replacement within five (5)
days of Buyer's notice to Seller of nonconformance. Seller shall
designate carrier and pickup of rejected Spares, and/or Repairs, and/or
Expendables, and/or Exchanges and the pickup shall occur within five
(5) days of notice, or Buyer may select a carrier and return rejected
Spares, and/or Repairs, and/or Expendables, and/or Exchanges Cash On
Delivery (COD), and risk of loss will pass to Seller for rejected
Spares, and/or Repairs, and/or Expendables, and/or Exchanges FOB
Buyer's dock.
Add Section XVIII - Intellectual Property
Seller shall defend, at its expense, any claim against Buyer alleging that
Spares, and/or Repairs, and/or Expendables, and/or Exchanges or any part thereof
infringes any patent, copyright, trademark, trade secret, mask work, or other
intellectual property interest in any country and shall pay all costs and
damages awarded, if Seller is notified promptly in writing of such a claim. If
an injunction against Buyer's or Buyer's customer's use, sale, lease, license,
or other distribution of the Spares, and/or Repairs, and/or Expendables, and/or
Exchanges or any part there of results from such a claim (or if Buyer reasonably
believes such an injunction is likely), Seller shall, at its expense, (and in
addition to the Seller's other obligations, hereunder) and as Buyer requests:
obtain for Buyer and/or Buyer's customers the right to continue using, selling,
leasing, licensing, or otherwise distributing the Spares, and/or Repairs, and/or
Expendables, and/or Exchanges; or replace or modify it so it becomes
noninfringing but functionally equivalent. The provisions of
6
<PAGE>
this Section shall not apply to any claim for infringement resulting solely from
Seller's compliance with Buyer's detailed written design specifications, where
provided.
Add Section XIX - Term of Availability
A. In consideration for Buyer's purchase of any Spares, and/or Repairs,
and/or Expendables, and/or Exchanges hereunder, Seller grants to Buyer
the option to purchase Spares, and/or Repairs, and/or Expendables,
and/or Exchanges at the last revision level purchased under this
Agreement, for the period of ten (10) years after the expiration date
of this Agreement or any extension thereof, or for as long as said
Spares, and/or Repairs, and/or Expendables, and/or Exchanges are made
available to any of Seller's other customers, whichever is the later.
B. Thereafter, Seller may discontinue availability of Spares, and/or
Repairs, and/or and Expendables and/or Exchanges by giving Buyer twelve
(12) months prior written notice, provided that, at Buyer's option,
Seller shall sell Buyer sufficient quantities of Spares, and/or
Repairs, and/or Expendables and/or Exchanges as Buyer deems necessary.
Add section XX - U.S. Customs, Marketing, and Duty Drawback
A. Country of Origin
1. "Country of Origin" Marking: The Seller shall mark, in English, all
Spares, and/or Repairs, and/or Expendables, and/or Exchanges with the
Country of Origin (manufacture), in compliance with Section 304 of the
United States Tariff Act. Both the Spares, and/or Repairs, and/or
Expendables, and/or Exchanges and its container must be conspicuously
marked with the Country of Origin. If the Spares, and/or Repairs,
and/or Expendables, and/or Exchanges itself cannot be marked legibly
due to size, then its immediate container must be marked.
2. For each delivery against purchases made under this Agreement,
Seller shall furnish Buyer with a signed certificate stating Country of
Origin (manufacture) by quantity and part number (Buyer's and
Seller's).
B. Duty Drawback
1. For each purchase under this Agreement, and for each item of Spares,
and/or Repairs, and/or Expendables, and/or Exchanges delivered
hereunder for each U.S. Customs import duties have been paid upon
importation, or for items that contain parts for which import duties
have been paid, Seller shall furnish Buyer with a signed "Manufacturing
Drawback Entry and/or Certificate" (U.S. Customs Form #CF331 or its
successor). Seller warrants that information contained in such Form
#CF331 shall be accurate and shall comply with he United States Duty
Drawback and Customs laws and regulations. Seller shall indemnify and
hold Buyer harmless from and against any claims, costs, or damages
resulting from or arising out of Buyer's reliance on such information
and/or Form #CF331.
2. Seller shall provide such required Form(s) #CF331, and/or
information at the end of each fiscal quarter, unless otherwise agreed
in writing by both parties.
7
<PAGE>
3. Buyer reserves its first right to claim Duty Drawback on all
purchases made under this Agreement.
Add Section XXI - Force Majeure
Neither party shall be liable for failure to perform any of its obligations
under this Agreement during any period in which such party cannot perform due to
fire, flood, or other natural disaster, war, embargo, riot, or the intervention
of any government authority, provided that the party so delayed immediately
notifies the other party of such delay. If Seller's performance is delayed for
these reasons for a cumulative period of twenty (20) days or more, Buyer may
terminate this Agreement and/or any Purchase Order hereunder by giving Seller
written notice, which termination shall become effective upon receipt of such
notice. If Buyer terminates, its sole liability under this Agreement or any
Purchase Orders issued hereunder will be to pay any balance due for conforming
Spares, and/or Repairs, and/or Expendables, and/or Exchanges:
(1) delivered by Seller before receipt of Buyer's termination notice; and
(2) ordered by Buyer for delivery and actually delivered within fifteen
(15) days after receipt of Buyer's termination notice.
Add Section XXII - Compliance with Laws
A. All Spares, and/or Repairs, and/or Expendables, and/or Exchanges
supplied and work performed under this Agreement shall comply with all
applicable United States and foreign laws and regulations including,
but not limited to, emission and safety standards, the Occupational
Safety and Health Act (29 U.S.C. Sections 651 et seq.), the Fair Labor
Standards Act of 1938 (29 U.S.C. Sections 201-219), the Toxic Substance
Control Act of 1976 (15 U.S.C. Section 2601), all laws restraining the
use of convict labor, and Worker's Compensation Laws. Upon request,
Seller agrees to certify compliance with any applicable law or
regulations. Seller's failure to comply with any of the requirements of
this Section may result in a material breach of this Agreement.
B. The following provisions and clauses of the Federal Acquisition
Regulation (FAR), 48 CFR Chapter 1, are hereby incorporated by
reference, with the same force and effect as if they were given in full
text and are hereby made binding upon the subcontractor or vendor.
Where the clauses or provisions say "Contractor", substitute
"subcontractor or vendor."
1) Nonexempt Subcontracts and Purchase Orders over $2,500: 52.222-36
Affirmative Action for Handicapped Workers (APR. 1984)
2) Nonexempt Subcontracts and Purchase Orders over $10,000 or
subcontracts and purchase orders the aggregate value of which in
any twelve month period exceeds or can be expected o exceed
$10,000: 52.222-26 Equal Opportunity (APR. 1984)
3) Nonexempt Subcontracts and Purchaser Orders over $10,000:
52.222-21 Certification of Nonsegregated Facilities (APR. 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era
Veterans (APR. 1984)
4) Subcontracts and Purchase Orders over the small purchase
limitations, $25,000: 52.219-13 Utilization of Women-Owned Small
Business (AUG. 1986)
8
<PAGE>
5) Subcontracts over $500,000, except for small business concerns:
52.219-8 Utilization of Small Business Concerns and Small
Disadvantaged Business Concerns (FEB. 1990) A copy of the Filing
Standard Form 100 (EEO-1) and Development of Affirmative Action
Compliance Program is attached as Attachment - J, this Agreement,
and incorporated herein by reference.
C. The provisions of the Clean Air Act (42 U.S.C. Sections 7401 et seq.)
and the Clean Water Act (33 U.S.C. Sections 1251 et seq.) is attached
as Attachment - I, this Agreement, and incorporated herein by
reference.
D. The provisions of any applicable State "Right-to-Know" laws and
regulations are made a part of this Agreement. A copy of the applicable
Material Safety Data Sheets as required under such laws and regulations
shall be provided by Seller upon delivery of Spares, and/or Repairs,
and/or Expendables, and/or Exchanges and updated as necessary.
E. This Agreement is subject to all applicable United States laws and
regulations relating to exports and to all administrative acts of the
U.S. Government pursuant to such laws and regulations.
Add Section XXIII - Termination for Cause:
A. The occurrence of any of the following constitutes a breach and is
cause for Buyer's termination of this Agreement and/or its Purchase
Orders.
1. Seller fails to deliver Spares, and/or Repairs, and/or Expendables,
and/or Exchanges on time.
2. Spares, and/or Repairs, and /or Expendables, and/or Exchanges do not
conform to the applicable descriptions or specification.
3. Seller fails to perform any material provision of this Agreement.
4. Seller assigns this Agreement, or any obligation or right hereunder.
(The word "assign" to include, without limitation, a transfer of major
interest in Seller.)
5. Seller merges with a third-party (not a parent or subsidiary
company), without the prior written consent of Buyer.
6. Seller becomes insolvent or makes an assignment for the benefit of
creditors, or a receiver or similar officer is appointed to take charge
of all or part of Seller's assets.
B. Seller must cure any of the above breaches except late delivery
pursuant to Section - XXII, this Section, Clause A, Paragraph 1, for
which there shall be no cure period, and notify Buyer of such cure
within ten (10) days from receipt of a notice to cure from Buyer. If
Seller fails to so cure, Buyer may terminate this Agreement and/or any
Purchase Orders under it by giving Seller written notice. Buyer shall
have no liability except for payment of any balance due for conforming
Spares, and/or Repairs, and/or Expendables, and/or Exchanges delivered
before the date of Buyer's notice to cure.
Add Section XXIV - Termination for Convenience:
9
<PAGE>
Buyer may terminate this Agreement for convenience thirty (30) days
after giving Seller written notice. Buyer's sole liability to Seller
for such termination shall be to pay Seller any unpaid balance due for
conforming material:
1. Delivered against Buyer's Purchase Order(s) before receipt of
Buyer's termination notice; or
2. Ordered by Buyer and scheduled for delivery within the cancellation
notice period specified in Section - XII, this Agreement, hereto.
Add Section XXV - Documentation, Training & Tech Support
Seller hereby grants Buyer the right to reproduce, in whole or in part, all
documentation and training material provided to Buyer in order for Buyer's
organization to effectively service Seller's products.
Add Section XXVI - Survival
The provisions of this Agreement dealing with Delivery, Payment and Set-off,
Warranty, Confidential Information and Advertising, Intellectual Property
Indemnity, Changes, Term of Availability, U.S. Customs, Marking, and Duty
Drawback Requirements, Compliance with Laws, General, and Attachment(s) - A
through J shall survive termination or expiration of this Agreement.
Add Section XXVII - Business Reviews:
A. Buyer and Seller shall, each at their own expense, meet periodically to
review performance and business transacted, and to identify and resolve
those issues which have arisen since the last business review meeting.
Buyer and Seller agenda items shall address compliance to the following
goals:
1. Order Processing Turn Around Time - Place all orders the same day
2. Order Processing Accuracy - All orders 100% accurate
3. Defective Returns Processing - Same day as received
4. Delivery - All orders shipped the same day
5. Backorders - (0) zero
6. Metric Reporting - Incoming and Outgoing orders, pieces, lines
7. Pricing Review
8. Quarterly Reports - See Section XXVI
B. Buyer and Seller shall furnish agenda items not later than two (2)
weeks prior to scheduled business review meetings. Minutes shall
document action items, open items, and committed dates which may result
from such business review meetings, and shall be sent by the drafting
party to the other party within ten (10) days after each meeting.
C. Seller shall provide records upon request of Buyer to demonstrate
compliance to the required quality specifications and effective
operation of the quality system as described in Attachment - D.
10
<PAGE>
D. The Buyer, per the Terms and Conditions of this Agreement has the right
to examine the records of the Seller which pertain to Buyer's
transactions with Seller.
Add Section XXI Quarterly Reports:
Seller agrees on a quarterly basis to provide Buyer with a written
report of purchases that shall contain the following data:
1) Part Number and revision level.
2) Quantity purchased.
3) Purchase Order number.
4) The Buyer's facility (from which Purchase Order was released).
5) Current Stocking levels.
6) P1 Activity (Part Number, P.O. number, Facility) and shipment
performance.
7) Total units shipped to date - by purchase location/by product.
8) NPF (No Problem Found) data
9) NFF (No Failure Found) data
Add Section XXII PERIODIC AUDIT/EXAMINATION OF RECORDS:
A. The Buyer and/or its representative shall, until the termination of
this Agreement or any extension thereof, have access to and the right
to examine any of the Seller's directly pertinent books, documents,
papers, or other records involving transactions related to this
Agreement. In addition, the Buyer and/or its representative, during the
time period referenced above, shall have the right to interim financial
statements and conduct an audit of the aforementioned financial
statements.
B. The Seller shall maintain and the Buyer and/or its representative shall
have the right to examine and audit - books, records, documents, and
other evidence and accounting procedures and practices, regardless of
form (e.g. data bases, applications software, data base management
software, utilities, etc.) sufficient to reflect properly all costs,
claimed to have been incurred or anticipated to be incurred in
performing this contract.
C. This right of examination shall include inspection at all reasonable
times of the Seller's plants, facilities, or parts of them, engaged in
performing the contract.
2) Except as expressly modified herein, or pursuant to the terms of an
earlier executed written amendment between Buyer and Seller, all of the
terms of the Agreement, shall remain in full force and effect
11
<PAGE>
AMENDMENT NO. 05
TO
BASIC ORDER AGREEMENT NO. 19649
BETWEEN
DIGITAL EQUIPMENT CORPORATION
AND
DELTA PARTS, INC.
<PAGE>
This Amendment (the "Amendment") is entered into by and between Digital
Equipment Corporation ("the Buyer") and Delta Parts, Inc. ("the Seller").
Whereas, Buyer and Seller entered into that Basic Order Agreement No. 19649
dated the 11th day of November, 1994 (the "Agreement"); and
Whereas, the above referenced Agreement expires upon termination by either per
the terms and conditions of the termination provisions of the Agreement and
Whereas, the Buyer and Seller wish to amend the terms of the Agreement pursuant
to the terms ,of this Amendment for the purpose of adding terms and conditions
which pertain to the advanced exchange program, which is described in the body
of this Amendment, and for which said terms and conditions will control said
method of doing business.
In the event of any conflict between the terms and conditions set forth herein
and the terms and conditions of the Agreement, the parties agree that the
following terms and conditions shall control. In all other respects, the terms
and conditions of the Agreement, Attachments and Amendments, if applicable,
shall control.
NOW THEREFORE, in consideration of the premises and mutual covenants contained
herein, as well as for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Buyer and Seller agree as
follows:
1) Notwithstanding the foregoing provision, the Agreement is hereby amended as
follows:
Add the following language:
The ADVANCED EXCHANGE PROGRAM:
The Seller will maintain inventory purchased from the Buyer at a price to be
mutually agreed upon. The Seller will stock said inventory with the expectation
that said inventory will be utilized in support of Buyer's requirements. The
Seller will be restricted from dispositioning in any manner said purchased
inventory for any other purpose other than that of meeting Buyer's requirements,
without Buyer's permission to do so, which will be in writing, and not
unreasonably withheld. The inventory will be classified both as functional and
defective, and the respective purchase price for said inventory, which will be
mutually agreed upon, will take into consideration said condition. The Buyer
will from time to time purchase on an advanced exchange basis the aforementioned
inventory from the Seller to meet its requirements.
The Buyer following the procurement, receipt and acceptance of the inventory
from the Seller will be obligated to return a defective field unit to replace
that which was sent by the Seller as required by Buyer's purchase order, within
thirty (30) days from receipt of Seller's advanced exchange unit. If the Buyer
does not return said defective unit to the Seller within the thirty (30) day
timeframe as referenced above, the Buyer will be assessed a core charge equal to
the purchase price less the
2
<PAGE>
advanced exchange cost, which will be invoiced by Seller to Buyer no sooner than
thirty (30) days following the expiration of the thirty (30) timeframe set aside
to return. If the defective unit is returned to the Seller by the Buyer
following the expiration of the thirty (30) day timeframe, the Buyer will
receive a credit from the Seller of an amount equal to the core charge paid.
Said payment terms will be in accordance with the terms and conditions of the
Buyer's purchase order. Seller will submit to Buyer a weekly status report which
will include the aforementioned information. Buyer and Seller agree to meet on a
monthly basis to reconcile and address core returns that exceed the 30 days
allowed for return to Delta Parts.
EXCLUSIVITY PROVISION
Notwithstanding anything contained herein to the contrary, under the auspices of
the advanced exchange program only, Seller will supply Buyer's requirements for
products referenced in Exhibit A-1 of this Amendment, Products and Pricing.
Seller acknowledges and understands that Buyer will not guarantee a forecasted
load and that any requirements to purchase from Seller after the eighteen (18)
month period stated herein, shall be subject to Seller being competitive in
price, delivery, quality, capacity, and turnaround time as described in the
Level of Service Agreement, Exhibit D-1 herein.
BUYBACK OPTION
In the event of termination for cause, Buyer will buy back the inventory
initially procured by Seller from Buyer, exclusively for this program, at a cost
equal to the unamortized unit cost of said inventory. This being equal to the
difference between actual inventory purchase cost on a line item basis, and the
total amortization fees received by the Seller on a line item basis. In addition
to the aforementioned condition, Buyer has the option of procuring any defective
inventory sold to Seller in Sellers', possession at original purchase cost, said
quantities not to exceed the original quantity of defectives sold, and at repair
cost any good inventory sold to Seller which has been amortized. This option
shall remain in effect for eighteen (18) months from the date of execution of
the contract.
PURCHASE ORDERS
Purchase orders will be issued quarterly for parts referenced on Exhibit A-1 of
this Amendment. Seller shall have five (5) days after receipt of said purchase
order to reject said purchase order. By not rejecting the purchase order within
the aforementioned timeframe, Seller will have accepted said purchase order. All
other terms and conditions pertaining to purchase orders are described in
Section XVI of the Agreement and are controlling.
ELECTRONIC PURCHASE ORDERS
Seller shall have five (5) days after receipt to reject electronic purchase
orders. By not rejecting electronic purchase orders within five (5) days, Seller
will have accepted said purchase order.
3
<PAGE>
PRICING
Buyer may purchase on an Advance Exchange Basis all products referenced on
Exhibit A-1 of the Amendment.
The cost of product to Buyer shall be the Advanced Exchange Price on a line item
basis. This Advanced Exchange pricing (equal to the sum of the then applicable
Repair price plus the amortization fee) as listed in Exhibit A-1, is applicable
for the first eighteen (18) months of the program, or until all amortization
fees are collected by Seller. After eighteen months (18) or once all
amortization costs are collected by Seller, the Advance Exchange price will be
equal to the then applicable repair price.
Upon completion of the period as stated above, the mutually agreed upon repair
pricing will be memorialized in writing and an Amendment to this Agreement will
be executed. Pricing once established will be effective for three (3) months.
Buyer and Seller thirty (30) days prior to the end of each three (3) month
period mutually agree to negotiate in good faith pricing for the subsequent
three (3) month period. If no Agreement can be reached on pricing this Program
at the discretion of the Buyer can be terminated. In the case of said
termination Seller and Buyer mutually agree to formulate a transition plan.
Seller will be obligated to support Buyer per the terms of the transition plan
so that Buyer can meet its level of service commitment to its customers.
DELIVERY TERMS/PERFORMANCE CRITERIA
**Delivery terms/performance criteria which govern this Amendment are referenced
in Exhibit D-1, The Level of Service Agreement, of this Amendment.
RESCHEDULE/FLEXIBILITY
**The controlling cancellation/rescheduling terms and conditions are described
in Exhibit B-1, Planning and Obligation, of this Amendment.
TRANSPORTATION
Shipment to Buyer from Seller will be per the terms of Exhibit C-1, Buyer's
Routing Guide, of this Amendment.
QUALITY, INSPECTION AND ACCEPTANCE
**Section VII of the Agreement is amended to include the terms and conditions of
the Level of Service Agreement, Exhibit D-1 herein.
4
<PAGE>
WARRANTY
In addition to the terms of Section VI, Warranty, of the Agreement, the Seller
agrees to track serial numbers for this program. Seller shall act as warranty
agent to recoup "pass thru" warranty for Digital on all units covered by OEM
warranty. Seller shall assess Buyer a fee of thirty five dollars ($35.00) per
transaction to recoup "pass thru" warranty for Digital. Seller agrees to "batch"
these transactions to minimize the cost to Digital. Seller will credit Buyer the
advanced exchange fee on all units under warranty covered by the provisions of
Section VI.
DOCUMENTATION
Upon termination of this program all documentation and updates furnished to
Seller from Buyer or in the case of updates performed by Seller, which pertain
directly to this program must be returned to Buyer.
ENGINEERING CHANGE ORDERS ("ECOs")
Buyer must be advised in writing of ANY and ALL product or process changes prior
to implementation. Seller shall make no changes during the purchase period "for
spares and or repairs which effect design, form, fit, or function, appearance,
reliability, place and process of manufacture, or packing and packaging specific
by this Agreement without Buyer's prior written approval. Buyer will review and
respond to Seller's written request for such changes within ten (10) calendar
days of Buyer's receipt of said request.
If Buyer does not reply within the aforementioned ten (10) calendar day period,
the request will be deemed accepted by the Buyer. If Seller proposes to transfer
the manufacture of spares and or repairs to another manufacturing or repair
facility or to another manufacturing line, Seller shall notify Buyer of the
intent in writing no less than ten (10) calendar days prior to the proposed
commencement of said plan. Seller shall not commence plan until Buyer submits a
written approval to Seller which must occur within ten (10) calendar days of
Seller's request, which will not be unreasonably withheld.
If said aforementioned ECOs cause a deviation in cost from the cost basis that
the original agreed upon pricing was established as referenced in Exhibit A of
the Amendment, Products and Pricing, of plus or minus 10%, Seller may request a
modification to said pricing in writing and if accepted by Buyer, an Amendment
to the Agreement will be executed.
All products must be brought up to MSR ("minimum shippable revision") prior to
shipment based on ECO packages supplied by Buyer.
Upon receipt of a mandatory change order by Buyer from Seller, Seller will
perform said mandatory change order functions. At the end of the first full
month that the mandatory change operation has been performed, Seller will
conduct a cost study to determine the cost impact of said
5
<PAGE>
mandatory change. If the results of the study indicate a cost impact to Seller
of plus or minus 10%, the Seller will inform Buyer of said impact and Buyer and
the Seller will mutually agree upon a modification to the material's pricing.
TERMINATION FOR CONVENIENCE
If Buyer terminates this Agreement for convenience within the first eighteen
(18) months of the program, Buyer will buy back any inventory initially procured
by Seller, from Buyer, exclusively for this program under the same terms of the
BUYBACK OPTION as stated in this Amendment.
REPORTING REQUIREMENTS
Reporting requirements and their respective formats will be mutually agreed
upon, and following said agreement an Amendment will be generated stating the
mutually agreed upon said reporting requirements.
Except as expressly modified herein, or pursuant to the terms of an earlier
executed written Amendment between Buyer and Seller, all of the terms of the
Agreement, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have agreed to and executed this
Amendment under seal as of this day the 25th day of June, l996.
DIGITAL EQUIPMENT DELTA PARTS INC.
CORPORATION
BY: /s/ Charles Rizzo BY: /s/ Mark Duffy
------------------------------- ---------------------------
Charles Rizzo Mark Duffy
(Acquisition Consultant) (Chief Operating Officer)
6
<PAGE>
AMENDMENT 05
Exhibit A-1
Attachment 1
Pricing will be computed per a formula, the total of which will be the
sum of the following two components: (l) advanced exchange prices, and (2)
amortization adders. Cost will be figured as follows;
Component 1: Advanced Exchange Price:
Details in Exhibit A-1, Amendment 05
Component 2: Amortization adder:
Total dollars spent of good inventory divided by 18 (months) usage.
The amortization adder will be calculated using the following
algorithm;
Total dollars of inventory purchased per sales agreement dated
June 21, 1996, by Buyer from Seller, divided by the total
number of units projected to be used over an eighteen (18)
month period, from the execution of the agreement. This
amortization adder will be added to the advanced exchange
price and will be the purchase price of the product to Digital
from Delta Parts.
Every 90 days, a review will be conducted to evaluate the amortization charges
to date. Mutually agreed upon adjustments will be made at this time, based on
said evaluation, to ensure at the end of the eighteen (18) months, that a zero
(O) balance will be attained.
At the end of the aforementioned eighteen (18) month period, if the amortization
has not been fully liquidated, at Delta Parts Inc. option; Digital may be
required to pay Delta Parts an amount equal to the unamortized portion of the
original sale. In exchange for this payment, Digital is entitled to its choice
of material contained on Exhibit A-2 up to the amount paid. For purposes of this
transaction material value will be at standard cost as listed in the Exhibit
A-2.
Following the sale of the inventory per the June 21st sales agreement referenced
above, the unit pricing, based on the above formula, will be added to this
Amendment as Exhibit A-2.
7
<PAGE>
DELTA PARTS
Exhibit A-1
- --------------------------- ------------------------- -------------------------
Part Unit Core
Number Cost Charges
- --------------------------- ------------------------- -------------------------
29-30630-01 $37.30 $6.75
- --------------------------- ------------------------- -------------------------
29-30638-01 -- --
- --------------------------- ------------------------- -------------------------
29-30640-01 70.76 10.73
- --------------------------- ------------------------- -------------------------
29-30931-01 -- --
- --------------------------- ------------------------- -------------------------
29-31493-01 -- --
- --------------------------- ------------------------- -------------------------
29-31494-01 70.51 10.73
- --------------------------- ------------------------- -------------------------
29-31495-01 48.42 9.78
- --------------------------- ------------------------- -------------------------
29-31496-01 421.35 93.44
- --------------------------- ------------------------- -------------------------
29-31497-01 79.84 14.03
- --------------------------- ------------------------- -------------------------
29-31845-01 101.25 18.18
- --------------------------- ------------------------- -------------------------
29-31916-01 140.00 46.32
- --------------------------- ------------------------- -------------------------
29-31918-01 281.67 91.92
- --------------------------- ------------------------- -------------------------
29-31919-01 250.00 110.00
- --------------------------- ------------------------- -------------------------
30-39771-01 198.33 37.50
- --------------------------- ------------------------- -------------------------
30-39772-01 282.99 56.10
- --------------------------- ------------------------- -------------------------
30-39773-01 72.49 16.80
- --------------------------- ------------------------- -------------------------
30-39774-01 -- --
- --------------------------- ------------------------- -------------------------
30-39775-01 -- --
- --------------------------- ------------------------- -------------------------
30-39820-01 -- --
- --------------------------- ------------------------- -------------------------
30-40374-01 130.00 140.00
- --------------------------- ------------------------- -------------------------
30-40375-01 109.73 22.05
- --------------------------- ------------------------- -------------------------
30-42040-01 150.00 100.00
- --------------------------- ------------------------- -------------------------
8
<PAGE>
EXHIBIT B-1
PLANNING AND OBLIGATION
Digital will supply a non-binding 12 month forecast at the beginning of this
program
Thereafter, ongoing material requirements planning will be the responsibility of
the supplier. Digital upon request, will provide information quarterly to assist
the supplier in planning.
The following information will be supplied with this amendment
*Returns
*Demand
*Return Material Requirements Forecast
*Quantities on Hand
*SR17 (Finished Goods Stockroom)
*SR126 (Defective Material Stockroom)
*SR127 (Out to Vendor quantities)
The above listed information, will be provided to the supplier on a quarterly
basis to assist with material planning and ongoing forecasting.
In addition, the Core Reconciliation Flows and the Receiving/MRBFlow process
depictions, will follow this statement.
9
<PAGE>
EXHIBIT C-1
(VDPI)
DELTA PARTS, INC.
Supplier Fulfillment Center
OUTBOUND ROUTING GUIDE
May, 1996
Table of Contents
*INTRODUCTION
*DOMESTIC
o National and Local
o Service/Routings
o Documentation
o Contacts
CONTACTS
Digital Transportation (Andover, MA)
10
<PAGE>
INTRODUCTION
The Delta Parts, Inc. (VDPI) Routing Guide has been specifically designed to
support the SFC outbound transportation of good material 7 days a week, 24 hours
per day. It has been simplified to include a limited number of carriers with the
capacity to provide a variety of high quality services.
Please follow these instructions in order to obtain the optimal service from the
carriers in the guide.
11
<PAGE>
(VDPI)
DOMESTIC
Overnight Service
Both Federal Express and Emery Worldwide provide this service to various
destinations domestically. However their delivery times differ according to the
city, town or Digital site where the delivery is being made. Federal Express
delivers their shipments by 10:30.
For Priority (P1), Routine (RO) and Routine Replenishment (RP) orders, either
nationally or locally, ship:
1 - 150 lbs. 150+lbs.
Federal Express (FE) Emery Worldwide (EM)
Document Required Airbill/Manifest Airbill/Manifest
Contact: Customer Service Customer Service
(800) 238-5355 (612) 726-5739
NFO (Next Flight Out) / Same Day Service
Seko will provide expedited service for small package and heavyweight shipments
nationally. For the local area Midwest Delivery provides courier same day
delivery service. These carriers provide 7 day a week, 24 hours per day coverage
for after hours, weekends and holidays as well as during regular business hours.
For Urgent or Priority Parcel (P/P) orders use:
National: Seko
Document Required: Seko's airbill
Contact: (800) 247-7356
Local: Midwest Delivery
Document Required: Midwest's bill of lading
Contact: Dispatch (612) 644-8724
Deferred 2-3 Day Service
For shipments to Andover (DAS), MA and Contoocook (D002)*, NH use:
1 - 100 lbs. over 100 lbs
UPS (Consignee Billing) CFWY
Document Required: UPS log & labels Bill of Lading
Contact Customer Service Dispatch
(612) 379-6602 (612) 448-4060
Notes: D002 = PDC
When shipping scrap materail to the PDC (Property Disposal Center) charge cost
center 4EZ for transportation.
12
<PAGE>
Digital Transportation Group-Andover (DAS)
Contacts
Kwesi Ofori-Atta (508) 474-3112
Dick Parks (508) 474-3086
Lou Monfreda (508) 474-3079
FAX Number: (508) 474-3060
13
<PAGE>
EXHIBIT D-1
LEVEL OF SERVICE AGREEMENT
A. PERFORMANCE/MEASUREMENT CRITERIA
The Seller will maintain a standard of 100% for mistake free order
processing. Remedies for deviation from this standard are detailed in
the text of the Aqreement and this Amendment.
The Seller will ship same day if purchase orders are received at
Seller's facility prior to 7:00 p.m. e.s.t. This is conditioned upon
Seller having the products on hand at time of purchase order receipt.
If the products are not on hand at the time of receipt a mutually
agreed upon delivery schedule will be reached.
The Seller will work toward a 1% Dead On Arrival ("DOA") goal.
Acceptable lead-times of products for this program are set forth below:
-95% same day ship by Seller to Buyer based on the
aforementioned purchase order receipt criteria.
-100% same day shipment by Seller to Buyer based on the
aforementioned purchase order receipt criteria.
The Seller will resolve any of his processing errors, delivery issues
or DOAs the same day after notification by Buyer to Seller of said
issues. Seller will be liable to pay for shipping replacement units for
DOAs in the same day timeframe as aforementioned. Buyer and Seller
agree to meet to review credits owed under this scenario on a monthly
basis.
B. NONPERFORMANCE:
In the event the Seller is late in meetings it's obligations per the
requirements as set forth in this document under the terms of Section
A. (Performance/Measurement Criteria), Digital may, at its' option, (i)
require the Seller to pay for premium transportation to expedite the
material to the respective delivery location, or (ii) procure
substitute material from an alternate source, and invoice Seller for
the following: any difference in costs to procure the substitute
materials, a fee equal to fifteen percent (15%) of the substitute
material price to cover Digital's purchase and administrative costs;
and the costs for any additional monies expended by Digital to have the
materials delivered to the respective Digital or customer location. The
Seller shall make payment net thirty (N/30) days after receipt of
Digital's invoice.
14
OFFICE/WAREHOUSE LEASE
This Indenture of lease, dated this 6th day of April, 1990, by and
between First Wisconsin National Bank of Milwaukee, Wisconsin hereinafter
referred to as "Lessor"', and Amcom Corporation (a Minnesota Corporation)
hereinafter referred to as "Lessee".
DEFINITIONS
"Premises" -- That certain real property located in the City of Eden
Prairie, County of Hennepin and State of Minnesota and legally described on
Exhibit "A" attached hereto and made a part hereof, including all buildings and
site improvements located thereon.
"Building" -- That certain office/warehouse building containing
approximately 50,020 square feet located upon the Premises and commonly
described as 6201-6213 Bury Drive, Eden Prairie, Minnesota
"Demised Premises" -- that certain portion of the Building located at
6205-6209 Bury Drive and designated as Bays __ through __, consisting of
approximately 19,117 square feet (7,608 square feet of office space, and 8,264
square feet of warehouse space), as measured from the outside walls of the
Demised Premises to the center of the partition wall, as shown on the floor plan
attached hereto as Exhibit "B" and made a part hereof. The Demised Premises
include a non-exclusive easement for access to common areas, as hereinafter
defined, and all licenses and easements appurtenant to the Demised Premises.
"Common Areas" -- The term "common area" means the entire areas to be
used for the non-exclusive use by Lessee and other lessees in the Building,
including, but not limited to corridors, lavatories, driveways, truck docks,
parking lots and landscaped areas. Subject to reasonable rules and regulations
to be promulgated by Lessor, the common areas are hereby made available to
Lessee and its employees, agents, customers, and invitees for reasonable use in
common with other lessees, their employees, agents, customers and invitees.
WITNESSETH:
TERM: See Articles 43 & 45
1. For and in consideration of the rents, additional rents, terms,
provisions and covenants herein contained, Lessor hereby lets, leases and
demises to Lessee the Demised Premises for the term of 60 months commencing on
the first day of August, 1990 (sometimes called "the Commencement Date") and
expiring the last day of July, 1995 (sometimes called "Expiration Date", unless
sooner terminated as hereinafter provided.
BASE RENT: See Articles 42, 43 & 45
2. Lessor reserves and Lessee shall pay Lessor a total rental of _____
Dollars (See Article 42) , payable in advance, in equal monthly installments of
______ Dollars (See Article 42),
<PAGE>
commencing on the Commencement Date and continuing on the first day of each and
every month thereafter for the next succeeding months during the balance of the
term (sometimes called "Base Rent"). In the event the Commencement Date falls on
a date other than the first of a month the rental for that month shall be
prorated and adjusted accordingly.
ADDITIONAL RENT:
3. Lessee shall pay to Lessor throughout the term of this Lease the
folIowing:
a. Lessee shall pay a sum equal to Thirty-Eight and 22/100 percent
(38.22%) of the Real Estate taxes. The term "Real Estate Taxes" shall mean all
real estate taxes, all assessments and any taxes in lieu thereof which may be
levied upon or assessed against the Premises of which the Demised Premises are a
part. Lessee, in addition to all other payments to Lessor by Lessee required
hereunder shall pay to Lessor, in each year during the term of this Lease and
any extension or renewal thereof, Lessee's proportionate share of such real
estate taxes and assessments paid in the first instance by Lessor.
Any tax year commencing during any lease year shall be deemed to
correspond to such lease year. In the event the taxing authorities include in
such real estate taxes and assessments the value of any improvements made by
Lessee, or of machinery, equipment, fixtures, inventory or other personal
property or assets of Lessee, then Lessee shall pay all the taxes attributable
to such items in addition to its proportionate share of said aforementioned real
estate taxes and assessments. A photostatic copy of the tax statement submitted
by Lessor to Lessee shall be sufficient evidence of the amount of taxes and
assessments assessed or levied against the Premises of which the Demised
Premises are a part, as well as the items taxed.
b. A sum equal to Thirty-Eight and 22/100 percent (38.22%) of the
annual aggregate operating expenses incurred by Lessor in the operation,
maintenance, and repair of the Premises. The term "Operating Expenses" shall
include but not be limited to maintenance, repair, replacement and care of all
common area lighting, common area plumbing and roofs, parking and landscaped
areas, signs, snow removal, non-structural repair and maintenance of the
exterior of the Building, insurance premiums, management fee, wages and fringe
benefits of personnel employed for such work, costs of equipment purchased and
used for such purposes, and the cost or portion thereof properly allocable to
the Premises (amortized over such reasonable period as Lessor shall determine
together with the interest at the rate of 12% per annum on the unamortized
balance) of any capital improvements made to the Building by Lessor after the
Base Year which result in a reduction of Operating Expenses or made to the
Building by Lessor after the date of this Lease that are required for any
governmental law or regulation that was not applicable to the Building at the
time it was constructed.
c. In no event shall the total adjusted monthly rent be less than ____
Dollars (See Article 42) per month during the term of this Lease.
2
<PAGE>
The payment of the sums set forth in this Article 3 shall be in
addition to the Base Rent payable pursuant to Article 2 of this Lease. All sums
due hereunder shall be due and payable within thirty (30) days of delivery of
written certification by Lessor setting forth the computation of the amount due
from Lessee. In the event the lease term shall begin or expire at any time
during the calendar year, the Lessee shall be responsible for his pro rata share
of Additional Rent under subdivisions a. and b. during the Lease and/or
occupancy time.
Prior to commencement of this Lease, and prior to the commencement of
each calendar year thereafter commencing during the term of this Lease or any
renewal or extension thereof, Lessor may estimate for each calendar year (i) the
total amount of Real Estate Taxes; (ii) the total amount of Operating Expenses;
(iii) Lessee's share of Real Estate Taxes for such calendar year; (iv) Lessee's
share of Operating Expenses for such calendar year; and (v) the computation of
the annual and monthly rental payable during such calendar year as a result of
increases or decreases in Lessee's share of Real Estate Taxes, and Operating
Expenses. Said estimates will be in writing and will be delivered or mailed to
Lessee at the Premises.
The amount of Lessee's share of Real Estate Taxes, and Operating
Expenses for each calendar year, so estimated, shall be payable as Additional
Rent, in equal monthly installments, in advance, on the first day of each month
during such calendar year at the option of Lessor. In the event that such
estimate is delivered to Lessee before the first day of January of such calendar
year, said amount, so estimated, shall be payable as additional rent in equal
monthly installments, in advance, on the first day of each month during such
calendar year. In the event that such estimate is delivered to Lessee after the
first day of January of such calendar year, said amount, so estimated, shall be
payable as additional rent in equal monthly installments, in advance, on the
first day of each month over the balance of such calendar year, with the number
of installments being equal to the number of full calendar months remaining in
such calendar year.
Upon completion of each calendar year during the term of this Lease or
any renewal or extension thereof, Lessor shall cause its accountants to
determine the actual amount of the Real Estate Taxes, and Operating Expenses
payable in such calendar year and Lessees share thereof and deliver a written
certification of the amounts thereof to Lessee. If Lessee has underpaid its
share of Real Estate Taxes, or Operating Expenses for such calendar year, Lessee
shall pay the balance of its share of same within ten (10) days after the
receipt of such statement. If Lessee has overpaid its share of Real Estate
Taxes, or Operating Expenses for such calendar year, Lessor shall either (i)
refund such excess, or (ii) credit such excess against the current monthly
installment or installments due Lessor for its estimate of Lessee's share of
Real Estate Taxes, and Operating Expenses for the next following calendar year.
A prorata adjustment shall be made for a fractional calendar year occurring
during the term of this Lease or any renewal or extension thereof based upon the
number of days of the term of the Lease during said calendar year as compared to
three hundred sixty-five (365) days and all additional sums payable by Lessee or
credit; due Lessee as a result of the provisions of this Article 3 shall be
adjusted accordingly.
3
<PAGE>
COVENANT TO PAY RENT:
4. The covenants of Lessee to pay the Base Rent and the Additional Rent
are each independent of any other covenant, condition, provision or agreement
contained in this Lease. All rents are payable to Lessor at Welsh Companies.
Inc., 11200 West 78th Street, Eden Prairie, Minnesota 55344.
UTILITIES:
5. Lessor shall provide mains and conduits to supply water, gas,
electricity and sanitary sewage o the Premises. Lessee shall pay, when due, all
charges for sewer usage or rental, garbage, disposal, refuse removal, water,
electricity, gas, fuel oil, L.P. gas, telephone and/or other utility services or
energy source furnished to the Demised Premises during the term of this Lease,
or any renewal or extension thereof. If Lessor elects to furnish any of the
foregoing utility services or other services furnished or caused to be furnished
to Lessee then the rate charged by Lessor shall not exceed the rate Lessee would
be required to pay to a utility company or service company furnishing any of the
foregoing utilities or services. The charges thereof shall be deemed additional
rent in accordance with Article 3.
CARE AND REPAIR OF DEMISED PREMISES:
6. Lessee shall, at all times throughout the term of this Lease,
including renewals and extension, and at its sole expense, keep and maintain the
Demised Premises in a clean, safe, sanitary and first class condition and in
compliance with all applicable laws, codes, ordinances, rules and regulations.
Lessee's obligations hereunder shall include but not be limited to the
maintenance, repair and replacement, if necessary, of heating, air conditioning
fixtures, equipment, and systems, all lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, all interior walls, partitions, doors
and windows, including the regular painting thereof, all exterior entrances
windows, doors and docks and the replacement of all broken glass. When used in
this provision, the term "repairs" shall include replacements or renewals when
necessary, and all such repairs made by the Lessee shall be equal in quality and
class to the original work. The Lessee shall keep and maintain all portions of
the Demised Premises and the sidewalk and areas adjoining the same in a clean
and orderly condition, free of accumulation of dirt, rubbish, snow and ice.
If Lessee fails, refuses or neglects to maintain or repair the Demised
Premises as required in this Lease after notice shall have been given Lessee, in
accordance with Article 33 of this Lease, Lessor may make such repairs without
liability to Lessee for any loss or damage that may accrue to Lessee's
merchandise, fixtures or other property or to Lessee's business by reason
thereof, and upon completion thereof, Lessee shall pay to Lessor all costs plus
15% for overhead incurred by Lessor in making such repairs upon presentation to
Lessee of bill therefor.
Lessor shall repair, at it expense, the structural portions of the
Building, provided however where structural repairs are required to be made by
reason of the acts of Lessee, the costs thereof shall be borne by Lessee and
payable by Lessee to Lessor upon demand.
4
<PAGE>
The Lessor shall be responsible for all outside maintenance of the
Demised Premises, including grounds and parking areas. All such maintenance
which is the responsibility of the Lessor shall be provided as reasonably
necessary to the comfortable use and occupancy of Demised Premises during
business hours, except Saturdays. Sundays and holidays, upon the condition that
the Lessor shall not be liable for damages for failure to do so due to causes
beyond its control.
SIGNS:
7. Any sign, lettering, picture, notice or advertisement installed on
or in any part of the Premises and visible from the exterior of the Building, or
visible from the exterior of the Demised Premises, shall be approved and
installed by Lessor at Lessee's expense. In the event of a violation of the
foregoing by Lessee, Lessor may remove the same without any liability and may
charge the expense incurred by such removal to Lessee.
ALTERATIONS, INSTALLATION, FIXTURES:
8. Except as hereinafter provided, Lessee shall not make any
alteration, additions, or improvements in excess of $2,000.00 each occurrence,
in or to the Demised Premises or add, disturb, or in any way change any plumbing
or wiring therein without the prior written consent of the Lessor, such consent
not to be unreasonably withheld. In the event alterations are required by any
governmental agency by reason of the use and occupancy of the Demised Premises
by Lessee, Lessee shall make such alterations at its cost and expense after
first obtaining Lessor's approval of plans and specifications therefor and
furnishing such indemnification as Lessor may reasonably require against liens,
costs, damages and expenses arising out of such alterations. Alterations or
additions by Lessee must be built in compliance with all laws, ordinances and
governmental regulations affecting the Premises and Lessee shall warrant to
Lessor that all such alterations, additions, or improvements shall be in strict
compliance with all relevant laws, ordinances, governmental regulations, and
insurance requirements. Construction of such alterations or additions shall
commence only upon Lessee obtaining and exhibiting to Lessor the requisite
approvals, licenses and permits and indemnification against liens. All
alterations, installations, physical additions or improvements to the Demised
Premises made by Lessee shall at once become the property of Lessor and shall be
surrendered to Lessor upon the termination of this Lease; provided, however,
this clause shall not apply to movable equipment or furniture owned by Lessee
which may be removed by Lessee at the end of the term of this Lease if Lessee is
not then in default.
POSSESSION:
9. Except as hereinafter provided Lessor shall deliver possession of
the Demised Premises to Lessee in the condition required by this Lease on or
before the Commencement Date, but delivery of possession prior to or later than
such Commencement Date shall not affect the expiration date of this Lease. The
rentals herein reserved shall commence on the date when possession of the
Demised Premises is delivered by Lessor to Lessee. Any occupancy by Lessee
5
<PAGE>
prior to the beginning of the term shall in all respects be the same as that of
a Lessee under this Lease. Lessor shall have no responsibility or liability for
loss or damage to fixtures, facilities or equipment installed or left on the
Demised Premises. If Demised Premises are not ready for occupancy by
Commencement Date and possession is later than Commencement Date, rent shall
begin on date of possession.
SECURITY AND DAMAGE DEPOSIT:
10. Lessee contemporaneously with the execution of this Lease, has
deposited with Lessor the sum of Ten Thousand Five Hundred Sixteen and 00/100
Dollars ($10,516.00), receipt of which is acknowledged hereby by Lessor, which
deposit is to be held by Lessor, without liability for interest, as a security
and damage deposit for the faithful performance by Lessee during the term hereof
or any extension hereof. Prior to the time when Lessee shall be entitled to the
return of this security deposit, Lessor may comingle such deposit with Lessor's
own funds and to use such security deposit for such purpose as Lessor may
determine. In the event of the failure of Lessee to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by Lessee
during the term hereof or any extension hereof, then Lessor, either with or
without terminating this Lease, may (but shall not be required to) apply such
portion of said deposit as may be necessary to compensate or repay Lessor for
all losses or damages sustained or to be sustained by Lessor due to such breach
on the part of Lessee, including, but not limited to overdue and unpaid rent,
any other sum payable by Lessee to Lessor pursuant to the provisions of this
Lease, damages or deficiencies in the reletting of Demised Premises, and
reasonable attorney's fees incurred by Lessor. Should the entire deposit or any
portion thereof, be appropriated and applied by Lessor, in accordance with the
provisions of this paragraph, Lessee upon written demand by Lessor, shall remit
forthwith to Lessor a sufficient amount of cash to restore said security deposit
to the original sum deposited, and Lessee's failure to do so within five (5)
days after receipt of such demand shall constitute a breach of this Lease. Said
security deposit shall be returned to Lessee, less any depletion thereof as the
result of the provisions of this paragraph, at the end of the term of this Lease
or any renewal thereof, or upon the earlier termination of this Lease. Lessee
shall have no right to anticipate return of said deposit by withholding any
amount required to be paid pursuant to the provision of this Lease or otherwise.
In the event Lessor shall sell the Premises, or shall otherwise convey
or dispose of its interest in this Lease, Lessor may assign said security
deposit or any balance thereof to Lessor's assignee, whereupon Lessor shall be
released from all liability for the return or repayment of such security deposit
and Lessee shall look solely to the said assignee for the return and repayment
of said security deposit. Said security deposit shall not be assigned or
encumbered by Lessee without such consent of Lessor, and any assignment or
encumbrance without such consent shall not bind Lessor. In the event of any
rightful and permitted assignment or this Lease by Lessee, said security deposit
shall be deemed to be held by Lessor as a deposit made by the assignee, and
Lessor shall have no further liability with respect to the return of said
security deposit to the Lessee. Providing Lessee is not in default of this
agreement, Lessor will return 50% of the security deposit to Lessee on the 24th
month and the remaining 50% on the 36th month.
6
<PAGE>
USE:
11. The Demised Premises shall be used and occupied by Lessee solely
for the purposes of office/tech/warehouse for Lessee's legal business so long as
such use is in compliance with all applicable laws, ordinances and governmental
regulations affecting the Building and Premises. The Demised Premises shall not
be used in such manner that, in accordance with any requirement of law or of any
public authority, Lessor shall be obliged on account of the purpose or manner of
said use to make any addition or alteration to or in the Building. The Demised
Premises shall not be used in any manner which will increase the rates required
to be paid for public liability or for fire and extended coverage insurance
covering the Premises. Lessee shall occupy the Demised Premises conduct its
business and control its agents, employees, invitees and visitors in such a way
as is lawful, and reputable and will not permit or create any nuisance, noise,
odor, or otherwise interfere with, annoy or disturb any other Lessee in the
Building in its normal business operations or Lessor in its management of the
Building. Lessee's use of the Demised Premises shall conform to all the Lessor's
rules and regulations relating to the use of the Premises. Outside storage on
the Premises of any type of equipment, property or materials owned or used on
the Premise by Lessee or its customers and suppliers shall not be permitted.
ACCESS TO DEMISED PREMlSES:
12. The Lessee agrees to permit the Lessor and the authorized
representatives of the Lessor to enter the Demised Premises at all times during
usual business hours, with prior notice by Lessor, for the purpose of inspecting
the same and making any necessary repairs to the Demised Premises and performing
any work therein that may be necessary to comply with any laws, ordinances,
rules, regulations or requirements of any pubic authority or of the Board of
Fire Underwriters or any similar body or that the Lessor may deem necessary to
prevent waste or deterioration in connection with the Demised Premises. Nothing
herein shall imply any duty upon the part of the Lessor to do any such work
which, under any provision of this Lease, the Lessee may be required to perform
and the performance thereof by the Lessor shall not constitute a waiver of the
Lessee's default in failing to perform the same. The Lessor may, during the
progress of any work in the Demised Premises, keep and store upon the Demised
Premises all necessary materials, tools and equipment. The Lessor shall not in
any event be liable for inconvenience, annoyance, disturbance, loss of business,
or other damage of the Lessee by reason of making repairs or the performance or
any work in the Demised Premises, or on account of bringing materials, supplies
and equipment into or through the Demised Premises during the course thereof and
the obligations of the Lessee under this Lease shall not thereby be affected in
any manner whatsoever.
Lessor reserves the right to enter upon the Demised Premises at any
time in the event of an emergency and at reasonable hours to exhibit the Demised
Premises to prospective purchasers or others; and to exhibit the Demised
Premises to prospective Lessees and to the display "For Rent" or similar signs
on windows or doors in the Demised Premises during the last ninety (90) days of
the term of this Lease, ail without hindrance or molestation by Lessee.
7
<PAGE>
EMINENT DOMAIN:
13. In the event of any eminent domain or condemnation proceeding or
private sale in lieu thereof in respect to the Premises during the term thereof,
the following provision shall apply:
a. If the whole of the Premises shall be acquired or condemned by
eminent domain for any public or quasipublic use or purpose, then the term of
this Lease shall cease and terminate as of the date possession shall be taken in
such proceeding and all rentals shall be paid up to that date.
b. If any part constituting less than the whole of he Premises
shall be acquired or condemned as aforesaid, and in the event that such partial
taking or condemnation shall materially affect the Demised Premises so as to
render the Demised Premises unsuitable for the business of the Lessee, in the
reasonable opinion of Lessor, then the term of this Lease shall cease and
terminate as of the date possession shall be taken by the condemning authority
and rent shall be paid to the date of such termination.
In the event of a partial taking or condemnation of the Premises which
shall not materially affect the Demised Premises so as to render the Demised
Premises unsuitable for the business of the Lessee, in the reasonable opinion of
the Lessor, this Lease shall continue in full force and effect but with a
proportionate abatement of the Base Rent and Additional Rent based on the
portion, if any, of the Demised Premises taken. Lessor reserves the right, at
its option, to restore the Building and the Demised Premises to substantially
the same condition as they were prior to such condemnation. In such event,
Lessor shall give written notice to Lessee, within thirty (30) days following
the date possession shall be taken by the condemning authority, of Lessor's
intention to restore. Upon Lessor's notice of election to restore, Lessor shall
commence restoration and shall restore the Building and the Demised Premises
with reasonable promptness, subject to delays beyond Lessor's control and delays
in the making of condemnation or sale proceeds adjustments by Lessor; and Lessee
shall have no right to terminate this Lease except as herein provided. Upon
completion of such restoration, the rent shall be adjusted based upon the
portion, if any, of the Demised Premises restored.
c. In the event of any condemnation or taking as aforesaid, whether
whole or partial, the Lessee shall not be entitled to any part of the award paid
for such condemnation and Lessor is to receive the full amount of such award,
the Lessee hereby expressly waiving any right to claim to any part thereof.
d. Although all damages in the event of any condemnation shall
belong to the Lessor whether such damages are awarded as compensation for
diminution in value of the leasehold or to the fee of the Demised Premises,
Lessee shall have the right to claim and recover from the condemning authority,
but not from Lessor, such compensation as may be separately awarded or
recoverable by Lessee in Lessee's own right on account of any and all damage to
Lessee's business by reason of the condemnation and for or on account of any
cost or loss to which Lessee might be put in removing Lessee's merchandise,
furniture, fixtures, leasehold improvements
8
<PAGE>
and equipment. However, Lessee shall have no claim against Lessor or make any
claim with the condemning authority for the loss of its leasehold estate, any
unexpired term or loss of any possible renewal or extension of said lease or
loss of any possible value of said lease, any unexpired term, renewal or
extension of said Lease.
DAMAGE OR DESTRUCTION:
14. In the event of any damage or destruction to the Premises by fire
or other cause during the term hereof, the following provisions shall apply:
a. If the Building is damaged by fire or any other cause to such
extent that the cost of restoration, as reasonably estimated by Lessor, will
equal or exceed thirty percent (30%) of the replacement value of the Building
(exclusive of foundations) just prior to the occurrence of the damage then
Lessor may, no later than the sixtieth (60th) day following the damage, give
Lessee written notice of Lessor's election to terminate this Lease.
b. If the cost of restoration as estimated by Lessor will equal or
exceed fifty percent (50%) of said replacement value of the Building and if the
Demised Premises are not suitable as a result of said damage for the purposes
for which they are demised hereunder, in the reasonable opinion of Lessee, then
Lessee may, no later than the sixtieth (60th) day following the damage, give
Lessor a written notice of election to terminate this Lease.
c. If the cost of restoration as estimated by Lessor shall amount
to less than thirty percent (30%) of said replacement value of the Building, or
if despite the cost, Lessor does not elect to terminate this Lease, Lessor shall
restore the Building and the Demised Premises with reasonable promptness,
subject to delays beyond Lessor's control and delays in the making of insurance
adjustments by Lessor; and Lessee shall have no right to terminate this Lease
except as herein provided. Lessor shall not be responsible for restoring or
repairing leasehold improvements of the Lessee.
d. In the event of either of the elections to terminate, this Lease
shall be deemed to terminate on the date of the receipt of the notice of
election and all rentals shall be paid up to that date. Lessee shall have no
claim against Lessor for the value of any unexpired term of this Lease.
e. In any case where damage to the Building shall materially affect
the Demised Premises so as to render them unsuitable in whole or in part for the
purposes for which they are demised hereunder, then, unless such destruction was
wholly or partially caused by the negligence or breach of the terms of this
Lease by Lessee, its employees, contractors or licensees, a portion of the rent
based upon the amount of the extent to which the Demised Premises are rendered
unsuitable shall be abated until repaired or restored. If the destruction or
damage was wholly or partially caused by negligence or breach of the terms of
this Lease by Lessee as aforesaid and if Lessor shall elect to rebuild, the rent
shall not abate and the Lessee shall remain liable for the same, unless such
damage is caused by the direct negligence of Lessor.
9
<PAGE>
CASUALTY INSURANCE:
15. a. Lessor shall at all times during the term of this Lease, at its
expense, maintain a policy or policies of insurance with premiums paid in
advance issued by an insurance company licensed to do business in the State of
Minnesota insuring the Building against loss or damage by fire, explosion or
other insurable hazards and contingencies for the full replacement value,
provided that Lessor shall not be obligated to insure any furniture, equipment,
machinery, goods or supplies not covered by this Lease which Lessee may bring
upon the Demised Premises or any additional improvements which Lessee may
construct or install on, the Demised Premises.
b. Lessee shall not carry any stock of goods or do anything in or
about the Demised Premises which will in any way impair or invalidate the
obligation of the insurer under any policy of insurance required by this Lease.
c. Lessor hereby waives and releases all claims, liabilities and
causes of action against Lessee and its agents, servants and employees for loss
or damage to, or destruction of, the Premises or any portion thereof, including
the buildings and other improvements situated thereon, resulting from fire,
explosion and other perils included in standard extended coverage insurance,
whether caused by the negligence of any of said persons or otherwise. Likewise,
Lessee hereby waives and releases all claims, liabilities and causes of action
against Lessor and its agents, servants and employees for loss or damage to, or
destruction of, any of the improvements, fixtures, equipment, supplies,
merchandise and other property, whether that of Lessee or of others in, upon or
about the Premises resulting from fire, explosion or the other perils included
in standard extended coverage insurance, whether caused by the negligence of any
of said persons or otherwise. The waiver shall remain in force whether or not
Lessee's insurer shall consent thereto.
d. In the event that the use of the Demised Premises by Lessee
increases the premium rate for insurance carried by Lessor on the improvements
of which the Demised Premises are a part, Lessee shall pay Lessor, upon demand,
the amount of such premium increase. If Lessee installs any electrical equipment
that overloads the power lines to the building or its wiring, Lessee shall, at
its own expense, make whatever changes are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.
PUBLIC LIABILITY INSURANCE:
16. Lessee shall during the term hereof keep in full force and effect
at its expense a policy or policies of public liability insurance with respect
to the Demised Premises and the business of Lessee, on terms with companies
approved in writing by Lessor, in which both Lessee and Lessor shall be covered
by being named as insured parties under reasonable limits of liability not less
than: $500,000 for injury/death to any one person; $1,000,000 for injury/death
to more than one person, and $500,000 with respect to damage to property. Such
policy or policies shall provide that ten (10) days written notice must be given
to Lessor prior to cancellation thereof. Lessee shall
10
<PAGE>
furnish evidence satisfactory to Lessor at the time this Lease is executed that
such coverage is in full force and effect.
DEFAULT OF LESSEE:
17. a. In the event of any failure of Lessee to pay any rental due
hereunder within ten (10) days after the same shall be due, or any failure to
perform any other of the terms, conditions or covenants of this Lease to be
observed or performed by Lessee for more than thirty (30) days after written
notice of such failure shall have been given to Lessee, or if Lessee or an agent
of Lessee shall falsify any report required to be furnished to Lessor pursuant
to the terms of this Lease, or if Lessee or any guarantor of this Lease shall
become bankrupt or insolvent, or file any debtor proceedings or any person shall
take or have against Lessee or any guarantor of this Lease in any court pursuant
to any statute either of the United States or of any state a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Lessee's or any such guarantor's
property, or if Lessee or any such guarantor makes an assignment for the benefit
of creditors or petitions for or enters into an arrangement or if Lessee shall
abandon the Demised Premises or suffer this Lease to be taken under any writ of
execution, then in any such event Lessee shall be in default hereunder and
Lessor, in addition to other rights of remedies it may have, shall have the
immediate right of re-entry and may remove all persons and property from the
Demised Premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of, and for the account of Lessee, all
without service of notice or resort to legal process and without being guilty of
trespass, or becoming liable for any loss or damage which may be occasioned
thereby.
b. Should Lessor elect to reenter the Demised Premises, as
herein provided, or should it take possession of the Demised Premises pursuant
to legal proceedings or pursuant to any notice provided for by law, it may
either terminate this Lease or it may from time to time, without terminating
this Lease, make such alterations and repairs as may be necessary in order to
relet the Demised Premises, and relet the Demised Premises or any part thereof
such term or terms (which may be for a term extending beyond the term of this
Lease) and at such rental or rentals and upon such other terms and conditions as
Lessor in its sole discretion may deem advisable. Upon each such subletting all
rentals received by the Lessor from such reletting shall be applied first to the
payment of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any costs and expenses of such reletting, including
brokerage fees and attorney's fees and costs of such alterations and repairs;
third, to the payment of the rent due and upon payment of future rent as the
same may become due and payable hereunder. If such rentals received from such
reletting during any month be less than that to be paid during that month by
Lessee hereunder, Lessee upon demand shall pay any such deficiency to Lessor. No
such re-entry or taking possession of the Demised Premises by Lessor shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Lessee or unless the termination thereof be
decreed by a court of competent jurisdiction. Notwithstanding any such reletting
without termination, Lessor may at any time after such re-entry and reletting
elect to terminate this Lease for any such breach in addition to any other
remedies it may have, it may recover from Lessee all damaged it may incur by
reason of such breach, including the cost of recovering the Demised
11
<PAGE>
Premises, reasonable attorney's fees, and including the worth at the time of
such termination of the excess, if any, of the amount of rent and charges
equivalent to ) rent reserved in this Lease for the remainder of the stated term
over the then reasonable rental value of the Demised Premises for the remainder
of the stated term, all of which amounts shall be immediately due and payable
from Lessee to Lessor.
c. Lessor may, at its option, instead of exercising any other
rights or remedies available to it in this Lease or otherwise by law, statute or
equity, spend such money as is reasonably necessary to cure any default of
Lessee herein and the amount so spent and costs incurred including attorney's
fees in curing such default, shall be paid by Lessee, as additional rent upon
demand.
d. In the event suit shall be brought for recovery of possession of the
Demised Premises, for the recovery of rent or any other amount due under the
provisions of this Lease, or because of the breach of any other covenant herein
contained on the part of Lessee to be kept or performed and a breach shall be
established, Lessee shall pay to Lessor all expenses incurred therefor including
a reasonable attorney's fee, together with interest on all such expenses at the
rate of twelve percent (12%) per annum from the date of such breach of the
covenants of this Lease.
e. Lessee hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Lessee being
evicted or dispossessed for any cause, or in the event of Lessor obtaining
possession of the Demised Premises, by reason of the violation by Lessee of any
of the covenants or conditions of this Lease, or otherwise. Lessee also waives
any demand for possession of the Demised Premises, and any demand for payment of
rent and any notice of intent to, re-enter the Demised Premises, or of intent to
terminate this Lease, other than the notices above provided in this Article, and
waives any and every other notice or demand prescribed by any applicable
statutes or laws.
f. No remedy herein or elsewhere in this Lease or otherwise by law,
statute or equity, conferred upon or reserved to Lessor or Lessee shall be
exclusive of any other remedy, but shall be cumulative, and may be exercised
from time to time and as often as the occasion may arise.
COVENANTS TO HOLD HARMLESS:
18. Unless the liability for damage or loss is caused by the negligence
of Lessor, its agents or employees, Lessee shall hold harmless Lessor from any
liability for damages to any person or property in or upon the Demised Premises
and the Premises, including the person and the property of Lessee and its
employees and all persons in the Building at its or their invitation or
sufferance, and from all damages resulting from Lessee's failure to perform the
covenants of this Lease. All property kept, maintained or stored on the Demised
Premises shall be so kept, maintained or stored at the sole risk of Lessee.
Lessee agrees to pay all sums of money in respect of any labor, service,
materials, supplies or equipment furnished or alleged to have been furnished to
Lessee in or about the Premises, and not furnished on order of Lessor, which may
be secured by any Mechanic's, Materialmen's or other lien to be discharged at
the time performance of any
12
<PAGE>
obligation secured thereby matures, provided that Lessee may contest such lien,
but if such lien is reduced to final judgment and if such judgment or process
thereon is not stayed, or if stayed and said stay expires, then and in each such
event, Lessee shall forthwith pay and discharge said judgment. Lessor shall have
the right to post and maintain on the Demised Premises, notices of
non-responsibility under the laws of the State of Minnesota.
NON-LIABILITY:
19. Subject to the terms and conditions of Article 14 hereof, Lessor
shall not be liable for damage to any property of Lessee or of others located on
the Premises, nor for the loss of or damage to any property of Lessee or of
others by theft or otherwise. Lessor shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow or leaks from any part of the
Premises or from the pipes, appliances, or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature. Lessor shall not be liable for any such damage
caused by other Lessees or persons in the Premises, occupants of adjacent
property, of the buildings, or the public or caused by operations in
construction of any private, public or quasi-public work. Lessor shall not be
liable for any latent defect in the Demised Premises. All property of Lessee
kept or stored on the Demised Premises shall be so kept or stored at the risk of
Lessee only and Lessee shall hold Lessor harmless from any claims arising out of
damage to the same, including subrogation claims by Lessee's insurance carrier.
SUBORDINATION:
20. This Lease shall be subordinated to any mortgages that may now
exist or that may hereafter be placed upon the Demised Premises and to any and
all advances made thereunder, and to the interest upon the indebtedness
evidenced by such mortgages, and to all renewals, replacements and extensions
thereof. In the event of execution by Lessor after the date of this Lease of any
such mortgage, renewal, replacement or extension, Lessee agrees to execute a
subordination agreement with the holder thereof which agreement shall provide
that:
a. Such holder shall not disturb the possession and other rights of
Lessee under this Lease so long as Lessee is not in default hereunder.
b. In the event of acquisition of title to the Demised Premises by
such holder, such holder shall accept the Lessee as Lessee of the Demised
Premises under the terms and conditions of this Lease and shall perform the
obligations of Lessor hereunder, and
c. The Lessee shall recognize such holder as Lessor hereunder.
Lessee shall, upon receipt of a request from Lessor therefor, execute
and deliver to Lessor or to any proposed holder of a mortgage or trust deed or
to any proposed purchaser of the Premises, a certificate in recordable form,
certifying that this Lease is in full force and effect, and that there
13
<PAGE>
are no offsets against rent nor defenses to Lessee's performance under this
Lease, or setting forth any such offsets or defenses claimed by Lessee, as the
case may be.
ASSIGNMENT OR SUBLETTING:
1. Lessee agrees to use and occupy the Demised Premises throughout the
entire term hereof for the purpose of purposes herein specified and for no other
purposes, in the manner and to substantially the extent now intended and not to
transfer or assign this Lease or sublet said Demised Premises, or any part
thereof, whether by voluntary act, operation of law, or otherwise, without
obtaining the prior consent of Lessor in each instance. Lessee shall seek such
consent of Lessor by a written request therefor setting forth such information
as Lessor may deem necessary. Lessor agrees not to withhold consent
unreasonably. Consent by Lessor to any assignment of this Lease or to any
subletting of the Demised Premises shall not be a waiver of Lessor's rights
under this Article as to any subsequent assignment or subletting. Lessor's
rights to assign this Lease are and shall remain unqualified. No such assignment
or subleasing shall relieve the Lessee from any of Lessee's obligations in this
Lease contained, nor shall any assignment or sublease or other transfer of this
Lease be effective unless the assignee, sublessee or transferee shall at the
time of such assignment, sublease or transfer, assume in writing for the benefit
of Lessor, its successors or assigns, all of the terms, covenants and conditions
of this Lease thereafter to be performed by Lessee and shall agree in writing to
be bound thereby. Should Lessee sublease in accordance with the terms of this
Lease. fifty percent (50%) of any increase in rental received by Lessee over the
per square foot rental rate which is being paid by Lessee shall be forwarded to
and retained by Lessor, which increase shall be in addition to the Base Rent and
Additional Rent due Lessor under this Lease.
ATTORNMENT:
22. In the event of a sale or assignment of Lessor's interest, in the
Premises, or the Building in which the Demised Premises are located, or this
Lease, or if the Premises come into custody or possession of a mortgagee or any
other party whether because of a mortgage foreclosure, or otherwise, Lessee
shall attorn to such assignee or other party and recognize such party as Lessor
hereunder; provided, however, Lessee's peaceable possession will not be
disturbed so long as Lessee faithfully performs its obligations under this
Lease. Lessee shall execute, on demand, any attornment agreement required by any
such party to be executed, containing such provisions and such other provisions
as such party may require.
NOVATION IN THE EVENT OF SALE:
23. In the event of the sale of the Demised Premises, Lessor shall be
and hereby is relieved of all of the covenants and obligations created hereby
accruing from and after the date of sale, and such sale shall result
automatically in the purchaser assuming and agreeing to carry out all the
covenants and obligations of Lessor herein. Notwithstanding the foregoing
provisions of this Article, Lessor, in the event of a sale of the Demised
Premises, shall cause to be included in this agreement of sale and purchase a
covenant whereby the purchaser of the Demised Premises assumes and agrees to
carry out all of the covenants and obligations of Lessor herein.
14
<PAGE>
The Lessee agrees at any time and from time to time upon not less than
ten (10) days prior written request by the Lessor to execute, acknowledge and
deliver to the Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect as modified and stating the
modifications, and the dates to which the basic rent and other charges have been
paid in advance, if any, it being intended that any such statement delivered
pursuant to this paragraph may be relied upon by any prospective purchaser of
the fee or mortgagee or assignee of any mortgage upon the fee of the Demised
Premises.
SUCCESSORS AND ASSIGNS:
24. The terms, covenants and conditions hereof shall be binding upon
and inure to the successors and assigns of the parties hereto.
REMOVAL OF FIXTURES:
25. Notwithstanding anything contained in Article 8, 29 or elsewhere in
this Lease, if Lessor requests then Lessee will promptly remove at the sole cost
and expense of Lessee all fixtures, equipment and alterations made by Lessee
simultaneously with vacating the Demised Premises and Lessee will promptly
restore said Demised Premises to the condition that existed immediately prior to
said fixtures, equipment and alterations having been made all at the sole cost
and expense of Lessee.
QUIET ENJOYMENT:
26. Lessor warrants that it has full right to execute and to perform
this Lease and to grant the estate demised, and that Lessee, upon payment of the
rents and other amounts due and the performance of all the terms, conditions,
covenants and agreements on Lessees part to be observed and performed under this
Lease, may peaceably and quietly enjoy the Demised Premises for the business
uses permitted hereunder, subject, nevertheless, to the terms and conditions of
this Lease.
RECORDING:
27. Lessee shall not record this Lease without the written consent of
Lessor. However, upon the request of either party hereto, the other party shall
join in the execution of the Memorandum lease for the purposes of recordation.
Said Memorandum lease shall describe the parties, the Demised Premises and the
term of the Lease and shall incorporate this Lease by reference. This Article 27
shall not be construed to limit Lessor's right to file this Lease under Article
22 of this Lease.
OVERDUE PAYMENTS:
28. All monies due under this Lease from Lessee to Lessor shall be due
on demand, unless otherwise specified and if not paid when due, shall result in
the imposition of a service
15
<PAGE>
charge for such late payment in the amount of ten percent (10%) of the amount
due. Lessor will provide Lessee with written notice as to late payment prior to
any assessment of late charges.
SURRENDER:
29. On the Expiration Date or upon the termination hereof upon a day
other than the Expiration Date, Lessee shall peaceably surrender the Demised
Premises broom-clean in good order, condition and repair, reasonable wear and
tear only excepted. On or before the Expiration Date or upon termination of this
Lease on a day other than the Expiration Date, Lessee shall, at its expense,
remove all trade fixtures, personal property and equipment and signs from the
Demised Premises and any property not removed shall be deemed to have been
abandoned. Any damage caused in the removal of such items shall be repaired by
Lessee and at its expense. All alterations, additions, improvements and fixtures
(other than trade fixtures) which shall have been made or installed by Lessor or
Lessee upon the Demised Premises and all floor covering so installed shall
remain upon and be surrendered with the Demised Premises as a part thereof,
without disturbance, molestation or injury, and without charge, at the
expiration or termination of this Lease. If the Demised Premises are not
surrendered on the Expiration Date or the date of termination, Lessee shall
indemnify Lessor against loss or liability, claims, without limitation, made by
any succeeding Lessee founded on such delay. Lessee shall promptly surrender all
keys for the Demised Premises to Lessor at the place then fixed for payment of
rent and shall inform Lessor of combinations of any locks and safes on the
Demised Premises.
HOLDING OVER:
30. In the event of a holding over by Lessee after expiration or
termination of this Lease without the consent in writing of Lessor, Lessee shall
be deemed a lessee at sufferance and shall pay rent for such occupancy at the
rate of 1 1/2 times the last current aggregate Base and Additional Rent,
prorated for the entire holdover period, plus all attorney's fees and expenses
incurred by Lessor in enforcing its rights hereunder, plus any other damages
occasioned by such holding over. Except as otherwise agreed, any holding over
with the written consent of Lessor shall constitute Lessee a month-to-month
lessee.
ABANDONMENT:
31. In the event Lessee shall remove its fixtures, equipment or
machinery or shall vacate the Demised Premises or any part thereof prior to the
Expiration Date of this Lease, or shall discontinue or suspend the operation of
its business conducted on the Demised Premises for a period of more than thirty
(30) consecutive days (except during any time when the Demised Premises may be
rendered untenantable by reason of fire or other casualty), then in any such
event Lessee shall be deemed to have abandoned the Demised Premises and Lessee
shall be in default under the terms of this Lease.
16
<PAGE>
CONSENTS BY LESSOR:
32. Whenever provision is made under this Lease for Lessee securing the
consent or approval by Lessor, such consent or approval shall only be in
writing.
NOTICES:
33. Any notice required or permitted under this Lease shall be deemed
sufficiently given or secured if sent by registered or certified return receipt
mail to Lessee at 6205-6209 Bury Drive, Eden Prairie, Minnesota 55344 and to
Lessor at the address then fixed for the payment of rent as provided in Article
4 of this Lease, and either party may by like written notice at any time
designate a different address to which notices shall subsequently be sent or
rent to be paid.
RULES AND REGULATIONS:
34. Lessee shall observe and comply with the rules and regulations
hereinafter set forth in "Exhibit C", and with such further reasonable rules and
regulations as Lessor may prescribe, on written notice to Lessee for the safety,
care and cleanliness of the Building.
INTENT OF PARTIES:
35. Except as otherwise provided herein, the Lessee covenants and
agrees that if it shall any time fail to pay any such cost or expense, or fail
to take out, pay for, maintain or deliver any of the insurance policies above
required, or fail to make any other payment or perform any other act on its part
to be made or performed as in this Lease provided, then the Lessor may, but
shall not be obligated so to do, and without notice to or demand upon the Lessee
and without waiving or releasing the Lessee from any obligations of the Lessee
in this Lease contained, pay any such cost or expense, effect any such insurance
coverage and pay premiums therefor, and may make any other payment or perform
any other act on the part of the Lessee to be made and performed as in this
Lease provided, in such manner and to such extent as the Lessor may deem
desirable, and in exercising any such right, to also pay all necessary and
incidental costs and expenses, employ counsel and incur and pay reasonable
attorneys' fees. All sums so paid by Lessor and all necessary and incidental
costs and expenses in connection with the performance of any such act by the
Lessor, together with interest thereon at the rate of twelve percent (12%) per
annum from the date of making of such expenditure, by Lessor, shall be deemed
additional rent hereunder, and shall be payable to Lessor on demand. Lessee
covenants to pay any such sum or sums with interest as aforesaid and the Lessor
shall have the same rights and remedies in the event of the non-payment thereof
by Lessee as in the case of default by Lessee in the payment of the Base Rent
payable under this Lease.
17
<PAGE>
GENERAL:
36. The Lease does not create the relationship of principal and agent
or of partnership or of joint venture or of any association between Lessor and
Lessee, the sole relationship between the parties hereto being that of Lessor
and Lessee.
No waiver of any default of Lessee hereunder shall be implied from any
omission by Lessor to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect any default other
than the default specified in the express waiver and that only for the time and
to the extent therein stated. One or more waivers by Lessor shall not then be
construed as a waiver of a subsequent breach of the same covenant, term of
condition. The consent to or approval by Lessor of any act by Lessee requiring
Lessor's consent or approval shall not waive or render unnecessary Lessor's
consent to or approval of any subsequent similar act by Lessee shall be
construed to be both a covenant and a condition. No action required or permitted
to be taken by or on behalf of Lessor under the terms or provisions of this
Lease shall be deemed to constitute an eviction or disturbance of Lessee's
possession of the Demised Premises. All preliminary negotiations are merged into
and incorporated in this Lease. The laws of the State of Minnesota shall govern
the validity, performance and enforcement of this Lease.
a. This Lease and the exhibits, if any, attached hereto and
forming a part hereof, constitute the entire agreement between Lessor and Lessee
affecting the Demised Premises and there are no other agreements, either oral or
written, between them other than are herein set forth. No subsequent alteration,
amendment, change or addition to this Lease shall be binding upon Lessor or
Lessee unless reduced to writing and executed in the same form and manner in
which this Lease is executed.
b. If any agreement, covenant or condition of this Lease or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such agreement, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each agreement, covenant or condition of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
HAZARDOUS MATERIAL:
37. a. The Premises hereby leased shall be used by and/or at the
sufferance of Lessee only for the purpose set forth in Article 11 above and for
no other purposes. Lessee shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance, or will tend to
unreasonably disturb other Lessees in the Building or the Project. Lessee, its
employees and all persons visiting or doing business with Lessee in the Premises
shall be bound by and shall observe the Building Rules and Regulations attached
to this Lease as Exhibit "C", and such further and other reasonable rules and
regulations made hereafter by Lessor relating to the Premises, the
18
<PAGE>
Building or the Project of which notice in writing shall be given to the Lessee,
and all such rules and regulations shall be deemed to be incorporated into and
form a part of this Lease.
b. Lessee covenants throughout the Lease Term, at Lessee's
sole cost and expense, promptly to comply with all laws and ordinances and the
orders, rules and regulations and requirements of all federal, state and
municipal governments and appropriate departments, commissions, boards, and
officers thereof, and the orders, rules and regulations of the Board of Fire
Underwriters where the Premises are situated, or any other body now or hereafter
well as extraordinary, and whether or not the same require structural repairs or
alterations, which may be applicable to the Premises, or the use or manner of
use of the Premises. Lessee will likewise observe and comply with the
requirements of all policies of public liability, fire and all other policies of
insurance at any time in force with respect to the buildings and improvements on
the Premises and the equipment thereof.
c. In the event any Hazardous Material (hereinafter defined)
is brought or caused to be brought into or onto the Premises, the Building or
the Project by Lessee, Lessee shall handle any such material in compliance with
all applicable federal, state and/or local regulations. For purposes of this
Article, "Hazardous Material" means and includes any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for purposes of)
the Comprehensive Environmental Response, Compensation, and Liability Act any
so-called "Superfund" or "Superlien" la, or any federal, state or local statute,
law, ordinance, code, rule, regulation, order decree regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic, or
dangerous waste, substance or material, as now or at any time hereafter in
effect. Lessee shall submit to Lessor on an annual basis copies of its approved
hazardous materials communications plan, OSHA monitoring plan, and permits
required by the Resource Recovery and Conservation Act of 1976, if Lessee is
required to prepare, file or obtain any such plans or permits. Lessee will
indemnify and hold harmless Lessor from any losses, liabilities, damages, costs
or expenses (including reasonable attorneys' fees) which Lessor may suffer or
incur as a result of Lessee's introduction into or onto the Premises of any
Hazardous Material. This Article shall survive the expiration or sooner
termination of this Lease.
CAPTIONS:
38. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease nor
the intent or any provision thereof.
EXHIBITS:
39. Reference is made to Exhibits A, B, D and E inclusive, which
Exhibits are attached hereto and made a part hereof.
19
<PAGE>
Exhibit Description
Exhibit A Legal Description
Exhibit B Demised Premises
Exhibit D Improvements
Exhibit E Space Plan
40. Submission of this instrument to Lessee or proposed Lessee or his
agents or attorneys for examination, review, consideration or signature does not
constitute or imply an offer to lease, reservation of space, or option to lease,
and this instrument shall have no binding legal effect until execution hereof by
both Lessor/Owner and Lessee or its agents.
41. It is agreed and understood that Brad Bohlman, agent or broker with
Welsh Companies, Inc., is representing First Wisconsin National Bank of
Milwaukee, Wisconsin, Lessor, and Bob Ballard, agent or broker with Welsh
Companies, Inc., is representing Amcom Corporation, Lessee.
[SEE ALSO THE RIDER ATTACHED HERETO AND MADE A PART HEREOF, AND
CONTAINING ARTICLES 42 THROUGH 46, INCLUSIVE]
IN WITNESS WHEREOF, the Lessor and Lessee have caused these presents to
be executed in form and manner sufficient to bind them at law, as of the day and
year first above written.
Lessee: Lessor:
AMCOM CORPORATION FIRST WISCONSIN NATIONAL BANK
(A Minnesota Corporation) OF MILWAUKEE, WISCONSIN
/s/ Del M. Johnson /s/ J. Travers Price
- ------------------------------- -------------------------------
By: Del M. Johnson By: J. Travers Price
Its: CEO Its: Its Assistant Vice President
20
<PAGE>
RIDER TO LEASE DATED APRIL 6, 1990
BY AND BETWEEN
FIRST WISCONSIN NATIONAL BANK OF MILWAUKEE,
WISCONSIN, AS LESSOR
AND
AMCOM CORPORATION (A MINNESOTA CORPORATION),
AS LESSEE
42. The following is hereby added to and made a part of Article 2, Base
Rent, and Article 3, Additional Rent of this Lease:
<TABLE>
<CAPTION>
Period Monthly Base Rent Total Period Base Rent
<S> <C> <C>
August 1, 1990 through and
including July 31, 1991 $ 0.00 $ 0.00
August 1, 1991 through and
including July 31, 1993 $10,516.00 $252,384.00
August 1, 1993 through and
including July 31, 1995 $12,619.00 $302,856.00
-----------
Total $555,240.00
</TABLE>
All other terms and conditions of this Lease, including Additional Rent
shall be in full force and effect August 1, 1990.
43. Option to Extend Lease Term:
A. Provided Lessee is not in default hereunder and has performed all of
its covenants and obligations hereunder, Lessee shall have the option
to extend the Term of this Lease (hereinafter, the "Option") for two
distinct periods. The first option period is for one consecutive period
of two (2) years upon the same terms and conditions, except for Base
Rent, which shall be at the prevailing market rates for comparable
buildings at the time and upon the following further terms and
conditions outlined in B, C, and D. The second option period is for one
consecutive period of two (2) years and may be exercised only after the
first two (2) year option has been exercised. This two year option
shall be based upon the same terms and conditions, except for Base
Rent, which shall be at the prevailing market rates for comparable
buildings at the time and upon the following further terms and
conditions.
B. Lessee shall exercise said Option only by giving written notice to
Lessor not later than One Hundred Eighty (180) Days prior to the Lease
expiration date. Thereafter, Lessor shall advise the Lessee within 10
business days, of the Base Rent for the Option Period, and Lessee shall
then have 10 business days within which to revoke in writing its
exercise of the Option.
21
<PAGE>
C. It is understood and agreed that this Option is personal to Amcom
Corporation and is not transferable; in the event of any assignment or
subleasing of any or all of the Demised Premises said Option shall be
null and void.
44. Moving Allowance:
To help defray the costs of Lessee's move into the Demised Premises,
Lessor agrees to make available to Lessee a moving allowance of
$19,117.00. Said moving allowance shall be payable to Lessee upon
Lessee's occupancy of the Demised Premises and Lease Commencement.
45. First Opportunity to Lease Additional Space:
A. Provided Lessee is not in default and has performed all of its
obligations hereunder, Lessee shall have the first opportunity to lease
such other [contiguous] space in the Building as it becomes available
for leasing during the Term (the "First Opportunity") for a term
coterminous with this Lease and, at the rental rates and upon such
other terms and conditions, other than rent-free periods, as are then
being offered by Lessor to the general public for such space
B. Upon notification in writing by Lessor that such space is available,
Lessee shall have ten business days in which to elect in writing so to
lease such space, in which event the lease for same shall commence not
more than thirty days after such space becomes vacant and shall be
coterminous with this Lease.
C. It is understood that this First Opportunity shall not be construed
to prevent any tenant in the Building from extending or renewing its
lease.
D. The First Opportunity hereby granted is personal to Amcom
Corporation and is not transferable; in the event of any assignment or
subletting under this Lease, this first opportunity shall automatically
terminate and shall thereafter be null and void.
46. Submission of this instrument to Lessee or proposed Lessee or his
agents or attorneys for examination, review, consideration or signature
does not constitute or imply an offer to lease, reservation of space,
or option to lease, and this instrument shall have no binding legal
effect until execution hereof by both Lessor/Owner and Lessee or its
agents.
LESSEE: LESSOR:
AMCOM CORPORATION FIRST WISCONSIN NATIONAL OF
(A MINNESOTA CORPORATION) OF MILWAUKEE, WISCONSIN
BY: _____________________________ BY: _____________________________
ITS: ____________________________ ITS: ____________________________
DATE: ___________________________ DATE: ___________________________
22
<PAGE>
EXHIBIT A
LOT 1, BLOCK ONE (1), 3RD ADDITION WESTWOOD INDUSTRIAL PARK
- --------------------------------------------------------------------------------
EXHIBIT B
FLOOR PLAN
- --------------------------------------------------------------------------------
EXHIBIT D
LEASEHOLD IMPROVEMENTS
Lessor will provide Lessee, at its sole cost and expense, the Leasehold
Improvements as referenced in EXHIBIT E, Plans and Specifications Approved and
signed by Lessee.
23
<PAGE>
1994 LEASE AMENDMENT #1
PROPERTY: WESTWOOD BUSINESS CENTER
EDEN PRAIRIE, MN
LANDLORD: 600 PROPERTIES, a Minnesota general partnership
(Successor to First Wisconsin National Bank of Milwaukee}
TENANT: AMCOM CORPORATION (a Minnesota corporation)
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease dated April 6, 1990,
which Lease was amended on August 28, 1990, and March 14, 1991, copies of which
are attached hereto and made a part hereof, and WHEREAS, Landlord and Tenant
desire to further amend the Lease, the parties agree as follows:
1. Tenant agrees to lease an additional 3,173 square feet, located
adjacent to and south of the existing premises, known as 6211 Bury
Drive, further described on Exhibit A, attached hereto.
2. The term for this space shall begin April 1, 1994, and end July 31,
1999.
3. The additional Base Rent shall be at the rate of $6.00 per square foot
per year, equal to $1,586.50 per month. The additional operating
expense rent shall be added pro rata on a per square foot basis,
according to the Lease.
4. Tenant agrees to take the premises "as is" and shall perform any work
required by it for its occupancy.
5. All the other terms and conditions of the Lease shall remain in full
force and effect, as applicable.
TENANT: LANDLORD:
AMCOM CORPORATION 600 PROPERTIES
By /s/ Del M. Johnson By /s/ C. Rex Rice
---------------------------------- ----------------------------------
Del M. Johnson C. Rex Rice
Its Chief Executive Officer Its Partner
Dated: March 30, 1994 Dated: March 30, 1994
<PAGE>
1994 LEASE AMENDMENT #1
PROPERTY: WESTWOOD BUSINESS CENTER
EDEN PRAIRIE, MN
LANDLORD: 600 PROPERTIES, a Minnesota general partnership
(Successor to First Wisconsin National Bank of Milwaukee}
TENANT: AMCOM CORPORATION (a Minnesota corporation)
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease dated April 6, 1990,
which Lease was amended on August 28, 1990, and March 14, 1991, copies of which
are attached hereto and made a part hereof, and WHEREAS, Landlord and Tenant
desire to further amend the Lease, the parties agree as follows:
1. Tenant agrees to lease an additional 3,173 square feet, located
adjacent to and south of the existing premises, known as 6211 Bury
Drive, further described on Exhibit A, attached hereto.
2. The term for this space shall begin April 1, 1994, and end July 31,
1999.
3. The additional Base Rent shall be at the rate of $6.00 per square foot
per year, equal to $1,586.50 per month. The additional operating
expense rent shall be added pro rata on a per square foot basis,
according to the Lease.
4. Tenant agrees to take the premises "as is" and shall perform any work
required by it for its occupancy.
5. All the other terms and conditions of the Lease shall remain in full
force and effect, as applicable.
TENANT: LANDLORD:
AMCOM CORPORATION 600 PROPERTIES
By /s/ Del M. Johnson By /s/ C. Rex Rice
---------------------------------- ----------------------------------
Del M. Johnson C. Rex Rice
Its Chief Executive Officer Its Partner
Dated: March 30, 1994 Dated: March 30, 1994
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease, dated March 5, 1991, between Amcom
Corporation (a Minnesota Corporation) (as Lessee), and First Wisconsin National
Bank of Milwaukee (as Lessor).
On April 6, 1990, Lessee and First Wisconsin National Bank of Milwaukee
entered into a Lease Agreement for approximately 19,117 square feet at 6205 Bury
Drive, Eden Prairie, Minnesota.
The Lessee hereby wants to expand this space, and Lessor agrees to
lease such additional space, subject to the following terms and conditions:
1. Lessor agrees to lease and Lessee does lease and take from Lessor
approximately 3,354 additional square feet located at 6203 Bury Drive,
Eden Prairie, Minnesota 55344.
2. The term for this expansion space shall begin March 1, 1991 and shall
continue through July 31, 1995.
3. The base monthly rental rate for this expansion space will be:
March 1, 1991 - December 31, 1991 $0.00
January 1, 1992 - December 31, 1992 $838.50 or 3.00 psf
January 1, 1993 - December 31, 1993 $922.35 or 3.50 psf
January 1, 1994 - December 31, 1994 $1118.00 or 4.00 psf
January 1, 1995 - July 31, 1995 $l537.25 or 5.50 psf
Common Area Maintenance, taxes and insurance will be based on your
pro-rata share of the building, and are due upon commencement date of
this expansion.
4. Lessor will contribute $1,000.00 to tenant improvements and
construction costs. All other improvement costs will be at Lessee's
sole expense.
5. Unless specifically provided for in this Second Amendment to Lease, all
terms and conditions of the Lease shall apply to the original Lease and
shall remain in full force and effect.
AMCOM Corporation First Wisconsin National of
(a Minnesota Corporation) of Milwaukee, Wisconsin
By: _____________________________ By: _____________________________
Its: ____________________________ Its: ____________________________
Date: ___________________________ Date: ___________________________
<PAGE>
AMENDMENT # 1
TO LEASE DATED April 6, 1990 BY AND BETWEEN
First Wisconsin National Bank of Milwaukee, AS LESSOR
AND Amcom Corporation (a Minnesota Corporation), AS LESSEE
THIS AMENDMENT TO LEASE, entered into and made as of the 13th day of
August, 1990, by and between First Wisconsin National Bank of Milwaukee, as
Lessor and Amcom Corporation (a Minnesota Corporation), as Lessee.
WITNESSETH:
WHEREAS, Lessor and Lessee have heretofore entered into a certain
lease, dated April 6, 1990 (the "Lease"), of a certain space at 6205-6209 Bury
Drive Eden Prairie, Minnesota (the "Premises"), upon terms and conditions
described in said Lease; and
WHEREAS, Lessor and Lessee desire to amend said lease as described
below:
NOW THEREFORE, in consideration of the rents reserved and of the
covenants and agreements herein set forth, it is agreed that the Lease be hereby
amended from and after the date hereof as follows:
Term: The Term of the Lease shall be changed from 60 months to 59
months and 15 days; the Commencement Date shall be changed from August 1, 1990,
to August 17, 1990.
Except as is hereinabove set forth, all terms, provisions and covenants
of the Lease shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
LESSEE: LESSOR:
AMCOM CORPORATION FIRST WISCONSIN NATIONAL OF
(A MINNESOTA CORPORATION) OF MILWAUKEE, WISCONSIN
BY: _____________________________ BY: _____________________________
ITS: ____________________________ ITS: ____________________________
DATE: ___________________________ DATE: ___________________________
<PAGE>
1994 LEASE AMENDMENT #2
PROPERTY: WESTWOOD BUSINESS CENTER, EDEN PRAIRIE, MN
LANDLORD: 600 PROPERTIES, a Minnesota general partnership
(Successor to First Wisconsin National Bank of Milwaukee)
TENANT: AMCOM CORPORATION (a Minnesota corporation)
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease dated April 6, 1990,
which Lease was amended on August 28, 1990, March 14, 1991, and March 30, 1994,
copies of which are attached hereto and made a part hereof, and WHEREAS,
Landlord and tenant desire to further amend the Lease, the parties agree as
follows:
1. Landlord and Tenant agree to extend the Term of the Lease for 4 years, from
July 31, 1995, to July 31, 1999. (Total area consists of 22,471 square feet
leased prior to 1994, plus the 3,173 square feet added by the 1994 LEASE
AMENDMENT #1, for a total area of 25,644 square feet.)
2. New Base Rent, commencing August 1, 1995, shall be as follows:
<TABLE>
<CAPTION>
- ----------------- --------------- ---------------- --------------- ---------------- ---------------
Rate PSF Monthly Monthly TOTAL
on 22,472 Base Rent Base Rent MONTHLY
Starting Through sq. ft. 22,471 sq. ft. 3,173 sq. ft. BASE RENT
- ----------------- --------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
8/1/95 7/31/96 $5.45 $10,205.58 $1,586,50 $11,792.08
8/1/96 7/31/97 $5.65 $10,580.10 $1,586.50 $12,166.60
8/1/97 7/31/98 $5,85 $10,954.61 $1,586.50 $12,541.11
8/1/98 7/31/99 $6.05 $11,329.13 $1,586.50 $12,915.63
- ----------------- --------------- ---------------- --------------- ---------------- ---------------
</TABLE>
3. Paragraph 43 of the Rider To Lease (relating to an option to extend) shall be
deleted. Tenant, provided it is not in default, shall have an OPTION TO EXTEND
the lease for 2 additional periods of 2 years each, upon at least 6 months'
prior written notice to Landlord. This option is personal to Amcom, and is not
transferable to any assignee or subtenant. Base Rent during the option periods
shall be as follows:
<TABLE>
<CAPTION>
Lease year Starting Base Rent Per Square Foot
<S> <C> <C> <C>
1 8/1/99 $6.30 times applicable square feet
2 8/1/00 $6.50 "
1 8/1/01 $6.70 "
2 8/1/02 $6.90 "
</TABLE>
4. All the other terms and conditions of the Lease shall remain in full
force and effect, as applicable.
TENANT: AMCOM CORPORATION LANDLORD: 600 PROPERTIES
By /s/ Del M. Johnson By /s/ C. Rex Rice
---------------------------------- ----------------------------------
Del M. Johnson, Chief Executive Officer C. Rex Rice, Partner
Dated: March 30, 1994 Dated: March 30, 1994
<PAGE>
1994 LEASE AMENDMENT #3
PROPERTY: WESTWOOD BUSINESS CENTER
EDEN PRAIRIE, MN
LANDLORD: 600 PROPERTIES, a Minnesota general partnership
(Successor to First Wisconsin National Bank of Milwaukee)
TENANT: AMCOM CORPORATION (a Minnesota corporation)
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease dated April 6, 1990,
which Lease was amended on August 28, 1990, March 14, 1991, March 30, 1994, and
March 30, 1994, copies of which are attached hereto and made a part hereof, and
WHEREAS, Landlord and Tenant desire to further amend the Lease, the parties
agree as follows:
1. When, as and if it becomes available, during the term of Tenant's Lease,
Tenant agrees to lease as additional space the approximately 9,286 square feet
of space adjacent to and south of the existing premises, known as 6213 Bury
Drive, further described on Exhibit A attached hereto.
2. Depending on when such space becomes available, the additional Base
Rent shall apply as follows:
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Rate PSF on TOTAL MONTHLY
Starting Through 9,286 sq. ft. BASE RENT
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Now 7/31/96 $5.50 $4,256.08
8/1/96 7/31/97 5.70 4,410.85
8/1/97 7/31/98 5.90 4,565.62
8/1/98 7/31/99 6.10 4,720.38
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
If during the option periods:
8/1/99 7/31/00 6.30 4,875.15
8/1/00 7/31/01 6.50 5,029.92
8/1/01 7/31/02 6.70 5,184.68
8/1/02 7/31/03 6.90 5,339.45
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
3. Tenant agrees to take the premises "as is," and shall perform any work
required by it for its occupancy. The additional Base Rent shall begin 15 days
after the premises are vacated by the existing tenant. The additional operating
expense rent shall be added pro rata on a per square foot basis, according to
the Lease.
4. All the other terms and conditions of the Lease shall remain in full force
and effect, as applicable.
TENANT: LANDLORD:
AMCOM CORPORATION 600 PROPERTIES
By ______________________________ By ____________________________
Dated: March 30, 1994 Dated: March 30, 1994
CONSENT TO SUBLEASE
This Agreement is entered into as September 18,1995 by and among THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Lessor"),
and VIKING PRESS, INC. a Minnesota corporation ("Sublessor").
Sublessor is the Tenant under a Lease dated as of June 17, 1991, as amended by
an Amendment No. 1 to Lease dated December 11, 1992, and an Amendment No. 2 to
Lease dated March 30, 1994, (the "Prime Lease"), under which Lessor demised to
the Sublessor certain space (the "Premises") in the building known as Washington
Square and located at 7500-7588 Washington Avenue South, Eden Prairie,
Minnesota, 55344.
Sublessor proposes to sublease a portion of the Premises to Amcom Corporation
("Sublessee"), and has requested Lessor's consent to the sublease.
Lessor hereby consents to the subletting by Sublessor to Sublessee, pursuant to
a sublease (the "Sublease") a copy of which is attached hereto, of a portion of
the Premises as shown and marked on the floor plan attached to the Sublease (the
"Sublet Space"). Lessor's consent is subject to and upon the following terms and
conditions, as to each of which Sublessor and Sublessee expressly agree:
1. Nothing contained in this agreement shall
(a) operate as a consent to or approval or ratification by Lessor
of any of the provisions of the Sublease or as a
representation or warranty by Lessor, and Lessor shall not be
bound or estopped in any way by the provisions of the
Sublease, or
(b) be construed to modify, waive or affect (i) any of the
provisions, covenants or conditions in the Prime Lease, (ii)
any of Sublessor's obligations under the Prime Lease, or (iii)
any rights or remedies of Lessor under the Prime Lease or
otherwise or to enlarge or increase Lessor's obligations or
Sublessor's rights under the Prime Lease or otherwise, or
(c) be construed to waive any present or future breach or default
on the part of Sublessor under the Prime Lease. In case of any
conflict between the provisions of this agreement and the
provisions of the Sublease, the provisions of this agreement
shall prevail unaffected by the Sublease.
2. This consent is not assumable.
3. The Sublease shall be subject and subordinate at all times to the Prime Lease
and to all of its provisions, covenants and conditions. In case of any contact
between the provisions of the Prime Lease and the provisions of the Sublease,
the provisions of the Prime Lease shall prevail unaffected by the Sublease.
<PAGE>
4. Neither the Sublease nor this consent shall release or discharge Sublessor
from any liability under the Prime Lease and Sublessor shall remain liable and
responsible for the full performance and observance of all of the provisions,
covenants and conditions set forth in the Prime Lease on the part of Sublessor
to be performed and observed. Any breach or violation of any provision of the
Prime Lease by Sublessee shall be deemed to be and shall constitute a default by
Sublessor in fulfilling such provision.
5. This consent shall not be construed as a consent by Lessor to any further
subletting either by Sublessor or Sublessee. The Sublease may not be assigned,
renewed or extended nor shall the Premises or Sublet Space, or any part thereof,
be further sublet without the prior written consent of Lessor thereto in each
instance.
6. As used in this consent, the term "Prime Lease" shall include all of the
exhibits and any amendments to the Prime Lease.
SUBLESSOR SUBLESSEE
VIKING PRESS, INC. AMCOM CORPORATION
By___________________________ By____________________________
Its________________________ Its_________________________
LESSOR
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By____________________________
Its__________________________
2
<PAGE>
SUBLEASE
1. Parties
This Sublease is entered into as of the 18th day of September, 1995, by
and between Viking Press, Inc., (Sublessor) and Amcom Corporation, a
Minnesota corporation (Sublessee) subject to the primary lease between
Viking Press Inc., a Minnesota corporation as lessee and The Equitable
Life Assurance Society of the United States, a New York corporation
(Lessor) entered into June 17, 1991, and certain Amendment No.1 to
Lease dated December 11, 1992, and Amendment No. 2 to Lease dated March
30, 1994, pursuant to the terms of which Lessor leased to Lessee
certain premises in the building known as Washington Square and located
at 7500 - 7588 Washington Avenue S., Eden Prairie, Minnesota 55344. A
copy of said Lease is attached hereto, and made a part hereof, and
marked Exhibit A, and will hereinafter be referred to as the "Prime
Lease".
2. Provisions Constituting Sublease
(a) This Sublease is subject to all of the terms and conditions of
the Lease in Exhibit A, except as specifically stated
otherwise herein and Sublessee shall assume and perform the
obligations of Sublessor's (Lessee) in the Prime Lease, to the
extent said terms and conditions are applicable to the
premises subleased pursuant to this Sublease. Sublessee shall
not commit or permit to be committed on the subleased premises
any act or omission which shall violate any term or condition
of the Prime Lease. In the event of the termination of
Sublessor's interest as Lessee under the Prime Lease for any
reason, then Sublessee (if in conforming use and good
financial standing with respect to rental payments, i.e. not
in default or having any liens against property) shall have
the option to exercise either of the following alternatives
within ten (10) days thereafter by written notice to Lessor;
1) to terminate this Sublease and vacate the Premises within
thirty (30) days, or 2) assume Sublessor's Prime Lease
obligations applicable to the Demised Premises (7524-7530
Washington Avenue South), neither of which shall release
Sublessor from its obligations under the Prime Lease.
(b) All of the terms and conditions contained in the Prime Lease
are incorporated herein as terms and conditions of this
Sublease (with each reference therein to Lessor and Lessee to
be deemed to refer to Sublessor and Sublessee) and along with
all of the following paragraphs set out in this Sublease,
shall be the complete terms and conditions of this Sublease.
3. Premises
Sublessor leases to Sublessee and Sublessee hires from said Sublessor
approximately 9,685 rentable square feet located at 7524-7530
Washington Avenue South situated in the City of Eden Prairie, County of
Hennepin, State of Minnesota (Exhibit B), referred to as "Demised
Premises", for the term of this Sublease Agreement
3
<PAGE>
4. Term
4.1 The term of this Sublease shall be for a period of 34 months
commencing on or about September 6, 1995, and ending on June
30, 1998, unless sooner terminated pursuant to any provision
hereof.
4.2 Delay in Commencement. Notwithstanding said commencement date,
if for any reason, Sublessor cannot deliver possession of the
Premises to Sublessee on said date, Sublessor shall not be
subject to any liability therefore, nor shall such failure
affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof but in such case
Sublessee shall not be obligated to pay rent until possession
of the Premises is tendered to Sublessee; provided, however,
that if Sublessor shall not have delivered possession of the
Premises within ninety (90) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to
Sublessor within ten (10) days thereafter, cancel this
Sublease. If this Lease is canceled as herein provided,
Sublessor shall return any monies previously deposited by
Sublessee and the parties shall be discharged from all
obligations hereunder.
4.3 Early Possession. In the event that Sublessor shall permit
Sublessee to occupy the Premises prior to the commencement
date of the term, such occupancy shall be subject to all of
the provisions of this Sublease. Said early possession shall
not advance the termination date of this Sublease.
5. Base Rent.
Tenant shall pay Sublessor, in accordance with paragraph 5 of this
Sublease, Base Rent according to the following schedule: $4.40 per
square foot (net) payable in advance, in equal monthly installments of
$3,551.17 commencing each and every month thereafter.
6. Additional Rent. Sublessee shall pay its proportionate share of, each
and every month hereafter, additional rent due and payable by Sublessor
pursuant to Article III of the Prime Lease as and when due and payable
by Sublessor to the Lessor. Additional rent is estimated to be $2.30
p.s.f. for 1995.
7. Default In the event Sublessee defaults in any term or condition of
this Sublease or the appropriate section of the Prime Lease, Sublessor
shall have all of the rights and remedies of the Lessor as contained in
the Prime Lease against the Sublessee.
In the event that Sublessor defaults under the Prime Lease, Sublessee
shall have the option to exercise either of the following alternatives
within ten (10) days of written notice of default by Lessor; 1) to
terminate this Sublease and vacate the Premises within thirty (30) days
or, 2) assume all of Sublessor's Prime Lease obligations applicable to
the Demised Premises (7518 Washington Avenue South).
4
<PAGE>
8. Maintenance and Repair. Sublessee shall maintain and repair the
subleased space in the same manner in which Sublessor is obligated to
so maintain and repair pursuant to the Prime Lease.
9. Security Deposit
Sublessor shall deposit with Sublessor upon execution hereof the sum of
Three thousand five hundred fifty one and 17/100 Dollars ($3,551.17) as
security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all 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 Sublessor may become
obligated by reason of Sublessee's default, or to compensate Sublessor
for any loss or damage which Sublessor may suffer thereby. If Sublessor
so uses or applies all or any portion of said deposit, Sublessee shall
within ten (10) days after written demand therefore deposit cash with
Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a
breach of this Sublease, and Sublessor may at his option terminate this
Sublease. Sublessor shall not be required to keep said deposit separate
from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit or so much thereof as had not
theretofore been applied by Sublessor shall be returned without payment
of interest for its use to Sublessee (or, at Sublessor's option, to the
last assignee, if any, of Sublessee's interest hereunder) within ten
(10) days after the expiration of the term hereof, or after Sublessee
has vacated the Premises, which is later.
10. Use.
The Premises shall be used and occupied only for general office, light
assembly, warehousing, and distribution of computer related products.
11. With respect to those undertakings of Sublessor in this sublease which
correspond to those of the Landlord in the Prime Lease, Sublessor
convents with Sublessee that, upon reasonable written notice from
Sublessee of default in the performance or observance of any such
undertakings by Sublessor, Sublessor will reasonably enforce its right
against its Landlord under the Prime Lease.
12. Each party covenants and agrees with the other party not to do or
commit any act which shall constitute a default under the Prime Lease
and agrees to defend and save the other party harmless and indemnified
from and against any and all liability, loss, costs, damage or expense,
including reasonable attorneys' fees, arising out of or in connection
with any act or failure to act which constitutes a default under the
Prime Lease.
13. Broker's Commission
Sublessee represents and warrants to Sublessor that Sublessee has not
contacted any real estate broker in connection with this transaction
other than CB Commercial. Sublessor
5
<PAGE>
represents and warrants to Sublessee that Sublessor has not employed
any broker with respect to this transaction other than Koll/Shelard,
and that it shall indemnify Sublessee against and hold Sublessee
harmless from any claim, loss, damage, cost or liability for any
brokerage commission or fee asserted against Sublessee by the Brokers
or any other Broker in connection with this transaction.
14. Improvements
Sublessor, at the sole cost of Sublessor shall see that all lighting is
functional, mechanicals in working order, and turn over premises in
broom-swept condition. Any other improvements or alterations made to
the premises, shall be the responsibility of the Sublessee, and prior
approval of such shall be submitted in writing by Sublessee to the
Lessor (Landlord) before commencing improvements or alterations, and
approval of such shall not be unreasonably withheld.
15. Landlord Approval
Landlord must approve all sublease agreements, which shall comply with
the use clause of prime lease, not to be unreasonably withheld.
Address: Viking Press, Inc.
By:___________________________
Sublessor
C/O BANTA ISG
7000 Washington Ave. S. Its:__________________________
Eden Prairie, MN 55344
Dated:________________________
Address: Amcom Corporation
By:___________________________
Amcom Corporation Its:__________________________
6205 Bury Drive
Eden Prairie, Minnesota 55344 Date:_________________________
6
LEASE SUMMARY
THIS INDENTURE, made this 1st day of September, 1995, between Equitable
Life Assurance Society of the United States ("Landlord"), and Amcom Corporation,
a Minnesota corporation ("Tenant").
Section 1.1 - Premises Location: 7524-7530 Washington Avenue South
Eden Prairie, Minnesota
Lease Term: Two (2) Years, Zero (0) Months
Commencement Date: July 1, 1998
Expiration Date: June 30, 2000
Basic Rent: Forty Six Thousand Three and 75/100 Dollars
annually ($46,003.75 annual base rent)
Section 1.2 - Premises Use: Office, Light Assembly, Warehousing, Distribution
Section 3.1 - Pro Rata Share of Expenses: 13.4%
Section 4.1 - Insurance: $1,000,000 Combined Single Limited Liability
Section 10.1 - Property Manager Address: Koll/Shelard
11455 Viking Drive, Suite 300
Eden Prairie, MN 55344
Section 25.1 - Brokerage: Koll/Shelard (Landlord) CB Commercial (Tenant)
Section 26.1 - Security Deposit: Three Thousand Eight Hundred Thirty Three and
65/100 Dollars ($3,833.65)
Section 29.10 - Parking Spaces: Thirteen (13)
Exhibits A and Riders 1 are attached hereto and made a part of this Lease,
consisting of 2 pages.
<PAGE>
WITNESSETH:
ARTICLE 1
Description-Tern-Rent-Use
Section 1. 1 The Landlord, in consideration of the rents and agreements
hereinafter reserved on the part of the Tenant to be paid and performed, does
hereby demise and lease unto the Tenant, and the Tenant does hereby take subject
to the covenants and conditions hereinafter expressed which the Tenant agrees to
keep and perform, the space ( "the Premises" ) described on Exhibit A attached
hereto in the building located at the place specified on Page One of this Lease
(the "Building"), with the privilege to the Tenant of using (subject to such
reasonable rules and regulations as the Landlord may from time to time
prescribe) the necessary entrances and appurtenances thereto.
TOGETHER with all machinery, apparatus, equipment, and fixtures now or
hereafter owned by the Landlord and located on the Premises and used exclusively
for the operation and maintenance of the Premises (the "Building Equipment").
SUBJECT, however, to any and all existing leases, encumbrances,
conditions, covenants, easements, restrictions and rights-of-way, whether or not
of record, and other matters of record, if any, and to such matters as may be
disclosed by inspection or survey.
T0 HAVE AND TO HOLD the Premises and Building Equipment unto the
Tenant, for the Term as specified on Page One of this Lease (unless the Term of
this Lease shall sooner terminate as hereinafter provided) yielding and paying
therefor during the Term an annual basic rental (said annual basic rental is
hereinafter sometimes referred to as the "Basic Rent"), over and above the other
and additional payments to be made by the Tenant as specified on Page One of
this Lease.
The Basic Rent shall be paid in equal monthly installments in advance
on the first day of each and every calendar month during the Term of this Lease,
except that the first month's rent shall be due and payable when this Lease is
executed. If the Term does not commence on the first day of a month, the monthly
installment of Basic Rent payable for the period from the commencement of the
Term of this Lease to the last day of the month in which such commencement
occurs shall be prorated and paid on the date of such commencement. Interest at
the rate of two percent (2%) per month will be charged retroactive to the first
day of the month for rents not paid by the fifth (5th) day of the calendar month
until all monies due are paid.
Section 1.2 The Tenant agrees that it will use and occupy the Premises
for the purposes set forth on Page One of this Lease. The Tenant will not make
or permit to be made any use of the Premises or any part thereof which would
violate any of the covenants, agreements, terms, provisions and conditions of
this Lease or which directly or indirectly is forbidden by public law, ordinance
or governmental regulation; or make or permit any use of the Premises which may
be dangerous, noxious or offensive or create or maintain any nuisance in, at or
on the Premises; or make or permit any use of the Premises which may invalidate,
or increase the premium cost of any
2
<PAGE>
policy of insurance carried on the Building and environs and their operation, or
any use which, in Landlord's sole judgment, shall impair the character,
reputation or appearance of the Building and environs.
ARTICLE II
Covenant to Pay Rent
Section 2.1 The Tenant covenants to pay, without notice or demand and
without deduction or set-off for any reason whatsoever, the Basic Rent and all
other sums to be paid by Tenant as herein provided (all of which are hereinafter
collectively referred to as "the rent").
ARTICLE III
Operating Expenses-Taxes
Section 3.1 With regard to the expenses of the Landlord for (i) taxes
or assessments payable by Landlord upon or with respect to the Building and the
land upon which it is located, or any government levies or taxes imposed in lieu
thereof, and taxes, water and sewer charges and other governmental charges
relating to the maintenance and operation of the Building or any occupancy, use
or possession of or activity conducted thereon or on any part thereof (excluding
income, franchise, inheritance or capital stock taxes), but including any taxes
on rent and further including Landlord's cost of protesting taxes, and (ii)
insurance for fire, rental, public liability, property damage and any other type
of insurance which may be carried by Landlord with respect to the building, or
any part thereof, and the land on which it is located, and (iii) any and all
other expenses for the operation, maintenance and repair of the Building and the
land on which it is located including by way of example but without limiting the
generality of the foregoing, exterior grounds clean-up, landscaping maintenance,
snowplowing, ice removal, common area utilities and common area maintenance,
Tenant agrees to pay Landlord, as additional rent hereunder, within ten days
after written demand therefor, Tenant's Pro Rata Share of all such expenses.
Late payments are subject to a two percent (2%) per month service charge until
all monies are paid.
Section 3.2 In order to provide for current payments on account of the
additional rent which may be payable to Landlord pursuant to clauses (i) through
(iii) of section 3.1, the Tenant agrees, at Landlord's request, to make payments
on account of such additional rent due for the ensuing twelve (12) months, as
estimated by notice from Landlord to Tenant from time to time, in twelve (12)
monthly installments, each in an amount equal to 1/12th of the amount of
additional rent so estimated by Landlord commencing on the first day of the
month following the month in which Landlord notifies Tenant of the amount of
such estimated additional rent. If, as finally determined, the amount of
additional rent payable by Tenant pursuant to clauses (i) through (iii) of
Section 3.1 shall be less than or be greater than the aggregate of all
installments to be so paid on account to the Landlord for such twelve (12) month
period, then Tenant shall pay to Landlord the amount of such underpayment or, so
long as Tenant is not in default hereunder, the Landlord shall credit to Tenant
any overpayment against succeeding installments of rent and at the end of the
Term of this Lease refund any amount not so applied to rent.
3
<PAGE>
Section 3.3 Tenant agrees to pay, in the same manner as set forth in
Section 3.2, as additional rent, an amount equal to any additional tax levied
with respect to improvements made to Premises by the Tenant, as the value of
such improvements is shown on the assessment records.
Section 3.4 The obligations of Tenant to pay the additional rent
provided for in Section 3.1 shall survive the termination of this Lease.
ARTICLE IV Insurance
Section 4.1 The Tenant, at the Tenant's sole cost and expense, shall
maintain for the mutual benefit of the Landlord and the Tenant, comprehensive
public liability insurance, property damage insurance and contractual liability
insurance against claims for personal injury, death or property damage occurring
upon, in or about the Premises or any elevators or escalators therein and on, in
or about the adjoining streets and passageways, if any, such insurance to afford
protection to the limits of not less than the amounts as specified on Page One
of this Lease.
Section 4.2 Tenant, at Tenant's sole cost and expense, shall further
maintain for the mutual benefit of Landlord and Tenant, insurance on its
fixtures and tenant improvements and on its merchandise, inventory, contents,
furniture, equipment or other personal property located in the Premises from
time to time, against fire and such other risks as are included in extended
coverage insurance.
Section 4.3 Landlord agrees to purchase and keep in force and effect
insurance on the Building against fire and such other risks as may be included
in extended coverage insurance from time-to-time available in an amount not less
than the greater of 80% of the full insurable value of the Building or the
amount sufficient to prevent Landlord from becoming a co-insurer under the terms
of the applicable policies. Such policies may be in blanket form and cover other
properties owned by Landlord.
Section 4.4 All policies of insurance shall be in form and substance
satisfactory to the Landlord, shall be written with companies satisfactory to
the Landlord, in amounts satisfactory to the Landlord, and shall provide that
they shall not be cancelable on less than thirty (30 days' notice to the
Landlord or the holder of any mortgage. Certificates of insurance shall be
furnished to the Landlord. Tenant's policies shall name Landlord, its agents,
servants and employees, as additional insureds.
Section 4.5 Landlord and Tenant intend that the risk of loss or damage
to the Premises or any improvements therein be borne by responsible insurance
carriers, and Landlord and Tenant hereby release each other and agree to look
solely to, and seek recovery only from, such insurance carriers in the event of
such a loss, to the extent that such coverage is agreed to be provided
hereunder. For this purpose, all insurance policies to be maintained by either
Landlord or Tenant shall contain a clause pursuant to which the insurance
carrier waives all rights of subrogation against the other party with respect to
losses payable under such policies: and any applicable deductible amount shall
be treated as though it were recoverable under such policies.
4
<PAGE>
ARTICLE V
Landlord's Right to Perform Tenant's Covenants
Section 5.1 The Tenant covenants that if the Tenant shall at any time
fail to make any payment or perform any other act on its part to be made or
performed under this Lease, the Landlord may, but shall not be obligated to, and
without notice or demand and without waiving or releasing the Tenant from any
obligation of the Tenant under this Lease, make such payment or perform such
other act to the extent the landlord may deem desirable, and in connection
therewith to pay expenses and to employ counsel. All sums so paid by the
Landlord and all expenses (including reasonable attorneys' fees) in connection
therewith, together with interest thereon at the rate of two percent (2%) per
month until all monies are paid, shall be deemed additional rent hereunder and
be payable to the Landlord on demand.
ARTICLE VI
Repairs and Maintenance of Premises-Surrender of Premises-Waste
Section 6.1 The Tenant covenants at the Tenant's sole expense to take
good care of the Premises and any Building equipment located therein, including
by way of example but without limiting the generality of the foregoing,
ceilings, floors, walls, woodwork, paint, doors, glass, plumbing, plumbing
fixtures, heating/air conditioning, hot water systems, electrical systems,
mechanical systems and equipment, and agrees to keep the same in good order and
condition and to make promptly all repairs, replacements or renewals. The Tenant
covenants to keep the Premises in a clean and orderly condition and free of
debris, merchandise, materials and rubbish.
Section 6.2. The Tenant covenants that upon termination of this Lease
for any reason whatsoever the Tenant will surrender to the Landlord the
Premises, together with all improvements, alterations, replacements thereto, and
the Building Equipment in good order, condition and repair, except for
reasonable wear and tear; provided, however, that if Landlord requests Tenant to
remove any such improvements, alterations or replacements, the Tenant shall
remove the same and restore the Premises to their condition prior to the
installation thereof. Upon such termination, Tenant shall remove, to Landlord's
satisfaction, all petroleum, hazardous wastes and hazardous substances from the
Premises (including soil and groundwater) and from any adjacent property upon
which any such petroleum, hazardous wastes and hazardous substances generated or
disposed of by the Tenant may be located.
Section 6.3 The Tenant covenants not to do or suffer any waste or
damage, disfigurement or injury to the Premises (including, without limitation,
the walls and ceilings located therein) or permit or suffer any overloading of
the floors of the Premises.
Section 6.4 Tenant shall, at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air conditioning systems and
equipment within the Premises. The maintenance contractor and the contract must
be approved by Landlord. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and
5
<PAGE>
must become effective (and a copy thereof delivered to the Landlord) within
thirty (30) days of the date Tenant takes possession of the Premises.
Section 6.5 Tenant agrees to store waste, scrap, and garbage, etc., in
enclosed metal containers with lids, and agrees not to permit any motor vehicle
to be stored on the Premises. Waste containers are to be stored within the
Premises.
Section 6.6 Tenant acknowledges that it will be doing business with
various business entities which may deliver, or cause to be delivered, various
materials to Tenant. Accordingly, Tenant covenants and agrees that it will make
all necessary repairs of damages to the foundation, roof, overhead doors, jambs,
entryways, loading dock areas and exterior walls and other parts of the Building
within which the Premises is located, which damages were caused or occasioned by
the act, omission or negligence of Tenant, Tenant's agents, employees,
customers, invitees and suppliers, their agents, employees or delivery services,
during delivery or any other pursuance of Tenant's business of any nature
whatsoever, within forty-five (45) days of the occurrence of such damages.
Section 6.7 Tenant shall be responsible for removal of any stain or
deposits of grease, oil, tar, paint, or any other material or storage vessel
which may be used in the course of business or stored by Tenant during Tenant's
occupancy, and restoration thereof to any part of the Premises, parking lot or
other outside area to its original condition.
ARTICLE VII
Compliance with Laws and Insurance Requirements
Section 7.1 The Tenant covenants, at the Tenant's sole expense, to
comply with all laws and ordinances and requirements of all governmental
agencies, legislative bodies and courts of competent jurisdiction, of whatever
kind and nature, whether now existing or hereafter enacted, amended or modified
(and specifically including, without limiting the generality of the foregoing,
any and all such laws, ordinances and requirements as relate to protection of
the environment and environmental policy) and any and all recommendations of any
insurer, which may be applicable to the Premises or the sidewalks, curbs,
tunnels, bridges or sub-sidewalk space, if any, adjoining the Premises, by
reason of the tenant's use thereof. In the event Tenant does not comply with the
recommendations of any insurer, Tenant shall be liable for the payment of any
increase on the amount of any insurance premium caused by such non-compliance.
If any permitted use hereunder becomes uninsurable, Tenant shall cause such use
to become insurable, at Tenant's expense, or Landlord may cancel and terminate
this Lease upon written notice.
ARTICLE VIII
Changes and Alterations by Tenant
Section 8.1 Tenant shall not make any changes or alterations,
structural or otherwise, to the Premises without the Landlord's prior written
consent, which consent, in the case of structural changes or alterations, may be
withheld for any or no reason.
6
<PAGE>
Section 8.2 Subject to the provisions of Section 6.2, all repairs,
improvements, changes or alterations made or installed by the Tenant shall
immediately upon completion or installation thereof be and become the property
of the Landlord without payment therefore by the Landlord.
ARTICLE IX
Damage or Destruction
Section 9.1 Tenant covenants and agrees that in case of damage to or
destruction of the Premises by fire or other casualty, the Tenant will promptly
give written notice thereof to Landlord, and the Landlord, at the Landlord's
expense, will repair, and rebuild the same as nearly as practicable to the
condition the Premises were in immediately prior to such damage or destruction,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other improvements which may
have been placed in, on or about the Premises by the Tenant, or rebuild any
damage caused by the intentional and willful act of Tenant.
Section 9.2. Rent shall abate proportionately on such part of the
Premises as may have been rendered wholly untenantable (so long as such
untenantability was not caused by the intentional and willful act of Tenant)
until such time as such part shall be fit for occupancy, and after which time
the full amount of rent reserved in this Lease shall be payable as hereinbefore
set forth. The Tenant hereby waives the provisions of any law now or hereafter
in effect which would relieve the Tenant from any obligation to pay rent or
additional rent under this Lease, except to the extent provided by this Section.
Section 9.3 Anything in Section 9.1 to the contrary notwithstanding, if
the Premises or Building shall be substantially damaged or destroyed by fire or
otherwise, the Landlord, in its sole discretion, shall have the option of
terminating this Lease as of the date of such damage or destruction by written
notice to Tenant given within thirty (30) days after such damage or destruction,
in which event Landlord shall make a proportionate refund to Tenant of such rent
as may have been paid in advance.
ARTICLE X
Condemnation
Section 10.1 If the whole or any part of the Premises shall be taken
under the power of eminent domain, or shall be sold by the Landlord under threat
of condemnation proceedings, then this Lease shall terminate as to the part so
taken or sold on the day when Tenant is required to yield possession thereof,
and the Landlord shall make such repairs and alterations as may be necessary in
order to restore the part not taken or sold to useful condition, and the rental
hereinbefore specified shall be reduced proportionately as to the portion of the
Premises so taken or sold. If the amount of the Premises so taken or sold is
such as to impair substantially the usefulness of the Premises for the purposes
for which the same are hereby leased, then Tenant shall have the option to
terminate this Lease as of the date when Tenant is required to yield possession.
In any and all events, all compensation awarded or paid for any such taking or
sale of the fee and the leasehold, or any part thereof, shall belong to and be
the property of the Landlord. Landlord shall notify Tenant of receipt of notice
of condemnation.
7
<PAGE>
Section 10.2 Anything in this Article X to the contrary
notwithstanding, if a portion of the Premises shall be taken in any proceeding,
the Landlord shall have the option of terminating this Lease as of the date of
vesting of title in the proceeding by written notice to Tenant given within
thirty (30) days after such vesting of title, in which event Landlord shall make
a proportionate refund to Tenant of such rent as may have been paid in advance.
ARTICLE XI
Conditions of Work for Repairs-Alterations
Section 11.1 All work for the making of repairs as required by Section
6.1, for complying with laws, ordinances, orders, regulations or requirements as
required by Section 7.1, and for making changes or alterations as permitted by
Section 8,1, shall be done in all cases subject to the conditions which the
Landlord may impose, and shall in all cases be done in a good and workmanlike
manner.
ARTICLE XII
Mechanics Liens
Section 12.1. Tenant shall not suffer or permit any mechanics' or other
liens to be filed against the Building or Premises or any underlying or adjacent
property nor against the Tenant's leasehold interest in the Premises by reason
of work, labor, services or materials supplied or claimed to have been supplied
to the Tenant or anyone holding the Premises or any part thereof through or
under the Tenant. If any such mechanics' lien shall at any time be filed against
the Premises, the Tenant shall cause the same to be discharged of record within
twenty (20) days after the date of filing.
If the Tenant shall fail to discharge any such mechanics' lien within
such period, then, in addition to any other right or remedy of the Landlord
hereunder, the Landlord may, but shall not be obligated to, procure its
discharge by paying the amount claimed to be due, or by deposit in court, or by
bonding, and in any such event the Landlord shall be entitled, if the Landlord
so elects, to compel the prosecution of an action for the foreclosure of such
mechanics' lien by the lienor and to pay the amount of the judgment, if any, in
favor of the lienor with Interest, costs and allowances. Any amount paid by the
Landlord for any of the aforesaid purposes, and all reasonable legal and other
expenses of the Landlord, including reasonable counsel fees, with interest
thereon at the rate of two percent (2%) per month until all monies are paid,
shall be deemed additional rent hereunder and be payable by the Tenant to the
Landlord on demand.
8
<PAGE>
ARTICLE XIII
Landlord's Right to Enter Premises
Section 13.1 The Tenant agrees to permit the Landlord and any
authorized representatives of the Landlord, with or without prior notice to
Tenant, to enter the Premises at all times during usual business hours or at any
other time in case of emergency, to inspect the same and if the Landlord shall
desire, but without implying any obligation on the Landlord so to do, to make
any repairs deemed necessary or desirable by the Landlord and to perform any
work in the Premises deemed necessary by the Landlord to comply with any laws,
ordinances, orders, regulations or requirements of any governmental authority or
the recommendations of any insurer. During the progress of any such work, the
Landlord may keep and store upon the Premises all necessary materials, tools and
equipment. The Landlord shall not in any event be liable for inconvenience,
annoyance, disturbance, loss of business or other damage to the Tenant.
Section 13.2. The Tenant agrees to permit the Landlord and any
authorized representatives of the Landlord to enter the Premises at all times
during usual business hours to exhibit the same for the purpose of sale,
mortgage or lease. During the final six (6) months of the term of this Lease, or
in the case of default, for purposes of lease or sale, the Landlord may display
on the Premises, usual "for Sale" or for Lease" signs.
ARTICLE XIV
Assignment & Subletting
Section 14.1. The Tenant shall not, without the Landlord's prior
written consent in each instance, which consent may be withheld for any or no
reason, (a) assign, convey, mortgage, pledge, encumber or otherwise transfer
(whether voluntarily or otherwise) this Lease or any interest under it (b) allow
any transfer thereof or any lien upon the Tenant's interest by operation of law;
(c) sublet the Premises or any part thereof, or (d) permit the use or occupancy
of the Premises or any part thereof by any one other than the Tenant.
Section 14.2. Tenant agrees to pay to Landlord, on demand, reasonable
fees (including attorneys' fees) incurred by Landlord in connection with any
request by Tenant for Landlord to consent to any assignment or subletting by
Tenant.
Section 14.3. If this Lease is assigned or if the Premises or any part
thereof is sublet or occupied by anybody other than Tenant, Landlord may (but
shall not be obligated so to do), after default by Tenant, collect rent from
such assignee, subtenant or occupant, and apply the net amount collected to the
Rent herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of Tenant's covenants contained in
this Lease or the acceptance of the assignee, subtenant or occupant as Tenant,
or a release of Tenant from further performance by Tenant of covenants on the
part of Tenant herein contained.
Section 14.4. Notwithstanding anything contained herein to the
contrary, in the event that at any time during the Term of this Lease Tenant
desires to sublet all or any part of the Premises, Tenant shall notify the
Landlord in writing (hereinafter referred to as "Sublet Notice") of the terms
9
<PAGE>
of the proposed subletting and the area so proposed to be sublet and shall give
the Landlord the option to sublet from Tenant such space (hereinafter referred
to as "Sublet Space") at the same Basic Rent and additional rent as Tenant is
required to pay the Landlord under this Lease for the same space or, at
Landlord's option, to terminate the Lease with respect to the Sublet Space. If
the Sublet Space does not constitute the entire Premises and Landlord exercises
its option to terminate this Lease with respect to the Sublet Space, then as to
that portion of the Premises which is not part of the Sublet Space, this Lease
shall remain in full force and effect except that the Rent shall be reduced by a
fraction, the numerator of which shall be the rentable square feet of the sublet
space and the denominator of which shall be the rentable square feet of the
Premises. The option to sublet, or to terminate this Lease, shall be execisable
by Landlord in writing within a period of thirty (30) days after receipt of the
Sublet Notice.
Section 14.5. In the event Landlord exercises its option to sublease
the Sublet Space, the term of the subletting from the Tenant to the Landlord for
the Sublet Space shall be the term set forth in the Sublet Notice and shall be
on such other terms and conditions as are contained in this Lease to the extent
applicable.
Section 14.6. In the event Landlord does not exercise either of its
options specified above and Tenant with Landlord's prior written consent
completes a sublease with a third party, the subtenant shall be subject to and
comply with requirements of this section and this Lease to the extent applicable
thereto.
ARTICLE XV
Rights of Mortgagee
Section 15.1. The rights of the Tenant under this Lease shall be and
are subject and subordinate at all times to the lien of any mortgages or deeds
of trust now or hereafter in force against the Property or the Building, or both
of them, and to all advances made or hereafter to be made upon the security
thereof, and to all renewals, modifications, amendments, consolidations,
replacements and extensions thereof. This Article is self-operative and no
further instrument of subordination shall be required. Any mortgagee or
beneficiary under a deed of trust may, however, elect to have this Lease be
superior to its mortgage or deed of trust. At Landlord's request, Tenant shall
execute a document in recordable form confirming that this Lease is subordinate
(or at the mortgagee's or beneficiary's election, superior) to any mortgage or
deed of trust. Tenant, at the option of any mortgagee or beneficiary under a
deed of trust ("Landlord's Mortgagee"), agrees (a) to attorn to such mortgagee
or beneficiary in the event of a foreclosure sale or deed in lieu thereof, and
(b) to execute such attornment, security, assignment or related agreements as
Landlord's Mortgagee may reasonably require. In the event of any act or omission
by Landlord which would give Tenant the right to terminate this Lease or to
claim a partial or total eviction from the Premises, Tenant shall not exercise
any such right (a) until it has notified in writing the Landlord's Mortgagee of
such act or omission, and (b) until a reasonable period for remedying such act
or omission shall have elapsed following the giving of such notice, and
Landlord's Mortgagee shall not with reasonable diligence have commenced and
continued to remedy such act or omission or to cause the same to be remedied.
Landlord will notify Tenant in writing of the name and address of each
Landlord's Mortgagee upon the execution of this Lease and subsequently inform
Tenant of
10
<PAGE>
any new Landlord's Mortgagee immediately upon the execution of a mortgage or
deed of trust encumbering title Building. No Landlord's Mortgagee shall be bound
by any cancellation, amendment or modification of this Lease, or waiver of any
provision of this Lease which has not been consented to in writing by that
Landlord's Mortgagee.
ARTICLE XVI
Indemnification of Landlord-No Representations by
Landlord-Waiver of Claims
Section 16.1. The Tenant agrees to indemnify and save harmless the
Landlord against and from any and all claims by or on behalf of any persons,
firms, corporations, or governmental entities arising from the conduct or
management of, or from any work or thing whatsoever done in or about, the
Premises during the Term of this Lease, and will further indemnify and save the
Landlord harmless against and from any and all claims arising during the Term of
this Lease from any condition of the Premises, or any street, curb, sidewalk or
parking lot area, if any, adjoining the Premises, or of the passageways or
spaces therein or appurtenant thereto, or arising from any breach or default on
the part of the Tenant in the performance of any covenant or agreement on the
part of the Tenant to be performed pursuant to the terms of this Lease, or
arising from any act or negligence of the Tenant, or any of its agents,
contractors, servants, employees or licensees, or arising from any accident,
injury or damage whatsoever caused to any person, firm or corporation occurring
during the Term of this Lease, in or about the Premises, or upon or under the
sidewalks and the land adjacent thereto, if any, and from and against all costs,
counsel fees, expenses and liabilities incurred in connection with any such
claim or action or proceeding brought thereon; and in case any action or
proceeding be brought against the Landlord by reason of any such claim, the
Tenant, at its sole cost and expense, upon notice from the Landlord covenants to
resist or defend such action or proceeding by counsel satisfactory to the
Landlord.
Section 16.2. The Tenant covenants and agrees to pay, and to
indemnify the Landlord against, all legal costs and expenses, including counsel
fees, lawfully and reasonably incurred in obtaining possession of the Premises
after default by the Tenant or upon expiration or earlier termination of the
Term of this Lease or Tenant's right to possession thereunder or in enforcing
any covenant or agreement of the Tenant herein contained, or tin the defense of
any suit arising out of the occupancy or operation of the Premises by the
Tenant.
Section 16.3. The Tenant is fully familiar with the physical condition
of the Premises and every part thereof, and accepts them in satisfactory
condition and in good repair as of the date of execution of this Lease. The
Landlord has made no representations of whatever nature in connection with the
condition of the Premises or any part thereof, and the Landlord shall not be
liable for any latent or patent defects therein.
Section 16.4. Tenant agrees that, to the extent not expressly
prohibited by law, Landlord and its officers agents, servants and employees
shall not be liable for (nor shall rent abate as a result of) any direct or
consequential damage (including damage claimed for actual or constructive
eviction) either to person or property sustained by Tenant, its servants,
employees, agents, invitees or guests due to the Premises or any part thereof or
any appurtenances thereof becoming out of repair, or due
11
<PAGE>
to the happening of any accident in or about said Premises, or due to any act or
neglect of any tenant or occupant of said Premises or of any other person. This
provision shall apply particularly (but not exclusively) to damage caused by
water, snow, frost, steam, sewage, gas, electricity, sewer gas or odors or by
the bursting, leaking or dripping of pipes, faucets and plumbing fixtures and
windows, and shall apply without distinction as to the person whose act or
neglect was responsible for the damage and whether the damage was due to any of
the causes specifically enumerated above or to some other cause of a different
kind. Tenant further agrees that all of Tenant's personal property in the
Premises shall be at the risk of Tenant only and that Landlord shall not be
liable for any loss or damage thereto or theft thereof.
ARTICLE XVII
Default Provisions-Remedies of Landlord
Section 17.1. The following events shall be deemed to be events of
default by Tenant under this Lease:
(a) Tenant shall fail to pay any installments of Basic Rent or
additional rent when due, or any other payment or reimbursement to Landlord
required herein when due, and such failure shall continue for a period of five
(5) days from the date of notice from Landlord that such payment was due and
outstanding.
(b) Tenant shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of the Tenant or of all or a substantial part of
its assets, (ii) become insolvent or admit in writing its inability to pay its
debts as they come due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law, other
than the Federal Bankruptcy Code, (v) file an answer admitting the material
allegations of a petition filed against the Tenant in any reorganization or
insolvency proceedings, other than a proceeding commenced pursuant to the
federal Bankruptcy Code, or if any order, judgment or decree shall be entered by
any court of competent jurisdiction, except for bankruptcy court or a federal
court sitting as a bankruptcy court, adjudicating the Tenant insolvent or
approving a petition seeking reorganization of the Tenant or appointing a
receiver, trustee or liquidator of the Tenant or of all or a substantial part of
its assets, or (vi) make a transfer in fraud of creditors.
(c) Tenant shall abandon or vacate any substantial portion of the
Premises for a period in excess of fifteen (15) calendar days.
(d) Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than the foregoing in this Section 17.1) and shall not cure
such failure within twenty (20) days after written notice thereof to Tenant (or
if such failure involves a hazardous condition and is not cured immediately
after written notice to Tenant).
(e) Tenant shall fail to discharge any lien placed upon the Premises in
violation of Section 12.1 hereof within twenty (20) days after any such lien or
encumbrance is filed against the Premises.
12
<PAGE>
Section 17.2. Upon the occurrence of any of such events of default
described in Section 17.1 hereof, Landlord shall have the option to pursue
either or both of the following remedies or any other remedy available to
Landlord at law or in equity:
(a) Terminate this Lease by giving to the Tenant a notice of intention
to end the Term of this Lease specifying a day not earlier than five (5) days
thereafter, and upon the giving of such notice the Term of this Lease and all
right, title and interest of the Tenant hereunder shall expire as fully and
completely on the day so specified as if that day were the date herein
specifically fixed for the expiration of the Term, whereupon, Tenant shall
immediately surrender the Premises to Landlord, and, if Tenant fails so to do,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, additional rent, or other charges, enter upon
and take possession of the Premises 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 of damages
therefor, and Tenant agrees to 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 Premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the Premises without terminating
this lease 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, and without terminating this
lease or releasing Tenant from its obligations hereunder for the full Term
hereof, endeavor to relet the Premises for such time and upon such terms as the
landlord shall determine, and receive the rent therefor. In any case of
reletting hereunder, the Landlord may make repairs, alterations and additions in
or to the Premises, and redecorate the same to the extent deemed by Landlord
necessary or desirable, and the Tenant shall, upon demand, pay the cost thereof,
together with the Landlord's expenses of the reletting including but not limited
to real estate commissions, advertising, legal fees and expenses. If the
consideration collected by the Landlord upon any such reletting is not
sufficient to pay monthly the full amount of the rent, additional rent and other
charges reserved in this Lease, together with the cost of repairs, alterations,
additions, redecorating and the Landlord's expenses, the Tenant shall pay to the
Landlord the amount of such deficiency upon demand. In the event Landlord is
successful in reletting the Premises at rental in excess of that agreed to be
paid by Tenant pursuant to the terms of this Lease, Landlord and Tenant each
mutually agree that Tenant shall not be entitled, under any circumstances, to
such excess rental, and Tenant does hereby specifically waive any claim to such
excess rental and to any setoff thereof under this Lease.
Section 17.3. The Tenant hereby expressly waives the service of notice
of intention to re-enter, provided for in any statute, or to institute legal
proceedings to that end, and also waives any and all right of redemption in case
the Tenant shall be disposed by a judgment or by warrant of any court or judge.
The Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either party against the other on any matters arising
out or in connection with this Lease, the relationship of Landlord and Tenant
thereunder, the Premises or the Tenants use or occupancy thereof. The terms
"enter" and "entry" as used in this Lease are not restricted to their technical
legal meaning. If, on account of any breach or default by Tenant in Tenant's
13
<PAGE>
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning, or to enforce or defend, any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any attorney's fees so incurred by Landlord.
ARTICLE XVIII
Holding Over
Section 18.1. Tenant covenants that it will vacate the Premises
immediately upon the expiration or sooner termination of the Term of this Lease
or Tenant's right to possession hereunder If the Tenant retains possession of
the Premises or any part thereof after the termination of the Term, the Tenant
shall pay the Landlord rent at double the monthly rate specified in Articles I
and III for the time Tenant thus remains in possession and, in addition tbereto,
shall pay the Landlord for all damages, consequential as well as direct,
sustained by reason of the Tenant's retention of possession. If the Tenant
remains in possession of the Premises, or any part hereof, after the termination
of the Term, such holding over shall, at the election of the Landlord expressed
in a written notice to the Tenant and not otherwise, constitute a renewal of
this Lease for one year at a rental rate equal to that which Landlord in good
faith was then prepared to offer the Premises to third parties. The provisions
of this Section do not exclude the Landlord's rights of re-entry or any other
right hereunder, including without limitation, the right to refuse double the
monthly rent and instead to remove Tenant through summary proceedings for
holding over beyond the expiration of the Term of this Lease.
ARTICLE XIX
Invalidity of Particular Provisions
Section 19.1. If any covenant, agreement or condition of this Lease or
the application thereof to any person, firm or corporation or to any
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such covenant, agreement or condition to
persons, firms, or corporations or to circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby. Each covenant,
agreement or condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
ARTICLE XX
Notices
Section 20.1. All notices, demands and requests which may or are
required to be given by either party to the other shall be in writing and shall
be deemed given when sent by United States Certified Mail, postage prepaid, (a)
if for the Tenant, addressed to the Tenant at the Premises or at such other
place as the Tenant may from time to time designate by written notice to the
Landlord, or (b) if for the Landlord, addressed to The Shelard Group, Inc.,
Attn: Property Manager, 11455 Viking Drive, #300, Eden Prairie, MN 55344, with a
copy to: Equitable Real Estate Investment Management Company, 455 Cityfront
Plaza, #3200, Chicago, IL 60611-5555 or at such other place as the Landlord may
from time designate by written notice to the tenant. Copies of all notices shall
also be sent to the Property Manager at the address specified on Page one of
this Lease, or to such
14
<PAGE>
other person or at such other place as the Landlord may from time to time
designate by written notice to the Tenant.
Section 20.2. Tenant will deliver to the Landlord, (i) copies of any
documents received from the United States Environmental Protection Agency and/or
any state, county or municipal environmental or health agency concerning the
Tenant's operations upon the Premises; and (ii) copies of any documents
submitted by the Tenant to the United States Environmental Protection Agency
and/or any state, county or municipal environmental or health agency concerning
its operations on the Premises.
ARTICLE XXI
Quiet Enjoyment
Section 21.1. The Landlord covenants and agrees that the Tenant upon
paying the Basic Rent, additional rent and all other charges herein provided for
and performing and fulfilling covenants, agreements and conditions of this Lease
on the Tenant's part to be performed and fulfilled, shall lawfully and quietly
hold, occupy and enjoy the Premises during the Term of this Lease without
hindrance or molestation by the Landlord or any person or persons claiming under
the Landlord, subject, however, to the matters herein set forth.
ARTICLE XXII
Limitation of Landlord's Liability-Exculpation
Section 22.1. The term "Landlord" as used in this Lease shall be
limited to, mean and include only the owner or owners of the Landlord's interest
in this Lease at the time in question, and in the event of any transfer or
transfers of such interest, the Landlord herein named (and in case of any
subsequent transfer, the then transferor) shall be automatically freed and
relieved from and after the date of such transfer of all personal liability as
respects the performance of any covenants or agreements on the part of the
Landlord contained in this Lease thereafter to be performed; provided that any
funds in the hands of such Landlord or the then transferor at the time of such
transfer, in which the Tenant has an interest shall be turned over to the
transferee and provided further that upon any such transfer, the transferee
shall be deemed to have assumed, subject to the limitations of this Section, all
of the covenants, agreements and conditions in this Lease contained to be
performed on the part of the Landlord, it being intended hereby that the
covenants and agreements contained in this Lease on the part of the landlord to
be performed shall, subject as aforesaid, be binding on the Landlord, its
successors and assigns, only during and in respect of their respective periods
of ownership.
Section 22.2. Any obligation of Landlord under or with respect to this
Lease or the Premises shall be enforceable only against and payable out of
Landlord's interest in the Premises, and Tenant hereby agrees that neither
Tenant nor any other person shall have or may assert any right, recourse or
remedy to or against Landlord or its agent or any assets of Landlord, except to
the extent (if any) of their respective interests in the Premises; and no
officer, shareholder, director,
15
<PAGE>
employee, partner, trustee or beneficiary of Landlord assumes or shall have any
personal liability of any kind whatsoever hereunder.
ARTICLE XXIII
Estoppel Certificate by Tenant
Section 23.1. At any time and from time to time upon not less than ten
(10) days' prior request by the Landlord, the Tenant agrees to execute,
acknowledge and deliver to the Landlord a statement in writing certifying (a)
that this Lease is unmodified and in full force and effect, or if there have
been modifications, that the same is in full force and effect as modified and
identifying the modifications, (b) the dates to which the Basic Rent, additional
rent and other charges have been paid, and (c) that the Landlord is not in
default under any provisions of this Lease, or, if Tenant believes Landlord is
in default, the nature of such default. It is intended that any such statement
may be relied upon by any person proposing to acquire the Landlord's interest in
this Lease or any prospective mortgagee of, or assignee of any mortgage upon,
such interest.
ARTICLE XXIV
Cumulative Remedies-No Waiver-No Oral Change
Section 24.1. The specified remedies to which the Landlord may resort
under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which the Landlord may be
entitled, either at law or in equity, in case of any breach or threatened breach
by the Tenant of any covenant, agreement or condition of this Lease. The failure
of the Landlord to insist in any instance upon the strict performance or
observance of any of the covenants, agreements or conditions of this Lease or to
exercise any option herein contained shall not be construed as a waiver for the
future of such covenant, agreement, condition or option. A receipt by the
Landlord of rent with knowledge of the breach of any covenant, agreement or
condition hereof shall not be deemed a waiver of such breach, and no waiver by
the Landlord of any covenant, agreement or condition of this Lease shall be
deemed to have been made unless expressed in writing and signed by the Landlord.
In addition to the other remedies in this Lease provided, the Landlord shall be
entitled to the restraint by injunction of the violation, or attempted or
threatened violation, of any of the covenants, agreements or conditions of this
Lease. No receipt of monies by Landlord from Tenant after the termination or
cancellation hereof or any rights granted to Tenant hereunder in any lawful
manner shall reinstate, continue or extend the Term hereof, or affect any notice
theretofor given to Tenant, or operate as a waiver of the right of Landlord to
enforce the payment of rent or additional rent or other charges then due or
thereafter falling due, or operate as a waiver of the right of the Landlord to
recover possession of the Premises by proper suit, action, proceedings or
remedy; it being agreed that, after the service of notice to terminate or cancel
this Lease and the expiration of the time therein specified, if the default has
not been cured in the meantime, or after the commencement of suit, action or
summary proceedings or of any other remedy, or after a final order, warrant or
judgment for the possession of the Premises, Landlord may demand, receive and
collect any moneys then due, or thereafter becoming due, without in any manner
affecting such notice, proceeding, suit, action, order, warrant or judgment and
any and all such moneys so collected shall be deemed to be payments on account
for the use and occupation of the Premises, or at the election of Landlord, on
account of the Tenant's liability hereunder. Acceptance of the keys to the
Premises or any similar act, by Landlord, or any agent or
16
<PAGE>
employee of Landlord during the Term hereof, shall not be deemed to be an
acceptance of a surrender of the Premises unless Landlord shall consent thereto
in writing.
Section 24.2. This Lease cannot be changed orally, but only by
agreement in writing signed by the party against whom enforcement of the change
is sought.
ARTICLE XXV
Brokerage
Section 25.1. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and/or that no
other broker, agent or other person brought about this transaction, other than
those persons as specified on Page One of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction. The provisions of this Article shall survive the termination of
this Lease.
ARTICLE XXVI
Security Deposit
Section 26.1. Tenant has deposited with the Landlord the sum as
specified on Page One of this Lease Document as security for the full
performance of every provision of this Lease to be performed by Tenant. If
Tenant defaults with respect to any provision of this Lease, Landlord may use,
apply or retain all or any part of this security deposit for the payment of any
basic rent and additional rent or any other sum in default, or for the payment
of any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default, or to compensate Landlord for any other loss, cost
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and Tenant's
failure to do so shall be a breach of this Lease. Landlord shall not, unless
otherwise required by law, be required to keep this security deposit separate
from its general funds nor pay interest to the Tenant. For full security deposit
reimbursement the following conditions must be met:
a) All walls must be clean and free of holes;
b) Overhead door must be free of any broken panels, cracked
lumber or dented panels. The overhead door springs, rollers,
tracings, motorized door operator, and all other items
pertaining to the overhead door must also be in good working
condition;
c) Heaters, air conditioning units must be in good working order.
Filters must be changed - all thermostats must be in working
order. Tenant must supply Landlord with maintenance records;
d) All floors must be clean and free of excessive dust, dirt,
grease, oil and stains;
17
<PAGE>
e) Drop grid ceiling must be free of excessive dust from lack of
changing filters. (No ceiling tiles should be missing or
damaged);
f) All trash must be removed from both inside and outside of the
Building;
g) All light bulbs & ballasts must be working;
h) All signs in front of the Building and on glass entry door and
rear door must be removed;
i) Hot water heater must work;
j) All plumbing fixtures, equipment & drains must be clean and in
working order;
k) Warehouse floor must be clean and free of grease and stains;
1) Windows must be clean;
m) All keys must be returned;
n) All mechanical & electrical systems must be in good working
condition;
o) Tenant shall be in compliance with the surrender provisions of
Section 6.2 of this Lease; and
p) Tenant shall not have attempted to set off against the rent
due hereunder any sums due and owing to Tenant from Landlord.
ARTICLE XXVII
Environmental
Section 27.1. Tenant shall not in the Premises or the Building
generate, store, handle, release, discharge, or otherwise deal with any material
classified as a "hazardous material" for purposes of the Comprehensive
Environmental Response, Compensation and Liability Act of l98O, as amended from
time to time (CERCLA) or the Resource Conservation and Recovery Act of 1976, as
amended from time to time (RCRA), or any similar or related federal, state or
local statutes, rules, regulations or ordinances. Without limiting the
generality of the foregoing, Tenant expressly covenants and agrees that it shall
not, nor shall it permit anyone to:
(1) Use asbestos or any asbestos-containing materials in the Premise or
in the Building;
(2) Use any liquid-filled transformers in the Premises or in the
Building, unless consented to by Landlord in writing and confirmed by an outside
authoritative source to be free of polychlorinated biphenyls (PCB's);
18
<PAGE>
(3) Install any underground storage tanks, unless consented to by
Landlord in writing and specifically approved and certified to be in compliance
with applicable code requirements;
(4) Store any opened containers of combustible products, such as
cleaning solvents, in other than metal containers and cabinets approved by
Landlord in writing.
Tenant shall protect, indemnify and save Landlord and its officers, agents,
servants and employees harmless from and against any and all obligations,
liabilities, costs, damages, claims and expenses of whatsoever nature arising
from or in connection with any violation of this Article XXVII. The provisions
of this Article XXVII shall survive the termination of this Lease.
ARTICLE XXVIII
Rules and Regulations
Section 28.1. Landlord reserves the right to promulgate such reasonable
rules and regulations as in Landlord's judgment may from time to time be
necessary for the safety, care and cleanliness of the Premises and the Building.
ARTICLE XXIX
Miscellaneous Provisions
Section 29.1. Tenant shall be solely responsible for and promptly pay
all charges for heat, water, gas, electricity and other utilities used or
consumed on the Premises. Landlord shall not be liable to Tenant for
interference in or interruption of any utility service nor shall any curtailment
or interruption constitute a constructive eviction or grounds for rental
abatement in whole or in part hereunder. In the event utilities are not
separately metered to Tenant, then Tenant will reimburse Landlord, upon demand,
for the cost to Landlord of utilities used or consumed on the Premises.
Section 29.2. Tenant shall not place on the outside of the Building any
sign, advertisement, illumination or projection, unless the same shall first
have been approved in writing by Landlord. In multi-tenant buildings, Tenant
shall pay for and comply with Landlord's uniform signage requirements.
Section 29.3. If the Landlord is unable to tender possession of the
Premises on the date of the commencement of the Term hereof, the Landlord shall
not be liable for any damage caused thereby, nor shall this Lease be void or
voidable by Tenant, but in such event, unless the delay results from failure of
Tenant to provide plans or otherwise perform in accordance with the requirement
of the Lease, no rental shall be payable by tenant prior to actual tender to
Tenant of possession of the Premises. In any event, late delivery of the
Premises will not extend the Term of this Lease.
Section 29.4. This Lease shall be construed and enforced in accordance
with the laws of the state in which the Building is situated.
19
<PAGE>
Section 29.5. The parties hereto agree that the covenants and
agreements herein contained shall bind and inure to the benefit of the Landlord,
its successors and assigns, and the Tenant, its successors and assigns.
Section 29.6. The submission of this Lease for examination, approval,
and/or negotiation does not constitute an offer or agreement to lease, or a
reservation of, or option for the Premises, nor shall any oral statements made
by any agent of Landlord be deemed to constitute an offer or agreement to lease.
This Lease shall be effective and binding as a lease of the Premises only upon
execution and delivery hereof, each to the other by both Landlord and Tenant.
Section 29.7. If any checks written during the lease term fail to clear
the Tenant's Bank, Landlord may demand all future rent payments to be either in
the form of cash, certified check money order, wire transfer or cash equivalent
funds.
Section 29.8. There will be a $50.00 service charge on all NSF checks
and interest will accrue on such amount at the rate of two percent (2%) per
month until all monies are paid.
Section 29.9. "Reasonable wear and tear" is hereby defined as that
degree of wear and tear which would normally occur in the general usage of a
demised premises but shall not include any physical damages to the floors,
walls, and ceiling of the Premises, nor any damage caused through operation of
machinery, office equipment or other equipment used in the operation of Tenant's
business. Additionally, if Tenant's use, by reason of fumes discharged or
liquids used by Tenant, should cause damage to the Premises or other nearby
premises, both interior or exterior, such damages shall not be deemed as
"reasonable wear and tear", and Tenant shall be liable for the complete
restoration of the Premises at Tenant's expense. Such damages shall include, but
not be limited to, damaged, rusting or corroded walls, floors, ceilings, doors,
windows, plumbing, heating and air conditioning units, metal bar joists, steel
decks, or roof vents or stacks.
Section 29.10. Landlord agrees to provide, for the use of Tenant and
Tenant's employees, agents, customers and invitees, sufficient parking space
adjacent to or reasonably near the Premises (together with necessary access
thereto) to accommodate not more than the number of parking spaces for passenger
automobiles as specified on Page One of this Lease. Tenant shall have no
interest in any parking area so furnished, as tenant or otherwise, but shall
have only a license to use the same during the Term of this Lease, in common
with others entitled to the use thereof. All rights herein granted with respect
to parking and driveway areas shall at all times be subject to reasonable
regulation by Landlord, but Landlord shall have no liability to any person or
any interference with, or obstruction of, any such rights.
Section 29.11. In the event rail side track service is provided to the
Premises, Tenant covenants and agrees to pay to the Landlord, as additional
rent, its pro rata share of all costs incurred by Landlord under rail agreements
for the provisions and maintenance of such rail side track service.
20
<PAGE>
Section 29.12. Landlord reserves the right to retain at all times, and
to use in appropriate instances, keys to all doors within and into the Premises.
No locks shall be changed without the prior written consent of Landlord.
Section 29.13. All payments becoming due under this Lease shall be
considered as rent, and if unpaid when due shall bear interest from such date
until paid at the rate of two percent (2%) per month (unless a lesser rate shall
then be the maximum rate permissible by law with respect thereto, in which event
such lesser rate shall be charged).
Section 29.14. Landlord shall have the right to apply payments received
from Tenant pursuant to this Lease (regardless of Tenant's designation of such
payments) to satisfy any obligations of Tenant bereunder, in such order and
amounts, as Landlord in its sole discretion, may elect.
IN WITNESS WHEREOF the Landlord and the Tenant have executed this
agreement the day and year first above written.
______________________________
______________________________
Landlord
By____________________________
______________________________
______________________________
Tenant
(Corporate Seal)
Attest: By /s/ Del M. Johnson
---------------------------
President
- ------------------------------
Secretary
21
<PAGE>
CERTIFIED COPY OF RESOLUTION
I, Betsy Martin, do hereby certify that I am the duly elected and
acting Secretary of Amcom Corporation, a Minnesota Corporation, and the
custodian of the corporate books and records; that at a Special Meeting of the
Board of Directors of said company, held on September 5, 1995, at which all of
the Directors were present, the following Resolution was unanimously adopted:
RESOLVED, that the Corporation enter into a lease with The Equitable
Life Assurance Society of the United States for the premises located at
7500-7588 Washington Ave. S., Eden Prairie, MN 55344 and approve the lease
submitted, and that the officers of the Corporation be and are hereby authorized
and directed to execute and deliver same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate Seal of said corporation this 5th day of September, 1995.
/s/ Betsy Martin
------------------------------
Secretary
SEAL.
22
<PAGE>
RIDER TO LEASE
This Rider is dated as of September 18, 1995 and is between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, New York corporation, as Landlord, and
AMCOM CORPORATION, a Minnesota corporation, as Tenant.
This Rider is intended to supplement and amend the provisions of the Lease to
which it is attached. To the extent that any of the provisions of this Rider are
inconsistent with the provisions of the Lease, the provisions of this Rider will
control. The terms defined in the Lease will have the same meanings when used in
this Rider.
The Premises described in this Lease are currently subleased to Tenant under a
Sublease dated as of September 18, 1995, between Viking Press, Inc. as Sublessor
and Tenant as Sublessee (the "Sublease"). In the event that the Sublease is
terminated, or Tenant's right to possession of the Premises under the Sublease
is terminated, prior to the commencement date of this Lease, this Lease may be
terminated by Landlord at any time thereafter by written notice to Tenant.
23
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
AMCOM CORPORATION FIDELITY BANK Loan Number 2973
6205 BURY DRIVE 7600 PARKLAWN AVE. Date September 10, 1996
EDEN PRAIRIE, MN 55346 EDINA, MN 55435 Maturity Date January 1, 1997
Loan Amount $2,500,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal of 2973
"i" "me" and "my" means each borrower "You" and "your" means the lender,
above, together and separately. its successors and assigns
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
I promise to pay you, at your address listed above, the PRINCIPAL sum of TWO
MILLION FIVE HUNDRED THOUSAND AND NO/100 Dollars ($2,500,000.00).
[ ] Single Advance: I will receive all of the loan amount on _________________.
There will be no additional advances under this note.
[X] Multiple Advance: The loan amount shown above is the maximum amount I can
borrow under this note. On September 10, 1996
I will receive $_____ and future principal advances are permitted.
Conditions: The conditions for future advances are
[X] Open End Credit: You and I agree that I may borrow up to the
maximum amount more than one time. All other conditions of this note apply to
this feature. This feature expires on January 1, 1997.
[ ] Closed End Credit: You and I agree that I may borrow up to the
maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
September 10, 1996 at the rate of 8.750% per year until FIRST CHANGE DATE.
[X] Variable Rate: This rate may then change as stated below.
[X] Index Rate: The future rate will be 0.500% over the following index
rate: PRIME RATE ESTABLISHED BY FIRST BANK NATIONAL ASSOCIATION
[ ] No Index: The future rate will not be subject to any internal or external
index. It will be entirely in your control.
[X] Frequency and Timing: The rate on this note may change as often as daily.
A change in the interest will take effect on the same day.
[X] Limitations: During the term of this loan, the applicable annual interest
rate will not be more than ____% or less than 7.000%. The rate may not change
more than ____% each _____________.
Effect of Variable Rate: A change in the interest rate will have the following
effect on the payments:
[X] The amount of each scheduled payment will change. [X] The amount of the
final payment will change.
[ ] __________________________________________________________________________.
ACCRUAL METHOD: You will calculate interest on an actual/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[ ] at a rate equal to ______________________________________________.
[ ] LATE CHARGE: If I make a payment more than ___ days after it is due, I agree
to pay a late charge of ______________________________________________________.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
______________________________.
[ ] Authority: The interest rate and other charges for this loan are authorized
by ________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest on demand, but if no demand is
made then on the 1st day of each month beginning October 1, 1996.
[X] Principal: I agree to pay the principal on demand, but if no demand is made
then on January 1, 1997.
[ ] Installments: I agree to pay this note in _____ payments. A payment of
$______________________ will be due ________________________. The final payment
of the entire unpaid balance of principal and interest will be due
_________________________________________________.
ADDITIONAL TERMS:
THIS NOTE IS SECURED BY ACCOUNTS RECEIVABLE, INVENTORY, EQUIPMENT AND GENERAL
INTANGIBLES NOW OWNED OR HEREAFTER ACQUIRED. THIS NOTE IS GUARANTEED.
<PAGE>
<TABLE>
- -----------------------------------------------------------
<S> <C>
[ ] SECURITY: This note is separately secured by (describe PURPOSE: The purpose of this loan is business: WORKING
separate document by type and date): CAPITAL RENEWAL ______________________.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 2). I have received a copy on
today's date.
(This section is for your internal use. Failure to list
a separate security document does not mean the agreement
will not secure this note).
</TABLE>
- -----------------------------------------------------------
Signature for Lender AMCOM CORPORATION
/s/ ANDREW FERIANCEK By: /s/ DEL JOHNSON
- --------------------------------- ------------------------------
ANDREW FERIANCEK DEL JOHNSON, PRESIDENT
2
LOAN AGREEMENT
<TABLE>
<CAPTION>
- --------------- ----------- ------------ ------------ ------------ ------------ ----------- ------------ ------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initial
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 07-17-1996 06-30-1997 14044469 LES
- --------------- ----------- ------------ ------------ ------------ ------------ ----------- ------------ ------------
Reference in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: Delta Parts, Inc. LENDER: Century Bank National
11401 Rupp Drive Association
Burnsville, MN 55337 11455 Viking Drive
Eden Prairie, MN 55344
===============================================================================
THIS LOAN AGREEMENT between Delta Parts, Inc. ("Borrower"), and Century Bank
National Association ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of July 17, 1996, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Loan Agreement from time to
time.
Account. The word "Account" means a trade account, account receivable,
or other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under
this Agreement.
<PAGE>
Borrower. The word "Borrower" means Delta Parts, Inc. The word
"Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as determined from
time to time, the lesser of (a) $1,250,000.00; or (b) 75% of Eligible
Accounts PLUS 50% of Eligible Inventory (Not to exceed $200,000.00)
PLUS 75% of Eligible Equipment (Not to exceed the balance on the
Borrower's SBA 7(a) term loan) LESS the current outstanding balance on
the Borrower's SBA 7(a) term loan. Please refer to the attached
Collateral Schedule.
Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of Minnesota.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise. The word "Collateral" includes
without limitation all collateral described below in the section titled
"COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions
acceptable to Lender. The net amount of any Eligible Account against
which Borrower may borrow shall exclude all returns, discounts,
credits, and offsets of any nature. Unless otherwise agreed to by
Lender in writing, Eligible Accounts do not Include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or
its shareholders, officers, or directors.
2
<PAGE>
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of
which the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such
Accounts are supported by insurance, bonds or other assurances
satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered,
to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial condition
of the Account Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had
filed against it a petition in bankruptcy or an application
for relief under any provision of any state or federal
bankruptcy, insolvency, or debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver for the assets
of such Account Debtor or who has made an assignment for the
benefit of creditors or has become insolvent or fails
generally to pay its debts (including its payrolls) as such
debts become due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the
United States.
(k) Accounts which have not been paid in full within 90 days
(Except for Hewlett-Packard Accounts which shall have a
maximum age of 45 days) from the invoice date. The entire
balance of any Account of any single Account debtor will be
ineligible whenever the portion of the Account which has not
been paid within 90 days (Except for Hewlett-Packard Accounts
which shall have a maximum age of 45 days) from the invoice
date is in excess of 10.000% of the total amount outstanding
on the Account.
Eligible Equipment. The words "Eligible Equipment" mean, at any
time, all of Borrower's Equipment as defined below except:
(a) Equipment which is not owned by Borrower free and clear of
all security interests, liens, encumbrances, and claims of
third parties.
3
<PAGE>
(b) Equipment which Lender, in its sole discretion, deems to
be obsolete, unsalable, damaged, defective, or unfit for
operation.
(c) The Borrowing Base shall allow advances of up to 75% of
the net book value of equipment not to exceed the balance on
the SBA 7(a) loan. For example, if 75% of the net book value
of equipment was calculated at $400,000.00 and the present
balance on the SBA 7(a) loan at the time of the calculation
was only $375,000, the Borrower would only be able to enter a
maximum value of $375,000.00 for the equipment portion of the
Borrowing Base.
Eligible Inventory. The words "Eligible Inventory" mean, at any
time, all of Borrower's Inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of
all security interests, liens, encumbrances, and claims of
third parties.
(b) Inventory which Lender in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
(c) Work in progress.
(d) $400,000.
Equipment. The word "Equipment" means all of Borrower's goods used or
bought for use primarily in Borrower's business and which are not
included in Inventory, whether now or hereafter existing.
ERISA. The word "ERISA" means the Employment Retirement Security Income
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
entitled, "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of
termination of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
4
<PAGE>
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surely, or otherwise; whether
recovery upon such indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such indebtedness may be or
hereafter may become otherwise unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw materials,
work in progress, finished goods, merchandise, parts and supplies, of
every kind and description, and goods held for sale or lease or
furnished under contracts of service in which Borrower now has or
hereafter acquires any right, whether held by Borrower or others, and
all documents of title, warehouse receipts, bills of lading, and all
other documents of every type covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's
custody or possession and all returns on Accounts.
Lender. The word "Lender" means Century Bank National Association, its
successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender
to Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement
or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this
5
<PAGE>
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been disclosed
to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to net value of Borrower's
assets.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current
liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:
6
<PAGE>
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is
subject to the following conditions precedent, with all documents,
instruments, opinions, reports, and other items required under this
Agreement to be in form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and
delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be
in full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, Inventory, Equipment
books, records, and operations, and Lender shall be satisfied as
to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then
due and payable, including without limitation the following loan
fees: Annual Collateral Audit Fee = $250.00.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the credit facility, as well as
directions for payment from Borrower's accounts, may be requested
orally or in writing by authorized persons. Lender may, but need not,
require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and
for the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with
the instructions of an authorized person. Lender, at its option, may
set a cutoff time, after which all requests for Advances will be
treated as having been requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal
amount of the outstanding Advances shall exceed the applicable
Borrowing Base, Borrower, immediately upon written or oral notice from
Lender, shall pay to Lender an amount equal to the difference between
the outstanding principal balance of the Advances and the Borrowing
Base. On the Expiration Date, Borrower shall pay to Lender in full the
aggregate unpaid
7
<PAGE>
principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any
such statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"). Lender's Security Interests in
the Collateral shall be continuing liens and shall include the proceeds and
products of the Collateral, including without limitation the proceeds of any
insurance. With respect to the Collateral, Borrower agrees and represents and
warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any all chattel paper if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower will promptly
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also will promptly
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify
Lender in writing prior to any change in address or location of
Borrower's principal governance office or should Borrower merge or
consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter
shall, keep correct and accurate records of the Collateral, all of
which records shall be available to Lender or Lender's representative
upon demand for inspection and copying at any reasonable time. With
respect to the Accounts, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Accounts and
8
<PAGE>
Account balances and agings. With respect to the inventory, Borrower
agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Inventory
and records itemizing and describing the kind, type, quality, and
quantity of Inventory, Borrower's Inventory costs and selling prices,
and nthe daily withdrawals and additions to Inventory. With respect to
the Equipment, Borrower agrees to keep and maintain such records as
Lender may require, including without limitation, information
concerning Eligible Equipment and records itemizing and describing the
kind, type, quality and quantity of Equipment, Borrower's Equipment
costs, and the daily withdrawals and additions to Equipment.
Collateral Schedules. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender schedules
of Accounts, Inventory and Equipment and schedules of Eligible
Accounts, Eligible Inventory and Eligible Equipment, in form and
substance satisfactory to the Lender.
Thereafter and at such frequency as Lender shall require.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower rerpresents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account Information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and
(c) Lender, its assigns, or agents shall have the right at any time and
at Borrower's expense to inspect, examine, and audit Borrower's records
and to confirm with Account Debtors the accuracy of such Accounts.
Representations and Warranties Concerning Inventory. With respect to
the Inventory, Borrower represents and warrants to Lender: (a) All
Inventory represented by Borrower to be an Eligible Inventory for
purposes of this Agreement conforms to the requirements of the
definition of Eligible Inventory, (b) All Inventory values listed on
schedules delivered to Lender will be true and correct, subject to
immaterial variance; (c) the value of the Inventory will be determined
on a consistent accounting basis; (d) Except as agreed to the contrary
by Lender in writing, all Eligible Inventory is now and at all times
hereafter will be in Borrower's physical possession and shall not be
held by others on consignment, sale on approval, or sale or return; (e)
Except as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of good
and merchantable quality, free from defects; (f) Eligible Inventory is
not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's written consent, and,
in such event, Borrower will concurrently at the time of bailment cause
any such bailee, warehouseman, or similar party to issue and deliver to
Lender, in form acceptable to Lender, warehouse receipts in Lender's
name evidencing the storage of Inventory; and (g) Lender, its assigns,
or agents shall have the right at any time and at Borrower's expense to
inspect and examine the Inventory and to check and test the same as to
quality, quantity, value, and condition.
9
<PAGE>
Representations and Warranties Concerning Equipment. With respect to
the Equipment, Borrower represents and warrants to Lender: (a) All
Equipment represented by Borrower to be Eligible Equipment for purposes
of this Agreement conforms to the requirements of the definition of
Eligible Equipment; (b) All Equipment values listed on schedules
delivered to Lender will be true and correct, subject to immaterial
variance; (c) The value of the Equipment will be determined on a
consistent accounting basis; (d) Except as agreed to the contrary by
Lender in writing, all Eligible Equipment is now and at all times
hereafter will be in Borrower's physical possession; (e) Except as
reflected in the Equipment schedules delivered to Lender, all Eligible
Equipment is now and at all times hereafter will be of good and
merchantable quality, free from defects; (f) Eligible Equipment is not
now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's prior written consent,
and, in such event, Borrower will concurrently at the time of bailment
cause any such bailee, warehouseman, or similar party to issue and
deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Equipment; and (g) Lender, its
assigns, or agents shall have the right at any time and at Borrower's
expense to inspect and examine the Equipment and to check and test the
same as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Minnesota and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which
it is presently engaged or presently proposes to engage. Borrower also
is duly qualified as a foreign corporation and is in good standing in
all states in which the failure to so quality would have a material
adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
10
<PAGE>
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good
title to all of Borrower's properties free and clear of all Security
Interests, and has not executed any security documents or financing
statement relating to such properties. All of Borrower's properties are
titled in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S C, Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under,
about or from any of the properties (b) Borrower has no knowledge of,
or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or from
the properties by any prior owners or occupants of any of the
properties, (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or
liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's
due diligence in investigating the properties for hazardous waste and
hazardous substances Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage,
11
<PAGE>
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of
the Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination or expiration of this
Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
Locations of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 11401 Rupp Drive, Burnsville,
MN 55337. Unless Borrower has designated
12
<PAGE>
otherwise in writing this location is also the office or offices where
Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than thirty (30) days
after the end of each month, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer
or other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
13
<PAGE>
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not
less than $891,000,000.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 2.00 to 1.00
Working Capital. Maintain Working Capital in excess of
$1,000,000.00
Income. Maintain not less than the following income level:
$300,000.00
The following provisions shall apply for purposes of determining
compliance with the foregoing financial covenants and ratios: The
Tangible Net Worth and Income Covenants shall be calculated as of
December 31, 1996. The Net Worth Ratio and Working Capital Covenants
shall apply at all times. Except as provided above, all computations
made to determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually) Borrower will have an
14
<PAGE>
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of a Collateral. The cost of such
appraisal shall be paid by Borrower.
Guarantee. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and the amounts
and by the guarantors named below:
Guarantors Amounts
Michael F. Cibulka Unlimited
Mark P. Duffy Unlimited
Subordination. Prior to disbursement of any Loan proceeds, deliver to Lender
subordination agreements on Lender's forms, executed Borrower's creditors named
below subordinating all of Borrower's indebtedness to such creditors, or such
lesser amounts as may be agreed to by Lender in writing, and any security
interests in collateral securing that indebtedness to the Loans and security
interests of Lender.
Names of Creditors Amounts
Michael F. Cibulka $68,600.00
Atlantic Management Associates $58,800.00
Richard A. D'Amore $133,800.00
Sidney F. McKenna, Trustee $58,800.00
Christopher P. Kauders $19,600.00
Roger Barzun $19,600.00
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and items, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes,
15
<PAGE>
charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any other Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
with Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection, federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons
lien, citation, directive, letter or other communication from any
16
<PAGE>
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part. In connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all security interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a permitted
lien, sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that notwithstanding
the foregoing, but only so long as no Event of Default has occurred and
is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as deemed in the Internal
Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income
tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower,
or (d) purchase or retire any of Borrower's outstanding shares or alter
or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt;
17
<PAGE>
(c) there occurs a material adverse change in Borrower's financial condition, in
the financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan
with Lender; or (e) Lender in good faith deems itself insecure, even though no
Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any other time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property,
18
<PAGE>
any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower or Grantor, as the case may
be, as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding, and if Borrower or
Grantor gives Lender written notice of the creditor or forfeiture
proceeding and furnishes reserves or a surety bond for the creditor or
forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness. Lender, at its
option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, to cure
the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default; (a) cure the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at
19
<PAGE>
Lender's option, all indebtedness immediately will become due and payable, all
without notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents, or available at
law, in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Minnesota. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Hennepin County, the State of Minnesota. This Agreement
shall be governed by and construed in accordance with the laws of the
State of Minnesota.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of
the Borrowers signing below is responsible for all obligations in this
Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such
20
<PAGE>
participation interests. Borrower further waives all rights of offset
or counterclaim that it may have now or later against Lender or against
any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of
any holder of any interest in the Loans. Borrower further agrees that
the purchaser of any such participation interests may enforce its
interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrower's. For notice purposes, Borrower will keep
Lender informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, it the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing, however, under no
circumstances shall this Agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
21
<PAGE>
Subsidiaries and Assigns. All covenants and agreements contained by or
on behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is giving in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 17, 1996.
BORROWER:
Delta Parts, Inc.
By: /s/ Michael F. Cibulka By: /s/ Mark P. Duffy
------------------------------- -----------------------------------
Michael F. Cibulka, President Mark P. Duffy, Chief Operating Officer
LENDER:
Century Bank National Association
By: ______________________________
Authorized Officer
22
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$1,2500,000.00 07-17-1996 06-30-1997 14044469 LES
- -----------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
</TABLE>
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
================================================================================
LOAN TYPE: This is a Variable Rate (2.000% over FIRST BANK NATIONAL ASSOCIATION
REFERENCE RATE, making an initial rate of 10.250%), Revolving Line of Credit
Loan to a corporation for $1,250,000.00 due on June 30, 1997. This is a secured
renewal loan.
PRIMARY PURPOSE OF LOAN: The primary purpose of this loan is for:
[ ] Maintenance of Borrower's Primary Residence.
[ ] Personal, Family or Household Purposes or Personal Investment.
[ ] Agricultural Purposes.
[ ] Business Purposes.
SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital Line of
Credit.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $1,250,000.00 as follows:
Amount paid to Borrower directly: $0.00
Undisbursed Funds: $812,044.26
Amount paid on Borrower's account: $437,955.74
$437,955.74 Payment on Loan #1404446903 -----------
Note Principal: $1,250,000.00
AUTOMATIC PAYMENTS. Borrower hereby authorized Lender automatically to deduct
from Borrower's account numbered 11016526 the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Lender shall not be
obligated to advance funds to cover the payment. At any time and for any reason,
Borrower or Lender may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED JULY 17, 1996.
BORROWER:
Delta Parts, Inc.
By: /s/ Michael F. Cibulka By: /s/ Mark P. Duffy
----------------------------- -----------------------------------
Michael F. Cibulka, President Mark P. Duffy, Chief Operating Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$1,2500,000.00 07-17-1996 06-30-1997 14044469 LES
- -----------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
================================================================================
INSURANCE REQUIREMENTS. Delta Parts, Inc. ("Grantor") understands that insurance
coverage is required in connection with the extending of a loan or the providing
of other financial accommodations to Grantor by Lender. These requirements are
set forth in the security documents. The following minimum insurance coverages
must be provided on the following described collateral (the "Collateral"):
Collateral: All Inventory and Equipment.
Type. All risks, including fire, theft and liability.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum
of ten (10) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender. FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, ten
(10) days from the date of this Agreement, evidence of the required insurance as
provided above, with an effective date of July 17, 1996, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENT OF ANY FINANCIAL RESPONSIBILITY
LAWS.
AUTHORIZATION. For purposes of insurance overage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 17, 1996.
GRANTOR:
Delta Parts, Inc.
By: /s/ Michael F. Cibulka By: /s/ Mark P. Duffy
----------------------------- -----------------------------------
Michael F. Cibulka, President Mark P. Duffy, Chief Operating Officer
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer LES Initials
$1,2500,000.00 07-17-1996 06-30-1997 14044469
- ------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT Is entered into between Delta Parts, Inc.
(referred to below as "Grantor"); and Century Bank National Association
(referred to below as "Lender"). For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement, as this Commercial Security Agreement may be amended or modified
from time to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All inventory, chattel paper, accounts, equipment and general Intangibles
In addition, the word "Collateral" includes all the following, whether now owned
or hereafter acquired, whether now existing or hereafter arising, and wherever
located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss or other disposition of any of the property described
in this Collateral section.
<PAGE>
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a willing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Event of Default set forth below in this section titled
"Events of Default."
Grantor. The word "Grantor" means Delta Parts, Inc., its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodations parties in connection with
the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note, including all principal and interest, together with all other indebtedness
and costs and expenses for which Grantor is responsible under this Agreement or
under any of the Related Documents. In addition, the word "Indebtedness"
includes all other obligations, debts and liabilities, plus interest thereon, of
Grantor, or any one or more of them, whether existing now or later; whether they
are voluntary or involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Grantor may be liable
individually or jointly with others; whether Grantor may be obligated as
guarantor, surety, accommodation party or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means Century Bank National Association, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated July 17, 1996, in
the principal amount of $1,250,000.00 from Delta Parts, Inc. to Lender, together
with all renewals of, extension of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be
<PAGE>
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all Indebtedness against any and all such
accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented,
<PAGE>
leased, or being used by Grantor; and (d) all other properties where
Collateral is or may be located. Except in the ordinary course of its
business, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Minnesota, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
cancelled in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided, however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles, Grantor
shall deliver to Lender schedules of such Collateral, including such information
as Lender may require, including without limitation names and addresses of
account debtors and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall deliver to Lender,
as often as Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent, and
location of such
<PAGE>
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result o foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance with Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also
<PAGE>
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the Collateral
for hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall beheld by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any
<PAGE>
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which
Lender may satisfy by payment of the insurance premiums required to be paid
by Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment of
the insurance premiums required to be paid by Grantor. The responsibility
for the payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part o the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
<PAGE>
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to crate a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply i
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined b Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes
<PAGE>
incompetent. Lender, at its option, may, but shall not be required to,
permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Minnesota Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the
<PAGE>
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
o the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
<PAGE>
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged r bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Minnesota. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of
Hennepin County, State of Minnesota. This Agreement shall be governed by
and construed in accordance with the laws of the State of Minnesota.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated postjudgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following:
<PAGE>
(a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of the Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 17,
1996.
GRANTOR:
Delta Parts, Inc.
By: /s/ Michael F. Cibulka By: /s/ Mark P. Duffy
----------------------------- -----------------------------------
Michael F. Cibulka, President Mark P. Duffy, Chief Operating Officer
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,2500,000.00 07-17-1996 06-30-1997 14044469 LES
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
</TABLE>
<TABLE>
<S> <C>
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
Principal Amount: $1,250,000.00 Initial Rate: 10.250% Date of Note: July 17, 1996
================================================================================
</TABLE>
PROMISE TO PAY. Delta Parts, Inc. ("Borrower") promises to pay to Century Bank
National Association ("Lender"), or order, in lawful money of the United States
of America, the principal amount of One Million Two Hundred Fifty Thousand &
00/100 Dollars ($1,250,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 30, 1997. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning August 1,
1996, and all subsequent interest payments are due on the same day of each month
after that. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the FIRST BANK
NATIONAL ASSOCIATION REFERENCE RATE (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each Day. The Index currently is 8.250% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 2.000
percentage points over the Index, resulting in an initial rate of 10.250% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payment
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
<PAGE>
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Minnesota. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Hennepin County, the State of Minnesota. This Note shall be governed
by and construed in accordance with the laws of the State of Minnesota.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $21.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
<PAGE>
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Michael F. Cibulka, President;
Mark P. Duffy, Chief Operating Officer; and Kim Kirk, Controller. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
PROVISION FOR THE TIMELY RECEIPT OF FINANCIAL STATEMENTS. The receipt of timely
financial statements as required hereunder or under the Loan Agreement is an
event of default. The applicable interest rate to the loan, for a period
beginning fifteen (15) days after written notice of such default and ending upon
the curing of said noticed default, shall increase one percent (1.0%) for the
first thirty (30) days of said default and increase an additional one percent
(1.0%) during each thirty (30) days thereafter, during which the default
continues. Such default interest rates shall apply to the outstanding principal
balance of the loan. Upon the curing of the noticed default, the interest rate
on the loan shall revert back to the initially agreed-upon interest rate
effective on the date on which the default is cured. In the event that the
lender accelerates the loan as a result of such noticed default, the interest
rate on the loan shall revert to the initially agreed-upon interest rate in
effect on the date on which such acceleration is made.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or
<PAGE>
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Delta Parts, Inc.
By: /s/ Michael F. Cibulka By: /s/ Mark P. Duffy
-------------------------------- ----------------------------------
Michael F. Cibulka, President Mark P. Duffy, Chief Operating Officer
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
LES
- ---------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
Guarantor: Michael F. Cibulka
10537 Morgan Avenue South
Bloomington, MN 55431
====================================================================================================
</TABLE>
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Michael F.
Cibulka ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to Century Bank National Association ("Lender") or its order, in legal
tender of the United States of America, the indebtedness (as that term is
defined below) of Delta Parts, Inc. ("borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS: The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "borrower" means Delta Parts, Inc.
Guarantor. The word "Guarantor" means Michael F. Cibulka.
Guaranty. The word "Guaranty" means that this Guaranty made by Guarantor
for the benefit of Lender dated July 17, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or
hereinafter incurred or created, including, without limitation, all
loans, advances, interests, costs, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities
of Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated, or unliquidated, determined or undetermined;
whether Borrower may be liable individually or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether recovery on
the Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness arises
from transactions which may be voidable on account of infancy, insanity,
ultra vires, or otherwise.
Lender. The word "Lender" means Century Bank National Association, its
successors and assigns.
<PAGE>
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even through the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set
<PAGE>
forth above, to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, full or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to use, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (3) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participation in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind have
been made to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty does not conflict with
or result in a default under any agreement or under instrument binding upon
Guarantor and do not result in a violation of any law, regulation, court decree
or order applicable to Guarantor; (e) Guarantor has not and will not, without
the prior written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of Guarantor's
assets, or any interest therein; (f) upon Lender's request, Guarantor will
provide to Lender financial and credit information in form acceptable to Lender,
and all such financial information which currently has been, and all future
financial information which will be provided to Lender is and will be true and
correct in all material respects and fairly present the financial condition of
Guarantor as of the dates the financial information is provided; (g) no material
adverse change has occurred in Guarantor's financial condition since the date of
the most recent financial statement provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(I) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
<PAGE>
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
+or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election or remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor
warrants and agrees that each of the waivers set forth above is made with
Guarantor's full knowledge of its significances and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with
<PAGE>
respect to Guarantor's obligations to Lender under this Guaranty and to the
extent permitted by law, a contractual possessory security interest in and a
right of setoff against, and Guarantor hereby assigns, conveys, delivers,
pledges, and transfers to Lender all of Guarantor's right, title and interest in
and to, all deposits, moneys, securities and other property of Guarantor now or
hereafter in possession of or on deposit with Lender, whether held in a general
or special account or deposit, whether held jointly with someone else, or held
in safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon a notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Lender or by any neglect to exercise such right of setoff or to enforce such
security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an instrument
in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that
the Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Borrower,
upon any account whatsoever, to any claim that Lender may now or hereafter have
against Borrower. In the event of insolvency and consequent liquidation of the
assets of Borrower, through bankruptcy, by an assignment or the benefit of
creditors, by voluntary liquidation, or otherwise, the assets of Borrower
applicable to the payment of the claims of both Lender and Guarantor shall be
paid to Lender and shall be first applied by Lender to the Indebtedness of
Borrower to Lender. Guarantor does hereby assign to Lender all claims which it
may have to acquire against Borrower or against any assignee or trustee in
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment to
this Guaranty shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted
by Lender in the State of Minnesota. If there is a lawsuit, Guarantor
agrees upon Lender's request to submit to the jurisdiction of the courts
of Hennepin County, State of Minnesota. This Guaranty shall be governed
by and construed in accordance with the laws of the State of Minnesota.
<PAGE>
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's Legal expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings ( and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all court
costs and such additional fees as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized
overnight courier, or when deposited in the United States mail, first
class postage prepaid, addressed to the party to whom the notice is to
be given at the address shown above or to such other addresses as either
party may designate to the other in writing. All revocation notices by
Guarantor shall be in writing and shall be effective only upon delivery
to Lender as provided above in the section titled "DURATION OF
GUARANTY." If there is more than one Guarantor, notice to any Guarantor
will constitute notice to all Guarantors. For notice purposes, Guarantor
agrees to keep Lender informed at all times of Guarantor's current
address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower named
in this Guaranty or when this Guaranty is executed by more than one
Guarantor, the words "Borrower" and "Guarantor" respectively shall mean
all and any one or more of them. The words "Guarantor," "Borrower," and
"Lender" include the heirs, successors, assigns, and transferees of each
of them. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or defined the provisions of
this Guaranty. If a court of competent jurisdiction finds any provision
of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances, and all
provision of this Guaranty in all other aspects shall remain valid and
enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to inquire
into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Guaranty shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or of any of Guarantor's
obligations as to any future transactions. Whenever the content of
Lender is required under this Guaranty, the granting of such consent by
Lender in any instance shall not constitute continuing consent to
subsequent instances where such
<PAGE>
consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECT E, THIS GUARANTY
IS DATED JULY 17, 1996.
GUARANTOR:
x /s/ Michael F. Cibulka
---------------------------------
Michael F. Cibulka
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
LES
- -------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Borrower: Delta Parts, Inc. Lender: Century Bank National Association
11401 Rupp Drive 11455 Viking Drive
Burnsville, MN 55337 Eden Prairie, MN 55344
Guarantor: Mark P. Duffy
95 Collins Road
Newton, MA 02168
</TABLE>
================================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Mark P.
Duffy ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to Century Bank National Association ("Lender") or its order, in legal
tender of the United States of America, the Indebtedness (as that term is
defined below) of Delta Parts, Inc. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means Delta Parts, Inc.
Guarantor. The word "Guarantor" means Mark P. Duffy.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated July 17, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or
hereinafter incurred or created, including, without limitation, all
loans, advances, interest, costs, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities
of Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such Indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined o undetermined;
whether Borrower may be liable individual or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether recovery on
the Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness arises
from transactions which may be voidable on account of infancy, insanity,
ultra vires, or otherwise.
Lender. The word "Lender" means Century Bank National Association, its
successors and assigns.
<PAGE>
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all indebtedness.
Accordingly, no payments made upon the indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender or any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations o Guarantor under
this Guaranty shall have been performed in full. If Guarantor elects to revoke
this Guaranty, Guarantor may only do so in writing. Guarantor's written notice
of revocation must be mailed to Lender, by certified mail, at the address of
Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modification of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in aggregate amount of Indebtedness covered by this
Guaranty, and it is specifically acknowledged and agreed by the Guarantor that
reductions in the amount of Indebtedness, even to zero dollars ($0.00), prior to
written revocation of this Guaranty by the Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon Guarantor and
Guarantor's heirs, successors and assigns so long as any of the guaranteed
Indebtedness remains unpaid and even though the Indebtedness guaranteed may from
time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
<PAGE>
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocations set forth above, to make one or more additional secured or unsecured
loans to Borrower, to lease equipment or other goods to Borrower, or otherwise
to extend additional credit to Borrower; (b) to alter, compromise, renew,
extend, accelerate, or otherwise change one or more times the time for payment
or other terms of the Indebtedness or any part of the Indebtedness, including
increases and decreases of the rate of interest on the Indebtedness; extensions
may be repeated and may be for longer than the original loan term; (c) to take
and hold security for the payment of this Guaranty or the Indebtedness, and
exchange, enforce, waive, subordinate, fall or decide not to perfect, and
release any such security, with or without the substitution of new collateral;
(d) to release, substitute, agree not to sue, or deal with any one or more of
Borrower's sureties, endorsers, or other guarantors on any terms or in any
manner Lender may choose; (e) to determine how, when and what application of
payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participation in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind have
been made to Guarantor which would limit or qualify in any way the terms of this
Guaranty' (b) this Guaranty is executed at Borrower's request and not at all the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with or
result in a default under any agreement or other instrument binding upon
Guarantor and do not result in a violation to any law, regulation, court decree
or order applicable to Guarantor; (e) Guarantor has not and will not, without
the prior written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of Guarantor's
assets, or any interest therein; (f) upon Lender's request, Guarantor will
provide to Lender financial and credit information in form acceptable to Lender,
and all such financial information which currently has been, and all future
financial information which will be provided to Lender is and will be true and
correct in all material respects and fairly presents the financial condition of
Guarantor as of the dates the financial information is provided; (g) no material
adverse change has occurred in Guarantor's financial condition since the date of
the most recent financial statements provided to Lender and no event has
occurred which may materially adversely affect Guarantor's financial condition;
(h) no litigation, claim, investigation, administrative proceeding or similar
action (including those for unpaid taxes) against Guarantor is pending or
threatened; (i) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; and (j) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately informed
from such means of any facts, events, or circumstances which might in any way
affect Guarantor`s risk under this Guarantor, and Guarantor further agrees that,
absent a request for information, Lender shall have no obligation to disclose to
Guarantor any information or documents acquired by Lender in the course of its
relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower' (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
<PAGE>
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time , and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower or any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or theories, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor
warrants and agrees that each of the waivers set forth above is made with
Guarantor's full knowledge of its significance and consequences and that, under
the circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
<PAGE>
LENDER'S RIGHT OF SETOFF. In addition to aliens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that
the Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or hereafter
acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Borrower,
upon any account whatsoever, to any claim that Lender may now or hereafter have
against Borrower. In the event of insolvency and consequent liquidation of the
assets of Borrower, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise, the assets of Borrower
applicable to the payment of the claims of both Lender and Guarantor shall be
paid to Lender and shall be first applied by Lender to the Indebtedness of
Borrower to Lender. Guarantor does hereby assign to Lender all claims which it
may have or acquire against Borrower or against any assignee or trustee in
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purposes of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statement and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment to
this Guaranty shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted
by Lender in the State of Minnesota. If there is a lawsuit, Guarantor
agrees upon Lender's request to submit to the jurisdiction of the courts
of Hennepin County, State of Minnesota. This Guaranty shall be governed
by and construed in accordance with the laws of the State of Minnesota.
<PAGE>
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expense, including attorneys' fees and Lender's legal
expense, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all court
costs and such additional fees as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized
overnight courier, or when deposited in the United States, mail, first
class postage prepaid, addressed to the party to whom the notice is to
be given at the address shown above or to such other addresses as either
party may designate to the other in writing. All revocation notices by
Guarantor shall be in writing and shall be effective only upon delivery
to Lender as provided above in the section titled "DURATION OF
GUARANTY." If there is more than one Guarantor, notice to any Guarantor
will constitute notice to all Guarantor. For notice purposes, Guarantor
agrees to keep Lender informed at all time of Guarantor's current
address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower named
in this Guaranty or when this Guaranty is executed by more than one
Guarantor, the words "Borrower" and "Guarantor" respectively shall mean
all and any one or more of them. The words "Guarantor," "Borrower," and
"Lender" include the heirs, successors, assigns, and transferees of each
of them. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or defined the provisions of
this Guaranty. If a court of competent jurisdiction finds any provision
of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other person or circumstances, and all provision
of this Guaranty in all other respects shall remain valid and
enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to inquire
into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purpose in the to act on their behalf, and
any indebtedness made or created in reliance upon the professed exercise
of such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or any of Guarantor's
obligations as to any future transactions. Whenever the consent of
Lender is required under this Guaranty, the granting of such consent by
Lender in any instance
<PAGE>
shall not constitute continuing consent to subsequent instanced where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED JULY 17, 1996.
GUARANTOR:
/s/ Mark P. Duffy
- ----------------------------------
Mark P. Duffy
Consulting Agreement
This Agreement, dated October 18, 1995, entered into between Delta
Parts, Inc., a Minnesota corporation ("DPI"), and Kramer Capital Management,
Inc., a Massachusetts corporation ("KCM"), shall govern all consulting services
provided by KCM to DPI.
I. Initial Stage
A. Responsibilities. Commencing with the execution of this Agreement,
KCM shall undertake the following steps:
(1) Mark Kramer ("Kramer") will spend 2-3 days in Minneapolis
to develop a first-hand understanding of DPI and the
background data necessary to write a new business plan.
(2) Kramer will devote at least 3 two-hour sessions to
strategic planning with DPI management, to better define DPI's
niche, competitive strengths, and acquisition prospects.
(3) KCM and DPI will agree on a list of 3-4 acquisitions that
might be accomplished in the next 18 months, taking
preliminary steps to ensure that the acquisitions are possible
and that the pricing formulas are realistic.
(4) KCM will prepare a new business plan and offering document
for DPI, with detailed financial projections.
(5) KCM will assist DPI in raising $400,000 or more of equity
on or before January 31, 1996 (the "Closing Date"), at a price
per share acceptable to DPI.
(6) If DPI requests in writing that KCM assist in closing the
acquisition of Northstar that is currently under discussion,
KCM will assist in closing that transaction for a separate
fee.
B. Compensation.
(1) KCM will bill DPI for services rendered during this
Initial Stage at normal consulting rates, not to exceed 6% of
the finds actually raised on or before the Closing Date.
(2) If KCM assists in the Northstar acquisition pursuant to
Section IA(6) above, a separate fee will be charged, based on
normal consulting rates, but not to exceed $35,000. No fee
will be due if the acquisition does not close.
(3) Out-of-pocket expenses will be billed separately on a
monthly basis.
<PAGE>
C. Obligation to Continue. If KCM is unable to raise $400,000 by the
Closing Date, DPI shall have the right to discontinue this Consulting Agreement
without any further obligation to KCM. If KCM raises at least $400,000 on or
before the Closing Date, then KCM may elect within 15 days of the Closing Date
to undertake the Second Stage of this Agreement, as described below, and DPI
shall be bound by the terms thereof.
II. Second Stage
A. Consulting Services to be Provided by KCM
During the Second Stage, KCM shall provide the following services to
DPI:
1. Work with DPI's management to develop a 3 to 5 year strategic plan.
2. Prepare a business plan for DPI, consistent with the strategic plan,
to serve as both a management and a fund-raising tool.
3. Update the business plan, as necessary throughout the term of this
Agreement, to reflect current prospects and conditions, and to meet immediate
fundraising needs.
4. Identify, evaluate and prioritize merger and acquisition candidates,
according to criteria developed in the strategic plan.
5. Negotiate and close mergers and acquisitions, within the parameters
set by DPI.
6. Locate equity and/or debt capital for DPI as required to close all
acquisitions, and to finance the expansion of DPI as contemplated by the
strategic plan.
B. Term of Agreement and Adequacy of Performance
1. The Second Stage of this Agreement shall remain in effect from the
Closing Date through December 31, 1996 (the "Term"), unless extended by
agreement of the parties.
2. From time to time, during the Term, KCM and DPI shall set in writing
agreed upon parameters for any capital to be raised and for any acquisitions to
be closed. Such terms shall be set prior to undertaking the acquisition or
fund-raising, and shall specify the pricing and deal structures acceptable to
DPI and considered realistic by KCM, as well as an outside deadline for
completion of the financing or acquisition (the "Transaction").
If KCM is unable to close the Transaction substantially within the
terms and timing agreed upon, then DPI shall have the option of discontinuing
this Consulting Agreement by giving written notice to KCM within 30 days after
the Transaction deadline. If KCM is successful in closing the
2
<PAGE>
Transaction substantially within the terms and timing agreed upon, KCM shall
have the exclusive option of undertaking the next acquisition or financing under
the terms of this Agreement.
C. Compensation to KCM
KCM shall be compensated for its services as follows:
1. Acquisitions. KCM shall be paid a fee upon the closing of each
acquisition according to the following "Modified Lehman Schedule"
Fee Non-Debt Acquisition Value
5% First $5,000,000
4% Next $5,000,000
3% Next $10,000,000
2% Above $20,000,000
(a) "Non-Debt Acquisition Value" shall mean the total value of all
consideration paid for each acquisition, as customarily calculated, including
cash, stock, notes, and any other deferred compensation to the sellers,
exclusive of Senior Debt. Senior Debt shall mean non-subordinated bank debt or
similar financing instruments (i) used to pay the seller for the acquisition,
(ii) secured by the assets or cash flows of DPI or the acquisition candidate,
and (iii) bearing interest without any equity participation, performance, or
conversion features.
(b) Acquisitions subject to this fee shall include all acquisition
candidates with whom negotiations have begun during the Term, and which close
within 6 months after expiration of the Term, or discontinuance of the Second
Stage of this Agreement ("Acquisitions").
2. Consulting Fees. No additional fees shall be charged for any
consulting services in connection with any Acquisition, including all services
provided in Section II A above.
In the event that KCM assists DPI in raising capital during the Term,
and such capital is not used exclusively for Acquisitions, KCM may bill DPI for
consulting time at its usual and customary rates, provided that the total
consulting fees shall not exceed 6% of the non-Acquisition capital raised during
the Term.
3. Expenses. All out-of-pocket expenses, such as postage, courier,
copying, meals and travel shall be billed separately and reimbursed on a monthly
basis. However, KCM will obtain DPI's prior approval before incurring any air
travel or lodging expenses.
D. Other Provisions
1. Exclusivity. KCM shall be the exclusive agent for DPI in mergers,
acquisitions, and financings during the Term. Any capital raised from any
source, or any acquisition made during
3
<PAGE>
the Term, shall be subject to compensation payable to KCM according to Section C
of this Agreement.
2. Indemnification. KCM will rely on DPI's management to provide
accurate and complete information about the financial condition, history, and
operations of DPI. KCM shall not be obligated to conduct any independent due
diligence about representations made to potential investors or acquisition
candidates. Therefore, DPI shall indemnify and hold harmless KCM, and Kramer
personally, from any liability regarding inaccuracies, misrepresentations, or
omissions of material fact about DPI and represented in the business plan or to
potential investors and acquisition candidates.
3. Board Representation & Stock Options. Upon the closing of a minimum
of $150,000 in new equity from KCM's efforts; DPI shall cause Kramer to be
elected to the Board of Directors of DPI. Upon such election, DPI shall grant
Kramer stock options for 10,000 shares of common stock at an exercise price no
greater than $3.50 per share, subject to the terms of the Non-Employee Director
Stock Option Plan.
4. No Commission. KCM shall provide consulting services to DPI to
assist in closing acquisitions and expanding the company, including the
identification of sources of capital to accomplish these goals. KCM shall not,
however, be compensated on a commission basis for raising capital.
5. Announcements. Upon completion of an acquisition or financing, KCM
may make a traditional "tombstone" newspaper announcement, subject to prior
approval of the language by DPI.
6. Confidential Information. During the Initial Stage and the Term (as
the same may be extended by agreement of the parties) and for five (5) years
thereafter, KCM on behalf of itself and its employees shall safeguard and shall
not disclose to any third person or use for its or his own benefit or the
benefit of others Confidential Information of DPI however acquired.
"Confidential Information" is defined for purposes of this Agreement to include,
but not be limited to, any one or more of the following: trade secrets, customer
lists, business plans, analyses, compilations, marketing plans, non-public
financial data, the existence, nature, substance, progress and results of
research and development projects, inventions, discoveries, formulae, processes,
drawings, documents, records, software or any other information, whether similar
to the specified information or not, which is confidential to DPI or any parent,
subsidiary or affiliated company.
(a) KCM acknowledges that with respect to Confidential Information, its
relationship to DPI is fiduciary in nature, and that Confidential Information
may be furnished, or otherwise made available, or may be developed by KCM
hereunder incident to the relationship of trust and confidence which by reason
of the arrangement described herein exists between KCM and DPI. The disclosure
of Confidential Information by DPI to KCM or the acquisition or development of
Confidential Information by KCM shall not be deemed to impair its confidential
nature.
4
<PAGE>
(b) Anything to the contrary notwithstanding, KCM shall have no
obligation of confidentiality with respect to any Confidential Information
which:
(i) was not developed by KCM hereunder and was already known
to KCM prior to acquisition from or disclosure by DPI; or
(ii) is or becomes publicly known through no fault or act of
KCM; or
(iii) is received without restriction as to disclosure by KCM
from a third party having the right to disclose; or
(iv) is required to be disclosed pursuant to a judicial
proceeding; or
(v) is approved for release by written authorization of DPI.
(c) The parties expressly agree that in order to protect its
Confidential Information DPI shall have the right to bring an action to enjoin
the disclosure by KCM or any of its employees of Confidential Information, it
being acknowledged that a suit for monetary damages alone would be inadequate
remedy.
7. Competitive Activities. During the Initial Stage and the Term (as the same
may be extended by agreement of the parties), and for 12 months thereafter,
neither KCM nor Kramer shall directly or indirectly furnish to any competitor of
DPI the services to be provided to DPI hereunder or compete or assist others to
compete with DPI.
8. Relationship. The relationship between DPI and KCM shall be that of
Independent contractors, and nothing contained in this Agreement shall be
construed to constitute either DPI or KCM as a partner, employee, or agent of
the other. Neither DPI nor KCM shall have the authority to bind the other in any
manner without the others prior written consent and authorization.
9. Reports, Plans, etc.
(a) KCM shall furnish DPI with such written reports of the services
performed hereunder as DPI shall reasonably request.
(b) Any reports, business plans, strategic plans, offering brochures,
descriptive brochures, analyses, compilations and the like prepared or compiled
by KCM or Kramer for DPI shall be considered "works for hire" as that phrase is
defined in 17 U.S.C. Section 101, to the extent permitted by law; may be used by
DPI without any additional charge, and shall not be used by KCM or Kramer in the
performance of services for any other client.
10. Work Performed by Kramer. All of the work performed hereunder, except
clerical or research work, shall be performed by Kramer except to the extent
that DPI agrees otherwise in writing.
5
<PAGE>
11. Full Agreement. This Agreement sets out the full agreement between DPI and
KCM, superseding any prior agreements. This Agreement may be modified or amended
only in writing signed by both parties.
Kramer Capital Management, Inc.
/s/ Mark R. Kramer
- --------------------------------
By: Mark R. Kramer
President
Delta Parts, Inc.
/s/ Mark P. Duffy
- --------------------------------
By: Mark P. Duffy
Chief Operating Officer
6
<PAGE>
First Amendment
Delta Parts, Inc., a Minnesota Corporation ("DPI"), and Kramer Capital
Management, Inc. a Massachusetts Corporation ("KCM"), hereby agree to amend the
Consulting Agreement (the "Agreement") between them, dated October 17, 1995, as
follows:
A. The Closing Date shall be extended from January 31, 1996 to March
31, 1996.
B. DPI authorizes KCM to negotiate a merger, consolidation,
acquisition, and/or initial public offering (IPO) with Amcom, Polaris, and
Northstar, or such other companies as DPI may approve in writing, on terms
acceptable to DPI, to close on or before September 30, 1996. Such combination or
IPO shall be a Transaction, as described in Section II of the Agreement, and
based on the aggregate value of the consolidation and IPO, shall be subject to
the KCM compensation schedule described in Section IIC. Such compensation shall
be capped at one million dollars, except if, in order to include Glazer, KCM
splits its compensation with Glazer, then there shall be no cap on the fee.
Neither Glazer, nor any other agent, will be engaged without prior approval from
DPI.
C. DPI authorizes KCM to employ Will Carlin on DPI's behalf, at KCM's
sole expense. Upon successful completion of the Initial Stage, KCM may bill DPI
and be reimbursed for the direct cost of Carlin's services up to a maximum of
$4,000, plus all direct out-of-pocket costs incurred to date.
D. In the event of a non-cash merger with another company, and absent a
public offering or private financing that produces substantial funds at the
closing, KCM's fee may be paid in installments over a minimum of 3 and a maximum
of 12 months from the closing.
The Agreement shall otherwise remain unchanged in all respects, and
continue in full force.
Kramer Capital Management, Inc.
/s/ Mark R. Kramer
- ------------------------------------ Date:_______________________________
By: Mark R. Kramer
President
Delta Parts, Inc.
/s/ Mike Cibulka
- ------------------------------------ Date:_______________________________
By:
Title:
PROMISSORY NOTE
$60,000 Burnsville, Minnesota July 15, 1996
FOR VALUE RECEIVED, the undersigned, Michael F. Cibulka (the "Maker") hereby
promises to pay to Delta Parts, Inc., or order (the "Holder") the principal sum
of Sixty Thousand Dollars ($60,000) on or before June 1, 1999, together with
interest from the date hereof on the unpaid principal hereof from time to time
outstanding at an annual rate of ten percent (10%).
Interest shall accrue on this Note at the rate set forth above and shall be
added to the principal amount hereof on December 31 in each year that this Note
is outstanding. Payment of the principal together with such accrued interest
shall be made to the Holder on or before June 1, 1999. Payment of principal or
interest not made when due shall bear interest compounded daily until paid at an
annual rate of fifteen percent (15%). All interest payments hereunder shall be
prorated based on a three hundred sixty-five (365)-day year.
This Note may be prepaid in whole or in part at any time to time without penalty
or premium. In the event of a prepayment, the amount thereof shall first be
applied to interest that has accrued but has not been paid at the date of such
prepayment and then to the principal balance hereof. In the event of any
prepayment in full, interest accrued to the date of such prepayment shall be
paid together with such prepayment.
At the option of the Holder, this Note shall become immediately due and payable
in full without notice or demand upon the occurrence of any one or more of the
following events:
(1) the failure of the Maker to make payment of the principal and interest when
due;
(2) the admission by the Maker of its inability to pay his debts as they become
due;
(3) the insolvency or the appointment of a receiver with respect to the Maker or
the Maker's property;
(4) any assignment of the property of the Maker for the benefit of his
creditors; or
(5) the commencement of any proceeding under any bankruptcy or insolvency laws
by or against the Maker.
The Maker promises to pay all expenses incurred by the Holder (including, but
without limitation thereto, attorney's fees and expenses) in collecting any
principal or interest not paid when due.
The Maker hereby waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note. The Maker agrees that any delay or omission
on the part of the Holder in exercising any of the Holder's rights hereunder
shall not operate as a waiver of such right, or of any other right hereunder;
and a waiver of any right on one occasion shall not be construed as a bar or a
waiver of any such right on any future occasion.
This Note shall be governed by the laws of the State of Minnesota.
/s/ Michael F. Cibulka
- -------------------------------------- ------------------------------------
(Witness) Michael F. Cibulka
PROMISSORY NOTE DUE DECEMBER 10, 1999
$30,000 Newton, Massachusetts
December 10, 1994
FOR VALUE RECEIVED, the undersigned, Mark P. Duffy (the borrower), hereby
promises to pay on or before December 10, 1999 to Delta Parts, Inc. (the
"Lender") the principal sum of $30,000 together with interest on the principal
amount from time to time remaining unpaid, calculated on the basis of a 360-day
year and actual days elapsed, at an annual rate equal to ten percent (10%),
adjustable on the first of each month to the highest rate then being paid by the
company on its primary bank credit lines. The borrower will make monthly
payments on the first day of each month beginning January 1, 1995, in amounts
that will pay off the principal and accrued interest on the note on or before
December 10, 1999. In addition, any bonuses received by the borrower while this
note is outstanding, will be applied first to any accrued interest, then to the
principal of this note.
The rights and benefits of the Lender shall insure to the benefit of its
successors and assigns.
This Note shall be construed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts.
Witness: Signed and agreed:
/s/ Mark P. Duffy
- ----------------------------------------- ----------------------------------
Mark P. Duffy
Exhibit 11.1
ExpressPoint Technology Services, Inc.
Unaudited Statement Regarding Computation of Pro Forma Per Share Earnings
For the years ended December 31, 1995 and the six month periods ended June 30,
1995 and 1996
<TABLE>
<CAPTION>
Six Month Periods Ended
December 31, June 30
------------ ---------------------------------
1995 1995 1996
<S> <C> <C> <C>
Pro forma net income per share, primary:
Shares used in computing pro forma
net income per share, primary:
Weighted average shares outstanding 2,454,544 2,454,544 2,454,544
Incremental shares attributable to:
Dilutive stock options 941,073 941,073 941,073
Dilutive warrants 181,638 181,638 181,638
Convertible subordinated debt 129,705 129,705 129,705
---------- ---------- ----------
Total weighted average shares 3,706,960 3,706,960 3,706,960
Pro forma net income $1,129,200 $ 166,321 $1,124,565
========== ========== ==========
Pro forma net income per share, primary $ 0.30 $ 0.04 $ 0.30
========== ========== ==========
Pro forma net income per share, assuming full
dilution:
Shares used in computing pro forma net
income per share, assuming full dilution:
Weighted average shares outstanding 2,454,544 2,454,544 2,454,544
Incremental shares attributable to:
Dilutive stock options 941,073 941,073 941,073
Dilutive warrants 181,638 181,638 181,638
Convertible subordinated debt 129,705 129,705 129,705
---------- ---------- ----------
Total weighted average shares 3,706,960 3,706,960 3,706,960
Pro forma net income $1,129,200 $ 166,321 $1,124,565
========== ========== ==========
Pro forma net income per share, assuming full dilution $ .30 $ .04 $ .30
========== ========== ==========
</TABLE>
Delta Parts, Inc.
Amcom Corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-_________) of our report dated October 14, 1996, on our audit of the
financial statements of ExpressPoint Technology Services, Inc. We also consent
to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
October 16, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-____________) of our reports dated September 27, 1996, on our audit of the
financial statements and financial statement schedule of Amcom Corporation. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
October 16, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-______) of our reports dated September 20, 1996, except as to Note 3,
Financing Agreements and Note 10, Contingency, for which the date is October 14,
1996, on our audit of the financial statements and financial statement schedule
of Delta Parts, Inc. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
October 16, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-____________) of our reports dated October 1, 1996, on our audit of the
financial statements and financial statement schedule of Lindquist Computer
Services, Inc. We also consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
October 16, 1996
Report of Independent Accountants
To the Board of Directors and
Stockholders of Amcom Corporation
In connection with our audits of the financial statements of Amcom Corporation
as of May 31, 1995 and 1996, and for each of the three years in the period
ended May 31, 1996, which financial statements are included in the Prospectus,
we have also audited the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
September 27, 1996
Report of Independent Accountants
To the Board of Directors and Stockholders of
Delta Parts, Inc.
In connection with our audits of the financial statements of Delta Parts, Inc.
as of December 31, 1994 and 1995 and for the period from inception (August 9,
1993) through December 31, 1993, and for each of the two years in the period
ended December 31, 1995, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in Item
16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
September 20, 1996, except as
to Note 3, Financing Agreements,
and Note 10, Contingency,
for which the date is
October 14, 1996
Report of Independent Accountants
To the Board of Directors and Stockholder of
Lindquist Computer Service, Inc.:
In connection with our audits of the financial statements of Lindquist Computer
Services, Inc. as of December 31, 1993 and August 31, 1994, and for the year
ended December 31, 1993 and the eight-month period ended August 31, 1994,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
October 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-23-1996
<PERIOD-END> JUN-30-1996
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 99
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
