<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
IWL COMMUNICATIONS, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 1731 76-0043882
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
--------------------------
IWL COMMUNICATIONS, INCORPORATED
12000 AEROSPACE AVENUE, SUITE 200
HOUSTON, TEXAS 77034
(281) 482-0289
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
------------------------------
IGNATIUS W. LEONARDS
CHIEF EXECUTIVE OFFICER
IWL COMMUNICATIONS, INCORPORATED
12000 AEROSPACE AVENUE, SUITE 200
HOUSTON, TEXAS 77034
(281) 482-0289
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
A. MICHAEL HAINSFURTHER S. MICHAEL DUNN, P.C.
MARK A. KOPIDLANSKY BRAD EASTMAN
MUNSCH HARDT KOPF HARR & DINAN, P.C. BROBECK, PHLEGER & HARRISON LLP
1445 ROSS AVENUE, 4000 FOUNTAIN PLACE 301 CONGRESS AVENUE, SUITE 1200
DALLAS, TEXAS 75202-2790 AUSTIN, TEXAS 78701
(214) 855-7500 (512) 477-5495
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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 OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value..................... 1,437,500 shares $8.50 $12,218,750 $3,703
</TABLE>
(1) Includes 187,500 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 5, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,250,000 SHARES
[COMPANY LOGO]
COMMON STOCK
All of the 1,250,000 shares of Common Stock offered hereby are being sold by
IWL Communications, Incorporated ("IWL" or the "Company"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $7.50 and $8.50 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Application has been made to have the Common Stock of the Company
approved for quotation on the Nasdaq National Market under the symbol "IWLC."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE PROSPECTUS FOR A DISCUSSION OF
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................... $ $ $
Total(3)................................................ $ $ $
</TABLE>
(1) Excludes the value of warrants to purchase up to 125,000 shares of Common
Stock to be granted to Cruttenden Roth Incorporated, the representative for
the several Underwriters (the "Representative"). The Company has also agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering, payable by the Company, estimated
at $ , including the Representative's nonaccountable expense allowance
of $ .
(3) The Company has granted the Underwriters a 45-day option to purchase up to
187,500 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively.
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to the right of the Underwriters to reject any order in
whole or in part and certain other conditions. It is expected that delivery of
the certificates for the Common Stock will be made against payment therefor at
the offices of Cruttenden Roth Incorporated, Irvine, California, on or about
, 1997.
------------------------
[LOGO]
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[MAP OF IWL'S WORLDWIDE NETWORK
IDENTIFYING THE LOCATIONS OF THE COMPANY'S INFRASTRUCTURE]
IWL-TM-, IWL Connect-TM-, IWL ODDS-TM-, IntelliVox-TM-, Sight OnSite-TM-,
IWL Net-TM- and The Power of Synergy-TM-, among other marks, are trademarks of
the Company. Other trademarks appearing herein are trademarks of their
respective owners.
IN CONNECTION WITH THE 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 OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO "IWL" OR THE "COMPANY" ARE TO
IWL COMMUNICATIONS, INCORPORATED AND INCLUDE ITS CONSOLIDATED SUBSIDIARIES AND
ITS PREDECESSOR. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS
TO NUMBERS AND PERCENTAGES OF SHARES OF COMMON STOCK ASSUME NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
The Company provides advanced communications solutions to customers with
operations in remote, difficult-access regions and in areas around the world
where government deregulation has created new market opportunities. The Company
delivers comprehensive communications services to its customers by utilizing a
broad range of analog and digital technologies, including satellite, microwave
radio, conventional two-way radio and fiber optic cable. The Company's core
business to date has focused on the provision of communications solutions for
customers in the oil and gas industry, such as AMOCO, British Gas, Chevron,
Conoco, Exxon and Shell. Such customers exemplify users with unique
communications needs related to the remote, difficult-access nature of their
operating locations. By providing a wide range of communications solutions to
its oil and gas customers, the Company has developed a high level of expertise
and a unique skill set in planning, designing and implementing total
communications solutions for multi-site customers with operations located in
remote regions or underdeveloped areas where the existing communications
infrastructure is insufficient to meet advanced telecommunications needs. The
Company intends to leverage this skill set and expertise by supplying
communications services to multi-site customers outside of the oil and gas
industry, particularly customers with operations located near the Company's
existing and planned telecommunications infrastructure. Potential additional
customers include health care providers, financial institutions and other
multi-location communication-intensive companies, such as large publishing
companies.
The Company recently has installed a tandem switch and a value-added
services platform in Houston, Texas. This switch and platform enable the Company
to connect its digital network with the networks of other carriers, thereby
permitting the routing of phone calls in a cost-competitive manner. As the
Company's communications network in the Gulf Coast expands, the Company intends
to install additional switches in other strategic locations. The Company
recently has received approval to serve as a competitive local exchange carrier
("CLEC") in select locations in Texas and has applied for CLEC status in
Louisiana. As a result, the Company believes that it is well positioned to use
the full capacity of its existing and planned infrastructure by providing call
routing to other carriers and, in select locations, by providing call completion
services at profit margins that the Company believes will be higher than those
achievable without CLEC status. As a CLEC offering competitive rates for call
completion services, the Company expects that cellular, personal communications
services ("PCS") and other long distance carriers will become additional
customers.
The telecom services industry is being transformed by the deregulation of
telecommunications markets around the world. In the United States, efforts at
deregulating the telecommunications industry resulted in the separation of the
long distance market from the local exchange services market, with the outcome
being an opening of the long distance market to competition. The enactment of
the Telecommunications Act of 1996 (the "1996 Telecommunications Act")
established an expansive framework for greater competition, including within the
local exchange services market. Under the 1996 Telecommunications Act, state
laws prohibiting competition are preempted and CLECs, such as the Company, have
legal rights to interconnect with the facilities of the Bell Operating Companies
("BOCs") and GTE Operating Companies ("GTOCs"), resell local services that were
previously provided only by the BOCs and GTOCs, and deliver CLEC-provided local
services as well as long distance services. Telecommunications revenues of CLECs
grew almost 80% in 1996 to $2.1 billion, compared with nearly $1.2 billion in
1995, according to
3
<PAGE>
the 8th Edition of the ANNUAL REPORT ON THE COMPETITIVE TELECOMMUNICATIONS
INDUSTRY. International deregulation has also gained momentum, as demonstrated
by the recent 68-nation World Trade Organization agreement on communications
services, which reflects efforts to dismantle government-owned
telecommunications monopolies throughout Europe, Asia and India.
The introduction and proliferation of new communications technologies,
together with global socioeconomic development, are also contributing to
significant increases in demand for telecommunications services throughout the
world. Advances in communications delivery technology, including those achieved
through the deployment of satellite systems and the development of data
compression technologies, have expanded the variety of information that can be
digitized as well as the geographic scope of where such data may be transmitted
or received. Political and economic changes in many regions of the world have
contributed to the emergence of additional global market opportunities in a
variety of industries and an increased rate of adoption of Western business
practices in previously non-Westernized areas. The Company believes that these
changes have escalated the demand for Western telecommunications services,
particularly in remote regions of the world or in regions where the
telecommunications infrastructure is underdeveloped.
While the demand for telecommunications services is increasing worldwide,
the Company believes that the exploration and development activities
characteristic of the oil and gas industry have placed that industry, in
particular, at the forefront in applying modern communications technologies in
remote regions of the world or regions that lack developed telecommunications
infrastructure. The Company also believes that numerous other industries are
taking advantage of technological advances and socioeconomic development by
pursuing opportunities to expand their operations into remote regions or areas
with underdeveloped telecommunications infrastructure. Following the
installation of additional infrastructure in such regions, the local communities
in such regions may be able to make use of the available extra carrier capacity,
even though such additional infrastructure might have been installed originally
as a specific communications solution for a particular company or end-user. The
Company believes that a significant opportunity exists to provide advanced
communications services to end-users outside the oil and gas industry by
delivering effective temporary or permanent solutions at competitive rates and,
in doing so, the Company intends to position itself to serve the
telecommunications carrier service needs of neighboring communities and
businesses.
The Company's goal is to become a leading provider of total communications
solutions to end-users with operations in remote, difficult-access regions or in
areas around the world where government deregulation has created new market
opportunities and to leverage this position by providing carrier services to
additional customers located in these same regions. To reach this goal, the
Company intends to pursue the following strategies: (i) develop additional
Company-owned infrastructure; (ii) vertically integrate service offerings; (iii)
diversify its customer base; (iv) capitalize on opportunities created by
government deregulation and globalization trends in various industries; and (v)
expand existing strategic alliances and establish new alliances.
The Company commenced doing business as IWL Communications in 1981 and was
incorporated as a Texas corporation in 1983. The Company currently has domestic
branch offices in Houston and Friendswood, Texas and Lafayette and New Orleans,
Louisiana and an international office in Moscow, Russia. The Company's principal
executive office is located at 12000 Aerospace Avenue, Suite 200, Houston,
Texas, 77034 and its telephone number is (281) 482-0289. The Company's Internet
addresses are www.iwlcom.com and www.iwl.net.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered........................ 1,250,000 shares
Common Stock Outstanding after the
Offering................................... 3,477,816 shares(1)
Use of Proceeds............................. To acquire equipment for the continued
development of communications infrastructure,
to repay a capitilized lease and for working
capital and general corporate purposes.
Proposed Nasdaq National Market symbol...... IWLC
</TABLE>
- ------------------------
(1) Excludes 160,614 shares of Common Stock, par value $.01 per share (the
"Common Stock"), reserved for issuance upon exercise of options outstanding
as of February 28, 1997 under the Company's Employee Incentive Stock Option
Plan at a weighted average exercise price of $3.62 per share and 125,000
shares of Common Stock issuable upon exercise of the Representative's
Warrant at an exercise price equal to 120% of the initial price of the
Common Stock being offered hereby to the public. See "Management--Benefit
Plans," "Description of Capital Stock--Representative's Warrant," "Shares
Eligible for Future Sale" and "Underwriting."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales:
Telecom, carrier and land mobile.......................... $ 14,860 $ 15,794 $ 17,242 $ 7,197 $ 10,949
Product resales(1)........................................ -- -- 10,554 -- 4,695
--------- --------- --------- --------- ---------
Total sales............................................. 14,860 15,794 27,796 7,197 15,644
Cost of sales............................................... 10,071 9,639 20,415 4,227 11,684
--------- --------- --------- --------- ---------
Gross profit................................................ 4,789 6,155 7,381 2,970 3,960
Selling expenses............................................ 892 862 842 394 495
General and administrative expenses......................... 3,178 3,537 4,257 1,931 2,241
Depreciation and amortization............................... 571 820 1,003 482 635
--------- --------- --------- --------- ---------
Income from operations...................................... 148 936 1,279 163 589
--------- --------- --------- --------- ---------
Net income.................................................. $ 144 $ 536 $ 734 $ 84 $ 261
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share........................................ $ 0.07 $ 0.24 $ 0.33 $ 0.04 $ 0.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding(2)...................... 2,001 2,222 2,222 2,222 2,226
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 423 $ 9,023
Working capital........................................................................... 2,143 10,743
Total assets.............................................................................. 14,903 23,503
Notes payable, noncurrent portion......................................................... 4,865 4,865
Shareholders' equity...................................................................... 3,969 12,569
</TABLE>
- ------------------------
(1) Comprised of the resale of Alcatel products and other equipment and hardware
to Shell Offshore Services Oil Company of approximately $10.6 million and
$4.7 million for the year ended June 30, 1996 and for the six months ended
December 31, 1996.
(2) Weighted average shares outstanding have been restated to reflect a
200-for-one stock split of the Common Stock effected in November 1995.
(3) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $8.00 per
share (the midpoint of the range of the proposed initial public offering
price) and the receipt of the estimated net proceeds therefrom as if the
Offering had occurred at December 31, 1996. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
INDUSTRY CONCENTRATION AND DEPENDENCE ON MAJOR CUSTOMERS
Customers in the oil and gas industry accounted for substantially all of the
Company's sales in its fiscal years ended June 30, 1995 and 1996. The Company's
business and results of operations are substantially dependent on sales to oil
and gas customers, and the loss of one or more of these customers, or a
significant reduction in sales to them, could have a material adverse effect on
the Company's financial condition, results of operations and cash flow. The
Company currently is attempting to broaden its customer base into other
industries besides the oil and gas industry; however, there can be no assurance
that the Company will be successful in doing so. Currently, the Company's
operations could be significantly impacted by market forces affecting the the
oil and gas industry as a whole. There can be no assurance that the oil and gas
industry will not suffer a significant downturn, nor can there be any assurance
that the Company will remain profitable when operating under such conditions.
Product resales by the Company to Shell Offshore Services Company ("Shell"), a
subsidiary of Shell Oil Company, were approximately $10.6 million and $4.7
million for the year ended June 30, 1996 and for the six months ended December
31, 1996, representing approximately 38% and 30%, respectively, of total sales
during such periods. These resales were made in connection with a one-time
project for Shell, which includes a significant equipment resale component, that
the Company expects will be substantially completed in fiscal 1997 and,
therefore, is not expected to contribute in a material manner to the Company's
total sales in future periods. While the Company performs other services for
Shell and its affiliates from time-to-time on a project-by-project basis, the
Company expects that future sales to Shell and its affiliates will be less than
sales in fiscal 1996. If sales to Shell and its affiliates decline and are not
replaced by additional sales to other customers, then the Company's sales will
be materially reduced. A loss of Shell and its affiliates as a customer, or a
significant reduction in sales to Shell and its affiliates, could have a
material adverse effect on the Company's financial condition, results of
operation and cash flow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--IWL Strategy" and
"--Selected Customers."
COMPETITION
The nature of the Company's competition is diverse due to the breadth of the
services offered by the Company and the geographic regions in which such
services are provided. The Company is subject to intense competition with
respect to each of its individual service offerings. Many of the Company's
competitors have significantly greater financial, technical, manufacturing,
personnel and marketing resources than the Company. To date, however, the
Company believes that these large competitors generally have not made it a
priority to provide telecommunications services in remote, difficult-access
regions. Should one or more of such companies focus on such services, it would
likely have a material adverse effect on the financial condition, results of
operations and cash flow of the Company. Currently, the Company believes it
competes directly with Autocomm Communications Engineering Corp., Sola
Communications, Inc. and Datacom for the sale of telecommunications services to
oil and gas companies in the Gulf of Mexico. The Company believes that its
ability to compete in the markets in which it operates depends on such factors
as reputation, technical expertise, quality, customer service, knowledge of the
business, ease of use, reliability, marketing and distribution channels and the
array of services and products
6
<PAGE>
that it can provide. Although the Company believes that it competes favorably
with respect to these factors, there can be no assurance that the Company will
be able to compete successfully in the future. As the Company pursues new
markets, the Company likely will encounter new competitors. While the recent
World Trade Organization agreement on communications services may result in
regulatory changes that could benefit the Company as it competes in existing
markets, or seeks to enter new markets, there can be no assurance that the
agreement will be implemented in a manner that would benefit the Company or that
the pro-competitive effects of the agreement will not increase the amount of
competition encountered by the Company.
DOMESTIC AND INTERNATIONAL LONG DISTANCE. The Company provides long
distance carrier services both domestically and internationally, which it has
been marketing as a switchless reseller since 1994 and which the Company intends
to provide as a facilities-based carrier beginning in the fourth quarter of its
1997 fiscal year. The long distance markets are characterized by intense
competition with a number of companies, including very large companies such as
AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI") and Sprint
Corporation ("Sprint"), that have greater name recognition and greater
financial, technical, network and marketing resources than the Company. In
addition, as a result of the Telecommunications Act of 1996 (the "1996
Telecommunications Act"), the Bell Operating Companies ("BOCs") and the GTE
Operating Companies ("GTOCs") are able to enter the long distance market.
LOCAL EXCHANGE SERVICE. The Company is expanding its operations to provide
local exchange services typically provided by local exchange carriers ("LECs").
The local service market has only recently been opened to new service providers
following enactment of the 1996 Telecommunications Act; however, the competition
for this market is likely to be as intense as competition for the long distance
market. The services offered by the Company will compete with those offered by
LECs, such as BellSouth and Southwestern Bell and their affiliates, which
currently dominate the provision of local services in their respective markets.
If LECs lower their rates, other telecommunications providers may be forced by
market conditions to charge less for their services in order to compete, which
could have a material adverse effect on the Company's financial condition,
results of operations and cash flow. The Company also may face competition in
the provision of local telecommunications services from cable companies,
electric utilities, LECs operating outside their current local service areas,
long distance carriers and start-up telecommunications ventures. There can be no
assurance that the Company will be able to compete effectively in the local
service markets.
INTERNATIONAL AND FOREIGN MARKET SERVICES. The Company offers
telecommunications service to and from remote and difficult-access locations
outside of the United States for its customers. Such services include the
provision of telecommunications services between domestic corporate offices and
remote sites. Therefore, the Company has not competed in a full range of
services with the incumbent telecommunications providers in a particular country
and has faced competition from international telecommunications providers
generally and others who provide telecommunications services to remote and
difficult-access locations. The Company provides private-line telecommunications
services in Russia. In Russia, the major competitors for networks are SOVAMTEL,
ROSTELECOM, AMRUSCOM and Global One. Additionally, to the extent other foreign
markets are identified by the Company, they also may be identified by other
companies with significantly greater financial and other resources than the
Company. As a result, there can be no assurance that the Company will be able to
compete effectively in these markets. See "Business--Strategic Relationships and
Alliances" and "--Competition."
RISKS ASSOCIATED WITH ENTRY INTO LOCAL PHONE SERVICE MARKET AND OTHER NEW
MARKETS
The Company's strategy includes developing new service offerings for
specific new markets and pursuing new markets for its existing services. Entry
into new markets entails a number of risks, including those associated with the
state of development of the market, intense competition from companies already
operating in those markets, potential competition from companies that may have
greater resources than
7
<PAGE>
the Company and increased selling and marketing expenses. In addition, to the
extent the markets are outside the United States, the Company will be subject to
the risks associated with international operations.
The Company currently is developing a telecommunications network to provide
an alternative to the resale of long distance service and to provide LEC
services in selected areas along the Louisiana and Texas Gulf Coast region,
which may involve, among other things, acquiring or leasing switches and
dedicated transmission lines. The network will enable the Company, as a
switched-based carrier, to provide long distance service to its customers
directly instead of reselling other carriers' services. Notwithstanding the
Company's development of its network, the Company will remain dependent to a
large degree on the networks of other carriers for long distance services;
however, operation of a switch will enable the Company to route its customers'
calls in a more cost-effective manner. There can be no assurance that the
Company's development of a telecommunications network in the Gulf Coast region
will be completed or, if completed, will be profitable. In acquiring or leasing
the switches, dedicated transmission lines and microwave radios needed to
develop a telecommunications network, the Company may incur high levels of
indebtedness and fixed operating costs. The Company has no prior experience
operating as a switch-based carrier.
The Company, which recently has been approved as a competitive local
exchange carrier ("CLEC") in Texas and has applied for CLEC status in Louisiana,
intends to offer LEC services in selected markets. Competition for local
services is at an early stage. It is difficult to determine how this market will
develop due to many factors including regulatory changes, resistance from
incumbent LECs, its market acceptance as a CLEC and competition from other
CLECs. In entering the local services market, the Company initially intends to
serve as a reseller of LEC services as permitted under the 1996
Telecommunications Act, which allows it to purchase such services at a discount
and then resell them to the public. However, the Company intends to reduce its
reliance on LECs for those services by developing its own network and installing
one or more end-office switches. Other than its experience in the Gulf of
Mexico, the Company has no experience operating as a CLEC. The Company's success
will depend, in part, on its ability to manage and integrate the operations of a
telecommunications network into the Company's existing operations, including the
development of the Company's management information systems. Such success also
will depend upon the Company's ability to resell the additional capacity that
will be available on its network. There can be no assurance that the Company's
provision of LEC services will receive market acceptance in a timely manner, or
at all, or that the Company's LEC services will be profitable. The Company's
success in the provision of CLEC services is also highly dependent on the pace
and phase of implementation of the pro-competitive provisions of the 1996
Telecommunications Act by federal and state regulatory authorities. The
Company's entry into the local phone service market, and the Company's operation
as a switch-based carrier, could have a material adverse effect on the Company's
financial condition, results of operations and cash flow. There can be no
assurance that the Company will be successful in operating as a CLEC nor can any
assurance be given with respect to its operation as a switch-based long distance
carrier if and when it develops its own network. See "--Risks Associated with
International Operations" and "Business--IWL Strategy" and "--Service
Offerings."
GOVERNMENT REGULATION
The Company and the equipment it installs are subject to varying degrees of
federal, state and local regulation relating to wireless, long distance and
local access telecommunications services. The Company holds various radio
station authorizations that are subject to licensing, operational and technical
requirements imposed on commercial and private mobile radio services, fixed
microwave services and satellite radio earth station services. In the United
States, the provision of the Company's services is subject to the provisions of
the Communications Act of 1934, as amended (the "1934 Communications Act"), the
1996 Telecommunications Act and the regulations of the Federal Communications
Commission (the "FCC") thereunder, as well as the applicable laws and
regulations of the various states administered by the relevant
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state public service commissions ("PSCs"). The recent trend in the United
States, for both federal and state regulation of telecommunications services
providers, has been in the direction of reduced regulation. Although this trend
facilitates market entry and competition by multiple providers, it has also
given AT&T, the largest international and domestic long distance carrier in the
United States, as well as other large long distance providers, increased pricing
and market entry flexibility that has permitted them to compete more effectively
with smaller carriers such as the Company, as well as the opportunity to
re-enter the local telephone service market. There can be no assurance that
future regulatory, judicial and legislative changes in the United States will
not have a material adverse effect on the financial condition, results of
operations and cash flow of the Company. Further, any failure by the Company to
maintain proper federal and state tariffs or certification or any finding by
federal or state agencies that the Company is not operating under permissible
terms and conditions may result in an enforcement action or investigation by the
FCC or a PSC, either of which could have a material adverse effect on the
financial condition, results of operations and cash flow of the Company.
The 1996 Telecommunications Act has significantly altered regulation of the
telecommunications industry by preempting a number of state and local laws
inhibiting competition and by imposing a variety of new duties on incumbent LECs
in order to promote competition in local exchange and access services. The 1996
Telecommunications Act also eliminates previous prohibitions on the provision of
long distance services by the BOCs and GTOCs and opens up local telephone
service to long distance companies. Although the Company believes that the
enactment of the 1996 Telecommunications Act and other trends in federal and
state legislation and regulation that favor increased competition create new
opportunities for the Company, there can be no assurance that the resulting
increased competitive opportunities or other changes in current or future
regulations at the federal or state level will not have a material adverse
effect on the financial condition, results of operations and cash flow of the
Company. Furthermore, there can be no assurance of how the 1996
Telecommunications Act will be implemented or enforced or the effect it will
have on competition within the telecommunications industry generally or on the
competitive position of the Company specifically.
The Company also holds authority from the FCC to provide international
services. The FCC's rules applicable to the provision of international services
may limit, under certain conditions, the size of investments in the Company by,
and affiliations with, foreign telecommunications carriers. In addition, because
the Company holds several common carrier radio licenses, the 1934 Communications
Act limits ownership of the Company by non-U.S. citizens, foreign governments
and corporations organized under the laws of a foreign country. If the Company's
foreign ownership were to exceed the limit set forth in the 1934 Communications
Act, the FCC could impose a range of penalties on the Company, including fines
or revocation or divestiture of its licenses. The Company's operations also will
be affected by introduction of new cellular services and the future allocations
and auctions of the radio frequency spectrum for such services, which may
increase competition as well as affect the type of services or products that can
be installed or offered. Regulatory changes, whether domestic or international,
may be affected by political, economic and technical factors and could
significantly impact the Company's operations in numerous ways, including by
creating greater competition, imposing new limits on services, making current
communication systems obsolete and increasing the opportunities for competition.
In addition, each country where the Company provides telecommunications services
has its own laws and regulations. In certain locations, disputes may arise as to
which country's laws and regulations apply. In many instances foreign
jurisdictions require governmental or other regulatory approval for the
equipment that the Company intends to install and the services that it intends
to provide. There can be no assurance that the Company will be able to obtain
such approvals or that it will obtain such approvals without significant delay
or expense. The delays inherent in this approval process may cause the
cancellation, postponement or rescheduling of the installation of communications
systems for the Company's customers, which in turn may have a material adverse
effect on the financial condition, results of operations and cash flow of the
Company. See "Business--Government Regulation."
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VARIABILITY IN OPERATING RESULTS
The Company's annual and quarterly operating results have varied
significantly in the past and are expected to vary significantly in the future.
These fluctuations in operating results generally are caused by a number of
factors, including changes in the Company's services and product mix, levels of
product resales, adverse weather conditions in customer locations, the degree to
which the Company encounters competition in its existing or target markets,
general economic conditions, the volume and timing of orders received during the
period, sales and marketing expenses related to entering new markets, the timing
of new product or service introductions by the Company or its competitors and
changes in billing rates by the Company or its competitors. Any of these factors
could cause future quarterly or fiscal year operating results to vary
significantly from the prior period and, because of the possibility of these
fluctuations, results for any particular quarter or fiscal year should not be
relied upon as being indicative of future performance. In addition, the
Company's total sales increased to $27.8 million in fiscal 1996 from $15.8
million in fiscal 1995, due primarily to product resales that were made as part
of a one-time project for Shell. The Company expects that this project will be
substantially completed in fiscal 1997. As a result, while the Company performs
other services for Shell and its affiliates from time-to-time on a project-by-
project basis, the Company expects that future sales to Shell and its affiliates
will be less than the fiscal 1996 level. See "--Industry Concentration and
Dependence on Major Customers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON THIRD PARTIES
The Company purchases substantially all of its telecommunications equipment
for use in the oil and gas industry from Alcatel Network Systems, Inc.
("Alcatel") pursuant to an agreement that generally requires the Company to use
Alcatel equipment in sales to customers in the U.S. oil and gas industry. This
requirement may limit the ability of the Company to effectively compete for
certain sales or reduce the profitability that could otherwise be obtained by
the Company from such sales. The Alcatel agreement expired on December 31, 1996;
however, the parties have continued to abide by the terms of the Alcatel
agreement while negotiating the terms of a new agreement, which the parties
expect will be substantially similar to the old agreement. The Company does not
manufacture, nor does it have the ability to manufacture, the telecommunications
equipment used by the Company in performing its services. Therefore, any
reduction or interruption in the supply of equipment from Alcatel, or any
increase in pricing by Alcatel that cannot be passed through to customers, could
have a material adverse effect on the Company's financial condition, results of
operations and cash flow until sufficient alternative supply sources are
established. Although there are other manufacturers who have, or are developing,
equipment that would satisfy the Company's needs, there can be no assurance that
the Company would be able to replace its current primary supplier on
commercially reasonable terms or on terms as favorable as those contained in the
Alcatel agreement or without a significant disruption of service or business.
See "Business--Strategic Relationships and Alliances."
In an attempt to make its service more accessible to potential customers,
the Company has entered into contracts with the owners of over fifty drilling
rigs in the Gulf of Mexico whereby the Company's equipment is installed on the
drilling rigs regardless of who leases such rigs for exploration and drilling
purposes. Although such arrangements support the selection of the Company for
the rig's telecommunications services, such arrangements make the Company
dependent upon the drilling rig owner to keep the drilling rig fully leased. If
the drilling rig is not in operation, such equipment will generate limited
revenue for the Company and will not be available for use with other customers.
The failure of such rigs to operate could have a material adverse effect upon
the Company's financial condition, results of operations and cash flow.
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SIGNIFICANT CAPITAL REQUIREMENTS
The expansion of the Company's telecommunications operations and the
continued funding of operating expenses will require substantial capital
investment. Additionally, as part of its strategy, the Company may seek to
acquire complementary assets or businesses, including additional spectrum
licenses, which also could require substantial capital investment. The Company's
decision to accelerate the development of its carrier services in response to
the 1996 Telecommunications Act has substantially increased the Company's
capital expenditure requirements. The Company anticipates that, based on current
plans and assumptions relating to its operations, upon completion of the
Offering its financial resources and equipment financing arrangements will be
sufficient to fund the Company's growth and operations for approximately twelve
months from the date of this Prospectus. The Company believes that its capital
needs at the end of such period will continue to be significant and thus the
Company will continue to seek additional sources of capital. Further, in the
event the Company's plans or assumptions change or prove to be inaccurate, or if
the Company consummates any unplanned acquisitions of businesses or assets, the
Company may be required to seek additional sources of capital sooner than
currently anticipated. There can be no assurance that the Company will be able
to obtain additional financing or, if such financing is available, that the
Company will be able to obtain it on acceptable terms. Failure to obtain
additional financing, if needed, could result in the delay or abandonment of
some or all of the Company's development and expansion plans, which would have a
material adverse effect on the Company's financial condition, results of
operations and cash flow. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and "--
Liquidity and Capital Resources."
MANAGING CHANGE
The Company recently has experienced a period of significant growth and
expansion that has placed, and if sustained would continue to place, a
significant strain on its resources. This growth has resulted in an increase in
the level of responsibility for management personnel. The Company's officers
have had limited experience in managing companies as large and rapidly changing
as the Company. The Company's ability to manage change successfully will require
such personnel to work together effectively and will require the Company to
improve its operational, management, financial and information systems and
controls. If the Company's management is unable to manage change effectively,
the Company's financial condition, results of operations and cash flow could be
materially and adversely affected. See "Management."
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent upon certain of its officers,
including Ignatius W. Leonards, its Chairman and Chief Executive Officer, Byron
M. Allen, its President, and Richard H. Roberson, its Chief Financial Officer.
The Company's future success depends on the continued contributions of such
officers, including the maintenance, enhancement and establishment of key
customer relationships and the management of operations and financial control.
The loss of any of these officers by the Company could have a material adverse
effect on the Company's financial condition, results of operations and cash
flow. The Company is dependent in large part on its ability to attract and
retain management, engineering, marketing and other technical personnel.
Competition for engineering and other technical personnel is intense, and the
inability to attract and retain highly qualified technical personnel to
coordinate the Company's operations could adversely affect the Company's
operations and prospects in related markets. There can be no assurance that the
Company will be able to attract and retain the qualified personnel necessary for
its business. See "Business--Employees" and "Management--Directors and Executive
Officers."
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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A portion of the Company's sales to date have been made to customers located
outside of the United States, including customers located in Moscow, Russia and
Quito, Ecuador. International sales may account for a larger portion of the
Company's sales in the foreseeable future. Risks inherent in the Company's
international business activities include changes in regulatory requirements,
costs and risks of localizing systems in foreign countries, availability of
suitable export financing, timing and availability of export licenses, tariffs
and other trade barriers, customs matters, longer payment cycles, higher tax
rates or additional withholding requirements, difficulty in enforcing
agreements, military, political and transportation obstacles, political,
economic and religious instability, difficulties in staffing and managing
foreign operations, the burden of complying with a wide variety of complex
foreign laws and treaties and difficulty in accounts receivable collections. In
addition, foreign operations involve uncertainties arising from local business
practices, language differences, cultural considerations and international
political and trade tensions. Some of the Company's customer purchase agreements
are governed by foreign laws, which may differ significantly from U.S. laws.
Therefore, the Company may be limited in its ability to enforce its rights under
such agreements and to collect damages, if awarded. The provision of service in
foreign countries will subject the Company to a variety of laws and regulations.
These laws and regulations vary from country to country and are subject to
change. Foreign laws could prohibit, limit, impose conditions or create
competition to the Company's services. While the recent 68-nation World Trade
Organization agreement on communications services may lessen regulatory
restrictions on the Company's ability to compete in foreign countries, it may
also increase the opportunities in these countries available to the Company's
competitors. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's financial condition, results of
operations and cash flow. Currently, the Company's international sales are
denominated in United States currencies. The Company does not currently engage
in foreign currency hedging transactions. The Company may be required in the
future to denominate international sales in foreign currencies. In such event, a
decrease in the value of foreign currencies relative to the United States dollar
could result in losses from transactions denominated in foreign currencies and,
with respect to the Company's international sales that are United States
dollar-denominated, such a decrease could make the Company's services less
price-competitive. In the future, the Company may seek to implement hedging
techniques with respect to foreign currency transactions. There can be no
assurance, however, that such hedging activities would successfully protect
against foreign currency exchange losses or against other international sales
risks such as exchange limitations, price controls or other foreign currency
restrictions.
The Company's headquarters and administrative offices are in Houston, Texas.
In addition, as of December 31, 1996, the Company maintained an office in
Moscow, Russia with approximately 10 employees. The geographical distance
between Houston, Texas and Moscow, Russia, as well as time-zone differences, can
isolate management from operational issues, delay communications and require a
significant amount of time, effort and expense for international travel. There
can be no assurance that the Company will not face significant management
demands associated with its international operations in the future. Any
significant disruption in the management of the Company's international
operations could have a material adverse effect on the Company's financial
condition, results of operations and cash flow. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RELIANCE ON OTHER TELECOMMUNICATIONS CARRIERS
The Company depends primarily on other long distance carriers for the
transmission of long distance telephone calls. Although the Company believes its
relations with its carriers are good, the termination of the Company's contracts
with its carriers or a reduction in their services could have a material adverse
effect on the Company's financial condition, results of operations and cash
flow. In addition, the accurate and prompt billing of the Company's subscribers
is dependent upon such carriers providing accurate and timely call detail
records to third-party billing companies who bill the Company's services. There
can be no
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assurance that the Company's current long distance carriers will provide
accurate information on a timely basis, or that the third-party billing
companies will accurately bill the Company's customers, the failure of which
could have a material adverse effect on the Company's financial condition,
results of operations and cash flow. As a reseller of LEC services, the Company
will be dependent upon the LEC for such service and the rates which will be
charged. The 1996 Telecommunications Act provides that LECs will be required to
sell their service at a discount to CLECs as established by federal and state
regulatory authority. The Company's dependence upon the LECs will be impacted by
a number of factors including regulatory changes, resistance from incumbent
LECs, its market acceptance as a CLEC and competition from other CLECs. See
"Business--Government Regulation."
CHANGES IN TECHNOLOGY, SERVICES AND INDUSTRY STANDARDS
The telecommunications industry has been characterized by rapid
technological change, changing end-user requirements, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate and adapt to such
changes and to offer, on a timely basis, services that meet these evolving
industry standards. There can be no assurance that existing, proposed or as yet
undeveloped technologies will not become dominant in the future and render the
Company's systems less competitive or less viable. There can be no assurance
that the Company will have sufficient resources to make the investments
necessary to acquire new technologies or to introduce new services that could
compete with future technologies or that equipment held by the Company in
inventory will not be rendered obsolete, any of which factors could have a
material adverse effect on the Company's financial condition, results of
operations and cash flow.
DEPENDENCE ON INFORMATION SYSTEMS
The Company currently depends upon third-party billing companies to bill the
Company's customers for their long distance usage. As the Company implements its
strategy to develop a network and to provide LEC services, the Company may begin
to bill its customers itself. In such case, the Company's information systems
will become more and more important as maintaining sophisticated and reliable
transaction processing systems is essential for a communications company. To
promptly and accurately bill its customers, the Company must record and process
massive amounts of data quickly and accurately. The Company is in the process of
evaluating and updating its information systems. However, the Company does not
have extensive experience in implementing and operating such systems. The
Company believes that the continued enhancement of its information systems is
important to its continued growth and its ability to monitor and control costs,
but there can be no assurance that the Company will not encounter delays or
suffer adverse consequences in implementing the enhanced systems. Any such delay
or other malfunction of the Company's management information systems could have
a material adverse effect on the Company's financial condition, results of
operations and cash flow.
POSSIBLE SERVICE INTERRUPTIONS; NATURAL DISASTERS
The Company's operations are dependent on its ability to protect the
equipment it owns, and the ability of third parties to protect the equipment the
Company leases from them, against damage that may be caused by fire, equipment
failures, weather, power loss, telecommunications failures, failure or loss of
satellites, human error, unauthorized intrusion, natural disasters or
occurrences, acts of sabotage and other similar events. The Company's operations
in remote and underdeveloped areas of the world make its operations, equipment
and employees susceptible to environmental extremes and political instability.
There can be no assurance that fire, equipment failure or other events would not
disable the Company's equipment, which could have a material adverse effect on
the Company's financial condition, results of operations and cash flow. Also,
networks and switching facilities experience periodic service interruptions and
equipment failures, and the operation of such networks will be subject to
international, national and regional telecommunications outages from time to
time. It is therefore possible that the networks and
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facilities utilized by the Company may from time to time experience service
interruptions or equipment failures that could have a material adverse effect on
the Company's financial condition, results of operations and cash flow.
Additionally, many of the Company's customers with offshore locations will
abandon facilities during the pendency of severe weather, such as hurricanes,
tropical storms and other dangerous natural forces, which results in a cessation
in the provision of services by the Company until normal operations are resumed.
Similarly, the Company's pay telephones located on customers' drilling rigs and
production platforms may experience interruptions or cessation of use due to
weather conditions or other natural occurrences, such as earthquakes or floods,
which are beyond the Company's control. A significant portion of the Company's
facilities, as well as a significant portion of its customers, are located in
the Louisiana and Texas Gulf Coast region, which is particularly susceptible to
hurricanes. Although the Company has taken precautions to protect itself and its
customers from events that could interrupt the delivery of the Company's
services, there can be no assurance that a fire, telecommunications failure,
human error, natural disaster, act of sabotage or other similar event would not
cause a disruption in the Company's services and that such events will not have
a material adverse effect on the Company's financial condition, results of
operations and cash flow.
CONCENTRATION OF OWNERSHIP
Upon consummation of the Offering, Ignatius W. Leonards, the Company's Chief
Executive Officer and Chairman of the Board of Directors, will beneficially own
an aggregate of approximately 58% of the outstanding shares of Common Stock (or
approximately 55% if the Underwriters' over-allotment option is exercised in
full) and Mr. Leonards, together with Byron M. Allen, the President of the
Company, will beneficially own an aggregate of approximately 64% of the
outstanding shares of Common Stock (or approximately 61% if the Underwriters'
over-allotment option is exercised in full). As a result of this stock ownership
and their respective positions with the Company, Mr. Leonards, acting alone, and
Messrs. Leonards and Allen, acting together, will be in a position to control
the affairs of the Company through the ability to influence the outcome of
matters submitted to a vote of the shareholders of the Company, including the
election of directors, and matters on which the Board of Directors may act. See
"Certain Transactions" and "Principal Shareholders".
PROPRIETARY RIGHTS
The Company believes that the future success of its business will depend
more on the technical competence, creativity and marketing abilities of its
employees than on patents, trademarks and other intellectual property rights.
Nevertheless, the Company attempts to protect its intellectual property rights
through patents, trademarks, trade secrets and other measures. The Company
currently does not own any patents, but has one patent application on file with
the U.S. Patent and Trademark Office. There can be no assurance that such
measures will provide adequate protection for the Company's trade secrets or
other proprietary information, that disputes with respect to the ownership of
its intellectual property rights will not arise, that the Company's trade
secrets or proprietary technology will not otherwise become known or be
independently developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights. In addition, there can be
no assurance that foreign intellectual property laws will adequately protect the
Company's intellectual property rights, if any, in other countries. Litigation
may be necessary to protect the Company's intellectual property rights and trade
secrets, which could result in substantial costs and diversion of resources and
may ultimately prove unsuccessful. The failure of the Company to protect its
proprietary rights could have a material adverse effect on its financial
condition, results of operations and cash flow. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license under a
third party's intellectual property rights; however, there can be no assurance
that a license will be available on commercially reasonable terms or at all.
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CERTAIN ANTI-TAKEOVER MATTERS
Upon the consummation of the Offering, there will be 96,522,184 authorized
and unissued shares of Common Stock and 10,000,000 authorized and unissued
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). The
existence of authorized but unissued Common Stock and Preferred Stock may enable
the Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a merger, tender offer, proxy
solicitation or otherwise. In this regard, the Company's Amended and Restated
Articles of Incorporation (the "Restated Articles of Incorporation") grant the
Board of Directors of the Company broad power to establish the rights,
preferences and privileges of authorized and unissued Preferred Stock without
shareholder approval. The issuance of shares of Preferred Stock pursuant to the
Board of Director's authority described above could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
adversely affect the rights and powers, including voting rights, of such
holders. The issuance of Common Stock or Preferred Stock could also have the
effect of delaying, deferring or preventing a change in control of the Company,
including transactions in which the shareholders might otherwise receive a
premium for their shares over the then current market price, and may adversely
affect the market price of the Common Stock. The Board of Directors does not
currently intend to seek shareholder approval prior to any issuance of Common
Stock or Preferred Stock, unless otherwise required by law. The Company is also
subject to prior regulatory approval by the FCC and various state regulatory
agencies for a transfer of control of the Company or for the assignment of the
Company's intrastate certification authority and its international authority.
The 1934 Communications Act provides that non-U.S. citizens, foreign governments
or their representatives or corporations organized under the laws of a foreign
country may not own in the aggregate more than 20% of a company that owns common
carrier radio licenses such as the Company. In addition, because the Company
holds FCC authority to provide international service, the FCC will scrutinize an
ownership interest in the Company of greater than 25%, or a controlling interest
at any level, by a dominant foreign carrier. International carriers, such as the
Company, must notify the FCC 60 days in advance of an acquisition of a 10% or
greater interest by a foreign carrier in such carriers. Furthermore, the
Company's bank loan agreement provides that an event of default thereunder will
occur if all or a controlling interest in the Company's capital stock is sold,
assigned or otherwise transferred. Any of the foregoing factors could have the
effect of delaying, deferring or preventing a change of control of the Company.
See "Business--Government Regulation" and "Description of Capital
Stock--Preferred Stock" and "--Certain Anti-Takeover Matters."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for shares of Common
Stock and there can be no assurance that an active market will develop or be
sustained following the Offering. The initial public offering price for the
shares of Common Stock sold in the Offering will be determined through
negotiations between the Company and the Representative and will not necessarily
reflect the market price for the Common Stock following the Offering. The market
price for the Common Stock following the Offering will be influenced by a number
of factors, including the depth and liquidity of the market for the Common
Stock, investor perceptions of the Company's and competitors' operating results
and general economic and other conditions. The stock market has experienced
volatility, particularly with respect to the market prices of equity securities
of many technology and telecommunications companies. The volatility often has
been unrelated to the operating performance of the affected companies. These
market fluctuations may adversely affect the price of the Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of such shares for future sales, will have on the
market price of the Common Stock of the Company. Sales of a substantial number
of shares of Common Stock in the public market following the Offering, or the
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perception that such sales may occur, could adversely affect the market price
for the Common Stock. Upon completion of the Offering, the Company will have
outstanding 3,477,816 shares of Common Stock (3,665,316 shares if the
Underwriters' over-allotment option is exercised in full), assuming no exercise
of options or warrants after the date of this Prospectus. Of these shares, the
1,250,000 shares offered hereby (1,437,500 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act, unless purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining 2,227,816 shares of Common Stock
outstanding upon completion of the Offering are "restricted securities," as that
term is defined in Rule 144. Upon expiration of certain Lock-Up Agreements (as
defined below) one year after the effective date of the Offering, approximately
2,225,008 shares will be eligible for sale subject to the timing, volume and
manner of sale restrictions of Rule 144. The 2,808 remaining shares held by an
existing shareholder will become eligible for sale over a period of less than
one year. In addition, 13,919 shares subject to outstanding vested stock
options, if exercised, will become eligible for sale 90 days after the effective
date of the Offering and, upon expiration of certain Lock-Up Agreements, an
additional 146,695 shares subject to outstanding stock options under the
Company's Employee Incentive Stock Option Plan (the "Incentive Stock Option
Plan") (including unvested stock options the vesting of which will be
automatically accelerated upon completion of the Offering), if exercised, will
be eligible for sale, in each case subject to the restrictions of Rule 701 under
the Securities Act, unless sold pursuant to an effective registration statement
under the Securities Act. See "--Significant Capital Requirements" and "Shares
Eligible for Future Sale."
DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value of approximately
$4.39 per share of Common Stock (assuming an initial public offering price of
$8.00 per share). To the extent outstanding options to purchase the Company's
Common Stock are exercised, there will be further dilution. See "Dilution."
LACK OF DIVIDENDS
The Company has never paid dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future and, in certain circumstances, is prohibited from doing so under the
terms of its bank credit facility. See "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company hereby are estimated to be $8.6 million
($10.0 million if the over-allotment option granted to the Underwriters by the
Company is exercised in full), assuming an initial public offering price of
$8.00 per share (the midpoint of the range of the proposed initial public
offering price) and after deducting estimated offering expenses and underwriting
discounts and commissions payable by the Company. The Company intends to use the
estimated net proceeds as follows: (i) approximately $7.7 million will be
applied to acquire equipment for the continued development of communications
infrastructure for the Company's network, including microwave and fiber optic
equipment to expand the Company's carrier services; (ii) approximately $680,000
will be used to repay a capitalized lease; and (iii) approximately $220,000 will
be used for working capital and general corporate purposes. Pending application
of the proceeds as described above, the Company intends to invest the net
proceeds of the Offering in short-term, investment-grade, interest-bearing
securities.
The Company intends to use approximately $680,000 of the estimated net
proceeds of the Offering to fully pay the outstanding balance of all rental
payments due and to become due under a lease pursuant to which the Company
acquired a tandem switch, and related equipment and maintenance services, for
the Company's telecommunications network. The term of the lease commenced in
January 1997 and expires five years thereafter. The lease included a related
agreement for switch maintenance services, which commenced in January 1997 and
expires two years thereafter. The Company currently is required to make monthly
payments under the lease of approximately $11,500 for the switch and related
equipment and approximately $2,300 for maintenance services. Upon payment in
full of all outstanding amounts under such lease, the Company will acquire title
to the tandem switch and related equipment.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future. In
addition, under the terms of the Company's bank line of credit, the Company may
not pay dividends without the prior consent of the lending bank. The Company
expects that it will retain all available earnings generated by the Company's
operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made in the discretion of
the Board of Directors of the Company and will depend upon the Company's
operating results, financial condition, capital requirements, general business
conditions and such other factors as the Board of Directors deems relevant.
17
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$3,968,755, or $1.78 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's total tangible assets reduced by
the amount of its total liabilities, divided by the total number of outstanding
shares of Common Stock. After giving effect to the sale of the shares of Common
Stock offered hereby and the receipt and application of the estimated proceeds
therefrom at an assumed initial public offering price of $8.00 and after
deducting estimated underwriting discounts and commissions and estimated
expenses of the Offering, the adjusted net tangible book value of the Company at
December 31, 1996 would have been $12,568,755 or $3.61 per share. This
represents an immediate increase in the net tangible book value of $1.83 per
share to existing shareholders and an immediate dilution in net tangible book
value of $4.39 per share to new investors purchasing Common Stock in the
Offering. The following table illustrates the per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 8.00
Net tangible book value per share as of December 31, 1996.................. $ 1.78
Increase per share attributable to new investors........................... 1.83
As adjusted net tangible book value per share after the Offering............. 3.61
Dilution per share to new investors.......................................... $ 4.39
---------
---------
</TABLE>
The following table sets forth as of December 31, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid
therefor and the average price per share paid by existing shareholders and by
new investors (assuming the sale of the shares of Common Stock offered hereby at
an initial public offering price of $8.00 before deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................................. 2,227,816 64.1% $ 291,873 2.8% $ 0.13
New investors.......................................... 1,250,000 35.9 10,000,000 97.2 $ 8.00
---------- --------- ------------- -----
Total.............................................. 3,477,816 100.0% $ 10,291,873 100.0%
---------- --------- ------------- -----
---------- --------- ------------- -----
</TABLE>
The above computations assume no issuance after December 31, 1996 of any of
(i) the 258,600 shares of Common Stock reserved for issuance under the Incentive
Stock Option Plan, of which 160,614 shares were subject to options outstanding
as of December 31, 1996, with a weighted average exercise price of $3.62 per
share, (ii) the 300,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"), (iii) the
100,000 shares of Common Stock reserved for issuance under the Company's 1997
Director Option Plan (the "1997 Director Option Plan"), and (iv) the 125,000
shares subject to the Representative's Warrant. See "Management--Benefit Plans,"
"Description of Capital Stock--Representative's Warrant," "Shares Eligible for
Future Sale" and "Underwriting."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on a historical basis and (ii) as adjusted to give effect
to the sale by the Company of the 1,250,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $8.00 per share (the
midpoint of the range of the proposed initial public offering price) and the
anticipated receipt and application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Notes payable--current portion............................................................. $ 1,106 $ 1,106
--------- -----------
--------- -----------
Notes payable, noncurrent portion.......................................................... 4,865 4,865
Shareholders' equity(1):
Common Stock: 100,000,000 shares authorized, no par (actual and as adjusted); 2,227,816
shares issued and outstanding (actual); 3,477,816 shares issued and outstanding (as
adjusted)(2)(3)........................................................................ 22 35
Additional paid-in capital............................................................... 270 8,857
Retained earnings........................................................................ 3,677 3,677
--------- -----------
Total shareholders' equity............................................................... 3,969 12,569
--------- -----------
Total capitalization..................................................................... $ 8,834 $ 17,434
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes 10,000,000 shares of Preferred Stock, which were authorized in
March 1997, none of which are issued or outstanding.
(2) In March 1997, the Company adopted its Restated Articles of Incorporation,
which restated the Common Stock authorized, issued and outstanding from no
par value to a par value of $0.01 per share.
(3) Excludes (i) 258,600 shares of Common Stock reserved for issuance under the
Incentive Stock Option Plan, of which 160,614 shares were subject to options
outstanding as of December 31, 1996, with a weighted average exercise price
of $3.62 per share, (ii) 300,000 shares of Common Stock reserved for
issuance under the 1997 Stock Option Plan, (iii) 100,000 shares of Common
Stock reserved for issuance under the 1997 Director Option Plan, or (iv)
125,000 shares subject to the Representative's Warrant. The issuance of
additional shares of Common Stock upon the exercise of any of the above
described options or warrants may result in additional dilution. See
"Management--Benefit Plans," "Description of Capital Stock--Representative's
Warrant," "Shares Eligible for Future Sale" and "Underwriting."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data for the three fiscal
years ended June 30, 1994, 1995 and 1996 are derived from the Company's
Consolidated Financial Statements for those years which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, whose report
thereon appears elsewhere herein. The following Selected Consolidated Financial
Data for the fiscal years ended June 30, 1992 and 1993 are derived from the
Company's unaudited Consolidated Financial Statements. The following Selected
Consolidated Financial Data for the six months ended December 31, 1995 and 1996
are derived from unaudited Consolidated Financial Statements of the Company
which, in the opinion of the Company's management, contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. Results for the six months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the full 1997
fiscal year. The Selected Consolidated Financial Data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and Notes thereto and the other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales:
Telecom, carrier and land mobile................... $ 8,121 $ 12,960 $ 14,860 $ 15,794 $ 17,242 $ 7,197 $ 10,949
Product resales(1)................................. -- -- -- -- 10,554 -- 4,695
--------- --------- --------- --------- --------- --------- ---------
Total sales...................................... 8,121 12,960 14,860 15,794 27,796 7,197 15,644
Cost of sales........................................ 5,272 8,641 10,071 9,639 20,415 4,227 11,684
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................................... 2,849 4,319 4,789 6,155 7,381 2,970 3,960
Selling expenses..................................... 429 724 892 862 842 394 495
General and administrative expenses.................. 1,398 2,408 3,178 3,537 4,257 1,931 2,241
Depreciation and amortization........................ 364 359 571 820 1,003 482 635
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................... 658 828 148 936 1,279 163 589
Net interest expense................................. 149 10 215 244 270 150 213
Other expense (income)............................... 277 86 (252) (138) (41) (115) (19)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes........................... 232 732 185 830 1,050 128 395
Income tax expense................................... 101 249 41 294 316 44 134
--------- --------- --------- --------- --------- --------- ---------
Net income........................................... $ 131 $ 483 $ 144 $ 536 $ 734 $ 84 $ 261
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share................................. $ 0.07 $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.04 $ 0.12
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding(2)............... 2,000 2,000 2,001 2,222 2,222 2,222 2,226
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
DECEMBER 31, 1996
JUNE 30, --------------------
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ -- $ 72 $ -- $ 291 $ 361 $ 423 $ 9,023
Working capital.................................. 1,081 709 (367) (265) 1,811 2,143 10,743
Total assets..................................... 4,130 5,748 7,437 8,232 12,409 14,903 23,503
Notes payable, noncurrent portion................ 739 533 1,108 1,329 2,944 4,865 4,865
Shareholders' equity............................. 2,045 1,511 2,419 2,955 3,698 3,969 12,569
</TABLE>
- ------------------------
(1) Comprised of the resale of Alcatel products and other equipment and hardware
to Shell of approximately $10.6 million and $4.7 million for the year ended
June 30, 1996 and for the six months ended December 31, 1996.
(2) Weighted average shares outstanding have been restated to reflect a
200-for-one stock split of the Common Stock effected in November 1995.
(3) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $8.00 per
share (the midpoint of the range of the proposed initial public offering
price) and the receipt of the estimated net proceeds therefrom as if the
Offering had occurred at December 31, 1996.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED CONSOLIDATED FINANCIAL DATA, CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO AND THE OTHER FINANCIAL INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. MOREOVER, THIS PROSPECTUS CONTAINS 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.
FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
The Company's total sales are derived from the provision of a variety of
services, including telecom and carrier services, land mobile services and
product resales. Telecom and carrier services include the resale of long
distance, the provision of private lease lines, the resale of equipment and the
provision of related services to furnish and install telecommunications systems.
The Company recently has installed a tandem switch at its facility in Houston,
Texas and when such switch is fully operational (which the Company expects to
occur by the end of the fourth quarter of fiscal 1997), the Company will provide
services as a switch-based long distance carrier. Land mobile services consist
of the rental, sale, service and maintenance of two-way radio communications
systems.
In connection with product resales, the Company serves as the exclusive
manufacturer's representative of Alcatel products to the U.S. oil and gas
industry. In fiscal 1996, the Company provided services to Shell, which included
the resale of a significant amount of Alcatel products. For the year ended June
30, 1996 and for the six months ended December 31, 1996, Shell purchased from
the Company approximately $10.6 million and $4.7 million of Alcatel products and
other equipment and hardware, representing approximately 38.0% and 30.0%,
respectively, of total sales during such periods. Although profitable, the sale
of Alcatel products to Shell significantly reduced the Company's gross margin in
these periods. The Shell project is expected to be substantially completed in
fiscal 1997 and, therefore, is not expected to contribute in a material manner
to the Company's total sales in future periods.
The Company was founded in 1981 as a contract supplier of communications
technology installation and equipment leasing services, and over the ensuing
years broadened the scope of its service offerings to include microwave, two-way
radio and related wireless services and technologies for an expanded customer
base, primarily comprised of major oil and gas companies operating in the Gulf
of Mexico region. During this period, the Company began to provide an increasing
variety of services to its oil and gas customers in other remote and
underdeveloped regions around the world.
To support its international expansion, in 1994 the Company began providing
telecommunications services and network support inside the former Soviet Union
to United States oil and gas customers. As the Company expanded its service
offerings and developed greater infrastructure, it commenced service as a long
distance carrier and as a switchless reseller in 1995. The Company is continuing
to expand its network through a recently-acquired tandem switch and the
installation of fiber optic cable and microwave radios in targeted service
areas. In connection with such expansion, the Company has also received CLEC
status in Texas and has applied for CLEC status in Louisiana. See "Risk
Factors--Risks Associated with Entry into Local Phone Service Market and Other
New Markets."
While annual growth rates of the Company's total sales since 1992 have
ranged from 6.3% to 76.0%, the Company's quarterly operating results have varied
significantly in the past, and can be expected to vary in the future. These
fluctuations in operating results generally are caused by a number of factors,
including changes in the Company's services and product mix, levels of product
resales, adverse weather conditions in customer locations, the degree to which
the Company encounters competition in its existing or target markets, general
economic conditions, the volume and timing of orders received during the period,
sales
21
<PAGE>
and marketing expenses related to entering new markets, the timing of new
product or service introductions by the Company or its competitors and changes
in billing rates by the Company or its competitors.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total sales represented by certain items included in the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales:
Telecom, carrier and land mobile................ 100.0% 100.0% 62.0% 100.0% 70.0%
Product resales................................. 0.0 0.0 38.0 0.0 30.0
----- ----- ----- ----- -----
Total sales................................... 100.0 100.0 100.0 100.0 100.0
Gross margin...................................... 32.2 39.0 26.5 41.3 25.3
Selling expenses.................................. 6.0 5.5 3.0 5.5 3.2
General and administrative expenses............... 21.4 22.4 15.3 26.8 14.3
Depreciation and amortization..................... 3.8 5.2 3.6 6.7 4.0
----- ----- ----- ----- -----
Total operating expenses.......................... 31.2 33.1 21.9 39.0 21.5
----- ----- ----- ----- -----
Income from operations............................ 1.0 5.9 4.6 2.3 3.8
Net interest expense.............................. 1.5 1.5 1.1 2.1 1.4
Other income, net................................. 1.7 0.9 0.2 1.6 0.1
----- ----- ----- ----- -----
Income before income taxes........................ 1.2 5.3 3.7 1.8 2.5
Income tax expense................................ 0.2 1.9 1.1 0.6 0.9
----- ----- ----- ----- -----
Net income........................................ 1.0% 3.4% 2.6% 1.2% 1.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
TOTAL SALES. Total sales increased $8.4 million or 116.7% to $15.6 million
for the six months ended December 31, 1996 from $7.2 million for the comparable
period in the prior fiscal year. Of this increase, $3.7 million, or 44.0%,
resulted from increases in the Company's telecom, carrier and land mobile
services, while $4.7 million, or 56.0%, resulted in part from product resales to
a single customer. The product resales are expected to be substantially
completed in fiscal 1997 and, therefore, are not expected to contribute in a
material manner to the Company's total sales in future periods.
GROSS MARGIN. Gross profit increased $989,000 or 33.3% to $4.0 million for
the six months ended December 31, 1996 from $3.0 million for the comparable
period in the prior fiscal year, representing gross margins of 25.3% and 41.3%,
respectively. The decrease in margin was due in principal part to the lower
margin on product resales in 1996 and increases in materials and supplies
expense. Excluding product resales, gross profit for the six months ended
December 31, 1996 would have been approximately $3.6 million, representing a
gross margin of 34.6%.
SELLING EXPENSES. Selling expenses increased $101,000 or 25.6% to $495,000
for the six months ended December 31, 1996 from $394,000 for the comparable
period in the prior fiscal year. Selling expenses as a percentage of total sales
decreased to 3.2% from 5.5% during these respective periods. The increase in
selling expenses resulted from the addition of sales personnel and from
increases in travel and advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $310,000 or 16.0% to $2.2 million for the six months ended December
31, 1996 from $1.9 million for the comparable period in the prior fiscal year.
As a percentage of total sales, general and administrative expenses
22
<PAGE>
decreased to 14.3% for the six months ended December 31, 1996 from 26.8% for the
comparable period in the prior fiscal year. The decrease in general and
administrative expenses as a percentage of sales was primarily due to product
resales that required little or no incremental administrative expense. The
increases in the dollar amount of general and administrative expenses over these
periods were due in principal part to increased telephone expense, insurance
expense, rent expense and legal expense relating to facilities and personnel
additions in Houston, Texas and Lafayette, Louisiana. Exclusive of product
resales, general and administrative expenses for the six months ended December
31, 1996 would have been approximately 21.4% of total sales.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$152,000 or 31.5% to $635,000 for the six months ended December 31, 1996 from
$483,000 in the comparable period in the prior fiscal year. This increase was
primarily attributable to the acquisition of an additional $2.3 million of
property, plant and equipment, comprised of $1.8 million in equipment for
satellite, microwave and other equipment and $500,000 for computers, furniture
and fixtures, service vehicles and test equipment.
NET INTEREST EXPENSE. Net interest expense increased $64,000 or 43.0% to
$213,000 for the six months ended December 31, 1996 from $149,000 for the
comparable period in the prior fiscal year. The Company's borrowings increased
to $6.0 million for the six months ended December 31, 1996 from $2.8 million for
the comparable period in the prior fiscal year. Borrowings were reduced in 1995
by the receipt of $2.0 million from Shell as a deposit under a product resale
contract. The increase in borrowings was used to fund acquisitions of property,
plant and equipment.
OTHER INCOME, NET. Other income decreased $96,000 or 84.2% to $18,000 for
the six months ended December 31, 1996 from $114,000 for the comparable period
in the prior fiscal year. The decrease resulted from a decrease in earnings from
the Company's 50%-owned subsidiary, Kenwood Systems Group, Inc. ("Kenwood").
INCOME TAX EXPENSE. Provision for income taxes increased $90,000 or 204.5%
to $134,000 for the six months ended December 31, 1996 from $44,000 for the
comparable period in the prior fiscal year, which represents an effective tax
rate of 34.0% for each period.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
TOTAL SALES. Total sales increased by $12.0 million or 75.9% to $27.8
million for fiscal 1996 from $15.8 million for fiscal 1995. This increase
resulted in principal part from product resales of approximately $10.6 million,
with the remainder of the increase attributable to growth in the Company's
telecom, carrier and land mobile services. Excluding product resales, total
sales for fiscal 1996 would have been $17.3 million. Since such product resales
are expected to be substantially completed in fiscal 1997, they are not expected
to contribute in a material manner to the Company's total sales in future
periods.
GROSS MARGIN. Gross profit increased $1.2 million or 19.7% to $7.3 million
in fiscal 1996 from $6.1 million in fiscal 1995, representing gross margins of
26.5% and 39.0%, respectively. The decrease in gross margin primarily was due to
the lower profit margin from product resales. Excluding product resales, gross
profit would have been approximately $6.6 million in fiscal 1996, representing a
gross margin of 38.0%.
SELLING EXPENSES. Selling expenses decreased $20,000 or 2.4% to $842,000,
or 3.0% of revenues, in fiscal 1996 from $862,000, or 5.5% of revenues, in
fiscal 1995. Advertising and promotion expenditures increased $81,000, travel
increased $21,000 and salaries and employee benefits decreased $110,000, which
reflected the reassignment of certain employees to other departments.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $720,000 or 20.4% to $4.2 million in fiscal 1996 from $3.5 million in
fiscal 1995. As a percentage of total sales, general and administrative expenses
decreased to 15.3% for fiscal 1996 from 22.4% for fiscal 1995. The increase in
23
<PAGE>
general and administrative expenses was primarily due to a higher level of
expenses in fiscal 1996 associated with the Company's international operations
and related travel, including increased activity in Russia and South America as
well as a project in Bosnia that was started and completed in fiscal 1996. In
addition, general and administrative expenses were higher in fiscal 1996 due to
increases in insurance costs and employee compensation resulting from the
development of the Company's infrastructure to accommodate growth specifically
through an increased number of employees, increased telephone expenses relating
to increased activity in the Company's international operations and costs
associated with opening offices in Lafayette and New Orleans, Louisiana.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$183,000 or 22.3% to $1.0 million in fiscal 1996 from $820,000 in fiscal 1995.
This increase was principally attributable to an additional $1.2 million of
property, plant and equipment, comprised of $621,000 for satellite, microwave
and other telecommunications equipment, and $579,000 for computers, furniture
and fixtures, service vehicles and test equipment.
NET INTEREST EXPENSE. Net interest expense increased $26,000 or 10.6% to
$270,000 in fiscal 1996 from $244,000 in fiscal 1995. The increase in interest
expense was due to an increase of $350,000 in borrowings under the Company's
credit lines. Interest expense was minimized during fiscal 1996 as a result of a
$2.0 million deposit received from Shell under a product resale contract.
OTHER INCOME, NET. Other income in fiscal 1996 and fiscal 1995 resulted
from the Company's 50% ownership interest in Kenwood, as well as certain asset
dispositions effected in such periods. Such items were not material to the
Company's operating results in fiscal 1996 or fiscal 1995.
INCOME TAX EXPENSE. Provision for income taxes increased $23,000 or 7.8% to
$316,000 in fiscal 1996, representing an effective income tax rate of 30.0%,
from $293,000 in fiscal 1995, representing an effective tax rate of 35.4%. The
decrease in the effective tax rate in fiscal 1996 primarily was due to the
availability of foreign tax credits in such year.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
TOTAL SALES. Total sales increased $935,000 or 6.3% to $15.8 million for
fiscal 1995 from $14.9 million for fiscal 1994. This increase resulted from a
general increase in sales of the Company's telecom, carrier and land mobile
services, including the establishment of the Company's long distance carrier
services.
GROSS MARGIN. Gross profit increased $1.3 million or 28.5% to $6.1 million
in fiscal 1995 from $4.8 million in fiscal 1994, representing gross margins of
39.0% and 32.2%, respectively. The increase in gross margin in fiscal 1995
resulted, in principal part, from reductions in the cost of direct labor and
materials.
SELLING EXPENSES. Selling expenses decreased $30,000 or 3.4% to $862,000 in
fiscal 1995 from $892,000 in fiscal 1994. The decrease in selling expenses was
attributable to the focusing of marketing resources on activities that yielded
higher returns.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $358,000 or 11.3% to $3.5 million in fiscal 1995 from $3.2 million in
fiscal 1994. As a percentage of total sales, general and administrative expenses
increased to 22.4% for fiscal 1995 from 21.4% for fiscal 1994. The increase for
1995 was minimized by reduced expenditures made in areas such as contract
services, bad debts, which included a write off of $84,500 in fiscal 1994, data
processing expenses and telephone expenses. Items increasing in fiscal 1995
included expenditures on foreign ventures due to increased activity in Russia,
accounting and legal expenses and training and consulting resulting from the
installation of new accounting software.
24
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$249,000 or 43.6% to $820,000 in fiscal 1995 from $571,000 in fiscal 1994. The
increase was principally attributable to an additional $1.5 million of property,
plant and equipment comprised of $1.1 million for satellite, microwave and other
equipment and $420,000 for computers, furniture and fixtures, service vehicles
and test equipment.
NET INTEREST EXPENSE. Interest expense increased $244,000 or 13.5% in
fiscal 1995 from $215,000 in fiscal 1994. Outstanding debt increased $3.6
million or 31.0% in fiscal 1995 from $2.7 million in fiscal 1994. This increased
financing was used primarily to fund the Company's growth in property, plant and
equipment.
OTHER INCOME, NET. Other income decreased to $138,000 in fiscal 1995 from
$253,000 in fiscal 1994. Other income is composed of earnings from Kenwood, and
the gain incurred on the disposition of certain assets.
INCOME TAX EXPENSE. The Company's fiscal 1995 provision for income taxes
was $293,000, representing an effective rate of 35.0%. In fiscal 1994, the tax
provision amounted to $41,000, representing an effective tax rate of 22.3%.
QUARTERLY RESULTS
The following table presents selected quarterly financial information for
the periods indicated. This information has been derived from unaudited
Consolidated Financial Statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
The Company's quarterly operating results have varied significantly in the
past and can be expected to vary in the future. These fluctuations in operating
results generally are caused by a number of factors, including changes in the
Company's services and product mix, levels of product resales, adverse weather
conditions in customer locations, the degree to which the Company encounters
competition in its existing or target markets, general economic conditions, the
volume and timing of orders received during the period, sales and marketing
expenses related to entering new markets, the timing of new product or service
introductions by the Company or its competitors and changes in billing rates by
the Company or its competitors.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1995 1995 MARCH 31, 1996 1996 1996
--------------- --------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Telecom, carrier and land mobile......... $ 3,459 $ 3,738 $ 5,674 $ 4,371 $ 5,105
Product resales.......................... -- -- 3,477 7,077 1,801
------ ------ ------ ------------- ------
Total sales............................ 3,459 3,738 9,151 11,448 6,906
Cost of sales.............................. 1,936 2,290 6,793 9,396 5,052
------ ------ ------ ------------- ------
Gross profit............................... 1,523 1,448 2,358 2,052 1,854
Selling expenses........................... 222 173 233 214 220
General and administrative expenses........ 963 967 1,085 1,242 1,192
Depreciation and amortization.............. 236 247 250 270 293
------ ------ ------ ------------- ------
Income from operations..................... 102 61 790 326 149
Net income................................. $ 48 $ 37 $ 456 $ 193 $ 54
------ ------ ------ ------------- ------
------ ------ ------ ------------- ------
<CAPTION>
DECEMBER 31,
1996
---------------
<S> <C>
Sales:
Telecom, carrier and land mobile......... $ 5,844
Product resales.......................... 2,894
------
Total sales............................ 8,738
Cost of sales.............................. 6,633
------
Gross profit............................... 2,105
Selling expenses........................... 274
General and administrative expenses........ 1,049
Depreciation and amortization.............. 342
------
Income from operations..................... 440
Net income................................. $ 207
------
------
</TABLE>
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1996, the Company generated
$334,000 of cash from operating activities, borrowed an additional net amount of
$2.0 million from credit facilities, received payment of $142,000 from
collections on outstanding notes receivable and received $10,000 from the sale
and issuance of Common Stock to an employee. The Company spent $2.4 million on
property and equipment (net of proceeds of $29,000 from certain dispositions of
assets) and increased its investment in an unconsolidated subsidiary by $50,000.
These activities provided an increase in the Company's cash balance of $62,000
to a balance of $423,000 at December 31, 1996.
The Company's working capital increased to $2.1 million at December 31, 1996
from $1.8 million at June 30, 1996. Accounts receivable decreased from $5.5
million at June 30, 1996 to $5.0 million at December 31, 1996, while inventory
increased from $987,000 at June 30, 1996 to $1.8 million at December 31, 1996.
In addition, the current portion of notes payable increased from $1.0 million at
June 30, 1996 to $1.1 million at December 31, 1996, while deferred revenue and
customer deposits increased from $614,000 at June 30, 1996 to $838,000 at
December 31, 1996.
During fiscal 1996, the Company generated $737,000 of cash from operating
activities, borrowed an additional net amount of $350,000 from credit
facilities, received payment of $264,000 from collections on outstanding notes
receivable (net of new notes issued for $396,000), and received $10,000 from the
sale and issuance of Common Stock to an employee. The Company also spent $1.3
million on property, plant and equipment (net of proceeds of $202,000 from
certain dispositions of assets). These activities provided an increase in the
Company's cash balance of $70,000 at June 30, 1995 to a balance of $361,000 at
June 30, 1996.
The Company's working capital increased to $1.8 million at June 30, 1996,
representing an increase of $2.1 million from the negative working capital
position of $265,000 at June 30, 1995. The Company restructured its credit
facility to reclassify some borrowings as long term in fiscal 1996 that were
considered current obligations in fiscal 1995. The increased working capital was
used to support growth in the Company's core business as well as an increase in
accounts receivable from $2.0 million in fiscal 1995 to $5.5 million in fiscal
1996 and an increase in inventory from $601,000 at June 30, 1995 to $987,000 at
June 30, 1996. Offsetting these increases was a higher balance of accounts
payable and accrued liabilities to $3.9 million in fiscal 1996 from $1.1 million
in fiscal 1995. The current portion of notes payable for this period decreased
to $1.0 million in fiscal 1996 from $2.3 million in fiscal 1995.
The Company has a bank line of credit of $4.5 million of which $2.3 million
was advanced at December 31, 1996. Line of credit availability is based upon
eligible accounts receivable and inventory with interest on borrowed funds at
prime plus 0.75% and a fee equal to 0.50% is charged on any unused portion of
the facility. See Note 5 to Notes to Consolidated Financial Statements. The bank
line is collateralized by substantially all of the Company's assets and expires
in December 1998, although it may be terminated by the Company through December
20, 1997 for a prepayment premium of 1% of the maximum amount of credit.
Thereafter through December 1998, it may be terminated for a fee of 0.50% of the
maximum amount of credit. The Company has other credit facilities with its bank
lender for specific items of equipment which are collateralized by those items.
The credit agreement prohibits the payment of dividends without prior approval
of the lender and requires the Company to maintain certain covenants
and financial ratios including working capital and net worth ratios. The Company
has recently received an increase of $2.0 million and is currently negotiating
for additional facilities to finance equipment for the provision of services to
customers. In December 1996, the Company violated a financial covenant under the
credit agreement. The bank lender did not declare the Company in default and
waived the violation. In addition, the bank lender has amended the financial
covenant at issue, such that the Company does not expect to be in violation of
such covenant in the future.
The Company currently expects that capital expenditures for the continued
development of infrastructure and associated growth will be approximately $9.0
million in fiscal 1997, $6.7 million of which will occur
26
<PAGE>
in the second half of fiscal 1997. The Company entered into an agreement in
December 1996 to acquire microwave radios from a customer. The Company will be
required to make a cash payment of approximately 30% of the purchase price on
April 1, 1997. The balance will be carried in a note payable to the customer
bearing interest at 6.75% with monthly principal and interest payments to begin
in July 1997, with a final payment of principal and interest to be made in June
2006. The Company anticipates that, based on current plans and assumptions
relating to its operations, upon completion of the Offering its financial
resources and equipment financing arrangements will be sufficient to fund the
Company's growth and operations for approximately twelve months from the date of
this Prospectus. The Company believes that its capital needs at the end of such
period will continue to be significant and, therefore, the Company will continue
to seek additional sources of capital. Further, in the event the Company's plans
or assumptions change or prove to be inaccurate, or if the Company consummates
any unplanned acquisitions of businesses or assets, the Company may be required
to seek additional sources of capital sooner than currently anticipated. Sources
of additional capital may include public and private equity and debt financings,
sales of nonstrategic assets and other financing arrangements. See "Risk
Factors--Significant Capital Requirements" and "Use of Proceeds."
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." As a result of this statement,
the Company will begin to provide additional disclosures related to its stock
based compensation plans in its fiscal 1997 financial statements. Adoption of
SFAS No. 123 will not have a material effect on the Company's financial position
or results of operations. The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets," in its 1996 fiscal year,
which did not have a material effect on the Company's financial position or
results of operations.
27
<PAGE>
BUSINESS
BUSINESS OVERVIEW
The Company provides advanced communications solutions to customers with
operations in remote, difficult-access regions and in areas around the world
where government deregulation has created new market opportunities. The Company
delivers comprehensive communications services to its customers by utilizing a
broad range of analog and digital technologies, including satellite, microwave
radio, conventional two-way radio and fiber optic cable. The Company's core
business to date has focused on the provision of communications solutions for
customers in the oil and gas industry, such as AMOCO, British Gas, Chevron,
Conoco, Exxon and Shell. Such customers exemplify users with unique
communications needs related to the remote, difficult-access nature of their
operating locations. By providing a wide range of communications solutions to
its oil and gas customers, the Company has developed a high level of expertise
and a unique skill set in planning, designing and implementing total
communications solutions for multi-site customers with operations located in
remote regions or underdeveloped areas where the existing communications
infrastructure is insufficient to meet advanced telecommunications needs. The
Company intends to leverage this skill set and expertise by supplying
communications services to multi-site customers outside of the oil and gas
industry, particularly customers with operations located near the Company's
existing and planned telecommunications infrastructure. Potential additional
customers include health care providers, financial institutions and other
multi-location communication-intensive companies, such as large publishing
companies.
The Company recently has installed a tandem switch and a value-added
services platform in Houston, Texas. This switch and platform enable the Company
to connect its digital network with the networks of other carriers, thereby
permitting the routing of phone calls in a cost-competitive manner. As the
Company's communications network in the Gulf Coast expands, the Company intends
to install additional switches in other strategic locations. The Company
recently has received approval to serve as a CLEC in select locations in Texas
and has applied for CLEC status in Louisiana. As a result, the Company believes
that it is well positioned to use the full capacity of its existing and planned
infrastructure by providing call routing to other carriers and, in select
locations, by providing call completion services at profit margins that the
Company believes will be higher than those achievable without CLEC status. As a
CLEC offering competitive rates for call completion services, the Company
expects that cellular, PCS and other long distance carriers will become
additional customers.
The Company provides its telecommunications services through a satellite
network, a microwave network, wireless licenses and carrier agreements for long
distance service combined with a switch-based network. The IWL satellite network
includes two 5.6 meter Ku band earth stations and access agreements for Orion
and GTE Spacenet satellites. The Company's microwave network includes a system
that has been built by the Company onshore in the Texas Gulf Coast region and
extends offshore into the Gulf of Mexico. Through various agreements, the
Company has access to capacity from other microwave systems owned by carriers
throughout the Texas and Louisiana Gulf Coast region. In order to provide its
wireless mobile services, the Company owns various radio systems that provide
two-way voice communications and has obtained 35 FCC licenses with approximately
320 frequency pairs. The Company's long distance services are provided through
the recently-installed tandem switch as well as through agreements with other
long distance carriers. The LEC services that the Company intends to provide
will be obtained from existing LECs on a reseller basis and from the Company's
generation of such services through the acquisition of its own end-office switch
and access to fiber optic cable obtained by the Company or on which the Company
leases capacity. The Company's relationship with international oil and gas
company customers created an opportunity to expand its operations globally by
providing communications solutions for these customers' other facilities located
in remote or underdeveloped locations around the world. The Company currently
has domestic offices in Houston and Friendswood, Texas and Lafayette and New
Orleans, Louisiana and an international office in Moscow, Russia.
28
<PAGE>
MARKET OPPORTUNITY
The introduction and proliferation of new communications technologies,
together with global socioeconomic development, are contributing to significant
increases in demand for telecommunications services throughout the world.
Advances in communications delivery technology, including those achieved through
the deployment of satellite systems and the development of data compression
technologies, have expanded the variety of information that can be digitized as
well as the geographic scope of where such data may be transmitted or received.
Businesses in numerous industries around the world increasingly depend upon
their ability to effectively and quickly transmit larger quantities and more
varied types of data, including voice and video. As each technological advance
creates a new service or product, or enhances the quality or reduces the cost of
existing services and products, the demand for telecommunications services
increases. In addition, political and economic changes in many regions of the
world have contributed to the emergence of additional global market
opportunities in a variety of industries and an increased rate of adoption of
Western business practices in previously non-Westernized areas. Examples of such
changes include the spread of multi-party governments and free market economies
in Eastern Europe, the unification effort in Western Europe, the North American
Free Trade Agreement and the privatization of government-operated industries in
South America. The Company believes that these changes have escalated the demand
for Western telecommunications services, particularly in remote regions of the
world or in regions where the telecommunications infrastructure is
underdeveloped.
The telecom services industry is being transformed further by the
deregulation of telecommunications markets around the world. In the United
States, a court decree in 1984 required AT&T to divest its local systems into
seven independent Regional Bell Operating Companies, which own the BOCs that
provide local services. This action resulted in the separation of the long
distance market from the local exchange services market, with the outcome being
an opening of the long distance market to competition. The enactment of the 1996
Telecommunications Act established an expansive framework for greater
competition, including within the local exchange services market. Under the 1996
Telecommunications Act, state laws prohibiting competition are preempted and
CLECs, such as the Company, have legal rights to interconnect with the
facilities of the incumbent LECs, including the BOCs and GTOCs, resell local
services that were previously provided only by the BOCs and GTOCs, and deliver
CLEC-provided local services as well as long distance services.
Telecommunications revenues of CLECs grew almost 80% in 1996 to $2.1 billion,
compared with nearly $1.2 billion in 1995, according to the 8th Edition of the
ANNUAL REPORT ON THE COMPETITIVE TELECOMMUNICATIONS INDUSTRY. Whereas the CLEC
industry in 1995 derived 42% of its service revenues from private line and
dedicated access services and only 20% from local and switched access services,
in 1996 switched services constituted 36% of total CLEC telecom revenues.
Deregulation of telecommunications markets is occurring at the international
level as well, as demonstrated by the recent 68-nation World Trade Organization
agreement on communications services, which reflects efforts to dismantle
government-owned telecommunications monopolies throughout Europe, Asia and
India. The Company believes that deregulation efforts, both domestically and
internationally, will continue to create opportunities for new entrants in the
telecom services industry, particularly companies capable of meeting the
challenges presented by remote or underdeveloped geographies.
While the demand for telecommunications services is increasing worldwide,
the Company believes that the exploration and development activities
characteristic of the oil and gas industry have placed that industry, in
particular, at the forefront in applying modern communications technologies in
remote regions of the world or regions that lack developed telecommunications
infrastructure. The oil and gas industry is characterized by companies with
global operations that require reliable data and voice communications. Companies
engaged in oil and gas exploration operate sophisticated seismic and drilling
equipment in areas that are often uninhabited or otherwise present logistical
adversity, such as offshore platforms that operate in the Gulf of Mexico or the
North Sea and remote areas of Russia or South America. Information gathered by
an oil and gas company at such locations often must be transmitted to the
company's main office for evaluation, with subsequent communications between the
remote and main office locations being necessary to manage the conduct of such
operations. Furthermore, the Company believes that oil and gas companies are
increasingly outsourcing their telecommunications services needs. Because each
active
29
<PAGE>
drilling rig or seismic unit typically requires communications services, the
Company believes that growth in the demand for telecom services within the oil
and gas industry generally relates to the overall level of activity in the
petroleum industry. According to the OIL INDUSTRY OUTLOOK published by PennWell
Publishing Company in August 1996, worldwide petroleum industry capital
expenditures were approximately $73.9 billion in 1995, up from $65.6 billion in
1990, and are expected to grow to approximately $94.6 billion in the year 2000,
for an increase of approximately 28%. The OIL INDUSTRY OUTLOOK also reports
that, at the end of 1995, there were approximately 723 active drilling rigs in
the U.S., and this number is expected to grow to approximately 920 active
drilling rigs by the year 2000, for an increase of approximately 27%.
The Company also believes that numerous other industries are taking
advantage of technological advances and socioeconomic development by pursuing
opportunities to expand their operations into remote regions or areas with
underdeveloped telecommunications infrastructure. In some cases, such areas
include highly populated communities in developed and lesser developed
countries. Following the installation of additional infrastructure in such
regions, these communities may be able to make use of the available extra
carrier capacity, even though such additional infrastructure might have been
installed originally as a specific communications solution for a particular
company or end-user. One example of a type of end-user, other than an oil and
gas company, that may experience unique communications challenges requiring
additional infrastructure would be a large publisher. Publication companies
often need to transmit large quantities of news information and other data to
numerous remote locations but may not have access to sufficient wire or fiber
connections. Similarly, health care providers, financial institutions and other
multi-location companies, including other telecommunications carriers,
throughout the world require specialized telecom solutions. The Company believes
that a significant opportunity exists to provide advanced communications
services to end-users outside the oil and gas industry by delivering effective
temporary or permanent solutions at competitive rates and, in doing so, the
Company intends to position itself to serve the telecommunications carrier
service needs of neighboring communities and businesses.
IWL STRATEGY
The Company's goal is to become a leading provider of total communications
solutions to end-users with operations in remote, difficult-access regions or in
areas around the world where government deregulation has created new market
opportunities and to leverage this position by providing carrier services to
additional customers located in these same regions. To reach this goal, the
Company intends to pursue the following strategies:
DEVELOP ADDITIONAL COMPANY-OWNED INFRASTRUCTURE. The Company intends to
develop additional Company-owned infrastructure and plans to leverage that
infrastructure to provide expanded and better quality services to existing and
new customers. By maintaining an ownership interest in the communications
infrastructure installed by the Company for specific customers, the Company can
establish a lasting presence in the regions within which those customers
operate. The Company may then sell communications carrier services to additional
customers by utilizing that same infrastructure. For example, the Company
intends to invest in the required infrastructure, including fiber optic cable,
in certain selected areas of the Texas and Louisiana Gulf Coast region.
VERTICALLY INTEGRATE SERVICE OFFERINGS. The Company believes that it has
the capability to be a single-source provider of total communications solutions,
including long distance services and local carrier services, and a variety of
complementary services such as two-way radio, paging and Internet access. The
Company intends to aggressively market its existing and new services to
customers through its single-source approach. The Company believes that this
single-source strategy will enable it to increase sales to its existing and
future customers.
DIVERSIFY CUSTOMER BASE. By providing a wide range of communications
solutions to its oil and gas customers, the Company has developed a high level
of expertise and a unique skill set in planning, designing and implementing
total communications solutions for multi-site customers with operations in
remote regions or underdeveloped areas where the existing communications
infrastructure is insufficient to meet advanced telecommunications needs. The
Company intends to leverage this skill set and expertise
30
<PAGE>
by supplying communications services to multi-site customers outside of the oil
and gas industry, particularly customers with operations located near the
Company's existing and planned telecommunications infrastructure. Potential
additional customers include health care providers, financial institutions and
other multi-location companies, such as large publishing companies. In
particular, cellular, PCS and other long distance carriers have become
significant potential additional customers because, as a CLEC, the Company will
be able to complete phone calls at cost-effective rates.
CAPITALIZE ON OPPORTUNITIES CREATED BY GOVERNMENT DEREGULATION AND
GLOBALIZATION TRENDS IN VARIOUS INDUSTRIES. The Company intends to explore new
markets that opened as a result of the recent trend toward worldwide government
deregulation in the telecommunications industry. Recent U.S. legislation has
opened the domestic local exchange market to competition, and the Company
intends to provide a combination of long distance services and basic local phone
services to domestic customers. To capitalize on opportunities presented by the
changing international regulatory environment and the size of the international
market, the Company intends to target customers who have international
telecommunication needs. In addition, the Company intends to take advantage of
opportunities created by the movement towards a free market economy in certain
parts of the world by providing communications services to companies in a
variety of industries as those companies and industries pursue international
expansion.
EXPAND EXISTING STRATEGIC ALLIANCES AND ESTABLISH NEW ALLIANCES. The
Company intends to expand its existing strategic alliances and intends to enter
into new strategic alliances that will enable the Company to broaden its
customer base or expand its service offerings. The Company intends to focus on
strategic alliances with suppliers, major customers and long distance carriers
and other telecommunications carriers. The Company believes that such strategic
alliances are an important means of achieving economies of scale and full
utilization of its infrastructure.
SERVICE OFFERINGS
TELECOM AND CARRIER SERVICES
The Company currently offers its customers a single source for voice, data
and Internet communications services. The Company provides telecommunications
services in remote, difficult-access regions and in areas around the world where
government deregulation has created new market opportunities. The Company,
utilizing a broad range of analog and digital technologies, provides its telecom
and carrier services through a satellite network, a microwave network, wireless
licenses, and carrier agreements for long distance service combined with a
switch-based network. The Company's satellite network includes two 5.6 meter Ku
band earth stations and access agreements for Orion and GTE Spacenet satellites.
The Company's microwave network includes a system that has been built by the
Company onshore in the Texas Gulf Coast region and extends offshore into the
Gulf of Mexico. Through various agreements, the Company has access to capacity
from other microwave systems owned by carriers throughout the Texas and
Louisiana Gulf Coast region. In order to provide its wireless mobile services,
the Company owns various radio systems that provide two-way voice communications
and has obtained 35 FCC licenses with approximately 320 frequency pairs. The
Company's long distance services are provided through the recently-installed
tandem switch as well as through agreements with other long distance carriers.
The LEC services that the Company intends to provide will be obtained from
existing LECs on a reseller basis and from the Company's generation of such
services through its acquisition of one or more end-office switches and access
to fiber optic cable obtained by the Company or on which the Company leases
capacity.
Related services provided by the Company include project engineering,
telecom installation and maintenance, network management and telecom product
sales and equipment rentals. To provide its customers with total, integrated
communications services, IWL performs many functions, including system
specification, engineering, integration, test and installation. IWL's dedicated
project management and engineering staff has experience in network design and
implementation and has the expertise to engineer, design and install systems
that meet its customers' requirements.
The Company's telecom services also provide the connection between the
common carrier's network and the customer's location. Although such connection
can span large distances, it is commonly referred to as last-mile connectivity.
The Company's Offshore Dedicated Digital Services Program ("ODDS"), which
31
<PAGE>
delivers connectivity to offshore locations exemplifies the Company's last-mile
connectivity services in the Gulf of Mexico. ODDS is a fully digital,
communications system that is flexible enough to be reconfigured to a new
location after the customer's drilling rig changes locations.
In order to provide last-mile connectivity in remote locations, the Company
utilizes a variety of equipment and services. Satellite services are used where
access to the world public switch network is not available on other transmission
media and other means of connectivity, such as microwave or fiber optic cable,
are cost prohibitive based on the volume of the data being transmitted. The
public switch network is a direct distance dialing telephone network that is
available for public use that consists of an integrated system of transmission
and switching facilities, signaling processors, and associated operations
support systems that is shared by customers. The Company owns and operates two
satellite earth stations in Friendswood, Texas and has space segment agreements
with Orion and GTE Spacenet to use their respective satellites. Earth stations
receive signals from and transmit signals to orbital satellites. These
satellites have footprints covering parts of the U.S. and Europe. See "Risk
Factors--Risks Associated with International Operations."
The Company-owned digital microwave network in the Gulf of Mexico consists
of five microwave repeaters that cover over 40 drilling sites in a 100 mile
radius. The Company has installed microwave infrastructure where moderate
capacity is required for data transmissions and there is no existing
infrastructure or, if there is such infrastructure, it can not be used cost
effectively. In areas not served by the Company's microwave network, the Company
leases the right to install microwave repeaters on other companies' digital
microwave networks. In addition, for onshore remote communications, radio
telephone is used between the microwave backbone (such as microwave radios) and
destinations within the line of sight of such backbone.
In addition to providing its customers with project-specific telecom
communications solutions, in recent years the Company has expanded the provision
of its long distance carrier services including international services, through
its IWL Connect-TM- division, to provide long distance carrier services. The
Company recently installed a tandem switch and a value-added services platform
in Houston, Texas, thus enabling the Company to market its own long distance
carrier services instead of reselling the services of others. The Company's
domestic and international switched access services include a full range of
services with enhanced features, including: 1+ switched domestic service, which
provides for the origination and termination of calls for direct dial service
and is available in all equal access locations in the U.S. and in the Gulf of
Mexico; 1+ switched international service, which provides for the termination of
calls for direct dial service in virtually every country in the world; 1+
dedicated service via a DS1 connection between the customer's on-premise
equipment and the Company's switching platform, which provides high speed
dedicated access; 800/888 switched and dedicated service, which is provided from
the U.S. and Canada and allows phone calls to terminate to switched access
facilities or over DS1 connections; calling card service, which allows phone
calls to originate in the North American Numbering Plan Area and terminate
worldwide, and which is provided via 800/888 access using authorization codes;
and debit card service, which is provided via 800/888 access providing online
services including voice mail, follow-me-number portability and 1+ dialing. The
Company expects to add additional value-added switched access services in the
future, including ISDN (integrated services digital network), ATM (asynchronous
transfer mode) and frame relay services, which the Company believes will allow
it to leverage its infrastructure investment through a larger customer base. The
Company intends to commence providing long distance services through its own
network by the end of 1997. See "Risk Factors--Competition," "--Risks Associated
with Entry into Local Phone Service Market and Other New Markets" and
"--Reliance on Other Telecommunications Carriers."
Because many of the Company's customers require connectivity to locations
along the Texas and Louisiana Gulf Coast region, the Company is currently
installing additional Company-owned infrastructure in that region, which
includes microwave towers, fiber optic cable and leased capacity. The Company
intends to use this installed network to offer long distance and local exchange
services throughout the Texas and Louisiana Gulf Coast region.
32
<PAGE>
The Company intends to begin providing LEC services in the Texas and
Louisiana Gulf Coast region through reselling existing LEC services and through
generating such services through the Company's own infrastructure. The Company
is currently providing similar services in the Gulf of Mexico. LEC services will
include dial tone service and call termination, which will allow customers to
get new or additional phone lines under a basic service plan. In addition, the
Company will be able to provide value-added services such as: DS3 connectivity
for large corporations with heavy traffic, which need a 45 megabyte DS3 line;
DS1 services for WAN connections or interconnections to other carriers at a
1.544 megabyte rate; and DS0, or 64 kilobyte, connections for specific voice and
data uses over FX (foreign exchange) lines, tie lines and PBXs (private branch
exchanges). Before it can provide LEC services, the Company will need to be
licensed as a CLEC in addition to its existing license as a competitive access
provider ("CAP") in both Texas and Louisiana. The Company has obtained a Service
Provider Certificate of Authority ("SPCOA") in Texas, which qualifies it as a
CLEC in Texas, and has applied for CLEC status in Louisiana, which it expects to
receive by the fourth quarter of fiscal 1997. See "Risk Factors--Risks
Associated with Entry into Local Phone Service Market and Other New Markets."
LAND MOBILE SERVICES
The Company provides two-way radio sales and maintenance services to oil and
gas companies, governmental agencies and petrochemical plants located on the
Texas and Louisiana Gulf Coast through its land mobile radio division ("LMR
Division"). IWL offers a broad line of two-way and trunking radios, paging
products and wireless systems for both voice and data applications. The Company
resells these products, which include: portables; mobiles; two-way repeaters
(repeaters repeat the signal so it can be carried over greater distances); base
stations (which are used to communicate to mobiles and portables); RF (radio
frequency) data modules (which are used for transmitting remote data to a
central site); customized radio consoles; single side band, high-frequency
radios (which are used for long distances that are not in the line of sight);
paging networks; and trunking systems (which allow individual communications
over radios). The Company also engineers and designs new systems and modifies
existing systems to meet its customers' specifications. In addition, the Company
provides complete turnkey design and implementation of conventional and trunking
radio networks, integrates new equipment into existing networks, and engineers
and designs new systems or updates existing systems to meet new FCC regulations
as they are adopted.
The Company maintains a fleet of rental radio equipment for short- or
long-term rentals. Customers rent from the Company to support temporary
communication needs for plant maintenance, shutdowns, disaster recovery,
sporting events and conventions. The Company's inventory of radio equipment
includes intrinsically safe ("IS") portables, which are important to oil and gas
companies because they require the use of IS-rated radio products in the
hazardous or explosive atmospheres typically found in petrochemical plants. The
Company employs factory trained licensed technicians on call 24-hours a day,
seven days a week. These personnel are trained in safety procedures for on-site
service in petrochemical plants. The Company's Land Mobile facility located in
Friendswood, Texas has special approval certification from Factory Mutual System
to repair any IS-rated radio products manufactured by Motorola, EF Johnson or
Ericsson-GE.
PRODUCT RESALES
Product resales currently consist of sales of telecom products to Shell.
Shell has a purchasing contract with the Company for Alcatel radios and other
related equipment and hardware. Sales to Shell under the contract were
approximately $10.6 million and $4.7 million for the year ended June 30, 1996
and for the six months ended December 31, 1996. The Shell project is expected to
be substantially completed in fiscal 1997 and, therefore, is not expected to
contribute in a material manner to the Company's total sales in future periods.
It is possible that the Company may have other large projects consisting
primarily of product resales that will be included in product resales in the
future. See "Risk Factors-- Industry Concentration and Dependence on Major
Customers" and "--Variability in Operating Results" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
33
<PAGE>
SELECTED CUSTOMERS
The following table sets forth a representative sample of the types of
communications solutions that IWL has provided to selected customers in the
past.
<TABLE>
<CAPTION>
CUSTOMER LOCATION SOLUTION PROVIDED
<S> <C> <C>
A.I.O.C. Baku, Azerbaijan Installed telecommunications equipment, including microwave and
satellite links and a land mobile radio system, to cover local
Baku and adjacent Chirag offshore areas.
ABB Lummus Global Venezuela Engineered and designed nine digital microwave links, two
comprehensive telecom control centers and a wide-area data
network.
Amoco Moscow, Russia/ Installed a digital link and related equipment between Amoco's
Tulsa, Oklahoma master earth station in Tulsa, Oklahoma and its office in Moscow,
Russia.
Banco de Prestamos Quito, Ecuador Installed a satellite hub and four remote earth stations with
voice and data multiplexers.
Brazos River Waco, Texas Installed microwave links to interconnect two project offices.
Authority
British Gas Tunisia Installed microwave and two-way radio telecommunications
equipment for an offshore platform to provide communications to
an onshore facility.
Brown & Root Bosnia Installed an extensive network covering seven sites and nine
earth stations in Bosnia and Hungary to provide interconnection
via satellite in-country and to provide interconnection to the
United States.
Centennial Louisiana/Texas Provided large capacity bandwidth between Beaumont, Texas, Lake
Communications Charles, Louisiana and Lafayette, Louisiana.
Chevron Nigeria Installed a microwave system and associated telecommunications
equipment.
Columbia Gulf Gulf of Mexico, Project covered 80 sites (52 offshore in the Gulf of Mexico and
Texas and 28 onshore in Texas and Louisiana) through microwave data
Louisiana systems.
Conoco/Polar Lights Moscow, Russia Installed an INTELSAT hub earth station with cable facilities
between Petushkee and Moscow, Russia and related interconnections
for communications to Moscow, Russia and Houston, Texas.
Electrospace, C.A. Venezuela Installed ten satellite earth stations and a satellite network
for banks and military applications.
Exxon Co. U.S.A. Houston, Texas Provided an emergency response communications system.
Exxon Co. U.S.A. Moscow, Russia Installed a satellite circuit and related equipment between
Houston, Texas and Moscow, Russia.
Freeport MacMoran Indonesia Installed an UHF radio network, including digital microwave.
ITAR-TASS Russia Installed a T1 Network (Washington/Moscow), which provides
connectivity, and provided support and electronics for two
INTELSAT standard hub stations in Petushkee, Russia.
Maxus Energy Bogota, Colombia Installed a voice data multiplexor and subsystem equipment for
telecommunications between Bogota, Colombia and Dallas, Texas.
MCI Ecuador Installed an INTELSAT earth station for satellite communications.
Mobil Oil Co. Lima, Peru Installed a satellite earth station at Mobil's office in Lima,
Peru.
Shell Gulf of Mexico Provided contract service personnel to assist in the installation
of a digital microwave network for the Gulf of Mexico.
Transco Houston, Texas Installed a nationwide (Virginia to Texas) point-multipoint
microwave radio system consisting of 700 remote sites.
</TABLE>
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SALES AND MARKETING
Since its inception, the Company has utilized a direct sales approach in
marketing its services to its customers. The Company currently has a sales force
of approximately 20 sales representatives, with sales offices located in
Houston, Texas, New Orleans, Louisiana and Moscow, Russia. The Company's direct
sales approach enables it to provide a high level of customer service. To
complement the Company's direct sales efforts, the Company often participates in
various domestic and international industry trade shows and conducts advertising
campaigns in trade publications. The Company plans to expand its existing sales
force and develop new market areas as opportunities for projects arise and as
its infrastructure grows.
The Company targets domestic and international customers that require
turnkey system solutions and other telecommunications services. The Company's
sales force sells frequency bandwidth, call completion and system solutions,
allowing the Company to further develop its own telecommunications
infrastructure. Current and prospective customers are assigned to account
managers, who are principally responsible for providing high levels of contact
and customer service. In addition, the Company utilizes business development
managers to focus on specific customer requirements and opportunities. The
business development manager is typically involved in major projects and the
installation of infrastructure domestically or internationally.
STRATEGIC RELATIONSHIPS AND ALLIANCES
Recognizing the importance of strategic alliances in the telecom services
industry, IWL has negotiated several agreements with various manufacturers to
resell their products or to combine their facilities and relationships with the
Company's expertise. Certain of these key alliances are described below:
ALCATEL. The Company has entered into an agreement with Alcatel under which
the Company serves as the exclusive representative for the sale of Alcatel's
fiber and radio system products to companies in the U.S. oil and gas industry.
In return for Alcatel's agreement not to accept orders directly from such
companies, the Company has agreed to actively pursue purchase orders for
Alcatel's products and to propose only Alcatel's products to its prospective
customers in the U.S. oil and gas industry, except where the Alcatel products do
not meet the technical requirements of the prospective customers. Although the
Company is an exclusive sales representative for such products, Alcatel has
other authorized distributors that are not part of the Alcatel agreement, and
those distributors may or may not provide quotations and accept orders from oil
and gas industry companies. Furthermore, in international transactions, other
divisions of Alcatel or its affiliates and other resellers of Alcatel products
outside of the U.S. have been in the past, and in the future may be, competitive
with the Company using Alcatel or non-Alcatel products. The Alcatel agreement
expired in December 1996; however, the parties have continued to abide by the
terms of the Alcatel agreement while negotiating the terms of a new agreement,
which the parties expect will be substantially similar to the old agreement.
ITAR-TASS. The Company has established a strategic relationship with
ITAR-TASS, the Russian News Agency, in order to provide information and
communications services using INTELSAT satellite capacity and other facilities.
Under its agreement with ITAR-TASS, the Company has agreed to provide marketing
services, develop proposals for customers, engineer, purchase, ship, install and
test equipment, and provide monitoring and maintenance services on systems owned
or leased by customers. In return, ITAR-TASS has agreed to provide marketing and
sales support and to implement, monitor and maintain a communications backbone
network in the Russian Federation (including purchasing or leasing from the
Company equipment associated with earth stations, cable systems and the
network). Through their collaborative efforts, the Company and ITAR-TASS provide
services to major Western oil companies with operations in Russia such as Exxon,
Conoco/Polar Lights and Amoco.
The ITAR-TASS agreement further provides that the Company will have a right
of first refusal on 6.0 MHz of bandwidth on the Atlantic Ocean Region, 4.5 MHz
of bandwidth on the Indian Ocean Region and 3.0 MHz of bandwidth on the
Asia-Pacific Region INTELSAT satellites. These bandwidths enable the
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Company to provide international access to space segments as required. ITAR-TASS
has a right of first refusal on all contracts for communications services to the
Russian Federation that are proposed by the Company. Each party has agreed that
they will not compete for projects proposed by the other party and will
coordinate with each other to provide communications services to customers.
However, the agreement is not exclusive, and either party can work with other
entities if, in the opinion of such party, financial or technical considerations
dictate a different working arrangement. The agreement provides that it will
terminate in May 1999, unless either party terminates it sooner. Either party
may end the agreement by giving 60 days written notice if, in the opinion of
that party, business or political conditions call for an earlier termination. No
early termination will affect any existing agreements that the Company has
entered into, and notwithstanding such termination, ITAR-TASS will be required
to provide marketing support and other services with respect to existing
agreements for the remainder of their respective terms.
ENTERGY. In July 1996, the Company entered into a Memorandum of
Understanding ("MOU") with Interstate FiberNet operating on its behalf and on
behalf of Entergy Technology Corporation ("ETC") for the purpose of defining a
contractual relationship between the parties for the interconnection,
co-location, and leasing capacity of each of the parties' fiber optic cable
networks in Louisiana. The MOU reflects the parties' mutual intent to provide
each other with transport capacity on a leased basis at prevailing carriers'
rates. The MOU also provides that the parties will mutually agree to a formal
set of policies to be provided to customers and that they will move forward
expeditiously to conclude a final agreement embodying the intent set forth in
the MOU. The MOU provides that such final agreement will be for an initial term
of five years, with two additional five-year option terms. There can be no
assurance that the parties will enter into a definitive agreement. See "Risk
Factors--Reliance on Third Parties."
CUSTOMER SERVICE
The Company provides customer support for products and services through its
full-service support teams in Friendswood, Texas, Lafayette and New Orleans,
Louisiana, and Moscow, Russia. Support services include: (i) on-site
maintenance, with over 50 technical specialists on call for immediate dispatch
when customers' communications systems require maintenance; (ii) a Network
Operations Center where IWL professionals remotely monitor customers'
communications systems throughout the Gulf of Mexico and around the world seven
days a week, 24 hours a day; (iii) customer support through its LMR Division,
which includes rental packages of portable microwave and satellite systems,
two-way radios, fax machines and cellular phones for customers whose
communications needs are temporary or do not justify the purchase of such
equipment; (iv) training programs designed to maximize the customers'
communications investment, classroom training at customers' sites, and
multimedia video training tools; and (v) research and development for unique
applications where the Company's engineers can custom design or modify hardware
to improve its performance within a particular system.
COMPETITION
The nature of the Company's competition is diverse due to the breadth of the
services offered by the Company and the geographic regions in which such
services are provided. The Company is subject to intense competition with
respect to each of its individual service offerings. Many of the Company's
competitors have significantly greater financial, technical, manufacturing,
personnel and marketing resources than the Company. To date, however, the
Company believes that these large competitors generally have not made it a
priority to provide telecommunications services in remote, difficult-access
regions. Should one or more of such companies focus on such services, it would
likely have a material adverse effect on the financial condition, results of
operations and cash flow of the Company. Currently, the Company believes it
competes directly with Autocomm Communications Engineering Corp., Sola
Communications, Inc. and Datacom for the sale of telecommunications services to
oil and gas companies in the Gulf of Mexico. The Company believes that its
ability to compete in the markets in which it operates depends on such factors
as reputation, technical expertise, quality, customer service, knowledge of the
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business, ease of use, reliability, marketing and distribution channels and the
array of services and products that it can provide. Although the Company
believes that it competes favorably with respect to these factors, there can be
no assurance that the Company will be able to compete successfully in the
future. As the Company pursues new markets, the Company likely will encounter
new competitors. While the recent World Trade Organization agreement or
communications services may result in regulatory changes that could benefit the
Company as it competes in existing markets, or seeks to enter new markets, there
can be no assurance that the agreement will be implemented in a manner that
would benefit the Company or that the pro-competitive effects of the agreement
will not increase the amount of competition encountered by the Company.
DOMESTIC AND INTERNATIONAL LONG DISTANCE. The Company provides long
distance carrier services both domestically and internationally, which it has
been marketing as a switchless reseller since 1994 and which the Company intends
to provide as a facilities-based carrier beginning in the fourth quarter of its
1997 fiscal year. The Company resells long distance service provided by other
long distance carriers and is in the process of developing a switch-based
network from New Orleans, Louisiana to Corpus Christi, Texas, which, if
completed, will deliver long distance service between the various cities and
communities on the network. The long distance markets are characterized by
intense competition with a number of companies, including very large companies
such as AT&T, MCI and Sprint, that have greater name recognition and greater
financial, technical, network and marketing resources than the Company. In
addition, as a result of the 1996 Telecommunications Act, the BOCs and GTOCs are
able to enter the long distance market. The Company's strategy is to expand its
long distance service only as part of a complete telecommunications solution or
where, due to the establishment of a network, the Company can offer service at
rates less than those currently being offered in the particular market. There
can be no assurance that the Company will not encounter intense competition in
the provision of such services or that it will be successful in attracting
customers for its new services.
LOCAL EXCHANGE SERVICE. The Company is expanding its operations to provide
local exchange services typically provided by LECs. The local service market has
only recently been opened to new service providers following enactment of the
1996 Telecommunications Act; however, the competition for this market is likely
to be as intense as competition for the long distance market. The services
offered by the Company will compete with those offered by LECs, such as
BellSouth and Southwestern Bell and their affiliates, which currently dominate
the provision of local services in their respective markets. In entering the
local services market, the Company initially intends to serve as a reseller of
LEC services as permitted under the 1996 Telecommunications Act, which allows it
to purchase such services at a discount and then resell them to the public.
However, in entering this market, the Company believes that LECs have long-
standing relationships with their customers, have the ability to subsidize
competitive services with revenues from a variety of other services and benefit
from existing state and federal regulations that currently favor LECs over new
service providers such as the Company in certain respects. While legislative and
regulatory changes have provided increased business opportunities for
competitive telecommunications providers such as the Company, these same changes
have given LECs increased flexibility in the pricing of their services, which
may allow LECs to offer special discounts to the Company's customers and
potential customers. Further, as competition increases in the local
telecommunications market, the Company anticipates that general pricing
competition and pressures will increase significantly. If LECs lower their
rates, other telecommunications providers may be forced by market conditions to
charge less for their services in order to compete, which could have a material
adverse effect on the Company's financial condition, results of operations and
cash flow.
The Company also may face competition in the provision of local
telecommunications services from cable companies, electric utilities, LECs
operating outside their current local service areas, long distance carriers and
start-up telecommunications ventures. The great majority of these entities
provide transmission services primarily over fiber-optic, copper-based or
microwave networks, which enjoy proven market
37
<PAGE>
acceptance for the transmission of telecommunications traffic. Moreover, the
consolidation of telecommunications companies and the formation of strategic
alliances within the telecommunications industry, which are expected to
accelerate as a result of the enactment of the 1996 Telecommunications Act,
could give rise to significant new or stronger competitors. The 1996
Telecommunications Act contains several provisions that bear directly on
wireless service providers such as the Company including provisions that entitle
wireless carriers to obtain interconnection from LECs, eliminate equal access
obligations with respect to wireless services, limit the ability of state and
local governments to discriminate against or prohibit certain wireless services
and allow BOC affiliates and large long distance carriers to bundle local and
long distance services with wireless offerings. Currently, the FCC is
implementing the provisions of the 1996 Telecommunications Act and several of
the FCC's decisions already are being challenged, thus the Company cannot at
this time predict the extent to or manner in which the 1996 Telecommunications
Act will affect the Company's business. The Company's strategy is to provide
local carrier services only where such services are part of a complete
telecommunications solution or where, because of the Company's early market
acceptance, it can offer services at competitive rates. There can be no
assurance that the Company will be able to compete effectively in the local
service markets. See "Risk Factors--Risks Associated with Entry into Local Phone
Service Market and Other New Markets."
INTERNATIONAL AND FOREIGN MARKET SERVICES. The Company offers
telecommunications service to and from remote and difficult-access locations
outside of the United States for its customers. Such services include the
provision of telecommunications services between domestic corporate offices and
remote sites. Therefore, the Company has not competed in a full range of
services with the incumbent telecommunications providers in a particular country
and has faced competition from international telecommunications providers
generally and others who provide telecommunications services to remote and
difficult-access locations. The Company provides private-line telecommunications
services in Russia. In Russia, the major competitors for networks are SOVAMTEL,
ROSTELECOM, AMRUSCOM and Global One. Although the Company believes that its
alliance with ITAR-TASS will allow it to compete favorably in Russia, there can
be no assurance that such alliance will continue on favorable terms to the
Company, if at all. In Russia, as well as in each other country where the
Company elects to compete, the Company may have to compete with the incumbent
service providers, which may have substantially greater financial resources,
governmental support both financially and otherwise, greater installed
infrastructure, long-standing relationships with their customers, favorable
governmental regulations, better understanding of local business practices and
customers and no foreign currency risks. Additionally, to the extent these
foreign markets are identified by the Company, they may be identified by other
companies that have significantly greater financial and other resources than the
Company. As a result, there can be no assurance that the Company will be able to
compete effectively in these markets. See "--Strategic Relationships and
Alliances" and "Risk Factors-- Competition" and "--Risks Associated with
International Operations."
GOVERNMENT REGULATION
UNITED STATES. In the United States, the Company's services are subject to
the 1934 Communications Act, the 1996 Telecommunications Act and the FCC
regulations thereunder, as well as the applicable laws and regulations of the
various states and state PSCs. Generally, the FCC exercises jurisdiction over
all facilities of, and services offered by, telecommunications common carriers
to the extent such services involve interstate or international communications,
while state regulatory authorities retain jurisdiction over intrastate
communications. The FCC also regulates the licensing and use of the
electromagnetic spectrum (I.E., wireless services) pursuant to Title III of the
1934 Communications Act.
FEDERAL REGULATION
FCC REGULATION OF WIRELESS LICENSES: The Company holds numerous radio
station licenses which are subject to FCC regulation pursuant to Title III of
the 1934 Communications Act. The FCC regulates the
38
<PAGE>
licensing, construction, operation, acquisition and sale of the Company's
wireless facilities and services, including the Company's microwave, satellite
earth station and land mobile systems. In recent years, Congress and the FCC
have made significant changes in the regulation of the wireless industry in
order to promote competition and expand the scope of services that wireless
service providers can offer.
Facilities licensed by the FCC to provide microwave, satellite earth station
and land mobile service are subject to a variety of licensing, operational and
technical requirements specific to each service. Among other requirements,
licensees seeking to continue operating beyond the expiration date of the
licenses must renew their authority. FCC rules also impose prior approval
requirements on proposed transfers of control or frequency assignments. The FCC
continues to refine its wireless rules for each service area to accommodate
advances in technology, developing markets and new service arrangements, and to
eliminate confusing, outdated, redundant or otherwise burdensome regulation. The
outcome of FCC regulatory activities or decisions affecting wireless services
cannot be predicted and, therefore, there can be no assurances that FCC actions
or decisions in this area will not limit the Company's services or plans or have
a material adverse effect upon the Company's financial condition, results of
operations and cash flow.
The 1996 Telecommunications Act contains several provisions that bear
directly on wireless service providers including provisions that entitle
wireless carriers to obtain interconnection from LECs, eliminate equal access
obligations with respect to wireless services, limit the ability of state and
local governments to discriminate against or prohibit certain wireless services
and allow BOC affiliates and long distance carriers, including the Company, to
bundle local and inter-LATA (local access and transport area) services with
wireless offerings. Currently, the FCC is implementing the provisions of the
1996 Telecommunications Act and several of the FCC's decisions already are being
challenged. Thus, the Company cannot at this time predict the extent to which
the 1996 Telecommunications Act will affect the Company's wireless business.
TWO-WAY RADIO: The FCC regulates the Company's two way business radio
systems under Part 90 of the FCC's rules and regulations. Business radio service
providers traditionally have been regulated by the FCC as private carriers
subject to minimal regulation in comparison to other wireless common carriers,
such as cellular service providers. However, the Omnibus Budget Reconciliation
Act of 1993, which amended the 1934 Communications Act, mandated regulatory
parity for "commercial mobile radio services" ("CMRS"), later defined by the FCC
to include business radio services that offer customers for-profit
interconnected service. Accordingly, the FCC reclassified for-profit business
radio systems that are interconnected to the public switched network as a common
carrier service, thereby imposing certain common carrier obligations on the
providers. Effective in October 1996, the FCC's rules permitted CMRS providers,
such as the Company, including for-profit interconnected business radio
services, to provide fixed wireless service in their assigned spectrum blocks on
a co-primary basis with mobile services. The Company's licenses are also subject
to various operational, technical and filing requirements, including
requirements that Company renew its licenses and seek prior approval of
transfers of control and frequency assignments.
MICROWAVE SERVICES: The Company holds various common carrier and private
microwave licenses. The FCC regulates fixed common carriers' microwave services
under Part 21 of its rules and regulations and private carriers under Part 94 of
its rules and regulations. Generally, a common carrier microwave service
provider offers services indifferently to all potential users, whereas a private
carrier's provision of telecommunications services is limited to the
transmission of its own internal communications or its customers' private
communications. Under the FCC's rules, private microwave carriers are not
permitted to transmit common carrier services over their network. IWL's
microwave licenses are subject to various operational, technical and filing
requirements, including requirements that the Company renew its licenses prior
to their expiration and seek prior approval of transfers of control or frequency
assignments.
SATELLITE EARTH STATIONS: The Company holds various earth station licenses.
The FCC regulates earth stations and VSAT (very small aperture terminal)
facilities and services under Part 25 of the FCC's rules
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<PAGE>
and regulations. The Company's earth station and VSAT authorizations permit the
Company to provide both domestic and international voice and data services. The
Company provides service between the U.S. and Bosnia pursuant to its private
carrier earth station license. Effective April 11, 1996, the FCC revised its
"Separate Satellite Systems" and "Transborder Policies" governing U.S.-licensed
domestic and international satellites. As a part of its change in policy for
satellite space stations, the FCC eliminated certain licensing restrictions on
earth stations making it easier for U.S. earth stations to communicate both with
U.S. domestic satellites and certain international satellites such as PanAmSat,
Orion and Columbia Communication's TDRSS satellites. The FCC recently amended
the VSAT licensing and other satellite service rules in an effort to clarify and
streamline satellite service regulations. These rule changes and other
regulatory actions and decisions may permit earth station licensees such as the
Company greater flexibility in providing satellite earth station services. The
Company's licenses are subject to various operational, technical and filing
requirements, including renewal and prior transfer approval requirements.
DOMESTIC WIRELINE SERVICE REGULATION: As a common carrier offering
interstate long distance telephone service to the public, the Company is subject
to additional FCC regulation. As a common carrier, the Company is obligated to
offer service on a non-discriminatory basis at just and reasonable rates. The
FCC has sought generally to minimize regulations that apply to nondominant
carriers such as the Company, and thus domestic regulation of such carriers'
long distance service occurs primarily through the FCC's complaint procedures.
Until recently, carriers such as the Company have been required to file tariffs
with the FCC containing the rates, terms and conditions of interstate service.
Pursuant to a recent FCC order, as of December 1997, nondominant carriers will
no longer be able to file tariffs with the FCC with respect to their long
distance services. Such carriers will, however, be required to maintain at their
offices, and to provide to customers or regulators upon request, information
concerning their long distance services. An appeal of the FCC order eliminating
tariffs has been submitted to the U.S. Court of Appeals for the District of
Columbia and a motion to that Court requesting stay of the FCC's detariffing
order is pending. There can be no assurance of whether the appeal or stay will
be successful, or if successful, what effect such decisions may have on the
Company. However, if detariffing ultimately takes effect, the Company, like
other long distance companies, would likely incur additional costs in
establishing legally binding relationships with customers.
The 1996 Telecommunications Act is intended to remove the formal barriers
between the long distance and local telecommunications services markets allowing
service providers from each market (as well as providers of cable television and
other services) to compete in all telecommunications markets. LECs are now
required to permit interconnection to their networks and satisfy obligations
with respect to unbundled access, resale, number portability, dialing parity,
access to rights-of-way, mutual compensation and other matters. In addition, the
legislation codifies the LECs' equal access and nondiscrimination obligations
and preempts inconsistent state regulation. As required by the legislation, the
FCC is conducting a large number of proceedings to adopt rules and regulations
to implement the new statutory provisions and requirements. In August 1996, the
FCC adopted new rules implementing certain provisions of the 1996
Telecommunications Act (the "Interconnection Orders"). These rules are designed
to implement the pro-competitive, deregulatory national policy framework of the
new statute by removing or minimizing the regulatory, economic and operational
impediments to competition for facilities-based and resold local services,
including switched local exchange service.
Among other things, the Interconnection Orders establish rules requiring
incumbent LECs to interconnect with new entrants such as the Company at
specified network points; require incumbent LECs to provide carriers with
nondiscriminatory access to network elements on an unbundled basis at any
technically feasible point at rates that are just, reasonable and
nondiscriminatory; establish rules requiring incumbent LECs to allow
interconnection via physical and virtual collocation; require the states to set
prices for interconnection, unbundled elements, and termination of local calls
that are nondiscriminatory and cost-based using a forward looking methodology
which excludes embedded costs but allows a reasonable cost-of-capital profit;
require incumbent LECs to offer for resale any telecommunication
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<PAGE>
service that the carrier provides at retail to end users at prices to be
established by the states but which generally are at retail prices less
reasonably avoidable costs; and require LECs and utilities to provide new
entrants with nondiscriminatory access to poles, ducts, conduit and
rights-of-way owned or controlled by LECs or utilities. Exemptions to some of
these rules are available to LECs which qualify as rural LECs under the 1996
Telecommunications Act. The Interconnection Orders also require that intra-LATA
presubscription (pursuant to which LECs must allow customers to choose different
carriers for intra-LATA toll service without having to dial extra digits) be
implemented no later than February 1999; that LECs provide new entrants with
nondiscriminatory access to directory assistance services, directory listings,
telephone numbers and operator services; and that LECs comply with certain
network disclosure rules designed to ensure interoperability of multiple local
switched networks.
Petitions seeking reconsideration of one or more aspects of the
Interconnection Orders have been filed with the FCC and are pending and various
appeals of the Interconnection Orders have been consolidated into proceedings
currently pending before the U.S. Eighth Circuit Court of Appeals. Certain of
the rules adopted in the Interconnection Orders, including rules that concern
the pricing of interconnection, have been stayed by the Court. There can be no
assurance of how the Interconnection Orders will be implemented or enforced or
to what effect they will have on competition within the telecommunications
industry generally or on the competitive position of the Company specifically.
Other matters addressed by the 1996 Telecommunications Act may affect the
Company's operations. For example, as required by the 1996 Telecommunications
Act, a joint board of federal and state regulators was convened to consider
possible changes to the FCC's existing universal service support mechanisms
designed to ensure that affordable telephone service is available to all
consumers. In November 1996, the FCC initiated a proceeding to examine universal
service issues, and has received comment on the proposals set forth by the joint
board. Access charge reform also may significantly affect the Company. Access
charges are charges imposed by LECs on long distance providers for access to the
local exchange network, and were designed to compensate the LEC for its
investment in the local network. As required by the 1996 Telecommunications Act,
in December 1996 the FCC issued an order which, among other things, requests
comment on a number of interstate access charge reform issues designed to foster
efficient pricing of access, competition for access services, and to reflect the
development for local services prompted by the 1996 Telecommunications Act. The
FCC has also sought comment on whether Internet service providers and other
information service providers should be subject to access charges.
The legislation also contains special provisions that eliminate the
restrictions on the BOCs and GTOCs from providing long distance services. These
new provisions permit a BOC to enter the "out-of-region" long distance market
immediately upon the receipt of any state or federal regulatory approvals
otherwise applicable to the provision of long distance service. These new
provisions also permit a BOC to enter the "in-region" long distance market if it
satisfies procedural and substantive requirements, including obtaining FCC
approval upon a showing that in certain situations facilities-based competition
is present in its market, and that it has entered into interconnection
agreements which satisfy a 14-point "checklist" of competitive requirements. The
GTOCs are permitted to enter the long distance market immediately without regard
to limitations by region, although necessary regulatory approvals to provide
long distance services must be obtained, and the GTOCs are subject to the
provisions of the 1996 Telecommunications Act that impose interconnection and
other requirements on LECs. The 1996 Telecommunications Act also imposes certain
restrictions on the BOCs' entry into long distance services, including a
separate subsidiary requirement and joint marketing restrictions.
There can be no assurance of how the 1996 Telecommunications Act will be
implemented or enforced or the effect it will have on competition within the
telecommunications industry generally or on the competitive position of the
Company specifically.
INTERNATIONAL SERVICE REGULATION: International common carriers, such as
the Company, are required to obtain authority under Section 214 of the 1934
Communications Act and file a tariff containing the
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rates, terms and conditions applicable to their services prior to initiating
their international telecommunications services. The Company has obtained
authorization from the FCC to resell the switched capacity of several underlying
carriers to provide international message telecommunications services. Under
recently-revised FCC rules, the Company has sought even broader global authority
from the FCC to provide resold and facilities-based international private line
and switched service to virtually every foreign point in the world. This
application will be processed under streamlined procedures at the FCC. The
Company intends to file an application for authority to use foreign-licensed
facilities that are not covered by the streamlined application for global
authority.
Under current tariff rules applicable to international carriers, nondominant
international carriers such as the Company must file their international tariffs
and any revisions thereto with one day's notice. The Company has filed an
international tariff for switched services with the FCC. Additionally,
international telecommunications service providers are required to file copies
of their contracts with other carriers, including correspondent agreements, with
the FCC within 30 days of execution. The FCC's rules also require the Company to
file periodically a variety of reports regarding its international traffic flows
and use of international facilities.
The Company also must conduct its international business in compliance with
the FCC's international settlements policy. The FCC's international settlements
policy establishes the permissible boundaries for U.S. facilities-based carriers
and their foreign correspondents to settle the cost of terminating each other's
traffic over their respective networks. The amount of payments (the "settlement
rate") is determined by the negotiated accounting rate specified in the
correspondent agreement. Under the FCC's international settlements policy,
unless prior approval is obtained, the settlement rate generally must be
one-half of the accounting rate. Carriers must obtain waivers of the FCC's rules
if they wish to use an accounting rate that differs from the prevailing rate or
vary the settlement rate from one-half of the accounting rate. As a result of
the FCC's pro-competition policies, the recent trend has been toward reduction
in the accounting rate.
The FCC recently revised its rules to permit more flexibility in its
international settlements policy as a method of achieving lower cost-based
accounting rates as more competition is introduced in foreign markets and
proposed new rules to lower the price of providing international services. These
and other changes may provide more flexibility to the Company and its
competitors to respond more rapidly to changes in the global telecommunications
market. The Company intends, where possible, to take advantage of lowered
accounting rates and flexible arrangements. The Company cannot predict how the
FCC will resolve pending international policy issues or how such resolution will
affect its international business.
FOREIGN OWNERSHIP LIMITATIONS: The 1934 Communications Act limits the
ownership of an entity holding a common carrier radio license by non-U.S.
citizens, foreign corporations and foreign governments. The 1934 Communications
Act provides that non-U.S. citizens, foreign governments or their
representatives or corporations organized under the laws of a foreign country
may not own in the aggregate more than 20% of a company holding common carrier
radio licenses or no more than 25% of the parent of a common carrier radio
licensee if the FCC determines that the public interest would be served by
prohibiting such ownership. If the Company's foreign ownership were to exceed
the limits set forth in the 1934 Communications Act, the FCC could impose a
range of penalties on the Company, including fines and/or revocation or
divestiture of its licenses.
The FCC recently adopted new rules relating to the entry and participation
of foreign entities in the U.S. telecommunications market. The Company holds FCC
authority to provide international services and therefore is subject to the
FCC's rules on foreign affiliations. Under those rules, the FCC will scrutinize
an ownership interest greater than 25%, or a controlling interest at any level,
in a U.S. carrier by a dominant foreign carrier, to determine whether the
destination market of the foreign carrier offers "effective, competitive
opportunities" ("ECO"). The FCC imposes the same ECO test and affiliation
standard on U.S.-based carriers that invest in dominant foreign carriers. The
FCC may impose restrictions on affiliated carriers not meeting the ECO test. The
new rules also require international carriers to notify the FCC
42
<PAGE>
60 days in advance of an acquisition of a 10% or greater interest by a foreign
carrier in that U.S. carrier. The FCC has discretion to determine that unique
factors require application of the ECO test or a change in regulatory status of
the U.S. carrier even though the foreign carrier's interest is less than 25%.
Regulation of the telecommunications industry is changing rapidly. The FCC
is considering a number of international service issues in the context of
several policy rulemaking proceedings and in response to specific petitions and
applications filed by other international carriers. The FCC's resolution of some
of these issues in other proceedings may adversely affect the Company's
international business (by, for example, permitting larger carriers to take
advantage of accounting rate discounts for high traffic volumes). The Company is
unable to predict how the FCC will resolve the pending international policy
issues or how such resolution will affect its international business. There can
be no assurance that future regulatory changes will not have a material adverse
impact on the Company's financial condition, results of operations and cash
flow.
REGULATORY OVERSIGHT: The FCC imposes a variety of reporting and annual fee
requirements. The FCC and the state regulatory agencies with jurisdiction over
the Company and its services have discretion to, among other things, impose
fines, conditions or revoke the Company's authority to the extent that such
agencies find that the Company has violated regulatory requirements, including
the requirement to pay the required fees or the FCC's restrictions on the use of
private lines for providing switched services. The FCC also has authority to
address violations of the foreign ownership limitation, by, among other things,
requiring divestiture or restructuring of the Company's radio station licenses.
STATE REGULATION
Some of the Company's services may be classified as intrastate and therefore
subject to state regulation. Such services are regulated by the applicable
individual state PSCs. Governing regulations at the state level differ from
state to state and, sometimes, by the telecommunications service provided. The
majority of states require carriers to apply for certification to provide
intrastate telecommunications service. The Company has sought and obtained
authority to provide long distance service in Texas and to provide high capacity
dedicated services in Louisiana. The Company also serves customers located in
other states. To the extent that such services can be interpreted to be
intrastate in nature, the Company would be required to obtain the appropriate
certification or other authority from the relevant PSC. If any state PSC were to
conclude that the Company is or was providing intrastate service without the
appropriate authority, the PSC could initiate enforcement actions, which could
include, but need not be limited to, the imposition of fines or the refusal to
grant the regulatory authority necessary for the future provision of intrastate
telecommunications services. Although the Company intends to obtain operating
authority in each jurisdiction in which such authority is required, there can be
no assurance that one or more jurisdictions will not deny the Company's request
for operating authority. It is possible that any adverse PSC action would have a
material adverse effect on the Company.
PSCs also regulate access charges and other pricing for telecommunications
services within each state. The BOCs and other local exchange carriers have been
seeking reduction of state regulatory requirements, including greater pricing
flexibility. If regulations are changed to allow variable pricing of access
charges based on volume, the Company could be placed at a competitive
disadvantage over larger long distance carriers. The Company also could face
increased price competition from the BOCs and other local exchange carriers for
intra-LATA and inter-LATA long distance services, which competition may be
increased by the removal of former restrictions on long distance service
offerings by the BOCs as a result of the 1996 Telecommunications Act. The impact
of such rule changes on the Company cannot be predicted.
43
<PAGE>
EMPLOYEES
As of December 31, 1996, the Company employed approximately 134 people,
including approximately 20 in selling and marketing, 85 in engineering and
technical services and 29 in management, administration and finance. None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
FACILITIES
The Company owns an office building in Friendswood, Texas and Lafayette,
Louisiana and leases additional space in Friendswood and Houston, Texas, New
Orleans, Louisiana and Moscow, Russia. The Company considers its current
facilities adequate for its current needs and believes that suitable additional
space will be available, as needed, to accommodate further physical expansion of
corporate operations and for additional sales and service.
COMPANY LICENSES AND CERTIFICATIONS
The Company has owned and maintained a variety of telecommunications
infrastructures and holds many FCC and international licenses to transmit voice
and data. FCC licenses issued to the Company allow it to provide radio and land
mobile, microwave and satellite communications services. The Company currently
holds 35 FCC licenses, with approximately 320 frequency pairs, for commercial
mobile radio service, which provides two-way wireless radio services along the
Texas and Louisiana Gulf Coast region
and offshore to oil and gas related companies. Each frequency pair allows
two-way transmission and reception. The Company holds six point-to-point
microwave FCC licenses providing voice and data services along the Texas and
Louisiana Gulf Coast region and offshore to drilling, production and related
companies. The Company holds and operates seven Ku band and two C band fixed
earth stations and holds FCC licenses that allow the Company to locate earth
stations in Texas and other U.S. locations.
The Company operates as a FCC licensed 214 carrier to provide resold
switched telecommunications services. The Company currently provides
international facilities-based private line service on a private carrier basis
into Bolivia, Bosnia, Croatia, Ecuador, Hungary and Russia. The Company recently
installed a Class 4 tandem switch and value-added services platform at its
facility in Houston, Texas as part of its new point-of-presence ("POP") for its
IWL Connect-TM- division. As part of the Company's plans to install fiber optic
cable and wireless infrastructure, the Company has received CAP certification
and authority to operate from the States of Louisiana and Texas, and has
obtained a Service Provider Certificate of Operating Authority from the State of
Texas, which qualifies the Company as a CLEC in Texas. The Company has applied
for CLEC status in Louisiana, which the Company expects to receive by the fourth
quarter of fiscal 1997. In addition, the Company has been approved to have pole
attachment rights to existing or future facilities of Entergy, BellSouth and the
State of Louisiana. Pole attachment rights allow the Company to attach its own
fiber optic cable to such parties' utility poles.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding the directors and
executive officers of the Company as of December 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ignatius W. Leonards.................... 43 Chairman, Chief Executive Officer and Director
Byron M. Allen.......................... 49 President and Director
Richard H. Roberson..................... 37 Chief Financial Officer, Secretary and Director
James T. Gordon......................... 59 Vice President--Telecom Operations
J. Keith Johnson........................ 35 Vice President--Marketing
Bryan L. Olivier........................ 35 Vice President--IWL Connect Division
Christopher J. Amenson.................. 46 Nominated Director
</TABLE>
- ------------------------
MR. IGNATIUS W. LEONARDS has served as Chairman of the Board, Chief
Executive Officer and Director of the Company since founding the Company in 1981
and served as President from 1981 until February 1997. Mr. Leonards was employed
by Bibbins & Rice Electronics as Telecom Service Manager until 1981. Mr.
Leonards has an industrial electronics degree from the T.H. Harris Technical
Institute in Opelousas, Louisiana.
MR. BYRON M. ALLEN has served as President and a director of the Company
since February 1997 and served as a Vice President of the Company from December
1993 until February 1997. Prior thereto, Mr. Allen, a co-founder and Executive
Vice President from 1986 to 1993 of SBS Technologies, Inc. (Nasdaq:SBSE), a
manufacturer of computer components, where he was responsible for business
development. In 1985 and 1986, Mr. Allen served as a senior principal staff
member at BDM Corporation, a defense consulting firm. In 1984 and 1985, he
served as manager of Navy New Business Development for the Singer Link
Corporation. From 1983 to 1984, Mr. Allen served as the managing director of
European operations of Intermetrics, Inc. He served as manager of Houston
operations of Intermetrics, Inc. from 1977 to 1983. Mr. Allen graduated from the
University of Alabama in 1968 with a degree in Mathematics. He attended graduate
school at Wright State University in Dayton, Ohio where he studied systems
engineering.
MR. RICHARD H. ROBERSON has served as Chief Financial Officer of the Company
since joining the Company in October 1996 and has served as a director of the
Company since February 1997. From November 1995 until October 1996, Mr. Roberson
was Director of Administration at Weaver and Tidwell, LLP., a certified public
accounting firm. From May 1989 until October 1995, Mr. Roberson was Chief
Financial Officer and Controller of Local and Western of Texas, Inc., a
wholesaler of meat and other food products. Mr. Roberson has a BBA in Accounting
from the University of Texas at Austin and is also a certified public
accountant.
MR. JAMES T. GORDON has served as Vice President--Telecom Operations of the
Company since October 1996. Prior to his joining the Company, he was an
independent telecommunications consultant. From September 1992 through December
1994, Mr. Gordon was Director--Installation and Test Engineering Services for
Alcatel Network Systems, Inc. and, from April 1991 to September 1992, he was
Manager--Customer Account Services--Independent Operating Cos. for Alcatel
Network Systems, Inc. Mr. Gordon was employed by Rockwell International
Corporation in various capacities from 1970 until 1991. Mr. Gordon received a
BBA in Production Management from the University of North Texas in 1961.
45
<PAGE>
MR. J. KEITH JOHNSON has served as Vice President of Marketing since
December 1992 and was Director of Sales and Marketing of the Company from
December 1986 to December 1992. From June 1985 to December 1986, Mr. Johnson was
an Account Executive with ARGO Communications, Inc., a long distance carrier,
where he sold long-distance voice and data lines to medium and large commercial
users. Mr. Johnson worked for AT&T from May 1983 until June 1985, where he sold
telephone systems to small and medium-sized companies. Mr. Johnson graduated
from Houston Baptist University in 1983 with a double major in marketing and
management.
MR. BRYAN L. OLIVIER has served as a Vice President of the Company's IWL
Connect-TM- division since January 1996. Prior thereto, he served as Director of
Engineering for Spacelink Systems, Inc. from May 1992 to December 1995. From
January 1992 to March 1992, he was a member of the strategic planning group of
Wiltel Communications, a long distance carrier. From May 1981 to December 1988,
he was the manager of the International Telecommunications Group of Tenneco Oil
E&P/Operators Inc. He enrolled in college in 1988 and graduated in 1992 with a
Bachelor of Science degree in Electrical Engineering from the University of
Southwest Louisiana with a concentration in telecommunications management. In
1981 he also graduated from T.H. Harris Technical Institute in Opelousas,
Louisiana in the field of industrial engineering.
MR. CHRISTOPHER J. AMENSON has agreed to become a director of the Company
upon completion of the Offering. Mr. Amenson has served as President and Chief
Operating Officer of SBS Technologies, Inc. since April 1992 and as a director
since August 1992. In October 1996, he became the Chief Executive Officer of SBS
Technologies, Inc. For five years prior to joining SBS Technologies, Inc., Mr.
Amenson was President of Industrial Analytics, Inc., a Boston-based investment
banking firm. Mr. Amenson holds a Bachelor's Degree in Government from the
University of Notre Dame and a Master's Degree in Business Management from the
Sloan Fellows Program at the Massachusetts Institute of Technology.
Each director serves until the next annual meeting of shareholders and until
his successor is duly elected and qualified. The Company's Board of Directors is
currently composed of five directors with three existing directors, one person
nominated as a director, and one vacancy which the Company intends to fill
during the fourth quarter of fiscal 1997 by designation by the Board of
Directors. Officers serve at the discretion of the Board of Directors. There are
no family relationships among any of the directors or named executive officers
of the Company.
BOARD COMMITTEES
Effective upon the consummation of the Offering, the Board of Directors will
have two standing committees: the Audit Committee and the Compensation
Committee. The functions of the Audit Committee, of which Mr. Amenson and the
other nonemployee director to be appointed by the Company following completion
of the Offering will be the initial members, will be to make recommendations
regarding the engagement of the Company's independent auditors and to review
with management and the independent auditors the Company's financial statements,
basic accounting and financial policies and practices, audit scope and
competency of control personnel. The functions of the Compensation Committee, of
which Mr. Amenson and the other nonemployee director to be appointed by the
Company following completion of the Offering will be the initial members, will
be to review and recommend to the Board of Directors the compensation of
executive officers of the Company and to administer and make awards and take all
other action as is provided under the employee benefit plans of the Company
(other than the 1997 Director Option Plan, which will be administered by the
entire Board of Directors of the Company). All members of the Compensation
Committee will be "non-employee directors" within the meaning of Rule 16b-3(b)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and "outside directors" as contemplated by Section 162(m)(4)(C)(i) of the
Internal Revenue Code of 1986, as amended (the "Code").
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<PAGE>
DIRECTOR COMPENSATION
Non-employee directors of the Company of the Board of Directors will be paid
$1,000 per meeting for attending or participating in meetings of the Board of
Directors or any committee thereof, and receive reimbursement for out-of-pocket
expenses incurred for attendance at meetings. Non-employee directors will also
receive non-statutory stock options under the 1997 Director Option Plan. See
"--Benefit Plans-- 1997 Director Stock Option Plan." The Company's policy is not
to pay any additional compensation to employees of the Company for their
services as a director.
LIMITATION OF LIABILITY
As permitted by the Texas Business Corporation Act, the Company's Restated
Articles of Incorporation provide that the directors of the Company shall not be
liable to the Company or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that such provision
does not authorize the elimination or limitation of liability of a director to
the extent the director is found liable for (i) a breach of the director's duty
of loyalty to the Company or its shareholders, (ii) any act or omission not in
good faith or that constitutes a breach of duty of the director to the Company
or an act or omission that involves intentional misconduct or a knowing
violation of law, (iii) any transaction from which the director derived any
improper personal benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office or (iv) any act or omission for
which the liability of the director is expressly provided by statute.
As a result of this provision, the Company and its shareholders may be
unable to obtain monetary damages from a director for breach of the duty of
care. Although shareholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, shareholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
In addition, the Company's Restated Articles of Incorporation and Amended
and Restated Bylaws provide certain rights of indemnification for all officers
and directors.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
compensation awarded or paid by the Company to its Chairman of the Board and
Chief Executive Officer and the other executive officer of the Company whose
total annual salary and bonus for services to the Company exceeded $100,000 in
the fiscal year ended June 30, 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
--------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (SHARES) COMPENSATION
- ------------------------------------------------------------ ---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Ignatius W. Leonards ....................................... $ 150,000 -- -- $ 29,214(1)
Chairman of the Board and
Chief Executive Officer
J. Keith Johnson ........................................... 100,604 $ 12,250 36,141(2) 1,655(3)
Vice President--Marketing
</TABLE>
- --------------------------
(1) Represents (i) $9,000 earned by Mr. Leonards pursuant to an agreement
between the Company and Kenwood Americas Corporation ("KAC") whereby Mr.
Leonards is to be paid 10% of the net profits of Kenwood Systems Group, Inc.
(the Company owns 50% of the outstanding capital stock of Kenwood Systems
Group, Inc., with the other 50% owned by KAC); (ii) $2,214 of matching
payments made by the Company to Mr. Leonards' account under the Company's
401(k) Plan; and (iii) $18,000 in management fees paid to Mr. Leonards by
the Company for management rights granted by Mr. Leonards to the Company
with respect to one of Mr. Leonards' properties.
(2) Represents stock options granted pursuant to the Incentive Stock Option
Plan, which have an exercise price of $3.56 per share and are subject to
vesting requirements.
(3) Represents matching payments made by the Company to Mr. Johnson's account
under the Company's 401(k) Plan.
OPTION GRANTS TABLE. The following table provides information on grants of
stock options pursuant to the Incentive Stock Option Plan during the fiscal year
ended June 30, 1996 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM (2)
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION ---------------------
NAME (1) FISCAL YEAR PRICE (PER SHARE) DATE 5% 10%
- ------------------------- --------------- ----------------- ------------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Keith Johnson......... 36,141 23.6% $ 3.56(3) 6/30/06(3) $ 80,915 $ 205,054
</TABLE>
- --------------------------
(1) Mr. Johnson received option grants on November 10, 1995, February 28, 1996
and June 30, 1996. The options granted vest in five installments of 20% each
and become fully vested five years after the date of grant. The Board of
Directors has accelerated the vesting of all outstanding options granted
under the Incentive Stock Option Plan effective upon completion of the
Offering.
(2) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Securities and Exchange Commission (the "SEC")
and do not represent the Company's estimate or projection of future Common
Stock prices. The actual value realized may be greater or less than the
potential realizable value set forth in the table.
48
<PAGE>
(3) All options were granted at a price at least equal to the fair market value
of the Common Stock on the date of grant, as determined by the Board of
Directors of the Company. The expiration date of the options granted to Mr.
Johnson range from November 10, 2005 to June 30, 2006.
FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END (1)
----------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
J. Keith Johnson.......................................... 9,265 26,876 (2) $-- $--
</TABLE>
- ------------------------
(1) The fair market value of the Common Stock on June 30, 1996 was not more than
$3.56 per share, as determined by the Board of Directors, which was also the
exercise price payable for such shares.
(2) The Board of Directors has accelerated the vesting of all outstanding
options granted under the Incentive Stock Option Plan effective upon
completion of the Offering.
BENEFIT PLANS
EMPLOYEE INCENTIVE STOCK OPTION PLAN. Adopted on November 1, 1996 by the
Board of Directors and approved by the shareholders on December 8, 1996, the
Company's Incentive Stock Option Plan is intended to be an incentive for key
employees to continue to promote the best interests of the Company and enhance
its long-term performance and to provide an incentive for key employees to join
or remain with the Company. Options may be granted under the Incentive Stock
Option Plan to any person who is an officer or other executive personnel of the
Company.
Options granted under the Incentive Stock Option Plan may be granted in the
form of options that qualify for treatment as "incentive stock options" (the
"Incentive Stock Options") under Section 422 of the Code and applicable
regulations and rulings promulgated thereunder. A total of 258,600 shares of
Common Stock have been reserved for issuance upon the exercise of options
granted under the Incentive Stock Option Plan. A total of 160,614 options have
been granted as of the date of this Prospectus at a weighted average exercise
price of $3.62 per share. The Company does not intend to grant any more options
under the Incentive Stock Option Plan due to the adoption of the 1997 Stock
Option Plan. The Incentive Stock Option Plan has terms substantially similar to
the 1997 Stock Option Plan described below.
In February 1997, the Board of Directors determined that, effective upon
completion of the Offering, the vesting of all unvested options granted under
the Incentive Stock Option Plan would be automatically accelerated, without the
need for further action by the Board, so that all such options would become
fully vested and presently exercisable at such time.
1997 STOCK OPTION PLAN. Adopted in February 1997 by the Board of Directors
and the shareholders of the Company, the Company's 1997 Stock Option Plan is
intended to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentives to employees and
consultants of the Company and any affiliates thereof and to promote the success
of the Company's business.
Options to be granted under the 1997 Stock Option Plan may be either
Incentive Stock Options or non-statutory stock options under the Code. Incentive
Stock Options may be granted under the 1997 Stock Option Plan to any person who
is an officer or other employee (including officers and employees who are also
directors) of the Company or any of its subsidiaries. The exercise price of
Incentive Stock Options must be at least the fair market value of a share of the
Common Stock on the date of grant (and not less than 110% of the fair market
value in the case of an Incentive Stock Option granted to an optionee owning 10%
or more of the Company's Common Stock). A total of 300,000 shares of Common
Stock have been
49
<PAGE>
reserved for issuance upon the exercise of options to be granted under the 1997
Stock Option Plan. No options have been granted as of the date of this
Prospectus under the 1997 Stock Option Plan.
The 1997 Stock Option Plan is administered by the Company's Board of
Directors or a committee of the Board of Directors (the "Administrators"). Upon
completion of the Offering, the members of the Compensation Committee of the
Board will administer the 1997 Stock Option Plan. The Administrators have full
and final authority in their discretion, subject to the 1997 Stock Option Plan's
provisions (a) to determine the individuals to whom, and the time or times at
which, options shall be granted and the number of shares of Common Stock covered
by each option and (b) to construe and interpret the 1997 Stock Option Plan.
Generally, options granted under the 1997 Stock Option Plan will be
exercisable at any time, and from time to time, throughout a five-year period
commencing on or after the date of grant in cumulative installments of 20% per
each year, or as otherwise specified by the Administrators and ending upon the
earliest of the expiration, cancellation, surrender or termination of the option
as provided in the 1997 Stock Option Plan. The Board of Directors may at any
time amend, alter, suspend or discontinue the 1997 Stock Option Plan, but no
amendment, alteration, suspension or discontinuation will be made that would
impair the rights of any optionee under any outstanding option grants without
the optionee's consent. In addition, to the extent necessary to comply with Rule
16b-3 or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD), the Company will obtain
shareholder approval of any plan amendment as required. The term of an option
may not exceed ten years. Upon dissolution or liquidation of the Company, each
outstanding option will terminate. In the event of a proposed sale of all or
substantially all of the assets of the Company or upon certain mergers where the
shareholders of the Company receive cash or securities of another issuer, or any
combination thereof, the options will be assumed by the successor entity or
substituted with an equivalent option.
1997 DIRECTOR STOCK OPTION PLAN. The Company's 1997 Director Option Plan
was adopted in February 1997 by the Board of Directors and the shareholders of
the Company to encourage ownership of the Company by eligible non-employee
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company. All options to be granted under the 1997
Director Option Plan will be non-qualified and not eligible for treatment as
Incentive Stock Options under Section 422 of the Code. A total of 100,000 shares
of Common Stock have been reserved for issuance under the 1997 Director Option
Plan.
The 1997 Director Option Plan is administered by the Company's Board of
Directors. The Board of Directors has full and final authority in their
discretion, subject to the 1997 Director Option Plan's provisions (a) to
determine the individuals to whom, and the time or times at which, options shall
be granted and the number of shares of Common Stock covered by each option and
(b) to construe and interpret the 1997 Director Option Plan. The Company expects
that each new non-employee director of the Company, upon becoming a director,
will receive option grants that generally will vest one-third on the day
preceding the first annual meeting of shareholders of the Company held after the
date of grant and one-third on each of the two following anniversaries of that
date, so long as the director continues to serve as a director of the Company.
The Board will also have the authority to make additional option grants to
existing non-employee directors.
Each option will expire ten years from the date of grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the first ten-year term. If an optionee terminates service as
a director for any reason including disability or death, the option will
automatically expire 12 months after the date of termination, but in no event
after the ten-year term. Options are not assignable and may not be transferred
other than by will or the laws of descent and distribution. Upon a dissolution
or liquidation of the Company, each outstanding Option will terminate unless
otherwise provided by the Board of Directors. In the event of a proposed sale of
all or substantially all of the assets of
50
<PAGE>
the Company or upon certain mergers where the shareholders of the Company
receive cash or securities of another issuer, the options will be assumed by the
successor entity or substituted with an equivalent option.
The 1997 Director Option Plan provides that the Board of Directors may
suspend or discontinue the 1997 Director Option Plan or review or amend it in
any respect whatsoever. If required by Rule 16b-3 under the Exchange Act or any
Code or Nasdaq National Market requirements, the Board of Directors will not
amend or terminate the 1997 Director Option Plan without shareholder approval.
No such termination will affect the terms of any options outstanding at that
time.
401(K) PLAN. Effective November 1, 1991, the Company established a
Retirement and Savings Plan (the "401(k) Plan"). The 401(k) Plan is a defined
contribution plan qualified under Section 401(a) of the Code that provides for
employee pre-tax contributions pursuant to Section 401(k) of the Code and both
matching and profit-sharing Company contributions. Eligible participants may
contribute, on a pre-tax basis through payroll deduction, between 1% and 15% of
their salary to a maximum of $9,500 in 1997. The Company has reserved the right
to amend or terminate the 401(k) Plan at any time. The Company matches 25% of
the first 6% of the employee's contribution, up to a maximum 1 1/2% of the
employee's contribution.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its fiscal year ended June 30, 1996, the Company had no Compensation
Committee or other committee of the Board of Directors performing similar
functions, and, accordingly, the Board of Directors determined the compensation
for the executive officers and related matters. Ignatius W. Leonards, as the
sole director of the Company during the last fiscal year, conducted all
deliberations of the Board of Directors concerning executive officer
compensation. However, Mr. Leonards, with respect to determinations regarding
his own compensation, relied on recommendations made by Byron M. Allen, the
Company's President. During such fiscal year, no executive officer of the
Company served as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors. Effective upon consummation of the Offering, the
Board of Directors will have a Compensation Committee, of which Mr. Amenson and
the other non-employee director to be appointed by the Company following
completion of the Offering will be the initial members.
Byron M. Allen, the Company's President and a director, lent the Company
$150,000 in September 1994 evidenced by a promissory note payable to Mr. Allen
bearing interest at the rate of 10% per annum. During the fiscal year ended June
30, 1995, Mr. Allen lent the Company an additional $100,000 evidenced by a
promissory note payable to Mr. Allen bearing interest at the rate of 2% per
annum in excess of Mr. Allen's cost of funds in his margin account at his
brokerage firm. The full amount of the notes, together with interest thereon,
was repaid by the Company in December 1995.
Caroline Fontenot, the sister of Mr. Leonards, the Company's Chairman of the
Board and Chief Executive Officer, lent the Company $75,000 on June 1, 1992, of
which an outstanding balance of $47,680, bearing interest at the rate of 12% per
annum, remained as of December 31, 1996.
51
<PAGE>
CERTAIN TRANSACTIONS
Since the beginning of the Company's 1994 fiscal year, the Company has
entered into the various transactions with officers, directors and affiliates of
the Company described below.
Byron M. Allen, the Company's President and a director, lent the Company
$150,000 in September 1994 evidenced by a promissory note payable to Mr. Allen
bearing interest at the rate of 10% per annum. During the fiscal year ending
June 30, 1995, Mr. Allen lent the Company an additional $100,000 evidenced by a
promissory note payable to Mr. Allen bearing interest at the rate of 2% per
annum in excess of Mr. Allen's cost of funds in his margin account at his
brokerage firm. The full amount of the notes, together with interest thereon,
was repaid by the Company in December 1995.
Caroline Fontenot, the sister of Mr. Leonards, the Company's Chairman of the
Board and Chief Executive Officer, lent the Company $75,000 on June 1, 1992, of
which an outstanding balance of $47,680, bearing interest at the rate of 12% per
annum, remained as of December 31, 1996.
52
<PAGE>
PRINCIPAL SHAREHOLDERS
PRINCIPAL SHAREHOLDERS, DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 28, 1997 and as adjusted
to reflect the sale of the Common Stock offered by this Prospectus, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's Named Executive
Officers and directors, and (iii) all of the current executive officers and
directors of the Company as a group. The information contained in this table
with respect to beneficial ownership reflects "beneficial ownership" as defined
in Rule 13d-3 under the Exchange Act. Shares of Common Stock not outstanding but
deemed beneficially owned by virtue of the right of an individual or group to
acquire shares within 60 days after February 28, 1997 are treated as outstanding
only when determining the amount and percentage of Common Stock owned by such
individual or group. Except as otherwise noted or pursuant to community property
laws, each person has sole voting and sole investment power with respect to the
shares shown. The address of each person listed is 12000 Aerospace Avenue, Suite
200, Houston, Texas 77034, except as otherwise indicated.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED(1)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER THE
NAME OWNED OFFERING OFFERING
- ------------------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
Ignatius W. Leonards(2)................................................. 2,000,000 89.8% 57.5%
Byron M. Allen(2)....................................................... 222,200 10.0 6.4
J. Keith Johnson(3)..................................................... 18,231 * *
Richard H. Roberson..................................................... -- -- --
Christopher J. Amenson(4)............................................... -- -- --
c/o SBS Technologies, Inc.
2400 Louisiana Boulevard, NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
All executive officers and directors as a group (six persons)(4)........ 2,255,290 99.9 64.3
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of the class.
(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, the Company will
sell an additional 187,500 shares of Common Stock.
(2) Does not reflect the purchase of 50,000 shares of Common Stock by Byron M.
Allen from Ignatius W. Leonards to be effective immediately prior to the
completion of the Offering for a per share price equal to the price at which
shares in the Offering are being offered to the public, for an aggregate
purchase price of $ .
(3) Includes 15,423 shares of Common Stock subject to currently exercisable
options. Does not include 20,718 shares subject to options the vesting of
which will become automatically accelerated effective upon completion of the
Offering.
(4) Mr. Amenson has agreed to become a director of the Company upon completion
of the Offering.
(5) Includes 30,282 shares of Common Stock subject to currently exercisable
options. Does not include 39,192 shares of Common Stock subject to options
granted to the executive officers of the Company, as a group, the vesting of
which will become automatically accelerated effective upon completion of the
Offering.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the Company's authorized capital
stock will consist of 100,000,000 shares of Common Stock, par value $.01 per
share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.
COMMON STOCK
As of February 28, 1997, there were 2,227,816 shares of Common Stock issued
and outstanding, and held of record by four shareholders. There will be
3,477,816 shares outstanding after giving effect to the sale of shares of Common
Stock offered hereby (3,665,316 if the Underwriters' over-allotment option is
exercised in full). The holders of Common Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders. Cumulative voting
of shares of Common Stock is prohibited, which means that the holders of a
majority of shares voting for the election of directors can elect all members of
the Board of Directors. Except as otherwise required by applicable law, a
majority vote is sufficient for any act of shareholders. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor, subject to the payment of any preferential dividends with respect to
any Preferred Stock that from time to time may be outstanding. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of the holders of any
outstanding Preferred Stock. The holders of Common Stock have no preemptive or
conversion rights or other subscription rights, and there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable, and all of the shares
of Common Stock offered hereby, when issued, will be fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares of
Preferred Stock in one or more series and to fix the designations, relative
powers, preferences, rights, qualifications, limitations and restrictions of all
shares of each of such series, including, without limitation dividend rates,
preemptive rights, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting each
such series, without any further vote or action by the shareholders. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of Common Stock. The
issuance of Preferred Stock could also have the effect of delaying, deferring or
preventing a change in control of the Company, including transactions in which
the shareholders might otherwise receive a premium for their shares over the
then current market price, and may adversely affect the market price of the
Common Stock. At present, the Company has no plans to issue any shares of
Preferred Stock.
REPRESENTATIVE'S WARRANT
The Company has agreed to sell to the Representative or its designees, for
nominal consideration, the Representative's Warrant to purchase up to 125,000
shares of Common Stock at an exercise price of equal to 120% of the initial
price of the Common Stock being offered hereby to the public. The Representative
has certain demand and "piggy-back" registration rights that may require the
Company to register for resale the shares of Common Stock issuable under the
Representative's Warrant. The Representative's Warrant is exercisable for a
period of four years, beginning one year from the date of this Prospectus. See
"Underwriting."
54
<PAGE>
CERTAIN ANTI-TAKEOVER MATTERS
Upon the consummation of the Offering, there will be 96,522,184 authorized
and unissued shares of Common Stock and 10,000,000 authorized and unissued
shares of Preferred Stock. The existence of authorized but unissued Common Stock
and Preferred Stock may enable the Board of Directors to render more difficult
or to discourage an attempt to obtain control of the Company by means of a
merger, tender offer, proxy solicitation or otherwise. For example, if in the
due exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal is not in the Company's best interest, the
Board of Directors could cause shares of Common Stock or Preferred Stock to be
issued without shareholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquiror or insurgent shareholder or shareholder group or create a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors. In this regard, the Company's
Restated Articles of Incorporation grant the Board of Directors broad power to
establish the rights, preferences and privileges of authorized and unissued
Preferred Stock without shareholder approval. The issuance of shares of
Preferred Stock pursuant to the Board of Director's authority described above
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of such holders. The issuance of Common Stock or Preferred Stock
could also have the effect of delaying, deferring or preventing a change in
control of the Company, including transactions in which the shareholders might
otherwise receive a premium for their shares over the then current market price,
and may adversely affect the market price of the Common Stock. The Board of
Directors does not currently intend to seek shareholder approval prior to any
issuance of Common Stock or Preferred Stock, unless otherwise required by law.
The Company is also subject to prior regulatory approval by the FCC and
various state regulatory agencies for a transfer of control of the Company or
for the assignment of the Company's intrastate certification authority and its
international authority. The 1934 Communications Act provides that non-U.S.
citizens, foreign governments or their representatives or corporations organized
under the laws of a foreign country may not own in the aggregate more than 20%
of a company that owns common carrier radio licenses such as the Company. In
addition, because the Company holds FCC authority to provide international
service, the FCC will scrutinize an ownership interest in the Company of greater
than 25%, or a controlling interest at any level, by a dominant foreign carrier.
International carriers, such as the Company, must notify the FCC 60 days in
advance of an acquisition of a 10% or greater interest by a foreign carrier in
such carriers. Furthermore, the Company's bank loan agreement provides that an
event of default thereunder will occur if all or a controlling interest in the
Company's capital stock is sold, assigned or otherwise transferred. Any of the
foregoing factors could have the effect of delaying, deferring or preventing a
change of control of the Company. See "--Preferred Stock" and
"Business--Government Regulation."
TRANSFER AGENT AND REPORTS
The transfer agent and registrar for the Company's Common Stock is ,
.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 3,477,816
shares of Common Stock, assuming no exercise of options or warrants after the
date of this Prospectus. Of these shares, all 1,250,000 shares offered hereby
(1,437,500 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable in the public market without restriction unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act. The remaining 2,227,816 shares of Common Stock
outstanding upon completion of the Offering are "restricted securities" as that
term is defined in Rule 144.
The executive officers and directors of the Company, who as of the date of
this Prospectus held an aggregate of 2,225,008 shares of Common Stock and
options to purchase an aggregate of 146,695 shares, all of which will be
currently exercisable upon closing of the Offering, have entered into lock-up
agreements (collectively, the "Lock-Up Agreements") with Cruttenden Roth
Incorporated pursuant to which such persons have agreed not to sell any of such
shares of Common Stock owned by such persons pursuant to Rule 144 under the
Securities Act or otherwise, without the prior written consent of Cruttenden
Roth Incorporated, for a period of one year from the date of this Prospectus.
Cruttenden Roth Incorporated has informed the Company that it does not intend to
reduce or eliminate the lock-up period except with respect to the sale of shares
by Mr. Leonards to Mr. Allen described in "Principal Shareholders."
Upon expiration of the Lock-Up Period, approximately 2,225,008 additional
shares will be eligible for sale subject to the timing, volume and manner of
sale restrictions of Rule 144. The 2,808 remaining restricted shares held by an
existing shareholder will become eligible for sale at various times over a
period of less than one year. In addition, 13,919 shares subject to outstanding
vested stock options, if exercised, will become eligible for sale 90 days after
the effectiveness of the Offering and, upon expiration of certain Lock-Up
Agreements, an additional 146,695 shares subject to outstanding stock options
(including unvested options the vesting of which will become automatically
accelerated upon completion of the Offering), if exercised, will be eligible for
sale, in each case subject to the restrictions of Rule 701 unless sold pursuant
to an effective registration statement under the Securities Act.
In general, under Rule 144 (as amended effective as of April 29, 1997), a
person (or persons whose shares are aggregated) who has beneficially owned
shares for at least one year, including persons who may be deemed to be
"affiliates" of the Company as that term is defined under Rule 144, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the Company's Common
Stock (34,778 shares after the Offering) or the average weekly trading volume in
the Nasdaq National Market during the four calendar weeks preceding the date on
which the notice of the sale is filed with the SEC. Sales by affiliates and
beneficial owners of restricted securities held for less than two years may not
be made under Rule 144 until 90 days after the date of this Prospectus and are
subject to the foregoing volume limitations and to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not an affiliate of the
Company at any time within 90 days preceding a sale and who has beneficially
owned shares for at least two years would be entitled immediately, upon the date
of this Prospectus, to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, notice and current public
information requirements. In general, Rule 701 permits resales of shares issued
pursuant to certain compensatory benefit plans and contracts commencing 90 days
after an issuer becomes subject to the reporting requirements of the Exchange
Act (which will occur upon completion of the Offering) in reliance upon Rule 144
but without compliance with certain restrictions, including the holding period
requirements, contained in Rule 144.
The Company, which has granted outstanding options to acquire 160,614 shares
under the Incentive Stock Option Plan, does not intend to grant any additional
options under that plan. There are also (i) 300,000 shares of Common Stock
reserved for issuance under the 1997 Stock Option Plan
56
<PAGE>
(ii) 100,000 shares of Common Stock reserved for issuance under the 1997
Director Option Plan and (iv) 125,000 shares of Common Stock subject to the
Representative's Warrant. The Company intends to file a registration statement
after the Offering on Form S-8 under the Securities Act to register the 560,614
shares of stock issuable under the Company's stock option plans. See
"Management--Benefit Plans." Shares issued upon exercise of options after the
effective date of such registration statement will be generally eligible for
sale in the open market, subject to expiration of certain Lock-Up Agreements. In
addition, the Representative has demand and "piggy-back" registration rights in
connection with the Representative's Warrant. Registration of such shares under
the Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effective date of such registration. If
such holders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Company's Common Stock.
If the Company were to include in a Company-initiated registration such shares
pursuant to the exercise of piggy-back registration rights, such sales may have
an adverse effect on the Company's ability to raise additional capital. The
Representative's Warrant may not be exercised until the first anniversary of the
date of this Prospectus. See "Description of Capital Stock--Representative's
Warrant" and "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sales, will have on
the market price of the Common Stock. Sales of a substantial number of shares of
Common Stock in the public market following the Offering, or the perception that
such sales could occur, could adversely affect the market price of the Company's
Common Stock.
57
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as the representative (the "Representative"), have agreed severally,
subject to the terms and conditions contained in the Underwriting Agreement, 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 discounts and commissions set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions, and that the Underwriters are
committed to purchase all of such shares (other than those covered by the
over-allotment option described below), if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated.....................................................
----------
Total.......................................................................... 1,250,000
----------
----------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price reflected on the cover page of this Prospectus and to selected securities
dealers at such price less a concession not exceeding $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not exceeding
$ per share to other dealers. After the public offering of the shares of
Common Stock, the public offering price and other offering terms may be changed.
No change in such terms shall change the amount of proceeds to be received by
the Company as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an over-allotment option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to 187,500 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus less the underwriting
discounts and commissions. The Underwriters may exercise the over-allotment
option only to cover over-allotments in the sale of the Common Stock offered
hereby. If the Underwriters exercise the over-allotment option, the Underwriters
will purchase additional shares in approximately the same proportion as the
shares set forth in the above table.
In connection with the Offering, the Company has agreed to issue to the
Representative the Representative's Warrant to purchase up to 125,000 shares of
Common Stock. The Representative's Warrant is exercisable for a period of four
years, beginning one year from the date of this Prospectus. The Representative's
Warrant is exercisable at an exercise price equal to 120% of the initial price
of the Common Stock being offered hereby to the public. The Representative's
Warrant is nontransferable for a period of one year following the date of this
Prospectus, except (i) to any of the Underwriters, or to individuals who are
either officers or partners of an Underwriter, or (ii) by will or the laws of
descent and distribution. The holders of the Representative's Warrant will have,
in that capacity, no voting, dividend or other shareholder rights. During the
exercise period, the Representative is entitled to certain demand and
"piggy-back" registration rights that may require the Company to register for
public resale the shares of Common Stock issuable under the Representative's
Warrant. The number of shares covered by the Representative's Warrant and the
exercise price thereof are subject to adjustment in certain events to prevent
dilution. Any profit realized by the Representative on the sale of securities
issuable upon exercise of the Representative's Warrant may be deemed to be
additional underwriting compensation.
58
<PAGE>
The Representative will also receive at the closing of the Offering a
nonaccountable expense allowance equal to 3% of the aggregate public offering
price of the shares of Common Stock sold in the Offering including proceeds from
the over-allotment option, if exercised. The Representative's expenses in excess
of the non-accountable expense allowance, including its legal expenses, will be
borne by the Representative. To the extent that the expenses of the
Representative are less than the non-accountable expense allowance, the excess
shall be deemed to be compensation to the Representative.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, and to
contribute in certain events to any liabilities incurred by the Underwriters in
connection with the sale of shares of Common Stock.
Prior to the Offering, there has not been a public market for the Common
Stock. The public offering price of the Company Stock has been determined by
arm's-length negotiation between the Company and the Representative. Among the
factors to be considered by the Company and the Representative in pricing the
Common Stock are prevailing market conditions, the results of operations,
current financial condition and future prospects of the Company, the experience
of management, the amount of ownership to be retained by present shareholders,
the general condition of the economy and the demand for similar securities of
companies considered comparable to the Company.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof. Copies of the Underwriting Agreement are on file
at the offices of the Representative, the Company and the SEC. See "Additional
Information."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Munsch Hardt Kopf Harr & Dinan, P.C., Dallas, Texas. Certain legal
matters in connection with the Common Stock offered hereby will be passed upon
for the Underwriters by Brobeck, Phleger & Harrison LLP, Austin, Texas.
EXPERTS
The consolidated financial statements of IWL Communications, Incorporated at
June 30, 1995 and 1996 and for each of the three years ended June 30, 1996, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the SEC a Registration Statement
(which term shall include any amendments thereto) on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the SEC.
For further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to such Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any document are
not necessarily complete and in each instance are qualified in their entirety by
reference to the copy of the appropriate document filed with the SEC. The
Registration Statement, including the exhibits thereto, may be examined without
charge at the
59
<PAGE>
SEC's public reference facility at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, copies of all or any part of the
Registration Statement, including such exhibits thereto, may be obtained from
the SEC at its principal office in Washington, D.C., upon payment of the fees
prescribed by the SEC.
The Registration Statement and the reports and other information to be filed
by the Company following the Offering in accordance with the Exchange Act can be
inspected and copied at the principal office of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the SEC: 7 World Trade Center, New York, NY 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60601. Copies of such material may be obtained from the Public Reference Section
of the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the SEC. The SEC maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the SEC.
The Company intends to provide its shareholders with annual reports
containing consolidated financial statements audited by independent auditors and
quarterly reports for the first three fiscal quarters of each year containing
unaudited summary consolidated financial information.
60
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at June 30, 1995 and 1996 and December 31, 1996
(Unaudited)......................................................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and 1996
and for the Six Months Ended December 31, 1995 and 1996 (Unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1994,
1995 and 1996 and for the Six Months Ended December 31, 1996 (Unaudited)............ F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996
and for the Six Months Ended December 31, 1995 and 1996 (Unaudited)................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
IWL Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of IWL
Communications, Inc. and Subsidiaries (the Company) as of June 30, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IWL Communications, Inc. and Subsidiaries as of June 30, 1995 and 1996 and the
results of their operations and their cash flows for each of the three years
ended June 30, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
August 12, 1996
F-2
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- ------------- DECEMBER 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 290,629 $ 360,930 $ 423,262
Accounts receivable:
Trade, less allowance for doubtful accounts of $27,981, $74,513 and
$64,991, respectively................................................... 2,028,368 5,501,317 5,019,482
Affiliate................................................................. 22,849 73,234 36,713
Other..................................................................... 22,738 7,172 57,259
Notes receivable--trade, current portion.................................... 329,354 230,429 115,867
Inventory................................................................... 601,239 987,055 1,802,887
Deferred tax asset--current................................................. 27,673 74,659 79,334
Prepaid expenses and other current assets................................... 132,208 132,266 460,480
------------- ------------- -------------
Total current assets.................................................... 3,455,058 7,367,062 7,995,284
------------- ------------- -------------
Property, plant and equipment................................................. 7,163,812 8,385,538 10,708,375
Accumulated depreciation.................................................... (3,038,446) (3,894,863) (4,432,211)
------------- ------------- -------------
Net property, plant and equipment....................................... 4,125,366 4,490,675 6,276,164
------------- ------------- -------------
Investment in unconsolidated subsidiary....................................... 323,026 297,153 347,929
Notes receivable--trade, noncurrent portion................................... 277,528 112,118 84,900
Other assets.................................................................. 51,366 142,330 198,426
------------- ------------- -------------
Total assets............................................................ $ 8,232,344 $ 12,409,338 $ 14,902,703
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion.............................................. $ 2,262,932 $ 997,904 $ 1,105,964
Trade accounts payable and accrued expenses................................. 1,145,165 3,907,185 3,873,057
Customer deposits........................................................... 61,301 388,993 114,099
Federal income taxes payable................................................ -- 37,418 35,775
Deferred revenue--current portion........................................... 250,962 224,869 723,861
------------- ------------- -------------
Total current liabilities............................................... 3,720,360 5,556,369 5,852,756
------------- ------------- -------------
Notes payable, noncurrent portion............................................. 1,328,594 2,943,837 4,865,448
Deferred revenue, noncurrent portion.......................................... 122,122 66,748 32,516
Deferred income taxes......................................................... 106,576 144,034 183,228
------------- ------------- -------------
Total liabilities....................................................... 5,277,652 8,710,988 10,933,948
------------- ------------- -------------
Stockholders' equity:
Common stock, $.01 par value. 100,000,000 authorized; 2,222,200, 2,225,008
and 2,227,816 issued and outstanding at June 30, 1995, 1996, and December
31, 1996, respectively.................................................... 22,222 22,250 22,278
Additional paid-in capital.................................................. 249,658 259,626 269,595
Retained earnings........................................................... 2,682,812 3,416,474 3,676,882
------------- ------------- -------------
Total stockholders' equity.............................................. 2,954,692 3,698,350 3,968,755
Commitments
------------- ------------- -------------
Total liabilities and stockholders' equity.............................. $ 8,232,344 $ 12,409,338 $ 14,902,703
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
-------------- ------------- -------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales:
Telecom, carrier and land mobile......... $ 14,859,979 $ 15,794,074 $ 17,242,233 $ 7,196,777 $ 10,948,867
Product resales.......................... -- -- 10,553,846 -- 4,695,225
-------------- ------------- -------------- ------------- --------------
Total sales............................ 14,859,979 15,794,074 27,796,079 7,196,777 15,644,092
Cost of sales.......................... (10,071,384) (9,639,347) (20,415,344) (4,226,509) (11,684,415)
-------------- ------------- -------------- ------------- --------------
Gross profit........................... 4,788,595 6,154,727 7,380,735 2,970,268 3,959,677
Selling expenses........................... 892,452 862,183 842,038 394,141 494,702
General and administrative expenses........ 3,178,101 3,537,004 4,257,067 1,930,772 2,240,224
Depreciation and amortization.............. 570,770 820,957 1,003,296 482,509 635,415
-------------- ------------- -------------- ------------- --------------
Income from operations................. 147,272 934,583 1,278,334 162,846 589,336
-------------- ------------- -------------- ------------- --------------
Other income (expense):
Interest income.......................... 33,604 52,036 46,269 27,372 17,764
Interest expense......................... (248,827) (296,299) (316,412) (175,656) (231,490)
Equity in earnings (loss) of
unconsolidated subsidiary.............. 17,198 105,829 (25,873) 28,500 776
Gain from sale of assets................. 212,457 24,926 67,021 85,315 18,148
Other.................................... 23,424 8,123 31 32 28
-------------- ------------- -------------- ------------- --------------
Total other income (expense)........... 37,856 (105,385) (228,964) (34,437) (194,774)
-------------- ------------- -------------- ------------- --------------
Income before income taxes............. 185,128 829,198 1,049,370 128,409 394,562
Income tax expense......................... 41,304 293,557 315,708 43,700 134,154
-------------- ------------- -------------- ------------- --------------
Net income............................. $ 143,824 $ 535,641 $ 733,662 $ 84,709 $ 260,408
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
Net income per share....................... $ 0.07 $ 0.24 $ 0.33 $ 0.04 $ 0.12
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
Weighted average shares outstanding........ 2,000,609 2,222,200 2,222,416 2,222,200 2,225,810
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
---------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993........... 2,000,000 $ 20,000 $ 231,028 $ 2,003,347 $ (296,136) $ 1,958,239
Issuance of stock................... 222,200 2,222 314,766 -- -- 316,988
Retirement of treasury stock........ -- -- (296,136) -- 296,136 --
Net income for the year............. -- -- -- 143,824 -- 143,824
---------- --------- ---------- ------------ ----------- ------------
Balances at June 30, 1994........... 2,222,200 22,222 249,658 2,147,171 -- 2,419,051
Net income for the year............. -- -- -- 535,641 -- 535,641
---------- --------- ---------- ------------ ----------- ------------
Balances at June 30, 1995........... 2,222,200 22,222 249,658 2,682,812 -- 2,954,692
Issuance of stock................... 2,808 28 9,968 -- -- 9,996
Net income for the year............. -- -- -- 733,662 -- 733,662
---------- --------- ---------- ------------ ----------- ------------
Balances at June 30, 1996........... 2,225,008 22,250 259,626 3,416,474 -- 3,698,350
Issuance of stock (Unaudited)....... 2,808 28 9,969 -- -- 9,997
Net income for the year
(Unaudited)....................... -- -- -- 260,408 -- 260,408
---------- --------- ---------- ------------ ----------- ------------
Balance at December 31, 1996
(Unaudited)....................... 2,227,816 $ 22,278 $ 269,595 $ 3,676,882 $ -- $ 3,968,755
---------- --------- ---------- ------------ ----------- ------------
---------- --------- ---------- ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 143,824 $ 535,641 $ 733,662 $ 84,709 $ 260,408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 570,770 820,957 1,003,296 482,509 635,415
Gain from sale of assets............................. (212,457) (24,926) (67,021) (85,315) (18,148)
Deferred income taxes................................ (70,007) 78,903 (9,528) (40,149) 34,509
Equity in earnings (loss) of unconsolidated
subsidiary......................................... (17,198) (105,829) 25,873 (28,500) (776)
Changes in operating assets and liabilities:
Accounts receivable................................ (494,934) 35,817 (3,507,768) (772,320) 468,269
Inventory.......................................... 450,091 371,416 (385,816) (81,109) (815,832)
Prepaid expenses and other current assets.......... 17,412 (43,997) (58) 3,550 (328,204)
Other assets....................................... (85,260) 32,274 (101,611) (47,245) (56,096)
Trade accounts payable and accrued expenses........ 72,128 (640,238) 2,762,020 251,889 (34,128)
Customer deposits.................................. 179,511 (118,485) 327,692 25,691 (274,894)
Deferred revenues.................................. (486,904) 177,296 (81,467) 1,984,409 464,760
Federal income taxes payable....................... (19,060) (90,559) 37,418 43,700 (1,643)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities........ 47,916 1,028,270 736,692 1,821,819 333,640
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment............. (1,439,110) (1,585,103) (1,492,487) (594,586) (2,431,532)
Proceeds from disposals of property, plant, and
equipment............................................ 179,290 70,525 201,550 149,812 28,776
Issuance of notes receivable........................... (558,654) (331,983) (395,637) -- --
Proceeds from notes receivable......................... 476,916 283,755 659,972 509,656 141,780
Investment in unconsolidated subsidiary................ (200,000) -- -- -- (50,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities..................................... (1,541,558) (1,562,806) (1,026,602) 64,882 (2,310,976)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt..................................... 1,483,624 2,350,729 8,352,398 1,417,787 2,684,377
Debt payments.......................................... (336,904) (1,496,470) (8,002,183) (2,177,229) (654,706)
Proceeds from issuance of common stock................. 316,988 -- 9,996 -- 9,997
Decrease in cash overdraft............................. (41,888) (29,094) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... 1,421,820 825,165 360,211 (759,442) 2,039,668
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash for period............... (71,822) 290,629 70,301 1,127,259 62,332
Cash and cash equivalents at beginning of period......... 71,822 -- 290,629 290,629 360,930
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............... $ -- $ 290,629 $ 360,930 $ 1,417,888 $ 423,262
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for interest................................. $ 261,500 $ 317,404 $ 298,546 $ 132,087 $ 213,918
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash paid for income taxes............................. $ 109,619 $ 367,267 $ 150,866 $ 14,555 $ 57,500
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company provides communications solutions to customers with operations
in remote, difficult-access regions and in areas around the world where
government deregulation has created new market opportunities. The Company
delivers communications services to its customers by utilizing a broad range of
analog and digital technologies, including satellite, microwave radio,
conventional two-way radio and fiber optic cable. The Company has operations in
Friendswood and Houston, Texas, New Orleans and Lafayette, Louisiana and Moscow,
Russia.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IWL
Communications, Inc. and its wholly-owned subsidiaries, Spacelink Systems, Inc.,
Spacelink Systems FSC, Inc. and IWL Communications Ltd. (Russia). All material
intercompany accounts and transactions have been eliminated. The Company's
investment in and operating results of Kenwood Systems Group, which is a 50%
owned entity, are included in the accompanying financial statements on the basis
of the equity method of accounting.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company performs credit evaluations of its customers, but does not
require collateral.
MAJOR CUSTOMERS AND SUPPLIERS
For the year ended June 30, 1996, approximately $11,450,000 (41%) of the
Company's sales were from one customer. At June 30, 1996, accounts
receivable-trade included balances of approximately $2,346,000 and $561,000 from
two of the Company's major customers.
The majority of these sales ($10,553,846) were attributable to a one-time
project, which includes a significant equipment resale component, that the
Company expects will be substantially completed in fiscal 1997 and, therefore,
is not expected to contribute in a material manner to the Company's revenue in
future periods.
The Company purchases substantially all of its telecommunications equipment
for use in the oil and gas industry from one supplier pursuant to an exclusive
distributorship agreement.
INVENTORY
Inventory substantially consists of parts and equipment held for resale.
Inventory that can be specifically identified using a unique identification
number is stated at the lower of specific cost or market. Inventory that cannot
be specifically identified is stated at the lower of cost or market where cost
is determined using the first in-first out method. Market value, in all cases,
represents the lower of replacement cost or net realizable value.
F-7
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT/DEPRECIATION
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as indicated
below:
<TABLE>
<S> <C>
Buildings and improvements...................................... 7-31 years
Vehicles........................................................ 5 years
Furniture and fixtures.......................................... 5-7 years
Leasehold improvements.......................................... Lease term
Equipment for rent/lease........................................ 7-10 years
Computers, office and test equipment............................ 5-7 years
</TABLE>
Significant expenditures that add materially to the utility or useful lives
of property, plant and equipment are capitalized. All other maintenance and
repair costs are charged to current operations. The cost and related accumulated
depreciation of assets replaced, retired or otherwise disposed of are eliminated
from the property accounts and any gain or loss is reflected as other income and
expense.
REVENUE RECOGNITION
The Company provides services such as telecom and carrier services and land
mobile services whose revenue is recognized based on the monthly service
provided. Lease revenues from equipment rentals are recorded over the life of
the lease contract. Communication systems contracts are typically fixed price
and revenue is recognized based on the percentage-of-completion method.
STOCK OPTION PLAN
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123
commencing in its June 30, 1997 financial statements.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rate and laws that will be in
effect when the differences are expected to reverse.
F-8
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The provision for income taxes includes federal, foreign, state and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements at December 31, 1996 and for the six
months ended December 31, 1995 and 1996 are unaudited. In the opinion of the
Company, the unaudited consolidated financial statements at December 31, 1996
and for the six months ended December 31, 1995 and 1996, include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
periods. Results of operations for the six months ended December 31, 1996 are
not necessarily indicative of results to be expected for the full year.
NET INCOME PER SHARE
Net income per share is computed by dividing net income applicable to common
stock by the weighted average number of shares of common stock and common stock
equivalents outstanding, net of shares assumed to be repurchased using the
treasury stock method. Common stock equivalents arise from the assumed
conversion of outstanding stock options and warrants.
On November 1, 1995, the Board of Directors declared a two hundred-for-one
common stock split effective November 1, 1995. All share amounts and numbers of
shares have been restated to reflect the stock split.
F-9
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(2) NOTES RECEIVABLE
Notes receivable due from customers on the sale of communications equipment
at June 30, 1995, June 30, 1996 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Note dated May 1, 1996, at 10.5% interest, with the first 12
monthly payments of principal and interest of $18,243, and the
next 24 monthly payments of principal and interest of
$5,377......................................................... $ -- $ 297,352 $ 200,767
Note dated November 16, 1994, at 12.5% interest, with 24 fixed
monthly payments of principal and interest of $9,461........... 146,120 45,195 --
Note dated May 1, 1994, at 10.0% interest, with 36 fixed monthly
payments of principal and interest of $18,136. Note was paid in
full December 1995............................................. 373,273 -- --
Note dated June 30, 1994, at 10.0% interest, with 36 fixed
monthly payments of principal and interest of $1,819. Note was
paid in full December 1995..................................... 39,408 -- --
Note dated August 31, 1994, at 10.0% interest, with 36 fixed
monthly payments of principal and interest of $2,065. Note was
paid in full December 1995..................................... 48,081 -- --
---------- ---------- ------------
606,882 342,547 200,767
Less current portion............................................. 329,354 230,429 115,867
---------- ---------- ------------
$ 277,528 $ 112,118 $ 84,900
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
(3) INVESTMENT IN KENWOOD SYSTEMS GROUP
The Company owns 50% of the voting common stock of Kenwood Systems Group,
Inc. (KSG), a California corporation. The remaining 50% of the voting common
stock is owned by Kenwood Americas Corporation (KAC). The Company and KAC are
the original owners of KSG which began operations on May 1, 1994. KSG engineers
and fabricates turnkey solutions of 800 and 900 MHz truck radio systems under
the Kenwood brand name.
The investment is recorded using the equity method in which the original
investment, adjusted for the Company's proportionate share of KSG's income,
losses and dividend distributions, is recorded as a long-term investment. The
Company's original investment in KSG was $200,000. An additional investment of
$50,000 was made during the six months ended December 31, 1996. The Company's
proportionate share of KSG's (losses)/earnings for the years ended June 30,
1994, 1995 and 1996 were $17,198, $105,829 and ($25,873), respectively. The
Company's proportionate share of KSG's earnings for the six months ended
December 31, 1995 and 1996 were $28,500 and $776, respectively.
The Company receives a management fee from KSG equal to 2% of gross sales
that is paid quarterly. For the years ended June 30, 1994, 1995 and 1996, the
Company earned a management fee of $15,820,
F-10
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(3) INVESTMENT IN KENWOOD SYSTEMS GROUP (CONTINUED)
$59,995, and $58,253, respectively. The Company earned management fees for the
six months ended December 31, 1995 and 1996 of $42,195 and $30,887,
respectively. In addition, KSG is covered by worker's compensation, property,
medical, dental and general liability insurance policies maintained by the
Company. KSG also purchases various supplies and computer equipment from the
Company from time to time. Employees of KSG are eligible to participate in a
401(k) plan maintained by the Company. Billings by the Company to KSG for the
year ended June 30, 1996 for insurance, supplies, equipment and management fees
totaled approximately $267,000. At June 30, 1995 and 1996, $22,849 and $73,234
is included on the accompanying balance sheet as account receivable-affiliate
which is due from KSG. At December 31, 1996 $36,713 is included as account
receivable-affiliate which is due from KSG.
Pertinent financial data (unaudited) of KSG, at or for the years ended June
30, 1995, June 30, 1996 and the six months ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total assets....................................... $ 1,095,449 $ 1,248,217 $1,553,110
------------ ------------ ------------
------------ ------------ ------------
Stockholders' equity............................... $ 646,053 $ 594,307 $ 712,133
------------ ------------ ------------
------------ ------------ ------------
Revenues........................................... $ 2,999,745 $ 2,912,637 $1,544,374
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss)................................ $ 211,660 $ (51,746) $ 1,552
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1995, June 30, 1996 and December
31, 1996 was as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Land.............................................. $ 41,046 $ 41,046 $ 41,046
Equipment for rent/lease.......................... 5,932,122 6,355,557 7,804,835
Buildings and improvements........................ 418,473 456,355 461,478
Computers, office and test equipment.............. 371,032 889,326 1,547,028
Vehicles.......................................... 257,506 475,353 578,517
Furniture and fixtures............................ 143,633 167,901 275,471
------------ ------------ -------------
Total........................................... $ 7,163,812 $ 8,385,538 $ 10,708,375
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-11
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(5) NOTES PAYABLE AND FINANCING ARRANGEMENTS
Borrowing under the Company's credit facility and long-term notes payable at
June 30, 1995, June 30, 1996 and December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Note payable to bank, principal and interest due monthly in
the amount of $22,500, interest at 9.0%, due in November
2001, secured by specific underlying equipment............. $ -- $ -- $1,327,500
Notes payable to finance company, principal and interest due
monthly in the amount of $3,520, interest at 8.5%, due in
September 1999, secured by specific underlying
equipment.................................................. -- -- 100,729
Borrowings under a revolving credit facility, bearing
interest at prime plus .75% (9.75% at June 30, 1996), due
in December 1998, secured by specific underlying accounts
receivable, equipment and inventory. Maximum borrowings are
$2,500,000 under the facility. The weighted average
interest rate was 9% for the year ended June 30, 1996...... -- 1,426,598 2,335,844
Note payable to bank, principal due monthly in the amount of
$15,833, plus interest at prime plus .75% (9.75% at June
30, 1996), due in December 1998, secured by specific
underlying equipment....................................... -- 870,835 775,837
Note payable to bank, principal due monthly in the amount of
$24,306, plus interest at prime plus 1% (10% at June 30,
1996), due in December 1997, secured by specific underlying
accounts receivable, equipment and inventory............... 731,900 440,233 247,433
Note payable to leasing company, principal and interest due
monthly in the amount of $13,699, interest at 10.7%, due in
February 1998, secured by specific underlying equipment.... 376,913 247,040 176,614
Note payable to mortgage company, varying principal and
interest due monthly ($1,669 at June 30, 1996), principal
and interest adjusted quarterly to prime plus 2.5% (11.5 %
at June 30, 1996), due in April 2015, secured by specific
underlying property........................................ 188,149 185,462 184,000
Note payable to leasing company, principal and interest due
monthly in the amount of $5,595, interest at 9%, due in
December 1998, secured by specific underlying equipment.... -- 149,963 122,648
</TABLE>
F-12
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(5) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to finance company, principal and interest due
monthly in the amount of $3,180, interest at 10.2%, due in
February 2000, secured by specific underlying equipment.... $ -- $ 108,657 $ 94,607
Note payable to bank, principal due monthly beginning July 1,
1997 in the amount of 2.1% of the amount outstanding plus
interest at prime plus .75% (9.75% at June 30, 1996), due
in December 1998, secured by specific underlying equipment
and inventory.............................................. -- 90,473 396,753
Note payable to bank, principal due monthly in the amount of
$10,556 plus interest at prime plus 1% (10% at June 30,
1996), due in February 1997, secured by specific underlying
equipment and inventory.................................... 211,111 84,444 --
Note payable to leasing company, principal and interest due
monthly in the amount of $4,831, interest at 10%, due in
December 1997, secured by specific underlying equipment.... -- 84,210 58,864
Note payable to finance company, principal and interest due
monthly in the amount of $1,916, interest at 8.8%, due in
June 1999, secured by specific underlying equipment........ -- 56,203 46,932
Notes payable to individuals, principal and interest due
monthly in the amount of $4,296, interest rates ranging
from 9%-12%, due in August 2001, unsecured................. 165,416 54,818 48,171
Note payable to bank, principal and interest due monthly in
the amount of $8,959, interest at 6.98%, due in December
1996, secured by a certificate of deposit.................. 152,700 52,694 --
Note payable to benefit plan, principal and interest due
monthly in the amount of $5,500, interest at 10%, due in
February 1997, unsecured................................... 101,845 43,399 11,919
Notes payable to bank, principal and interest due monthly in
the amount of $1,090, interest at 8.5%, due in March 1998,
secured by vehicles........................................ 30,623 19,735 13,935
</TABLE>
F-13
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(5) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to finance company, principal and interest due
monthly in the amount of $499, interest at 12.1%, due in
June 1999, secured by specific underlying equipment........ $ -- $ 14,777 $ 12,955
Borrowings under a revolving credit facility, bearing
interest at prime plus 1%, due and paid on September 30,
1995....................................................... 1,233,900 -- --
Note payable to bank, principal due monthly in the amount of
$17,708 plus interest at 7.93%. Note was fully paid in
December 1995.............................................. 225,000 -- --
Note payable to bank, principal due monthly in the amount of
$3,712, plus interest at prime plus 1%. Note was fully paid
in December 1995........................................... 115,075 -- --
Note payable to finance company, principal and interest due
monthly in the amount of $1,671, interest at 12.5%. Note
was fully paid in December 1995............................ 43,023 -- --
Other........................................................ 15,871 12,200 16,671
------------ ------------ ------------
3,591,526 3,941,741 5,971,412
Less current portion......................................... 2,262,932 997,904 1,105,964
------------ ------------ ------------
Total notes payable and financing arrangements............. $ 1,328,594 $ 2,943,837 $4,865,448
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following is a summary of maturities of notes payable and financing
arrangements at June 30, 1996 during the next five years:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1997............................................................................ $ 997,904
1998............................................................................ 639,561
1999............................................................................ 2,092,029
2000............................................................................ 28,719
2001............................................................................ 17,564
Thereafter...................................................................... 165,964
------------
Total......................................................................... $ 3,941,741
------------
------------
</TABLE>
The Company's revolving credit facility (the Revolver) allows the Company to
borrow the lesser of (i) $2.5 million or (ii) eighty percent of the receivables
borrowing base (as defined) plus the lesser of $500,000 or the amount of the
inventory borrowing base (as defined). Interest rate on the borrowings under the
Revolver is at prime plus .75% (9.75% at June 30, 1996), and a fee of .5% is
charged on any unused portion of the Revolver, which was $1,073,402 at June 30,
1996. The Revolver is secured by specific
F-14
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(5) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
underlying accounts receivable, equipment and inventory. The revolver provides
for certain reporting and financial covenants including minimum net worth and
maximum debt to net worth requirements. The Company was in compliance with such
covenants at June 30, 1996. The Company violated a financial covenant under the
Revolver in December 1996. The bank lender did not declare the Company in
default and waived the violation. In addition, the bank lender has amended the
financial covenant at issue, such that the Company does not expect to be in
violation of such covenant in the future.
The Company has never paid dividends on its common stock and does not
anticipate paying dividends on the common stock in the foreseeable future. Under
the terms of the Company's revolving credit facility, the Company may not pay
dividends without prior consent of the lending bank.
The Company capitalized financing costs of $54,764 for the year ended June
30, 1996 and is amortizing such costs over the life of the respective loan.
These financing costs are included in other assets on the balance sheet.
Amortization expense for the year ended June 30, 1996 amounted to $10,647.
(6) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States Federal
Current income tax expense.............................. $ 30,202 $ 214,654 $ 175,404
Deferred income tax expense............................. 11,102 78,903 (9,528)
Foreign income tax expense................................ -- -- 149,832
---------- ---------- ----------
$ 41,304 $ 293,557 $ 315,708
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1995 and June 30, 1996 are presented below:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts....... $ 9,514 $ 25,335
Accrued vacation pay.............................................. 20,462 30,497
Deferred revenue.................................................. 55,651 41,521
Alternative minimum tax credit carryforward....................... 75,786 74,918
Equity in losses of affiliates.................................... -- 8,796
----------- -----------
Total deferred tax assets....................................... 161,413 181,067
Deferred tax liabilities:
Property, plant and equipment..................................... (198,609) (250,442)
Deferred revenue.................................................. (41,707) --
----------- -----------
Total deferred tax liabilities.................................. (240,316) (250,442)
----------- -----------
Net deferred tax liability...................................... $ (78,903) $ (69,375)
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
There was no valuation allowance on deferred tax assets as of June 30, 1995
and June 30, 1996 as management has determined that it is more likely than not
that these tax assets will be utilized.
The Company also has alternative minimum tax credit carryforwards of $74,918
at June 30, 1996 which are available to reduce future federal regular income
taxes, if any, over an indefinite period.
The difference between the actual income tax provision and the tax provision
computed by applying the statutory Federal income tax rate to income before
taxes is attributable to the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income tax provision at 34%............................ $ 62,944 $ 281,927 $ 356,789
Expenses not deductible for tax purposes............... -- 11,630 11,990
Change in valuation allowance.......................... (21,640) -- --
Effect of foreign operations, including foreign tax
credits.............................................. -- -- (53,071)
---------- ---------- ----------
Actual income tax provision (benefit).................. $ 41,304 $ 293,557 $ 315,708
---------- ---------- ----------
---------- ---------- ----------
Effective tax rate..................................... 22.3% 35.4% 30.1%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(7) EMPLOYEE BENEFITS
The Company has a 401(k) profit sharing plan covering employees with six or
more months of tenure. The plan allows employee contributions of up to 15% of
applicable employee wages. The Company makes matching contributions to the plan
as a percentage of the employee's contribution. The Company's contribution is
subject to the employee meeting certain vesting requirements. The Company's net
contributions to the plan (after forfeitures) for the years ended June 30, 1994,
1995 and 1996 were $24,917, $23,367 and $30,287, respectively. The Company's net
contributions to the plan (after forfeitures) for the six months ended December
31, 1995 and 1996 were $15,416 and $23,666, respectively.
(8) INCENTIVE STOCK OPTION PLAN
During the year ended June 30, 1996, the Company adopted an Employee
Incentive Stock Option Plan (the Plan). The Plan provides for the granting of a
maximum of 258,600 options to purchase shares of common stock to key employees
of the Company. The option price per share may not be less than the estimated
fair value of a share on the date the option is granted. Options generally vest
at the rate of 20% per year over a five year period, however, the Board at its
discretion may accelerate the vesting schedule. Stock options will expire ten
years from the date of grant.
For the year ended June 30, 1996, there were options for 152,836 shares
granted under the plan with option prices ranging from $3.56 to $4.49. All
options granted were outstanding at June 30, 1996, and there were 33,453 shares
under options which were exercisable at June 30, 1996. On June 30, 1996, there
were 105,774 additional shares available for grant.
F-16
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(9) LEASE CONTRACTS
The Company provides telecommunications services to various customers under
operating leases with typical terms of one to five years. The services may
include communications equipment, line/satellite charges and/or maintenance
charges. These leases impose certain obligations on both the lessor and lessee
which must be met during the term of the lease.
A significant portion of these services requires that the Company have
access to international communication satellites. The Company has contracted
with a Russian entity for rights to access its portion of an international
communications satellite. The Company has agreed to pay a recurring monthly fee
to the entity based on the amount of satellite space segment utilized by each
lessee. Additionally, the Company has sold communications equipment to the
entity. The Company utilizes those facilities to provide communication services
to various United States oil and gas companies and other customers doing
business in Russia.
The following is a summary of the expected revenue to be earned during the
next five years by the Company on lease agreements executed on or before June
30, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1997................................................................ $ 3,195,756
1998................................................................ 2,540,544
1999................................................................ 1,460,563
2000................................................................ 840,960
2001................................................................ 840,960
Thereafter.......................................................... 210,240
-----------
Total............................................................. $ 9,089,023
-----------
-----------
</TABLE>
(10) COMMITMENTS
The Company leases office space, equipment and communications services for
its operations under leases expiring through 1999. Rental expense under the
leases for the years ended June 30, 1994, 1995 and 1996 was $409,665, and
$348,184 and $555,033, respectively. Rental expense for the six months ended
December 31, 1995 and 1996 was $251,198 and $932,716, respectively.
Future minimum lease payments as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
- --------------------------------------------------------------------
<S> <C>
1997................................................................ $ 1,601,440
1998................................................................ 1,257,378
1999................................................................ 664,715
-----------
Total............................................................. $ 3,523,533
-----------
-----------
</TABLE>
F-17
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
(11) SUBSEQUENT EVENTS
(A) PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock which may be
issued by the Board of Directors in one or more series and the Board is
authorized to fix the designations, relative powers, preferences, rights,
qualifications, limitations and restrictions of all shares of each of such
series, including without limitation dividend rates, preemptive rights,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the shareholders. Upon consummation of a
public offering of common stock, there will be 10,000,000 authorized and
unissued shares of preferred stock. The Company's Articles of Incorporation
grant the Board of Directors power to establish the rights, preferences and
privileges of authorized and unissued preferred stock. The issuance of shares of
preferred stock pursuant to the Board of Director's authority described above
could decrease the amount of earnings and assets available for distribution to
holders of common stock.
(B) COMMON STOCK
The Company amended and restated its Articles of Incorporation to restate
the common stock authorized, issued and outstanding from no par value to a $0.01
par value per common share. All share amounts have been restated to reflect this
amendment.
(C) STOCK OPTION PLANS
The Company adopted a 1997 Stock Option Plan and a 1997 Director Stock
Option Plan in February 1997 (the Plans). These Plans provide for the granting
of a maximum of 400,000 options to purchase shares of common stock to selected
employees, consultants, affiliates, and non-employee directors of the Company.
In addition, effective upon completion of a public offering of common stock,
the vesting of all unvested options granted under the Employee Incentive Stock
Option Plan (Note 8) would be automatically accelerated and such options would
become fully vested and presently exercisable at such time.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT 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, THE UNDERWRITERS, OR ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF THE DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 17
Dividend Policy................................ 17
Dilution....................................... 18
Capitalization................................. 19
Selected Consolidated Financial Data........... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 28
Management..................................... 45
Certain Transactions........................... 52
Principal Shareholders......................... 53
Description of Capital Stock................... 54
Shares Eligible for Future Sale................ 56
Underwriting................................... 58
Legal Matters.................................. 59
Experts........................................ 59
Additional Information......................... 59
Index to Consolidated Financial Statements..... F-1
Independent Auditors' Report................... F-2
Consolidated Financial Statements.............. F-3
</TABLE>
--------------------------
UNTIL , 1997 (25 CALENDAR DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF THE DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
ALLOTMENTS OR SUBSCRIPTIONS.
1,250,000 SHARES
[COMPANY LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[LOGO]
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......................... $ 3,703
NASD filing fee............................................................. $ 1,722
NASDAQ--NMS listing fee..................................................... *
Printing and engraving costs................................................ *
Legal fees and expenses..................................................... *
Accounting fees and expenses................................................ *
Blue Sky fees and expenses.................................................. *
Miscellaneous............................................................... *
---------
Total................................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Registrant's Amended and Restated Articles of
Incorporation provides the following:
"A director of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Article shall not authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable for:
(1) a breach of the director's duty of loyalty to the Corporation or
its shareholders;
(2) an act or omission not in good faith that constitutes a breach
of duty of the director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office;
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute."
Article XI of the Registrant's Amended and Restated Articles of
Incorporation provides the following:
"The directors and officers of the Corporation shall be indemnified by the
Corporation in a manner and to the maximum extent permitted by applicable
state or federal law as in effect from time to time."
Section 7.06 of the Registrant's Amended and Restated Bylaws provides the
following:
"The Corporation shall have the authority to and shall indemnify and advance
expenses to the Directors, officers, employees, and agents of the Corporation
or any other persons serving at the request of the Corporation in such
capacities in a manner and to the maximum extent permitted by applicable
state or federal law. The Corporation may purchase and maintain liability
insurance or
II-1
<PAGE>
make other arrangements for such obligations to the extent permitted by the
Texas Business Corporation Act."
The Texas Business Corporation Act permits, and in some cases requires,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses under certain circumstances.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the Company and its officers and directors, and by the
Company of the Underwriters, for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information as of February 28, 1997, regarding all
sales of unregistered securities of the Registrant during the past three years.
All such shares were issued in reliance upon an exemption from registration
under the Securities Act by reason of Section 4(2) or 3(b) of the Securities Act
and/or the rules and regulations promulgated thereunder. In connection with each
of these transactions, the shares were sold to a very limited number of persons,
such persons were provided access to all relevant information regarding the
Registrant or represented to the Registrant that they were "sophisticated"
investors, and such persons represented to the Registrant that the shares were
purchased for investment purposes only and with no view toward distribution.
The number of shares set forth herein and the prices paid per share have
been adjusted to reflect a 200-for-1 stock split of the Registrant's Common
Stock, par value $.01 per share.
In June 1996, Kelly Dean, an employee of the Company, purchased 2,808 shares
of Common Stock for $3.56 per share for an aggregate purchase price of
approximately $10,000.
In November 1996, Keith Johnson, Vice President--Marketing of the Company,
purchased 2,808 shares of Common Stock for $3.56 per share for an aggregate
purchase price of approximately $10,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed herewith.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen certificate for Common Stock of Registrant.*
5.1 Opinion of Munsch Hardt Kopf Harr & Dinan, P.C. as to the validity of the
Common Stock being registered.*
10.1 IWL Communications, Incorporated Employee Incentive Stock Option Plan.
10.2 IWL Communications, Incorporated 1997 Stock Option Plan.
10.3 IWL Communications, Incorporated 1997 Director Stock Option Plan.
10.4 Promissory Note dated September 19, 1994 payable by the Registrant to Byron
M. Allen.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.5 Office Lease Agreement dated May 22, 1996, by and between Ellington Field,
Ltd., a Texas limited partnership and the Registrant.
10.6 Authorized Distributor Agreement dated February 16, 1997, by and between
Radio Frequency Systems, Inc., a Cablewave Systems Division, and the
Registrant.#
10.7 License Agreement dated November 25, 1996, between Entergy Services, Inc.
and the Registrant d/b/a IWL Connect.*#
10.8 Memorandum of Understanding dated July 11, 1996, between Interstate
FiberNet (IFN) operating on its behalf and on behalf of Entergy Technology
Corporation and the Registrant.#
10.9 Satellite Information Network Service Agreement dated May 1, 1994, by and
between the Registrant and the Information Telegraphy Agency of Russia
ITAR-TASS.#
10.10 Reseller Agreement dated , by and between Alcatel Network
Systems, Inc. and the Registrant.*#
10.11 Select Partner Agreement dated effective October 11, 1996, by and between
Newbridge Networks, Inc. and the Registrant.#
10.12 Form of Service Agreement.*
10.13 Lease Agreement dated November 18, 1996, by and between the Registrant and
CLG, Inc.
10.14 Form of License Agreement for Pole Attachments and/or Conduit Occupancy
between BellSouth Telecommunications, Inc. and the Registrant.*
10.15 Promissory Note dated September 20, 1996 payable by the Registrant to First
Bank and Trust, Cleveland, Texas.
10.16 Loan Agreement and Security Agreement dated December 20, 1995 between the
Registrant and Marine Midland Business Loans, Inc.
10.17 Promissory Note dated May 4, 1995 payable by the Registrant to Byron M.
Allen.
10.18 Letter Agreement dated February 28, 1997, by and between the Registrant and
Marine Midland Bank as successor-in-interest to Marine Midland Business
Loans, Inc.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Munsch Hardt Kopf Harr & Dinan, P.C. (included in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature pages of this Registration
Statement).
27.1 Financial Data Schedule.
99.1 Consent of Christopher J. Amenson.
</TABLE>
- ------------------------
* To be filed by amendment
# Confidential treatment requested. A series of XXXs have been inserted in
these exhibits to indicate redactions in such exhibits for which
confidential treatment has been requested. The redacted portions of these
agreements have been separately filed with the Secretary of the Commission.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All Financial Schedules have been omitted since the information is not
present in an amount sufficient to require submission of the Schedules, or
because the information required is included in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant (the "Registrant") hereby undertakes to
provide to the Underwriters, at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than 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 Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 4th day of March, 1997.
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Ignatius W. Leonards,
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
The undersigned directors and executive officers of IWL Communications,
Incorporated hereby constitute and appoint Byron M. Allen and Richard H.
Roberson, and each of them, with full power to act without the other and with
full power of substitution and resubstitution, our true and lawful attorneys-in-
fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments (including post-effective amendments and
amendments thereto) to this Registration Statement, requests to accelerate the
effectiveness of this Registration Statement, and any registration statement for
the same offering that is to be effective under Rule 462(b) of the Securities
Act, and to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission and hereby
ratify and confirm all that such attorneys-in-fact, or either of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 4th day of March, 1997.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ IGNATIUS W. LEONARDS Chairman of the Board,
- ------------------------------ and Director (Principal March 4, 1997
Ignatius W. Leonards Executive Officer)
/s/ BYRON M. ALLEN
- ------------------------------ President and Director March 4, 1997
Byron M. Allen
Chief Financial Officer
/s/ RICHARD H. ROBERSON and Director (Principal
- ------------------------------ Financial and Accounting March 4, 1997
Richard H. Roberson Officer)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen certificate for Common Stock of Registrant.*
5.1 Opinion of Munsch Hardt Kopf Harr & Dinan, P.C. as to the validity of the Common Stock being
registered.*
10.1 IWL Communications, Incorporated Employee Incentive Stock Option Plan.
10.2 IWL Communications, Incorporated 1997 Stock Option Plan.
10.3 IWL Communications, Incorporated 1997 Director Stock Option Plan.
10.4 Promissory Note dated September 19, 1994 payable by the Registrant to Byron M. Allen.
10.5 Office Lease Agreement dated May 22, 1996, by and between Ellington Field, Ltd., a Texas limited
partnership and the Registrant.
10.6 Authorized Distributor Agreement dated February 16, 1997, by and between Radio Frequency Systems, Inc.,
a Cablewave Systems Division, and the Registrant.#
10.7 License Agreement dated November 25, 1996, between Entergy Services, Inc. and the Registrant d/b/a IWL
Connect.*#
10.8 Memorandum of Understanding dated July 11, 1996, between Interstate FiberNet (IFN) operating on its
behalf and on behalf of Entergy Technology Corporation and the Registrant.#
10.9 Satellite Information Network Service Agreement dated May 1, 1994, by and between the Registrant and
the Information Telegraphy Agency of Russia ITAR-TASS.#
10.10 Reseller Agreement dated , by and between Alcatel Network Systems, Inc. and the
Registrant.*#
10.11 Select Partner Agreement dated effective October 11, 1996, by and between Newbridge Networks, Inc. and
the Registrant.#
10.12 Form of Service Agreement.*
10.13 Lease Agreement dated November 18, 1996, by and between the Registrant and CLG, Inc.
10.14 Form of License Agreement for Pole Attachments and/or Conduit Occupancy between BellSouth
Telecommunications, Inc. and the Registrant.*
10.15 Promissory Note dated September 20, 1996 payable by the Registrant to First Bank and Trust, Cleveland,
Texas.
10.16 Loan Agreement and Security Agreement dated December 20, 1995 between the Registrant and Marine Midland
Business Loans, Inc.
10.17 Promissory Note dated May 4, 1995 payable by the Registrant to Byron M. Allen.
10.18 Letter Agreement dated February 28, 1997, by and between the Registrant and Marine Midland Bank as
successor-in-interest to Marine Midland Business Loans, Inc.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Munsch Hardt Kopf Harr & Dinan, P.C. (included in Exhibit 5.1).*
24.1 Power of Attorney (contained on the signature pages of this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
99.1 Consent of Christopher J. Amenson.
</TABLE>
- ------------------------
* To be filed by amendment
# Confidential treatment requested. A series of XXXs have been inserted in
these exhibits to indicate redactions in such exhibits for which
confidential treatment has been requested. The redacted portions of these
agreements have been separately filed with the Secretary of the Commission.
<PAGE>
1,250,000 SHARES(1)
IWL COMMUNICATIONS, INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1997
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
c/o Cruttenden Roth Incorporated
18301 Van Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
IWL Communications, Incorporated, a Texas corporation (the "Company")
addresses you as the Representative of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,250,000 shares of its authorized and unissued Common Stock, par value $0.01
per share, (the "Firm Shares") to the several Underwriters. The Company also
proposes to grant to the Underwriters an option to purchase up to 187,500
additional shares of the Company's Common Stock, par value $0.01 per share
(the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, par value $0.01 per share, of the
Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to and agrees with each
Underwriter that:
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(1) Plus an option to purchase up to 187,500 additional shares from the
Company to cover over-allotments.
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(a) A registration statement on Form S-1 (File No. 333-_____)
with respect to the Shares, including a prospectus, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the applicable rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Act and has been filed with the Commission; such amendments to such
registration statement, such amended prospectuses and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations as
may have been required prior to the date hereof have been similarly prepared and
filed with the Commission; and the Company will file such additional amendments
to such registration statement, such amended prospectuses and such abbreviated
registration statements as may hereafter be required. Copies of such
registration statement and amendments together with each exhibit filed
therewith, of each related prospectus (the "Preliminary Prospectuses") and of
any abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Cruttenden Roth Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Cruttenden
Roth Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations relating thereto after the effective date of
such registration statement, shall also mean (from and after the effectiveness
of such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of
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the Rules and Regulations and with the consent of Cruttenden Roth Incorporated,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Cruttenden Roth Incorporated, on behalf of
the several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that
a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any 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 not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
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(c) The Company and its subsidiaries are duly incorporated and
validly existing as corporations in good standing under the laws of the
jurisdiction of their incorporation with full power and authority (corporate and
other) to own, lease and operate their properties and conduct their business as
described in the Prospectus; the Company and its subsidiaries are duly qualified
to do business as foreign corporations and in good standing in each jurisdiction
in which the ownership or leasing of their properties or the conduct of their
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company and its
subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities that are material to the conduct of
their business, all of which are valid and in full force and effect; the Company
and its subsidiaries are not in violation of their charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company (or any of its subsidiaries) are a party or by
which their properties may be bound; and the Company and its subsidiaries are
not in material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company, its subsidiaries or
over their properties. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than IWL
Communications, Ltd., a corporation organized under the laws of Russia, IWL
Baltija Communications (Latvia) SIA, a corporation organized under the laws of
Latvia, each of which is a wholly-owned subsidiary of the Company and Kenwood
Systems Group, Inc., a California corporation of which the Company owns 50% of
the outstanding Common Stock.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the making and performance of this Agreement by the
Company and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company is a party or by which its properties may be bound, (ii) the charter or
bylaws of the Company or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, administrative agency, regulatory
body, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or
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body, domestic or foreign, having jurisdiction over the Company or its
properties is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act, by the National Association of Securities
Dealers, Inc. (the "NASD"), the rules of the Nasdaq National Market, or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the Company's knowledge,
threatened, any action, suit, claim or proceeding against the Company, any of
its officers, any of its properties or its subsidiaries, assets or rights before
any court, administrative agency, regulatory body, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company, its
officers, its properties, its subsidiaries or otherwise which (i) might,
individually or in the aggregate, result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or might materially and adversely affect the Company's
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations which have not been accurately described in all
material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement. The Company and its subsidiaries are
not a party or subject to the provisions of any injunction, judgment, decree or
order of any court, regulatory body, administrative agency, government or
governmental agency or body domestic or foreign, that could be expected to
result in a material adverse change in the condition (financial or other),
earnings, operations, business or business prospects of the Company.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement, and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of shareholders exists with respect to any of the Shares or the issuance and
sale thereof other than those that have been satisfied or expressly waived prior
to the date hereof and those that will automatically expire upon and will not
apply to the consummation of the transactions contemplated on or before the
Closing Date. No further approval or authorization of any shareholder, the
Board of Directors of the Company or others is required for
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the issuance and sale or transfer of the Shares except as may be required under
the Act or under state or other securities or Blue Sky laws. Except as
disclosed in the Registration Statement, Prospectus and the financial statements
of the Company, and the related notes thereto included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus fairly and accurately presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
(g) KPMG Peat Marwick LLP, Independent Auditors, which has
examined the financial statements of the Company, together with the related
schedules and notes, as of December 31, 1996 and 1995 and for each of the years
in the three (3) years ended June 30, 1996 filed with the Commission as a part
of the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and all audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements
or schedules are required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, (iii) any obligation, direct or contingent,
that is material to the Company, incurred by the Company, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company, (v) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company, (vi) any default in the payment of principal of or interest on any
outstanding debt obligations, or (vii) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will have
been sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration
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Statement and Prospectus as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company,
(ii) the agreements to which the Company is a party described in, or filed as
exhibits to, the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) the Company has valid and enforceable leases
for all properties described in the Registration Statement and Prospectus as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus,
the Company owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the Company's knowledge, might be asserted against the Company (or
any of its subsidiaries) that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; and all tax liabilities are adequately provided for on
the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
prudent for its business and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism, products liability,
errors and omissions, and all other risks customarily insured against, all of
which insurance is in full force and effect; the Company has not been refused
any insurance coverage sought or applied for; and the Company does not have any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(l) To the Company's knowledge, no labor disturbance by the
employees of the Company exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers, subcontractors, authorized dealers or international
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. No collective bargaining agreement exists
with any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
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(m) The Company owns or possesses exclusive rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its business as
now conducted and as described in the Registration Statement and Prospectus;
except as set forth in the Registration Statement and the Prospectus, the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, nor has it any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
approved for quotation on the Nasdaq National Market, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating such
registration or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not and will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) The Company (nor any of its subsidiaries) has not at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
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(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Except as otherwise set forth in the Registration
Statement and the Prospectus, each officer and director of the Company, and
each shareholder that holds restricted securities has agreed in writing that
such person will not, except as described below, for a period of 365 days
from the date of the final Prospectus (the "Lock-Up Period"), sell, offer to
sell, solicit an offer to buy, contract to sell, loan, pledge, grant any
option to purchase, or otherwise transfer or dispose of (collectively, a
"Disposition"), any shares of Common Stock, or any securities convertible
into or exercisable or exchangeable for Common Stock (collectively,
"Securities"), now owned or hereafter acquired by such person or with respect
to which such person has or hereafter acquires the power of disposition
otherwise than (i) on exercise (on a cash or cashless basis, whether in a
traditional cashless exercise or in a "brokers" cashless exercise), of Common
Stock options or warrants outstanding, it being understood, however, that the
shares of Common Stock received (net of shares sold by or on behalf of such
person in a "brokers" cashless exercise or shares delivered to the Company in
a traditional cashless exercise thereof) by such person upon exercise thereof
shall be subject to the terms of the Lock-Up Agreement (as defined below),
(ii) on the transfer of shares of Common Stock or Securities during such
person's lifetime by BONA FIDE gift or upon death by will or intestacy,
provided that any transferee agrees to be bound by the Lock-Up Agreement, and
(iii) on the transfer or other disposition of shares of Common Stock or
Securities as a distribution to limited partners or shareholders of such
person, provided that the distributees thereof agree to be bound by the terms
of the Lock-Up Agreement. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging,
pledge or other transaction which is designed to or may reasonably be
expected to lead to or result in a Disposition of Securities during the
Lock-up Period, even if such Securities would be disposed of by someone other
than such shareholder. Such prohibited hedging, pledge or other transactions
would include, without limitation, any short sale (whether or not against the
box) any pledge of shares covering an obligation that matures, or could
reasonably mature during the Lock-Up Period, or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person has
also agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided
to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company as of February 28, 1997 and the number and
type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and shareholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants
that it will not release any of its officers, directors or other shareholders
from any Lock-up Agreements currently existing or hereafter effected without
the prior written consent of Cruttenden Roth Incorporated.
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(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(v) Other than Cruttenden Roth Incorporated, on behalf of the
several Underwriters, no person is or will be owed any finders fee or commission
or similar payment in connection with the transactions contemplated by this
Agreement.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares which is set forth opposite the name of such
Underwriter in Schedule A hereto (subject to adjustment as provided in Section
10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn, and not to take any other action with the purpose or
effect of receiving immediately available funds, until the business day
following the date of delivery to the Company and, in the event of any breach of
the foregoing, the Company shall reimburse the Underwriters for the interest
lost and any other expenses borne by the Underwriters by reason of such breach),
at the offices of Brobeck, Phleger & Harrison LLP, 301 Congress Avenue, Suite
1200, Austin, Texas (or at such other place as may be agreed upon between the
Representative and the Company, at 7:00 A.M. Pacific daylight savings time, (a)
on the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M. Pacific
daylight savings time, the fourth (4th) full business day following the day that
this Agreement is executed and delivered or (c) at such other time and date not
later than seven (7) full business days following the first day that Shares are
traded as the Representative and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to Section
10 hereof), such time and date of payment and delivery being herein called the
"Closing Date"; PROVIDED, HOWEVER, that if the Company has not made available to
the Representative copies
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of the Prospectus within the time provided in Section 4(d) hereof, the
Representative may, in its sole discretion, postpone the Closing Date until no
later than two (2) full business days following delivery of copies of the
Prospectus to the Representative. The certificates for the Firm Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the Closing Date and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to the Closing Date. If the
Representative so elects, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth on the front cover page (insofar as such
information relates to the Underwriters) concerning stabilization,
over-allotment and passive market making by the Underwriters, and under the
first, third, eighth and last paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any 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 the light of the circumstances under which they
were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
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effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts (including by
providing full cooperation with your counsel, whose services in this matter are
required and which you and the
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Company will seek to expedite) to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may designate and to continue
such qualifications in effect for so long as may be required for purposes of the
distribution of the Shares, except that the Company shall not be required in
connection therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction in which it is not otherwise required to be so qualified or to so
execute a general consent to service of process. In each jurisdiction in which
the Shares shall have been qualified as above provided, the Company will make
and file such statements and reports in each year as are or may be required by
the laws of such jurisdiction for such purpose.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the first
day that Shares are traded, copies of the Registration Statement (two of which
will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Cruttenden Roth Incorporated, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section
11(a) of the Act and covering a twelve (12) month period beginning after the
effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and, upon request by a shareholder,
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
shareholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD, (v) every material
press release and every material news item or article in respect of the Company
or
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its affairs which was generally released to shareholders or prepared by the
Company, and (vi) any additional information of a public nature concerning the
Company, or its business which you may reasonably request. During such five (5)
year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and such subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(a) or 11(b),
then the provisions of Section 11 of that certain letter agreement dated October
17, 1996 between you and the Company (the "Letter Agreement") shall govern
payment and reimbursement obligations of the parties notwithstanding that the
Letter Agreement shall have ceased to be of full force or effect for any other
purpose.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Firm
Shares and the Option Shares hereunder and the Company's issuance of options or
Common Stock under the Company's presently authorized stock option and stock
purchase plans described in the Registration Statement and the Prospectus.
(l) The terms of paragraph 9 of the Letter Agreement are hereby
incorporated by reference and made obligations of the Company and Cruttenden
Roth Incorporated as part of this Agreement notwithstanding that the Letter
Agreement shall have ceased to be of full force or effect for any other purpose.
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(m) The Company shall reimburse and pay to Cruttenden Roth
Incorporated a nonaccountable expense allowance equal to two percent (2.0%) of
the total Price to Public shown on the front cover of the Prospectus, including,
if exercised, with respect to the over-allotment option. Cruttenden Roth
Incorporated acknowledges that $30,000 of the amount payable pursuant to this
paragraph has already been paid.
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<PAGE>
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder. The
provisions of this Section 5(a)(i) are intended to relieve the Underwriters from
the payment of the expenses and costs which the Company hereby agrees to pay.
(ii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in THE WALL STREET JOURNAL which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will
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reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., Pacific daylight savings time, on the date following the
date of this Agreement, or such later date and time as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
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(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company dated the Closing Date or such
later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) The Company and its subsidiaries have been
duly incorporated and are validly existing as corporations in good
standing under the laws of the jurisdiction of their incorporation;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
IWL Communications, Ltd., a corporation organized under the laws of
Russia, IWL Baltija Communications (Latvia) SIA, a corporation
organized under the laws of Latvia, each of which is a wholly-owned
subsidiary of the Company, and Kenwood Systems Group, Inc., a
California corporation of which the Company owns 50% of the
outstanding Common Stock;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of
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the dates stated therein, the issued and outstanding shares of capital
stock of the Company have been duly and validly issued and are fully
paid and nonassessable, and will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable and will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right contained in the Company's charter or bylaws or in any
other agreement or contract to which the Company is a party; and the
forms of certificates evidencing the Common Stock comply with Texas
law;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are pending or threatened under the Act;
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements (including supporting schedules), financial data
derived therefrom and other financial and statistical information
included therein as to which such counsel need express no opinion), as
of the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act and the
applicable Rules and Regulations;
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(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by
such counsel and is a fair summary of such matters and conclusions;
(xi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and
of statutes are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and
Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the charter or bylaws of the Company or (b) result in
a material breach or violation of any of the terms and provisions of,
or constitute a default under, any material bond, debenture, note or
other evidence of indebtedness, or any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation or any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or
any of its properties or operations; provided, however, that such
counsel need not express any opinion or belief with respect to state
securities or Blue Sky laws;
(xiv) No consent, approval, authorization or order
of or qualification with any court, government or governmental agency
or body having jurisdiction over the Company or any of its properties
or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have
been obtained under the Act or such as may be required under state or
other securities or Blue Sky laws in connection with the purchase and
the distribution of the Shares by the Underwriters;
(xv) To such counsel's best knowledge, there are
no legal or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations,
other than those described therein;
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(xvi) The Company is not in violation of its
respective charter or bylaws.
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(xvii) To such counsel's best knowledge, except as
set forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights to registration of such shares
of Common Stock or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement; and
(xviii) Except as set forth in the Registration
Statement and the Prospectus, such counsel has no knowledge of any
actual or threatened action, suit, claim or proceeding relating to
patents, patent rights or licenses, trademarks or trademark rights,
copyrights, collaborative research, licenses or royalty arrangements
or agreements or trade secrets, know-how or proprietary techniques or
technology, including, processes and substances, owned by or affecting
the business operations of the company which are pending or threatened
against the Company and which action, suit, claim or proceeding would,
with respect to any of the foregoing, have a material adverse effect
on the condition (financial or other), earnings, operations, business
or business prospects of the Company.
In addition, such counsel shall state that such counsel has acted
as outside corporate legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, the
Representative, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads such counsel to believe that, at the
time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which Option
Shares are to be purchased, the Registration Statement and any amendment or
supplement thereto (other than the financial statements including supporting
schedules, other financial information derived therefrom and other financial
and statistical information included therein, as to which such counsel need
express no opinion) 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 at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the State of Texas upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government
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officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representative of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Swiddler & Berlin dated the Closing Date or such later date on which Option
Shares are to be purchased and addressed to the Underwriters and with reproduced
copies or signed counterparts thereof for each of the Underwriters, that the
information in the Registration Statement and the Prospectus under the captions
"Risk Factors--Government Regulation" and "Business--Government Regulation," to
the extent that they constitute matters of law or legal conclusions, have been
reviewed by such counsel and are a fair and accurate summary of such matters.
In addition, such counsel shall state that such counsel has
represented the Company in regulatory-related matters, and has participated in
conferences with officials and other representatives of the Company, the
Representative, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
relevant sections ("Relevant Sections") of the Registration Statement and
Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Relevant Sections of the Registration Statement or the Prospectus, nothing has
come to the attention of such counsel which leads such counsel to believe that,
at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Relevant Sections of the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
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 at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Relevant Sections of the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
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(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from KPMG Peat Marwick LLP, Independent Auditors ("Peat Marwick"), addressed to
the Underwriters, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be (in each case, the "Bring Down
Letter"), confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in a
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter that are necessary to reflect any changes in the facts described
in the Original Letter since its date, or to reflect the availability of more
recent financial statements, data or information. The Bring Down Letter shall
not disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Peat Marwick shall be addressed to or
for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the balance sheet of
the Company as of June 30, 1996, 1995 and 1994 and March 31, 1997 and related
statements of operations, shareholders' equity and cash flows for the twelve
(12) months ended June 30, 1996, 1995 and 1994 and the nine (9) months ended
March 31, 1997, (iii) state that nothing came to their attention that caused
them to believe that the financial statements included in the Registration
Statement and Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X and that
any adjustments thereto have not been properly applied to the historical amounts
in the compilation of such statements, and (iv) address other matters agreed
upon by Peat Marwick and you. In addition, you shall have received from Peat
Marwick a letter addressed to the Company and made available to you for the use
of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of March 31, 1997, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
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(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the Rules
and Regulations, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any 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 not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (b) any transaction that is
material to the Company, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company, incurred by the Company, except
obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company
that is material to the Company or is out of the ordinary course of
business of the Company, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (f) any
loss or damage (whether or not insured) to the property of the Company
which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
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(i) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, each shareholder that
holds restricted securities and each entity that is a shareholder and is
affiliated with an officer or director of the Company in writing prior to the
date hereof that such person will not, except as described below, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) on exercise (on a cash or
cashless basis, whether in a traditional cashless exercise or in a "brokers"
cashless exercise), of Common Stock options or warrants outstanding, it being
understood, however, that the shares of Common Stock received (net of shares
sold by or on behalf of such person in a "brokers" cashless exercise or shares
delivered to the Company in a traditional cashless exercise thereof) by such
person upon exercise thereof shall be subject to the terms of the Lock-Up
Agreement, (ii) on the transfer of shares of Common Stock or Securities during
such person's lifetime by BONA FIDE gift or upon death by will or intestacy,
provided that any transferee agrees to be bound by the Lock-Up Agreement, and
(iii) on the transfer or other disposition of shares of Common Stock or
Securities as a distribution to limited partners or shareholders of such person,
provided that the distributees thereof agree to be bound by the terms of the
Lock-Up Agreement. The foregoing restriction shall have been expressly agreed
to preclude the holder of the Securities from engaging in any hedging, pledge or
other transaction which is designed to or may reasonably be expected to lead to
or result in a Disposition of Securities during the Lock-Up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging, pledge or other transactions would include, without
limitation, any short sale (whether or not against the box), any pledge of
shares covering an obligation that matures or could reasonably mature during the
Lock-Up Period, or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company shall have furnished you a warrant for the
purchase of up to 125,000 shares of Common Stock at an exercise price per share
equal to 120% of the offering price per share of the Shares, in the form
attached hereto as Exhibit A.
(k) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
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7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
187,500 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representative
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of forty-five (45) days after the date on which the
Firm Shares are initially offered to the public by giving written notice (the
"Option Notice") to the Company. The number of Option Shares to be purchased by
each Underwriter upon the exercise of such option shall be the same proportion
of the total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representative in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the payee). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Brobeck, Phleger & Harrison LLP, 301 Congress
Avenue, Suite 1200, Austin, Texas or at such other place as may be agreed upon
between the Representative and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company after the date two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representative so elects, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on
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behalf of any Underwriter or Underwriters whose check or checks shall not have
been received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such payment by
you shall not relieve any such Underwriter or Underwriters of any of its or
their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary
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Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy of
the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 4(d)
hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
such Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this
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Section 8 except to the extent that it has been prejudiced by such omission. In
case any such action is brought against any indemnified party, and it notified
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; PROVIDED,
HOWEVER, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; PROVIDED that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the public offering
price, and the Company is responsible for the remaining portion, PROVIDED,
HOWEVER, that (i) no Underwriter shall be required to contribute any amount in
excess of the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has otherwise been
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required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company, or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date,
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the Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, then, other than as set forth in the
Letter Agreement, the Company shall not be liable to any Underwriter (except as
provided in Sections 5 and 8 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the number of Firm Shares agreed by such
Underwriter to be purchased hereunder, which Underwriter shall remain liable to
the Company and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company (except to the extent provided in Sections 5
and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., Pacific daylight savings time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time of
the public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the public offering shall
mean the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i) and 8 hereof.
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(b) You, as Representative of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, or (ii) if additional governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the opinion of the
Representative, makes it impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: General Counsel; if sent to the Company, such notice shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034,
telecopier number (281) 482-9144, Attention: Ignatius W. Leonards.
-33-
<PAGE>
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or entity. No purchaser of
any of the Shares from any Underwriter shall be construed a successor or assign
by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you jointly or by Cruttenden Roth Incorporated on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
-34-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between the Company and the several Underwriters.
Very truly yours,
IWL COMMUNICATIONS, INCORPORATED
By
------------------------------------
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By CRUTTENDEN ROTH INCORPORATED
By
-----------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriters To Be
- ----------------------- Purchased
-----------
Total.........................................................1,250,000
-----------
-----------
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt of
which is hereby acknowledged, Cruttenden Roth Incorporated ("HOLDER") is
entitled to purchase, subject to the terms and conditions of this Warrant, from
IWL Communications, Incorporated, a Texas corporation (the "COMPANY"), 125,000
fully paid and nonassessable shares of the Common Stock ("COMMON STOCK") of the
Company, in accordance with Section 2 during the period commencing one year from
the date hereof and ending on the earlier to occur of (i) at 5:00 p.m.
California time, April ____, 2002 (the "EXPIRATION DATE"), at which time this
Warrant will expire and become void unless earlier terminated as provided
herein. The shares of Common Stock of the Company for which this Warrant is
exercisable as adjusted from time to time pursuant to the terms hereof, are
hereinafter referred to as the "SHARES."
1. EXERCISE PRICE. The initial purchase price for the Shares shall
be $________ per share. Such price shall be subject to adjustment pursuant to
the terms hereof (such price, as adjusted from time to time, is hereinafter
referred to as the "EXERCISE PRICE").
2. EXERCISE AND PAYMENT.
(a) CASH EXERCISE. At any time after April ____, 1998, this
Warrant may be exercised, in whole or in part, from time to time by the Holder,
during the term hereof, by surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed by the Holder to the Company at the
principal executive offices of the Company, together with payment in the amount
obtained by multiplying the Exercise Price then in effect by the number of
Shares thereby purchased, as designated in the Notice of Exercise. Payment may
be in cash or by check payable to the order of the Company.
(b) NET ISSUANCE. In lieu of payment of the Exercise Price
described in Section 2(a), the Holder may elect to receive, without the payment
by the Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of
1.
<PAGE>
this Warrant or such portion to the Company, with the net issue election notice
annexed hereto (the "NET ISSUANCE ELECTION NOTICE") duly executed, at the office
of the Company. Thereupon, the Company shall issue to the Holder such number of
fully paid and nonassessable shares of Common Stock as is computed using the
following formula:
where: X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder pursuant to this
Section 2.
Y = the number of shares covered by this Warrant in respect of which the
net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the time the net
issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "FAIR MARKET VALUE" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or
is listed on the National Market (the "NATIONAL MARKET") of the National
Association of Securities Dealers Automated Quotations System (the
"NASDAQ") or other over-the-counter quotation system, the fair market value
shall be the last reported sale price of the Common Stock on such exchange
or on the Nasdaq National Market or other over-the-counter quotation system
on the last business day before the effective date of exercise of the net
issuance election or if no such sale is made on such day, the mean of the
closing bid and asked prices for such day on such exchange, the Nasdaq
National Market or over-the-counter quotation system; and
ii. If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not reported, the fair market
value shall be the price per share which the Company could obtain from a
willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be determined by mutual agreement of the
Company and the Holder of this Warrant. If the Company and the Holder
cannot mutually agree on such price, the fair market value shall be made by
an appraiser of recognized standing selected by the Holder and the Company,
or, if they cannot agree on an appraiser, each of the Company and the
Holder shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized standing, whose
appraisal shall be determinative of such value.
2.
<PAGE>
3. DELIVERY OF STOCK CERTIFICATES. Within a reasonable time after
exercise, in whole or in part, of this Warrant, the Company shall issue in the
name of and deliver to the Holder, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock which the Holder shall
have requested in the Notice of Exercise or Net Issuance Election Notice. If
this Warrant is exercised in part, the Company shall deliver to the Holder a new
Warrant for the unexercised portion of this Warrant at the time of delivery of
such stock certificate or certificates.
4. NO FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares will be issued upon exercise of this Warrant. If upon any
exercise of this Warrant a fraction of a share results, the Company will pay the
Holder the difference between the cash value of the fractional share and the
portion of the Exercise Price allocable to the fractional share.
5. CHARGES, TAXES AND EXPENSES. The Holder shall pay all transfer
taxes or other incidental charges, if any, in connection with the transfer of
the Shares purchased pursuant to the exercise hereof from the Company to the
Holder.
6. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
weekday which is not a legal holiday.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the total
number of Shares purchasable under this Warrant as of such date shall remain the
same.
3.
<PAGE>
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("COMMON STOCK EQUIVALENTS") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
conversion thereof), then the number of shares of Common Stock for which this
Warrant may be exercised shall be increased as of the record date (or the date
of such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividend, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase of
all the Shares issuable hereunder immediately after the record date (or on the
date of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the date
of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof
the Company distributes to holders of its Common Stock, other than as part of
its dissolution or liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company may, at its option, either (i) decrease the per share Exercise Price of
this Warrant by an appropriate amount based upon the value distributed on each
share of Common Stock as determined in good faith by the Company's Board of
Directors or (ii) provide by resolution of the Company's Board of Directors that
on exercise of this Warrant, the Holder hereof shall thereafter be entitled to
receive, in addition to the shares of Common Stock otherwise receivable on
exercise hereof, the number of shares or other securities or property which
would have been received had this Warrant at the time been exercised.
(d) MERGER. If at any time after the date hereof there shall be
a merger or consolidation of the Company with or into another corporation when
the Company is not the surviving corporation then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares or other securities or property of the successor corporation
resulting from such merger or consolidation, which would have been received by
Holder for the shares of stock subject to this Warrant had this Warrant at such
time been exercised.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a change or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares or other securities or property resulting from such change or
reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this Warrant at such time been exercised.
4.
<PAGE>
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section 8
hereof, the Company shall execute and deliver to the Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder.
10. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive dividends or other distributions thereon, or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
in the event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Holder of this Warrant, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. RESTRICTED SECURITIES. The Holder understands that this Warrant
and the Shares purchasable hereunder constitute "RESTRICTED SECURITIES" under
the federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933, as amended (the "1933 ACT") or an
applicable exemption from such registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission (the "SEC")
is not now, and may not in the future be, available for resales of the Warrant
and the Shares purchasable hereunder. Unless the Shares are subsequently
registered pursuant to Section 14, the Holder further acknowledges that the
securities legend on Exhibit A to the Notice of Exercise attached hereto shall
be placed on any Shares issued to the Holder upon exercise of this Warrant.
12. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the 1933 Act shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder covenants and
agrees that, at the time of exercise hereof, it will deliver to the Company a
written certification executed by the Holder that the securities acquired by him
upon exercise hereof are for the account of such Holder and acquired for
investment purposes only and that such securities are not acquired with a view
to, or for sale in connection with, any distribution thereof.
13. DISPOSITION OF SHARES. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
5.
<PAGE>
(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Holder shall have complied with all requirements of this
Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the Company,
that (i) the proposed disposition does not require registration of the Shares
under the 1933 Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act has been taken.
The Company shall NOT be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of the terms of this Warrant.
14. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time during the four-year
period commencing April ____, 1998 and ending on April ____, 2002, the Company
shall determine to register for its own account or the account of others under
the 1933 Act any of its equity securities, other than on Form S-4 or Form S-8 or
their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business, or equity securities
issuable in connection with stock option or other employee benefit plans, the
Company shall send to each Holder of Warrants or Shares, who is entitled to
registration rights under this Section 14(a) written notice of such
determination and, if within twenty (20) days after receipt of such notice, such
Holder shall so request in writing (hereafter a "SELLING HOLDER"), the Company
shall include in such Registration Statement all or any part of the Shares
issuable upon exercise of the Warrants (the "REGISTRABLE SECURITIES") such
Selling Holder requests to be registered. The obligations of the Company under
this Section 14(a) may be waived by Holders holding a majority in interest of
the Registrable Securities. In the event that the managing underwriter for said
offering advises the Company in writing that the inclusion of such securities in
the offering would be materially detrimental to the offering, then the Company
shall be required to include in the offering only that number of Registrable
Securities which the managing underwriter determines in its sole discretion will
not jeopardize the success of the offering (the securities so included to be
apportioned pro rata among all selling holders according to the total amount of
securities entitled to be included therein owned by each selling holder or in
such other proportions as shall mutually be agreed to by such selling holders);
PROVIDED HOWEVER, that in no event shall any Holder of Registrable Securities
have the number of shares of such securities reduced in such offer unless and
until any holders of non-Registrable Securities intending to participate in such
offering (which selling holders' registration rights, if any, were granted by
the Company from and after the date hereof) first shall have had the number of
their shares of such securities reduced up to the amount of securities the
managing underwriter has determined in its sole discretion shall be
6.
<PAGE>
excluded from the offering; and PROVIDED FURTHER, that in no event shall any
shares being sold by a Holder properly exercising a demand registration granted
in Section 14(b) be excluded from such offering.
(b) DEMAND REGISTRATION. In addition to any Registration
Statement pursuant to subparagraph (a) above, during the four-year period
beginning on April ____, 1998 and ending on April ____, 2002, the Company will,
as promptly as practicable (but in any event within 60 days), after written
request (the "REQUEST") by the Holder, or by a person or persons holding (or
having the right to acquire by virtue of holding the Warrants) at least 50% of
the shares of Common Stock which have been (or may be) issued upon exercise of
the Warrants (such Holder or Holders to be included in the definition of
"SELLING HOLDER" for the purposes of Section 14(c) hereof), prepare and file at
its own expense a Registration Statement with the SEC and appropriate "blue sky"
authorities sufficient to permit the public offering of the Registrable
Securities and will use its best efforts at its own expense through its
officers, directors, auditors and counsel, in all matters necessary or
advisable, to cause such Registration Statement to become effective as promptly
as practicable and to maintain such effectiveness so as to permit resale of the
Shares covered by the Request until the earlier of the time that all such Shares
have been sold or the expiration of 90 days from the effective date of the
Registration Statement; provided, however, that the Company shall only be
obligated to file one such Registration Statement under this Section 14(b).
(c) OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities pursuant to either Sections 14(a) or
(b), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with respect to each
Selling Holder that such Selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of the Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least fifteen (15) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Selling Holder of the information the Company requires from each such
Selling Holder (the "REQUESTED INFORMATION") in the case of a Registration
Statement being prepared pursuant to Section 14(b) or if such Selling Holder
elects to have any of such Selling Holder's Registrable Securities included in
the Registration Statement in the case of a Registration Statement being
prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's acceptance
of the Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Selling Holder has notified the
Company in writing of such Selling Holder's election to exclude all of such
Selling Holder's Registrable Securities from the Registration Statement; and
7.
<PAGE>
iii. No Selling Holder may participate in any underwritten
registration hereunder unless such Selling Holder (i) agrees to sell such
Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (iii)
agrees to pay its pro rata share of all underwriting discounts and commissions
and other fees and expenses of investment bankers and any manager or managers of
such underwriting, except as provided in Section 14(d) below.
(d) EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 14(a) or 14(b),
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and the Selling Holders, shall be borne by the Company; PROVIDED,
HOWEVER, that the Company shall only be required to bear the fees and
out-of-pocket expenses of one legal counsel selected by the Selling Holders in
connection with such registration.
(e) INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if any,
of such Selling Holder, each person, if any, who controls any Selling Holder
within the meaning of the 1933 Act, any underwriter (as defined in the 1933 Act)
for the Selling Holders, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the 1933 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, expenses or liabilities (joint or
several) (collectively, "CLAIMS") to which any of them may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement when it first became effective, or any
related final prospectus, amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading (a "VIOLATION"). The
Company shall reimburse the Selling Holders and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 14(e)(i) shall not apply in such case to the extent
any such Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
any Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of the Registration
8.
<PAGE>
Statement or any such amendment thereof or supplement thereto, and shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.
ii. In connection with any Registration Statement in which a
Selling Holder is participating, each such Selling Holder agrees to indemnify
and hold harmless, to the same extent and in the same manner set forth in
Section 14(e)(i), the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter and any other shareholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such shareholder or underwriter
within the meaning of the 1933 Act (collectively and together with an
Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which any of
them may become subject, under the 1933 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Selling
Holder expressly for use in connection with such Registration Statement, and
such Selling Holder will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section
14(e)(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Selling Holder,
which consent shall not be unreasonably withheld.
iii. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution to the same extent as provided
above, with respect to information furnished in writing by such persons
expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(e) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; PROVIDED, HOWEVER, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnifying Party shall
pay for only one separate legal counsel for the Indemnified Parties; such legal
counsel shall be selected by the Indemnified Parties holding a majority in
interest of the Registrable Securities. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement
9.
<PAGE>
of any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 14(e), except to
the extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 14(e) shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
v. Notwithstanding any of the foregoing, if, in connection with
an underwritten public offering of Registrable Securities, the Company, the
Selling Holders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 14(e) shall be deemed inoperative for
purposes of such offering.
(f) CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 14(e) to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 14(e), (ii) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
(g) REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the 1933 Act or any
other similar rule or regulation of the SEC that may at any time permit the
Holders to sell securities of the Company to the public without registration
("RULE 144"), the Company agrees to:
i. make and keep public information available, as those
terms are understood and defined in Rule 144; and
ii. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and
iii. furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company,
10.
<PAGE>
and (iii) such other information as may be reasonably requested to permit the
Holders to sell such securities without registration pursuant to Rule 144.
(h) ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Holders to transferees or assignees of all or any
portion of such securities only if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of the name and address of such transferee or assignee (iii) such assignment is
in accordance with and permitted by law and all other agreements between the
transferor or assignor and the Company, including without limitation,
shareholder's agreements, warrants and subscription agreements, and the
transferor or assignor otherwise is not in material default of any obligation to
the Company under any such other agreement, and (iv) at or before the time the
Company received the written notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
(i) TERMINATION OF REGISTRATION RIGHTS. No Holder of Warrants
or Shares shall be entitled to exercise any right provided for in this Section
14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144 or any
successor rule thereto.
15. TRANSFERABILITY.
(a) GENERAL. This Warrant shall be transferable only on the
books of the Company maintained at its principal office in Houston, Texas or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
(b) LIMITATIONS ON TRANSFER. This Warrant shall not be sold,
transferred, assigned or hypothecated by the Holder except to (i) one or more
persons, each of whom on the date of transfer is an officer of the Holder; (ii)
a general partnership or general partnerships, the general partners of which are
the Holder and one or more persons, each of whom on the date of transfer is an
officer of the Holder; (iii) a successor to the Holder in any merger or
consolidation; (iv) a purchaser of all or substantially all of the Holder's
assets; or (v) any person receiving this Warrant from one or more of the persons
listed in this Section 15(b) at such person's or persons' death pursuant to
will, trust or the laws of intestate succession. This Warrant may be divided or
combined, upon request to the Company by the Holder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Shares.
16. MISCELLANEOUS.
11.
<PAGE>
(a) CONSTRUCTION. Unless the context indicates otherwise, the
term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to Section 15(b).
(b) RESTRICTIONS. By receipt of this Warrant, the Holder makes
the same representations with respect to the acquisition of this Warrant as the
Holder is required to make upon the exercise of this Warrant and acquisition of
the Shares purchasable hereunder as set forth in the Form of Investment Letter
attached as Exhibit A to the Notice of Exercise attached hereto.
(c) NOTICES. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified (or
one (1) day following timely deposit with a reputable overnight courier with
next day delivery instructions), or upon confirmation of receipt by the sender
of any notice by facsimile transmission, at the address indicated below or at
such other address as such party may designate by ten (10) days' advance written
notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
Attention: Charles O. Thompson, III
To the Company: IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Attention: President
(d) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the State of Texas as applied to agreements among
Texas residents entered into and to be performed entirely within Texas.
(e) ENTIRE AGREEMENT. This Warrant, the exhibits and schedules
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof.
(f) BINDING EFFECT. This Warrant and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Company and its successors and assigns, and Holder and its successors and
assigns.
12.
<PAGE>
(g) WAIVER; CONSENT. This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Warrant or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto.
(h) SEVERABILITY. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and the balance shall be enforceable in accordance
with its terms.
13.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock
Warrant effective as of the date hereof.
DATED: , 1997 THE COMPANY:
-----
IWL Communications, Incorporated
By:
------------------------------------
Its:
------------------------------------
HOLDER:
Cruttenden Roth Incorporated
By:
------------------------------------
Its:
------------------------------------
14.
<PAGE>
NOTICE OF EXERCISE
To: IWL COMMUNICATIONS, INCORPORATED
1. The undersigned hereby elects to purchase _____________ shares of
Common Stock ("STOCK") of IWL Communications, Incorporated, a Texas corporation
(the "COMPANY") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price pursuant to the terms of the Warrant.
2. Attached as Exhibit A is an investment representation letter
addressed to the Company and executed by the undersigned as required by Section
12 of the Warrant.
3. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit A
attached hereto.
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
Dated:
------------- --------------------------------------
1.
<PAGE>
NET ISSUANCE ELECTION NOTICE
To: IWL COMMUNICATIONS, INCORPORATED Date:
------------
I. The undersigned hereby elects under Section 2 of the attached Warrant to
surrender the right to purchase ___________ shares of Common Stock pursuant
to the attached Warrant. The Certificate(s) for the shares issuable upon
such net issuance election shall be issued in the name of the undersigned or
as otherwise indicated below.
1. Attached as Exhibit A is an investment representation letter
addressed to the Company and executed by the undersigned as required by Section
12 of the Warrant.
2. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit A
attached hereto.
3. Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
---------------------------
Signature
---------------------------
Name for Registration
---------------------------
Mailing Address
<PAGE>
EXHIBIT A
To: IWL COMMUNICATIONS, INCORPORATED
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "STOCK") of IWL Communications, Incorporated, a
Texas corporation (the "COMPANY"), upon exercise of that certain Common Stock
Warrant dated as of April ____, 1997, the undersigned hereby represents and
warrants as follows:
1. The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same. The undersigned further represents that
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
2. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "ACT"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3. Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of the
Stock unless and until:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested, the undersigned shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. The Company will not require
an opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
A-1
<PAGE>
4. The undersigned understands the instruments evidencing the Stock
may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated:
---------------- ------------------------------------
A-2
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
IWL COMMUNICATIONS, INCORPORATED
IWL Communications, Incorporated, a Texas corporation (the "Corporation"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts these Amended and Restated Articles of Incorporation of the
Corporation which accurately copy the Amended and Restated Articles of
Incorporation of the Corporation and all amendments thereto that are in effect
to date and as further amended hereby as hereinafter set forth and which contain
no other change in any provision thereof. Each such amendment made by these
Amended and Restated Articles of Incorporation has been effected in conformity
with the provisions of the Texas Business Corporation Act.
ARTICLE ONE
The name of the Corporation is IWL Communications, Incorporated.
ARTICLE TWO
The Articles of Incorporation of the Corporation, as amended, are further
amended and restated by these Amended and Restated Articles of Incorporation as
follows: (a) current ARTICLE THIRD is amended in its entirety to read as set
forth in ARTICLE III of ARTICLE SEVEN below so as to restate the Corporation's
purpose; (b) current ARTICLE FOURTH is amended in its entirety to read as set
forth in ARTICLE IV of ARTICLE SEVEN below so as to restate the Corporation's
authorized shares; (c) current ARTICLE FIFTH is amended in its entirety to read
as set forth in ARTICLE V of ARTICLE SEVEN below so as to restate the
Corporation's commencement of business requirements; (d) current ARTICLE SIXTH
is amended in its entirety to read as set forth in ARTICLE VI of ARTICLE SEVEN
below so as to restate the Corporation's denial of cumulative voting; (e)
current ARTICLE SEVENTH is amended in its entirety to read as set forth in
ARTICLE VII of ARTICLE SEVEN below so as to deny preemptive rights; (f) current
ARTICLE EIGHTH is deleted in its entirety; (g) current ARTICLE NINTH is
redesignated as ARTICLE VIII of ARTICLE SEVEN below and is amended in its
entirety to restate the name and address of the registered agent and registered
office of the Corporation; (h) current ARTICLE TENTH is deleted in its entirety;
(i) current ARTICLE ELEVENTH
<PAGE>
is redesignated as ARTICLE IX of ARTICLE SEVEN below and is amended and
restated to set forth the names and addresses of the current directors of the
Corporation; (j) a new ARTICLE X is hereby added to read in its entirety as
set forth in ARTICLE X of ARTICLE SEVEN below so as to permit the shareholders
to act by less than unanimous written consent; (k) a new ARTICLE XI is hereby
added to read in its entirety as set forth in ARTICLE XI of ARTICLE SEVEN below
so as to set forth provisions concerning indemnification of officers and
directors of the Corporation by the Corporation; (l) a new ARTICLE XII is
hereby added to read in its entirety as set forth in ARTICLE XII of ARTICLE
SEVEN below so as to set forth certain provisions relating to the limitations
of the Corporation's directors' liability to the Corporation; (m) a new
ARTICLE XIII is hereby added to read in its entirety as set forth in ARTICLE
XIII of ARTICLE SEVEN below so as to set forth certain provisions relating to
the limitations of the Corporation's shareholders' liability to the
Corporation; and (n) a new ARTICLE XIV is hereby added to read in its
entirety as set forth in ARTICLE XIV of ARTICLE SEVEN below so as to set forth
provisions concerning requirements of voting by shareholders.
ARTICLE THREE
These Amended and Restated Articles of Incorporation and each amendment
effected hereby was duly adopted by the shareholders of the Corporation on the
28th day of February, 1997.
ARTICLE FOUR
The number of shares of Common Stock of the Corporation outstanding at
the time of such adoption was 2,227,816 and the number of shares entitled to
vote on the Amended and Restated Articles was 2,227,816. The number of shares
voting for the Amended and Restated Articles was 2,227,816. The number of
shares voting against the Amended and Restated Articles was zero. All of the
shareholders have signed a written consent to the adoption of such Amended
and Restated Articles of Incorporation pursuant to Article 9.10 and any
written notice required by Article 9.10 has been given.
2
<PAGE>
ARTICLE FIVE
The manner in which the Amended and Restated Articles effects a change in
the amount of stated capital, and the amount of stated capital as changed by
such Amended and Restated Articles are as follows:
The stated capital of the Corporation has been decreased by $269,594.84
from $291,873 to $22,278.16.
ARTICLE SIX
The manner in which any exchange, reclassification, or cancellation of
the issued shares provided for in the Amended and Restated Articles shall be
effected is as set forth below:
Each share of common stock, no par value per share, of the Corporation
that is issued and outstanding at the time these Amended and Restated
Articles become effective (the "Original Shares") shall automatically and
without any further action on the part of the holder thereof be reclassified
as one share of common stock, $.01 par value per share, upon these Amended
and Restated Articles becoming effective. Each certificate representing
Original Shares shall, from and after the time these Amended and Restated
Articles become effective, be deemed to represent the number of shares that
is indicated on such certificate at a par value of $.01 par value per share;
and the Corporation shall issue a certificate or certificates representing such
number of shares of common stock, $.01 par value per share, to the holders of
the Original Shares (or their transferees) upon the surrender of the
certificates representing the Original Shares, PROVIDED, HOWEVER, that the
surrender of the certificates representing the Original Shares shall not be
necessary to effect such reclassification.
ARTICLE SEVEN
The Articles of Incorporation of the Corporation and all amendments thereto
are hereby superseded by the following Amended and Restated Articles of
Incorporation, which accurately copy the entire text thereof and as amended as
set forth above:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
IWL COMMUNICATIONS, INCORPORATED
ARTICLE I
NAME
The name of the Corporation is IWL Communications, Incorporated.
ARTICLE II
DURATION
The period of its duration is perpetual.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized is the transaction of
any or all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE IV
CAPITALIZATION
A. CAPITALIZATION. The aggregate number of shares that the Corporation
is authorized to issue is One Hundred Ten Million (110,000,000) shares,
consisting of:
1. One Hundred Million (100,000,000) shares of Common Stock having a
par value of One Cent ($.01) per share; and
3
<PAGE>
2. Ten Million (10,000,000) shares of Preferred Stock having a par
value of One Cent ($.01) per share.
B. SERIES OF SHARES ESTABLISHED BY BOARD OF DIRECTORS.
The Preferred Stock may be issued from time to time in one (1) or more
series. The Board of Directors is hereby authorized, by filing a statement
pursuant to Article 2.13 of the Texas Business Corporation Act, to fix or
determine from time to time the designations, preferences, limitations and
relative rights including voting rights of the shares of any series to the same
extent that such designations, preferences, limitations, and relative rights
could be stated if fully set forth in the articles of incorporation, but subject
to and within the limitations set forth in the articles of incorporation. Such
authority includes, without limitation, the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then issued. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized, but unissued shares of the class
of shares from which such series was established that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. COMMON STOCK.
1. Shares of Common Stock may be issued by the Corporation from time
to time for such consideration as may lawfully be fixed by the Board of
Directors.
2. The Common Stock shall be entitled to one (1) vote per share on
all matters.
3. Subject to the prior rights and preferences of the Preferred
Stock and subject to the provisions and conditions set forth in the foregoing
Section B of this Article IV, or in any resolution or resolutions providing for
the issue of a series of Preferred Stock, and to the extent permitted by the
laws of the State of Texas, the holders of Common Stock shall be entitled to
receive such cash dividends as may be declared and made payable by the Board of
Directors.
4. After payment shall have been made in full to the holders of any
series of Preferred Stock having preferred liquidation rights, upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the remaining assets and funds of the Corporation shall be
distributed among the holders of the Common Stock according to their respective
shares.
ARTICLE V
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done, or property actually received.
4
<PAGE>
ARTICLE VI
NONCUMULATIVE VOTING
Cumulative voting for the election of directors shall not be permitted.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of the Corporation shall,
solely as a result of being such holder, have any preemptive or preferential
right to receive, purchase or subscribe to (a) any unissued or treasury shares
of any class of stock (whether now or hereafter authorized) of the Corporation,
(b) any obligations or evidences of indebtedness or other securities of the
Corporation convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase or subscribe to any such unissued or treasury
shares, (c) any right of subscription to or to receive, or any warrant or option
for the purchase of, any thereof, or (d) any other securities that may be issued
or sold by the Corporation other than such (if any) as the Board of Directors of
the Corporation, in its sole and absolute discretion, may determine from time to
time. Notwithstanding the above, the Corporation may by contract grant
preemptive rights from time to time.
ARTICLE VIII
REGISTERED OFFICE AND AGENT
The post office address of the present registered office of the Corporation
is Richard H. Roberson, and the name of its present registered agent at such
address is 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034.
ARTICLE IX
DIRECTORS
The number of directors which shall constitute the entire board of
directors shall not be less than one.
In accordance with these Amended and Restated Articles of Incorporation and
the Bylaws of the Corporation, the number of directors currently constituting
the Board of Directors is three, and the name and address of the persons who are
presently serving as directors until the next annual meeting of the shareholders
or until such persons' successor(s) are elected and qualified are:
Ignatius W. Leonards 12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Byron M. Allen 12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Richard H. Roberson 12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
5
<PAGE>
ARTICLE X
ACTION WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action that may be taken
at any annual or special meeting of shareholders, 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 holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The directors and officers of the Corporation shall be indemnified by the
Corporation in a manner and to the maximum extent permitted by applicable state
or federal law as in effect from time to time.
ARTICLE XII
LIMITATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Article shall not authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable for:
(1) a breach of the director's duty of loyalty to the Corporation or
its shareholders;
(2) an act or omission not in good faith that constitutes a breach of
duty of the director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office; or
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ARTICLE XIII
LIMITATION OF SHAREHOLDERS' LIABILITY
A holder of shares, an owner of any beneficial interest in the shares, or a
subscriber for shares whose subscription has been accepted shall be under no
obligation to the Corporation or to its obligees with respect to:
(1) such shares other than the obligation to pay the Corporation the
full amount of the consideration fixed in compliance with Article 2.15 of
the Texas Business Corporation Act, for which such shares were or are to be
issued;
(2) any contractual obligation of the Corporation on the basis of
actual or constructive fraud, or a sham to perpetrate a fraud, unless the
obligee demonstrates that the
6
<PAGE>
holder, owner, or subscriber caused the Corporation to be used for the
purpose of perpetrating, and did perpetrate, an actual fraud on the
obligee primarily for the direct personal benefit of the holder, owner,
or subscriber; or
(3) any contractual obligation of the Corporation on the basis of the
failure of the Corporation to observe any corporate formality, including,
without limitation:
(a) the failure to comply with any requirement of the Texas
Business Corporation Act or the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of the Corporation;
(b) the failure to observe any requirement prescribed by the
Texas Business Corporation Act or by the Amended and Restated Articles
of Incorporation or Amended and Restated Bylaws for acts to be taken
by the Corporation, its Board of Directors, or shareholders.
ARTICLE XIV
VOTING REQUIREMENTS
With respect to any matter for which the affirmative vote of the holders of
a specified portion of the shares entitled to vote is required by the Texas
Business Corporation Act, the act of the shareholders on that matter shall be
the affirmative vote of the holders of a majority of the shares entitled to vote
on that matter, rather than the affirmative vote otherwise required by the Texas
Business Corporation Act. In addition, with respect to any matter for which the
affirmative vote of the holders of a specified portion of the shares of any
class is required by the Texas Business Corporation Act, the act of the holders
of shares of that class on that matter shall be the affirmative vote of the
holders of a majority of shares of that class, rather than the affirmative vote
of the holders of shares of that class otherwise required by the Texas Business
Corporation Act.
7
<PAGE>
IN WITNESS WHEREOF, and in accordance with Article 4.07D of the Texas
Business Corporation Act, the undersigned has executed these Amended and
Restated Articles of Incorporation as of this 28th day of February, 1997
IWL COMMUNICATIONS, INCORPORATED
By: /s/ Byron M. Allen
-----------------------------------
Name: Byron M. Allen
Title: President
8
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
IWL COMMUNICATIONS, INCORPORATED
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
IWL COMMUNICATIONS, INCORPORATED
TABLE OF CONTENTS
ARTICLE I. Offices.
1.01. Principal Office.
1.02. Other Offices.
ARTICLE II. Meetings of Shareholders.
2.01. Place of Meetings.
2.02. Annual Meeting.
2.03. List of Shareholders.
2.04. Special Meetings.
2.05. Notice.
2.06. Quorum.
2.07. Voting on Matters Other than the Election of Directors.
2.08. Voting in the Election of Directors.
2.09. Voting Procedure.
2.10. Action Without a Meeting.
2.11. Telephone Meetings.
ARTICLE III. Directors.
3.01. Management.
3.02. Number; Election.
3.03. Change in Number.
3.04. Election of Directors.
3.05. Place of Meetings.
3.06. First Meetings.
3.07. Regular Meetings.
3.08. Special Meetings.
3.09. Quorum.
3.10. Removal.
3.11. Vote of Directors to Fill Vacancy.
3.12. Vote of Shareholders to Fill Vacancy.
3.13. Action Without Meeting; Telephone Meetings.
3.14. Chairman of the Board.
3.15. Compensation.
3.16. Committees.
(i)
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE IV. Notices.
4.01. Method.
4.02. Waiver.
ARTICLE V. Officers.
5.01. Officers.
5.02. Election.
5.03. Compensation.
5.04. Removal and Vacancies.
5.05. Chief Executive Officer.
5.06. President.
5.07. Vice Presidents.
5.08. Secretary.
5.09. Assistant Secretaries.
5.10. Treasurer.
5.11. Assistant Treasurers.
ARTICLE VI. Certificates Representing Shares.
6.01. Certificates.
6.02. Lost Certificates.
6.03. Transfer of Shares.
6.04. Registered Shareholders.
6.05. Fixing Record Date for Matters Other Than Consents to
Action.
6.06. Fixing Record Date for Consents to Action.
6.07. Distribution Held in Suspense.
6.08. Joint Owners of Shares.
ARTICLE VII. General Provisions.
7.01. Distributions.
7.02. Reserves.
7.03. Checks.
7.04. Fiscal Year.
7.05. Seal.
7.06. Indemnification.
7.07. Transactions with Directors and Officers.
7.08. Amendments.
7.09. Table of Contents; Headings.
(ii)
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
IWL COMMUNICATIONS, INCORPORATED
(THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1.01. PRINCIPAL OFFICE. The principal business office of the
Corporation shall be at 12000 Aerospace Avenue, Suite 200, Houston, Texas
77034.
Section 1.02. OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Texas, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE OF MEETINGS. Meetings of shareholders for all
purposes may be held at such time and place, within or without the State of
Texas, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2.02. ANNUAL MEETING. An annual meeting of the shareholders,
commencing with the year 1997, shall be held in each year on a date to be
determined by the Board of Directors, at which meeting the shareholders shall
elect a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 2.03. LIST OF SHAREHOLDERS. The officer or agent having charge of
the share transfer records shall make, at least ten (10) days before each
meeting of the shareholders, a complete list of the shareholders entitled to
vote at said meeting, arranged in alphabetical order with the address of and the
number of voting shares held by each, which list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such
list shall be produced and kept open at the time and place of the meeting during
the whole time thereof, and shall be subject to the inspection of any
shareholder who may be present. The original share transfer records shall be
prima facie evidence as to the shareholders who are entitled to examine such
list or transfer records or to vote at any such meeting of shareholders.
Section 2.04. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation or by these Bylaws, may be called by the President,
the Board of Directors, or the holders of not less than ten
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percent (10%) of all shares entitled to vote at the meetings. Business
transacted at all special meetings shall be confined to the purposes stated
in the notice of the meeting.
Section 2.05. NOTICE. Written or printed notice stating the place, day
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail by or at the direction of the President, the Secretary or
the officer or person calling the meeting, to each shareholder entitled to vote
at the meeting; provided, however, in the event of a merger or consolidation,
such notice shall be delivered not less than twenty (20) days before the
meeting.
Section 2.06. QUORUM. Unless otherwise provided in the Articles of
Incorporation, a quorum shall be present at a meeting of shareholders if the
holders of a majority of the shares entitled to vote are represented at the
meeting in person or by proxy. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, once a quorum is present at a meeting of
shareholders, the shareholders represented in person or by proxy at the meeting
may conduct such business as may be properly brought before the meeting until it
is adjourned, and the subsequent withdrawal from the meeting of any shareholder
or the refusal of any shareholder represented in person or by proxy to vote
shall not affect the presence of a quorum at the meeting. Unless otherwise
provided in the Articles of Incorporation, the shareholders represented in
person or by proxy at a meeting of shareholders at which a quorum is not present
may adjourn the meeting until such time and to such place as may be determined
by a vote of the holders of a majority of the shares represented in person or by
proxy at that meeting.
Section 2.07. VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS.
With respect to any matter other than the election of directors or a matter for
which the affirmative vote of the holders of a specified portion of the shares
entitled to vote is required by law, the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter and represented in person
or by proxy at a meeting of shareholders at which a quorum is present shall be
the act of the shareholders unless otherwise provided in the Articles of
Incorporation or these Bylaws.
Section 2.08. VOTING IN THE ELECTION OF DIRECTORS. Directors shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present unless otherwise provided in the Articles of Incorporation or these
Bylaws.
Section 2.09. VOTING PROCEDURE. Each outstanding share of common stock
shall be entitled to one (1) vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation. At any meeting of the shareholders, every shareholder having the
right to vote shall be entitled to vote either in person or by proxy executed in
writing subscribed by the shareholder. A telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder shall be treated
as an execution in writing for purposes of this section. No proxy shall be
valid after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest.
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Section 2.10. ACTION WITHOUT A MEETING. Except as otherwise provided
below, any action required or permitted to be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof, and
such consent shall have the same force and effect as a unanimous vote of the
shareholders.
The Articles of Incorporation may provide that any action required by the
Texas Business Corporation Act to be taken at any annual or special meeting of
shareholders, or any action that may be taken at any annual or special meeting
of shareholders, 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 holder or holders of shares having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which the holders of all shares entitled to vote on the action were
present and voted. If the Articles of Incorporation make such a provision, then
such written consent shall bear the date of signature of each shareholder who
signs the consent. No written consent shall be effective to take the action
that is the subject of the consent unless, within sixty (60) days after the date
of the earliest dated consent delivered to the Corporation in the manner
required by the Texas Business Corporation Act, a consent or consents signed by
the holder or holders of shares having not less than the minimum number of votes
that would be necessary to take the action that is the subject of the consent
are delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the books in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or certified or registered mail, return
receipt requested. Delivery to the Corporation's principal place of business
shall be addressed to the president or principal executive officer of the
Corporation.
A telegram, telex, cablegram, or similar transmission by a shareholder, or
a photographic, photostatic, facsimile or similar reproduction of a writing
signed by a shareholder shall be regarded as signed by the shareholder for
purposes of this section. Prompt notice of the taking of any action by
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders who did not consent in writing to the action.
Section 2.11. TELEPHONE MEETINGS. Subject to applicable notice provisions
and unless otherwise restricted by the Articles of Incorporation, shareholders
may participate in and hold a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in such meeting shall
constitute presence in person at such meeting, except where a person's
participation is for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE III.
DIRECTORS
Section 3.01. MANAGEMENT. The powers of the Corporation shall be
exercised by or under the authority of, and the business affairs of the
Corporation shall be managed under the direction of the Board of Directors that
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws
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directed or required to be exercised or done by the shareholders. The Board
of Directors shall keep regular minutes of its proceedings.
Section 3.02. NUMBER; ELECTION. The directors of the Corporation shall
consist of not less than one (1) director, as determined from time to time by
resolution of the shareholders or the Board of Directors of the Corporation.
Directors need not be shareholders or residents of the State of Texas. The
directors shall be elected at the annual meeting of the shareholders by the
holders of shares entitled to vote in the election of directors and, except as
hereinafter provided, each director elected shall hold office for the term for
which such director is elected and until such director's successor shall have
been elected and shall qualify.
Section 3.03. CHANGE IN NUMBER. The number of directors may be increased
or decreased from time to time by resolution of the shareholders or the Board of
Directors of the Corporation, but no decrease shall have the effect of
shortening the term of any incumbent director.
Section 3.04. ELECTION OF DIRECTORS. Directors shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present
unless otherwise provided in the Articles of Incorporation or these Bylaws. At
every election of directors, each shareholder shall have the right to vote in
person or by proxy the number of voting shares owned by such shareholder for as
many persons as there are directors to be elected and for whose election such
shareholder has a right to vote. Cumulative voting shall be prohibited.
Section 3.05. PLACE OF MEETINGS. The directors of the Corporation may
hold their meetings, both regular and special, either inside or outside of the
State of Texas.
Section 3.06. FIRST MEETINGS. The first meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of shareholders, and at the same place, unless by unanimous consent of
the directors then elected and serving, such time or place shall be changed.
Section 3.07. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 3.08. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on three (3) days' notice to each
director, either personally or by mail or by telegram and shall be called by the
President or any officer in like manner and on like notice on the written
request of two (2) or more of the directors. Except as may be otherwise
expressly provided by law or by the Articles of Incorporation or by these
Bylaws, neither the business to be transacted at nor the purpose of any special
meeting need be specified in a notice or waiver of notice of such meeting.
Section 3.09. QUORUM. At all meetings of the Board of Directors, the
presence of a majority of the number of the directors fixed by or in the manner
provided in the Articles of Incorporation or these Bylaws shall constitute a
quorum for the transaction of business unless a greater number is required by
law, the Articles of Incorporation or the Bylaws. 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 unless the act of a greater number is required by law,
the Articles of Incorporation or by these Bylaws.
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<PAGE>
If a quorum shall not be present at any meeting of directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 3.10. REMOVAL. At any meeting of the shareholders called
expressly for such purpose, any director or the entire Board of Directors may be
removed either with or without cause by the affirmative vote of the holders of a
majority of the shares entitled to vote at an election of such directors.
Section 3.11. VOTE OF DIRECTORS TO FILL VACANCY. Any vacancy occurring in
the initial Board of Directors before the issuance of shares may be filled by
the affirmative vote or written consent of a majority of the incorporators or by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. Any vacancy subsequently occurring in the
Board of Directors after the issuance of shares may be filled in accordance with
Section 3.12 of this Article III or may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of such director's predecessor in office. A directorship to be
filled by reason of an increase in the number of directors may be filled in
accordance with Section 3.12 of this Article III or, subject only to any
limitations then contained in the Texas Business Corporation Act relating to the
number of directors that may be elected by the Board of Directors to fill newly-
created directorships, may be filled by the Board of Directors for a term of
office continuing only until the next election of one (1) or more directors by
the shareholders.
Section 3.12. VOTE OF SHAREHOLDERS TO FILL VACANCY. Any vacancy occurring
in the Board of Directors or any directorship to be filled by reason of an
increase in the number of directors may be filled by election at any annual or
special meeting of shareholders called for that purpose.
Section 3.13. ACTION WITHOUT MEETING; TELEPHONE MEETINGS. Unless
otherwise restricted by the Articles of Incorporation or these Bylaws, any
action required or permitted to be taken at a meeting of the Board of Directors
or of any committee designated by the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken is signed by
all the members of the Board of Directors or committee, as the case may be.
Such consent shall have the same force and effect as a unanimous vote at a
meeting and may be stated as such in any document or instrument filed with the
Secretary of State. Subject to applicable notice provisions and unless
otherwise restricted by the Articles of Incorporation or these Bylaws, members
of the Board of Directors or members of any committee designated by the Board of
Directors may participate in and hold a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in such meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 3.14. CHAIR OF THE BOARD. The Board of Directors may elect a
Chair of the Board to preside at their meetings and perform such other duties as
the Board may from time to time assign to the Chair.
Section 3.15. COMPENSATION. Directors, as such, shall not receive any
stated salary for their services, but, by resolution of the Board a fixed sum
and expenses of attendance, if any, may
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<PAGE>
be allowed for attendance at each regular or special meeting of the Board;
provided that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of any committee designated by the Board may,
by resolution of the Board of Directors, be allowed like compensation for
attending committee meetings.
Section 3.16. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members one (1) or more committees, each of which shall be comprised of one (1)
or more of its members and may designate one (1) or more of its members as
alternate members of any committee, who may, subject to any limitations imposed
by the Board of Directors, replace absent or disqualified members at any meeting
of that committee. Any such committee, except to the extent provided in said
resolution, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
except where action of the full Board of Directors is required by law or by the
Articles of Incorporation. Any member of the committees may be removed by the
Board of Directors by the affirmative vote of a majority of the Board of
Directors, whenever in its judgment the best interests of the Corporation will
be served thereby. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
ARTICLE IV.
NOTICES
Section 4.01. METHOD. Whenever by statute, the Articles of Incorporation
or these Bylaws, notice is required to be given to any director or shareholder,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
either personally or by mail, postage prepaid, addressed to such director or
shareholder at such address as appears on the share transfer records of the
Corporation or in any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed to be given at the time when the
same shall be thus deposited in the United States mail as aforesaid.
Section 4.02. WAIVER. Whenever any notice is required to be given to any
shareholder or director of the Corporation by law, the Articles of Incorporation
or these Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated in such notice,
shall be deemed equivalent to the giving of such notice. Attendance of a
shareholder or director at a meeting shall constitute a waiver of notice of such
meeting, except where a shareholder or director attends for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened. Consent in writing by a shareholder or
director to any action taken or resolution adopted by the shareholders or
directors of the Corporation shall constitute a waiver of any and all notices
required to be given in connection with such action or resolution.
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ARTICLE V.
OFFICERS
Section 5.01. OFFICERS. The officers of the Corporation shall be elected
by the Board of Directors and shall be at least a President and a Secretary.
The Board of Directors may also choose a Chair of the Board, a Chief Executive
Officer, a Treasurer, and one (1) or more Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries,
Assistant Treasurers, or such other officers as the Board of Directors shall
elect. Any two or more offices may be held by the same person.
Section 5.02. ELECTION. The Board of Directors at its first meeting after
each annual meeting of shareholders shall choose a President and a Secretary and
may choose a Chair of the Board, a Chief Executive Officer, a Treasurer and one
(1) or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, none
of whom need be a member of the Board of Directors, a shareholder or a resident
of the State of Texas. The Board of Directors may appoint such other officers
and agents as it shall deem necessary, who shall be appointed for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
Section 5.03. COMPENSATION. The compensation of all officers and agents
of the Corporation shall be fixed by the Board of Directors.
Section 5.04. REMOVAL AND VACANCIES. Each officer of the Corporation
shall hold office until such officer's successor is chosen and qualified in such
officer's stead or until such officer's death or until such officer's
resignation or removal from office. Any officer or agent or member of a
committee elected or appointed by the Board of Directors may be removed by a
majority of the members of the Board of Directors represented at a meeting of
the Board of Directors at which a quorum is represented, whenever in its
judgment the best interests of the Corporation will be served thereby; but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Section 5.05. CHIEF EXECUTIVE OFFICER. The Board of Directors may, but
shall not be required to, elect a Chief Executive Officer. If so elected, the
Chief Executive Officer shall preside at all meetings of the shareholders and
the Board of Directors unless the Board shall choose to elect a Chair of the
Board, in which event the Chief Executive Officer shall preside at shareholders'
and Board of Directors' meetings in the absence of the Chair of the Board of
Directors. The Chief Executive Officer shall have general and active management
of the business and affairs of the Corporation, shall see that all orders and
resolutions of the Board are carried into effect, and shall perform such other
duties as the Board of Directors shall prescribe. Such duties shall be
performed by the President of the Corporation if the Board of Directors does not
elect a Chief Executive Officer.
Section 5.06. PRESIDENT. The President shall preside at all meetings of
the shareholders and the Board of Directors unless the Board shall choose to
elect a Chair of the Board or a Chief Executive Officer, in which event the
President shall preside at shareholders' and Board of Directors' meetings in the
absence of the Chair of the Board of Directors or the Chief Executive
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Officer, as the case may be. The President shall have general and active
management of the day-to-day operations of the Corporation and such other
duties as the Board of Directors or the Chief Executive Officer shall
prescribe.
Section 5.07. VICE PRESIDENTS. Each Vice President shall have only such
powers and perform only such duties as the Board of Directors may from time to
time prescribe or as the President may from time to time delegate to such Vice
President.
Section 5.08. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the shareholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee when required. The Secretary
shall give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision the Secretary shall be. The Secretary shall keep in safe custody
the seal of the Corporation and affix the same to any instrument requiring it,
and, when so affixed, it shall be attested by the Secretary's signature or by
the signature of the Treasurer or an Assistant Secretary.
Section 5.09. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the President may from time to time delegate.
Section 5.10. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all monies and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and directors, at the regular meetings of the Board, or whenever
they may require it, an account of all the Treasurer's transactions as Treasurer
and of the financial condition of the Corporation, and shall perform such other
duties as the Board of Directors may prescribe. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such form in such
sum, and with surety or sureties as shall be satisfactory to the Board for the
faithful performance of the duties of the Treasurer's office and for the
restoration to the Corporation, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Corporation.
Section 5.11. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe.
ARTICLE VI.
CERTIFICATES REPRESENTING SHARES
Section 6.01. CERTIFICATES. Certificates in such form as may be
determined by the Board of Directors shall be delivered representing all shares
to which shareholders are entitled. Such certificates shall be consecutively
numbered and shall be entered in the books of the Corporation
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as they are issued. Each certificate shall state on the face thereof the
holder's name, the number and class of shares, and the par value of such
shares or a statement that such shares are without par value. They shall be
signed by the President or a Vice President and the Secretary or an Assistant
Secretary and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, other than the
Corporation or an employee of the Corporation, the signature of any such
officer may be facsimile. Shares may not be issued until the full amount of
the consideration, fixed as provided by law, has been paid.
Section 6.02. LOST CERTIFICATES. The Board of Directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate, or such owner's legal representative, to advertise the
same in such manner as it shall require and/or give the Corporation a bond in
such form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 6.03. TRANSFER OF SHARES. Except as is otherwise provided in
these Bylaws, shares of stock shall be transferable only on the books of the
Corporation by the holder thereof in person or by such holder's duly authorized
attorney. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation or the transfer agent of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6.04. REGISTERED SHAREHOLDERS. Unless otherwise provided by
statute, the Corporation may regard the person in whose name any shares issued
by the Corporation are registered in the share transfer records of the
Corporation at any particular time (including, without limitation as of a record
date fixed pursuant to Sections 6.05 and 6.06) as the owner of those shares at
that time for purposes of voting those shares, receiving distributions thereon
or notices in respect thereof, transferring those shares, exercising rights of
dissent with respect to those shares, exercising or waiving any preemptive right
with respect to those shares, entering into agreements with respect to those
shares in accordance with the Texas Business Corporation Act or giving proxies
with respect to those shares. Neither the Corporation nor any of its officers,
directors, employees or agents shall be liable for regarding that person as the
owner of those shares at that time for those purposes, regardless of whether
that person possesses a certificate for those shares.
Section 6.05. FIXING RECORD DATE FOR MATTERS OTHER THAN CONSENTS TO
ACTION. For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive a distribution by the Corporation (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of shareholders for any other
proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors may provide that the share
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transfer records shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the share transfer records shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least ten (10)
days immediately preceding such meeting. In lieu of closing the share
transfer records, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case
to be not more than sixty (60) days, and, in the case of a meeting of
shareholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination of shareholders is to be
taken. If the share transfer records are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive a
distribution (other than a distribution involving a purchase or redemption by
the Corporation of any of its own shares) or a share dividend, the date on
which such notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such distribution or share
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof, except
where the determination has been made through the closing of the share
transfer records and the stated period of closing has expired.
Section 6.06. FIXING RECORD DATE FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to this Article VI,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors and the prior action of the Board of Directors is not required by the
Texas Business Corporation Act, the record date for determining shareholders
entitled to consent to action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the President or the principal
executive officer of the Corporation. If no record date shall have been affixed
by the Board of Directors and prior action of the Board of Directors is required
by statute, the record date for determining shareholders entitled to consent to
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts resolution taking such prior action.
Section 6.07. DISTRIBUTION HELD IN SUSPENSE. Distributions made by the
Corporation, including those that were payable but not paid to a holder of
shares or to such holder's heirs, successors or assigns, and have been held in
suspense by the Corporation or were paid or delivered by it into an escrow
account or to a trustee or custodian, shall be payable by the Corporation,
escrow agent, trustee or custodian to the holder of the shares as of the record
date determined for that distribution as provided in Section 6.05, or to such
holder's heirs, successors or assigns.
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Section 6.08. JOINT OWNERS OF SHARES. When shares are registered on the
books of the Corporation in the names of two (2) or more persons as joint owners
with the right of survivorship, after the death of a joint owner and before the
time that the Corporation receives actual written notice that parties other than
the surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the Corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm, or Corporation
(including that surviving joint owner individually) and pay any distributions
made in respect of those shares, in each case as if the surviving joint owner or
owners were the absolute owners of the shares. The Corporation permitting such
a transfer by and making any distribution to such a surviving joint owner or
owners before the receipt of written notice from other parties claiming an
interest in those shares or distributions is discharged from all liability for
the transfer or payment so made; provided, however, that the discharge of the
Corporation from liability and the transfer of full legal and equitable title of
the shares in no way affects, reduces, or limits any cause of action existing in
favor of any owner of an interest in those shares or distributions against the
surviving owner or owners.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.01. DISTRIBUTIONS. Distributions upon the outstanding shares of
the Corporation, subject to the provisions of the Articles of Incorporation, may
be declared by the Board of Directors at any regular or special meeting.
Distributions may be paid in cash, in property or in shares of the Corporation,
subject to the provisions of the statutes and the Articles of Incorporation.
Section 7.02. RESERVES. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves as
the directors from time to time, in their discretion, think proper to provide
for contingencies, or to equalize distributions, or to repair or maintain any
property of the Corporation, or for such other purposes as the Board of
Directors shall think beneficial to the Corporation, and the Board of Directors
may modify or abolish any such reserve in the manner in which it was created.
Section 7.03. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 7.04. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 7.05. SEAL. The corporate seal shall be kept in the safe custody
of the Secretary of the Corporation and shall have inscribed thereon the name of
the Corporation and may be in such form as the Board of Directors may determine.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7.06. INDEMNIFICATION. The Corporation shall have the authority
to and shall indemnify and advance expenses to the directors, officers,
employees, agents of the Corporation or any other persons serving at the request
of the Corporation in such capacities in a manner and to the maximum extent
permitted by applicable state or federal law. The Corporation may
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purchase and maintain liability insurance or make other arrangements for such
obligations to the extent permitted by the Texas Business Corporation Act.
Section 7.07. TRANSACTIONS WITH DIRECTORS AND OFFICERS. No contract or
transaction between the Corporation and one (1) or more of its directors or
officers, or between the Corporation and any other Corporation, partnership,
association, or other organization in which one (1) or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof that authorizes the contract or transaction, or solely because his, her,
its or their votes are counted for such purpose, if:
(1) The material facts as to such person's 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 of Directors 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
(2) The material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(3) 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 thereof, or the shareholders.
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 that authorizes
the contract or transaction.
Section 7.08. AMENDMENTS. The Board of Directors may amend or repeal the
Bylaws of the Corporation or adopt new Bylaws, unless: (1) the Articles of
Incorporation or the Texas Business Corporation Act reserves the power
exclusively to the shareholders in whole or part; or (2) the shareholders in
amending, repealing or adopting a particular bylaw expressly provide that the
Board of Directors may not amend or repeal that bylaw. Unless the Articles of
Incorporation or a bylaw adopted by the shareholders provides otherwise as to
all or some portion of the Bylaws, the shareholders may amend, repeal or adopt
the Bylaws even though the Bylaws may also be amended, repealed or adopted by
the Board of Directors.
Section 7.09. TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
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CERTIFICATE BY SECRETARY
The undersigned, being the Secretary of the Corporation, hereby certifies
that the foregoing code of Bylaws was duly adopted by the directors of said
Corporation effective on February 28, 1997.
/s/ RICHARD H. ROBERSON
----------------------------------
Richard H. Roberson, Secretary
----------------------------------
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IWL COMMUNICATIONS, INC.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Employee Incentive Stock Option Plan (the PLAN) is to
give officers and executive personnel (KEY EMPLOYEES) of IWL COMMUNICATIONS,
INC., a Texas Corporation (the COMPANY), an opportunity to acquire shares of the
common stock of the Company, without par value (COMMON STOCK), to provide an
incentive for key employees to continue to promote the best interests of the
Company and enhance its long-term performance, and to provide an incentive for
key employees to join or remain with the Company.
2. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company (the BOARD), which, to the extent it shall determine,
may delegate its powers with respect to the administration of the Plan (except
its powers under Section 11(c)) to a committee (COMMITTEE) appointed by the
Board. If the Board chooses to appoint a Committee, references hereafter to the
Board (except in Section 11(c)) shall be deemed to refer to the Committee.
Notwithstanding the proceeding provisions of the Section, no member of the Board
may exercise discretion with respect to, or participate in the administration of
the Plan if, at any time within one year prior to such exercise or
participation, he or she has received stock, stock options, stock appreciation
rights or any other derivative security pursuant to the Plan or any other plan
of the Company or any affiliate thereof as to which any discretion is exercised.
(b) POWERS. Within the limits of the express provisions of the Plan, the
Board shall determine:
(i) the key employees to whom awards hereunder shall be granted,
(ii) the time or times at which such awards shall be granted,
(iii) the form and amount of the awards, and
(iv) the limitations, restrictions and conditions applicable to any
such award.
In making such determinations, the Board may take into account the nature of the
services rendered by such employees, or classes of employees, their present and
potential contributions to the Company's success and such other factors as the
Board in its discretion shall deem relevant.
(c) INTERPRETATIONS. Subject to the express provisions of the Plan, the
Board may interpret the Plan, prescribe, amend and rescind rules and regulations
relating to it, determine the terms and provisions of the respective awards and
make all other determinations it deems necessary or advisable for the
administration of the Plan.
(d) DETERMINATIONS. The determinations of the Board on all matters
regarding the Plan shall be conclusive. A member of the Board shall only be
liable for any action taken or determination made in bad faith.
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(e) NONUNIFORM DETERMINATIONS. The Board's determinations under the
Plan, including determinations as to the persons to receive awards, the
provisions and restrictions of such awards and the agreements evidencing the
same, need not be uniform and may be made by it selectively among persons who
receive or are eligible to receive awards under the Plan, whether or not such
persons are similarly situated.
3. AWARDS UNDER THE PLAN.
(a) FORM. Awards under the Plan may be granted in the form of Incentive
Stock Options, as described in Section 4.
(b) MAXIMUM LIMITATIONS. The aggregate number of shares of Common Stock
available for grant under the Plan is 258,600, subject to adjustment pursuant
to Section 7. Shares of Common Stock issued pursuant to the Plan may be
either authorized but unissued shares or shares now or hereafter held in the
treasury of the Company. In the event that any Option under the Plan expires
unexercised or is terminated, surrendered or canceled without being
exercised, in whole or in part, for any reason, the number of shares subject
to such Option, or the unexercised, terminated, forfeited or unearned portion
thereof, shall be added to the remaining number of shares available for grant
under the Plan, including a grant to a former holder of such Option, upon
such terms and conditions as the Board shall determine, which terms may be
more or less favorable than those applicable to such former Option.
(c) TEN PERCENT SHAREHOLDER. Notwithstanding any other provision
contained herein, no key employee may receive an Incentive Stock Option under
the Plan if such employee, at the time the award is granted, owns (as defined
in Section 424(d) of the Internal Revenue Code, as amended (the CODE)) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, unless the option price for such Incentive Stock Option
is at least 110% of the fair market value of the Common Stock subject to such
Incentive Stock Option on the date of grant and such Option is not exercisable
after the date five years from the date such Option is granted.
4. INCENTIVE STOCK OPTIONS.
It is intended that Incentive Stock Options granted under the Plan shall
constitute Incentive Stock Options within the meaning of Section 422 of the
Code. Incentive Stock Options may be granted under the Plan for the purchase of
shares of Common Stock. Incentive Stock Options shall be in such form and upon
such conditions as the Board shall from time to time determine, subject to the
following:
(a) OPTION PRICES. The option price of each Incentive Stock Option shall
be at least 100% of the fair market value of the Common Stock subject to such
Incentive Stock Option on the date of grant.
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(b) TERMS OF OPTIONS. No Incentive Stock Option shall be exercisable
prior to vesting. Each Option Agreement shall include a vesting schedule which
shall show when the Option becomes exercisable; provided, however, that each
option shall vest at a rate of at !east twenty percent (20%) per year over a
period of five (5) years. The Board in its discretion may accelerate the above
vesting schedule or may grant options pursuant to more favorable vesting
schedules, but in no event shall any Incentive Stock Options be exercisable
after the date ten years from the date such Option is granted, nor shall any
vesting schedule impose upon the Company any obligation to retain the Optionee
in its employ or under contract for any period, or otherwise to change the
employment status of an Optionee who is an employee of the Company.
(c) LIMITATION ON AMOUNTS. The aggregate fair market value (determined
with respect to each Incentive Stock Option as of the time such Incentive
Stock Option is granted) of the capital stock with respect to which Incentive
Stock Options are exercisable for the first time by a key employee during any
calendar year (under this Plan or any other p!an of the Company) shall not
exceed $100,000.
5. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS.
(a) EXERCISE. Incentive Stock Options shall be subject to such terms and
conditions, shall be exercisable at such time or times, and shall be evidenced
by such form of written option agreement between the optionee and the Company,
as the Board shall determine, provided that such determinations are not
inconsistent with other provisions of the Plan, or with Section 422 of the Code
or regulations thereunder.
(b) MANNER OF EXERCISE OF OPTIONS AND PAYMENT FOR COMMON STOCK. Incentive
Stock Options may be exercised by an optionee by giving written notice to the
Secretary of the Company stating the number of shares of Common Stock with
respect to which the Incentive Stock Option is being exercised and tendering
payment therefor. At the time that an Incentive Stock Option granted under the
Plan, or any part thereof, is exercised, payment for the Common Stock issuable
thereupon shall be made in full in cash or by certified check or, if the Board
in its discretion agrees to accept, by a promissory note payable to the Company
by the Optionee, secured by the stock being purchased under the Option, and
pursuant to such other terms and conditions as the Board may decide. As soon as
reasonably possible following such exercise, a certificate representing shares
of Common Stock purchased, registered in the name of the optionee, shall be
delivered to the optionee.
6. TRANSFERABILITY.
No Incentive Stock Option may be transferred, assigned, pledged or
hypothecated (whether by operation of law or otherwise), except as provided by
will or the applicable laws of descent or distribution, and no Incentive Stock
Option shall be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of an
Incentive Stock Option or levy of attachment or similar process upon the
Incentive Stock Option not specifically permitted herein shall be null and void
and without effect. An Incentive Stock Option may be exercised only by a key
employee during his or her
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lifetime, or pursuant to Section 10(c), by his or her estate or the person
who acquires the right to exercise such Incentive Stock Option upon his or
her death by bequest or inheritance.
7. ADJUSTMENT PROVISIONS.
The aggregate number of shares of Common Stock with respect to which
Incentive Stock Options may be granted, the aggregate number of shares of Common
Stock subject to each outstanding Incentive Stock Option, and the option price
per share of each such Incentive Stock Option, may all be appropriately adjusted
as the Board may determine for any increase or decrease in the number of shares
of issued Common Stock resulting from a subdivision or consolidation of shares,
whether through reorganization, recapitalization, stock split-up, stock
distribution or combination of shares, or the payment of a share dividend or
other increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company. Adjustments under this Section
shall be made according to the sole discretion of the Board, and its decisions
shall be binding and conclusive.
8. DISSOLUTION, MERGER AND CONSOLIDATION.
Upon the dissolution or liquidation of the Company, or upon a merger or
consolidation of the Company in which the Company is not the surviving
corporation, each Incentive Stock Option granted hereunder shall expire as of
the effective date of such transaction; provided, however, that the Board shall
give at least 30 days' prior written notice of such event to each optionee
during which time he or she shall have a right to exercise his or her wholly or
partially unexercised VESTED OR NONVESTED Incentive Stock Option (without regard
to installment exercise limitations, if any) and, subject to prior expiration
pursuant to Section 10(b) or (c), each Incentive Stock Option shall be
exercisable after receipt of such written notice and prior to the effective date
of such transaction.
9. EFFECTIVE DATE AND CONDITIONS SUBSEQUENT TO EFFECTIVE DATE.
(a) The Plan shall become effective on the date of the approval of the
Plan by the holders of a majority of the shares of Common Stock of the Company;
provided, however, that the adoption of the Plan is subject to such shareholder
approval within twelve (12) months before or after the date of adoption of the
Plan by the Board. The Plan shall be null and void and of no effect if the
foregoing condition is not fulfilled, and in such event each Incentive Stock
Option granted hereunder shall, notwithstanding any of the preceding provisions
of the Plan, be null and void and of no effect.
(b) No grant or award shall be made under the Plan more than 10 years from
the earlier of the date of adoption of the Plan by the Board and shareholder
approval hereof; provided, however, that the Plan and all Incentive Stock
Options granted under the Plan prior to such date shall remain in effect and
subject to adjustment and amendment as herein provided until they have been
satisfied or terminated in accordance with the terms of the respective grants or
awards and the related agreements.
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10. TERMINATION OF EMPLOYMENT.
(a) Each Incentive Stock Option shall, unless sooner expired pursuant to
Section 10(b) or (c) below, expire on the first to occur of the tenth
anniversary of the date of grant thereof or the expiration date set forth in the
applicable option agreement.
(b) An Incentive Stock Option shall expire on the first to occur of the
applicable date set forth in paragraph (a) next above or the date that the
employment of the key employee with the Company terminates for any reason other
than death or disability. Notwithstanding the preceding provisions of this
paragraph, the Board, in its sole discretion, may, by written notice given to an
ex-employee, permit the ex-employee to exercise Incentive Stock Options during a
period following his or her termination of employment, which period shall not
exceed thirty (30) days. In no event, however, may the Board permit an ex-
employee to exercise an Incentive Stock Option after the expiration date
contained in the agreement evidencing such Incentive Stock Option.
Notwithstanding the preceding provisions of this paragraph, if the Board permits
an ex-employee to exercise Incentive Stock Options during a period following his
or her termination of employment pursuant to such preceding provisions, such
Incentive Stock Options shall, to the extent unexercised, expire on the date
that such ex-employee violates (as determined by the Board) any covenant not to
compete in effect between the Company and the ex-employee or the date that such
employee discloses (as determined by the board) information of a confidential
nature about the company to a third party.
(c) If the employment of a key employee with the Company terminates by
reason of disability (as defined in Section 422(c)(6) of the Code and as
determined by the Board) or by reason of death, his or her Incentive Stock
Options shall expire on the first to occur of the date set forth in paragraph
(a) of this Section 10 or the first anniversary of such termination of
employment.
11. MISCELLANEOUS.
(a) LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to sell
and deliver Common Stock under the Plan shall be subject to all applicable laws,
regulations, rules and approvals, including, but not by way of limitation, the
effectiveness of a registration statement under the Securities Act of 1933 if
deemed necessary or appropriate by the Company. Certificates for shares of
Common Stock issued hereunder may be legended as the Board shall deem
appropriate.
(b) NO OBLIGATION TO EXERCISE OPTIONS. The granting of an Incentive Stock
Option shall impose no obligation upon an optionee to exercise such Incentive
Stock Option.
(c) TERMINATION AND AMENDMENT OF PLAN. The Board, without further action
on the part of the shareholders of the Company, may from time to time alter,
amend or suspend the Plan or any Incentive Stock Option granted hereunder or may
at any time terminate the Plan, except that it may not, without the approval of
the shareholders of the Company (except to the extent provided in Section 7
hereof):
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(i) Materially increase the total number of shares of Common Stock
available for grant under the Plan except as provided in Section 7;
(ii) Materially modify the class of eligible employees under the Plan;
(iii) Materially increase benefits to any key employee who is
subject to the restrictions of Section 16 of the Securities Exchange Act of
1934; or
(iv) Effect a change relating to Incentive Stock Options granted
hereunder which is inconsistent with Section 422 of the Code or regulations
issued thereunder. No action taken by the Board under this Section, either
with or without the approval of the shareholders of the Company, may
materially and adversely affect any outstanding Incentive Stock Option
without the consent of the holder thereof;
(d) APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Incentive Stock Options will be used for
general corporate purposes.
(e) WITHHOLDING TAXES. Upon the exercise of any Incentive Stock Option
the Company shall have the right to require the optionee to remit to the Company
an amount sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock. In the event that the optionee disposes of any Common Stock
acquired by the exercise of an Incentive Stock Option within the two-year period
following grant, or within the one-year period following exercise, of the
Incentive Stock Option, the Company shall have the right to require the optionee
to remit to the Company an amount sufficient to satisfy all federal, state and
local withholding tax requirements as a condition to the registration of the
transfer of such Common Stock on its books. Whenever under the Plan payments are
to be made by the Company in cash or by check, such payments shall be net of any
amounts sufficient to satisfy all federal, state and local withholding tax
requirements.
(f) RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any key employee or other
optionee the right to continue in the employment of the Company or any
subsidiary or affect any right which the Company or any subsidiary may have to
terminate the employment of such key employee or other optionee.
(g) RIGHTS AS A SHAREHOLDER. No optionee shall have any right as a
shareholder unless and until certificates for shares of Common Stock are issued
to him or her.
(h) LEAVES OF ABSENCE AND DISABILITY. The Board shall be entitled to make
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by or disability of any key
employee. Without limiting the generality of the foregoing, the Board shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan, and (ii)
the
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impact, if any, of any such leave of absence on awards under the Plan
theretofore made to any key employee who takes such leave of absence.
(i) FAIR MARKET VALUE. Whenever the fair market value of Common Stock
is to be determined under the Plan as of a given date, such fair market value
shall be:
(i) If the Common Stock is traded on the over-the-counter market, the
average of the mean between the bid and the asked price for the Common
Stock at the close of trading for the 10 consecutive trading days
immediately preceding such given date;
(ii) If the Common Stock is listed on a national securities exchange,
the average of the closing prices of the Common Stock on the Composite Tape
for the 10 consecutive trading days immediately preceding such given date;
and
(iii) If the Common Stock is neither traded on the over-the-counter
market nor listed on a national securities exchange, such value as the
Board, in good faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no
determination made with respect to the fair market value of Common Stock subject
to an Incentive Stock Option shall be inconsistent with Section 422 of the Code
or regulations thereunder.
(j) NOTICES. Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to the Company (1) on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices or (2) three business days after it is sent by registered or certified
mail, postage prepaid, addressed to the Secretary at such offices, and shall be
deemed delivered to an optionee (1) on the date it is personally delivered to
him or her or (2) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to him or her at the last address
shown for him or her on the records of the Company.
(k) APPLICABLE LAW. All questions pertaining to the validity, construction
and administration of the Plan and Stock Options granted hereunder shall be
determined in conformity with the laws of the state of Texas, to the extent not
inconsistent with Section 422 of the Code and regulations thereunder.
(l) ELIMINATION OF FRACTIONAL SHARES. If under any provision of the Plan
which requires a computation of the number of shares of Common Stock subject to
an Incentive Stock Option the number so computed is not a whole number of shares
of Common Stock, such number of shares of Common Stock shall be rounded down to
the next whole number.
(m) STOCK REDEMPTION AGREEMENT. Notwithstanding anything to the contrary
contained in the Plan, the Company shall be under no obligation to sell or
deliver Common Stock under the Plan to an optionee unless such optionee shall
execute a Stock Redemption Agreement with respect to such Common Stock,
substantially in the form of EXHIBIT A attached hereto.
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EXECUTED and adopted as of this 1ST day of NOVEMBER, 1995, at Friendswood,
Texas, said Company acting herein by and through its duly authorized officers.
IWL COMMUNICATIONS, INC.
By:
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IWL COMMUNICATIONS, INCORPORATED
1997 STOCK OPTION PLAN
Adopted February 28, 1997
1. PURPOSES OF THE PLAN.
The purposes of this Stock Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to Employees and Consultants of the Company and its
Subsidiaries, and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an Option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted under the
Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board of Directors in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
(g) "Company" means IWL Communications, Incorporated.
(h) "Consultant" means (i) any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services and (ii) any Director of the Company, whether such
Director is compensated for such services or not. If the Company registers any
class of any equity security pursuant to the Exchange Act, the term Consultant
<PAGE>
shall thereafter not include Directors who are not compensated for their
services or are paid only a Director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company or any Parent or Subsidiary or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on the 91st
day of such leave any Incentive Stock Option held by the Optionee shall cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
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(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Option Agreement" shall mean the written option agreement,
substantially in the form attached hereto as EXHIBIT A, between the Company and
Optionee evidencing the grant of an Option.
(s) "Optioned Stock" means the Common Stock subject to an Option.
(t) "Optionee" means an Employee or Consultant who receives an Option.
(u) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1997 Stock Option Plan.
(w) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor thereto.
(x) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of
1934, as amended.
(y) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 11 below.
(z) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of Shares that may be subject to Options and sold under the Plan is
300,000 Shares. The Shares may be authorized but unissued or reacquired Common
Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an option exchange program, the
unpurchased Shares that were subject
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thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated). However, Shares that have actually been
issued under the Plan, upon exercise of an Option, shall not be returned to
the Plan and shall not become available for future distribution under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY BECOMES
SUBJECT TO THE EXCHANGE ACT.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Directors,
Officers, and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options to Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board,
if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made, or (B) a Committee designated by the
Board to administer the Plan, which Committee shall be constituted to
comply with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all
members of the Committee and thereafter directly administer the Plan, all
to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section
16(b) exempt discretionary grants and awards of equity securities are to be
made.
(iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND
CONSULTANTS. With respect to grants of Options to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board,
which committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause), and
appoint new members in substitution therefor, fill vacancies, however
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caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from
time to time be granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each such
award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine whether and under what circumstances an Option may
be settled in cash under Section 9(e) instead of Common Stock;
(vii) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding any Option or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
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5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee any
right with respect to continuation of his or her employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Company, as
described in Section 17 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTIONS.
The term of each Option shall be the term stated in the Option Agreement;
provided, however, that the term shall be no more than ten (10) years from the
date of grant thereof. In the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon exercise
of an Option shall be such price as is determined by the Administrator, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
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(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall not be less than 110%
of the Fair Market Value per Share on the date of grant; and
(B) granted to any other Employee, the per Share exercise price
shall not be less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall not be less than 110%
of the Fair Market Value per Share on the date of the grant; and
(B) granted to any other person, the per Share exercise price
shall not be less than 85% of the Fair Market Value per Share on the
date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (i) cash,
(ii) a check, (iii) a promissory note, (iv) other Shares that (A) in the case of
Shares acquired directly or indirectly from the Company, have been owned by the
Optionee for more than six months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised, (v) delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and a broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the exercise price, or (vi) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
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An Option may not be exercised for a fraction of a Share. Exercise of an
Option in any manner shall result in a decrease in the number of Shares that
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option Agreement by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 8(b) hereof.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote, receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 hereof.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination; provided, however, that
such Option may be exercised only within such period of time as is determined by
the Administrator. Such time period shall be at least thirty (30) days but
shall not, in the case of an Incentive Stock Option, exceed three (3) months
after the date of such termination and shall not, in any case, be later than the
expiration date of the term of such Option as set forth in the Option Agreement.
To the extent that the Optionee was not entitled to exercise the Option at the
date of such termination, or if the Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. An Optionee's Continuous Status as an Employee or Consultant shall
not be terminated in the event of Optionee's change of status from an Employee
to a Consultant or from a Consultant to an Employee; provided, however, that in
the event of an Optionee's change of status from an Employee to a Consultant,
any Incentive Stock Option granted to such Employee shall automatically convert
to a Nonstatutory Stock Option on the date three (3) months and one day
following such change of status.
(c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to the
extent he or she otherwise entitled to exercise it at the date of such
termination. If such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, then in the case of an Incentive Stock Option
such Incentive Stock Option shall automatically cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option on the day three months and one day following such termination. To
the extent that the Optionee was not entitled to
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exercise the Option at the date of termination, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement) by the Optionee's estate or by any
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option on
the date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after the
Optionee's death, the Optionee's estate or any person who acquires the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS.
An Incentive Stock Option shall not be transferrable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the person to whom the Incentive Stock Option is granted only by
such person. A Nonstatutory Stock Option shall not be transferrable except by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined by the Code or by Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder (a
"QDRO"), and shall be exercisable during the lifetime of the person to whom the
Option is granted only by such person or any transferee pursuant to a QDRO.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance
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by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify the Optionee at
least fifteen (15) days prior to such proposed action. To the extent it has not
been previously exercised, the Option shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of the merger of the Company into,
or the consolidation of the Company with, another corporation in which the
shareholders of the Company receive cash or securities of another issuer, or any
combination thereof, in exchange for their shares of Common Stock, or the sale
of all or substantially all of the assets of the Company, each outstanding
Option shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or substitute for
the Option, the Optionee shall fully vest in and have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which it would
not otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger,
consolidation or sale of assets, the Administrator shall notify the Optionee
that the Option shall be fully exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger, consolidation or sale of assets,
the option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger, consolidation or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger, consolidation or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger, consolidation or
sale of assets is not solely common stock of the successor corporation or its
Parent (if any), the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent (if any) equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger, consolidation or sale of assets.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option, or such
other date as is determined by the Administrator. Notice of the determination
shall be given to each Employee or Consultant to whom an Option is so granted
within a reasonable time after the date of such grant.
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13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any amendment or termination of
the Plan shall not affect Options already granted, and such Options shall remain
in full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed or any automatic quotation
system upon which the Shares may then be quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. RESERVATION OF SHARES.
The Company, during the term of this Plan, shall at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
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16. AGREEMENTS.
Options shall be evidenced by Option Agreements in such form as the
Administrator shall approve from time to time.
17. SHAREHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws and the rules of any stock exchange upon which
the Common Stock is listed or any automatic quotation system upon which the
Common Stock is quoted.
18. INFORMATION TO OPTIONEES AND PURCHASERS.
The Company shall provide to each Optionee and to each individual who
acquires Shares pursuant to the Plan, not less frequently than annually during
the period such Optionee or purchaser has one or more Options outstanding, and,
in the case of an individual who acquires Shares pursuant to the Plan, during
the period such individual owns such Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to key
employees whose duties in connection with the Company assure their access to
equivalent information.
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EXHIBIT A
IWL COMMUNICATIONS, INCORPORATED
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's name and address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of this Option Agreement and the Plan,
including the provisions thereof relating to increases in the number of shares
covered by this Option upon the occurrence of certain specified events, as
follows:
Grant Number __________________________
Date of Grant __________________________
Vesting Commencement Date __________________________
Exercise Price per Share $__________________________
Total Number of Shares Granted __________________________
Total Exercise Price $__________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: __________________________
(No more than 10 years from date
of grant, 5 years for certain grants)
VESTING SCHEDULE
This Option may be exercised, in whole or in part, in accordance with the
following schedule. Except only as specifically provided elsewhere herein or in
the Plan, this Option shall be exercisable in the following cumulative
installments:
Up to twenty percent (20%) of the total Optioned Shares at any time after
the first anniversary of the Vesting Commencement Date;
Up to an additional twenty percent (20%) of the total Optioned Shares at
any time after the second anniversary of the Vesting Commencement Date;
Up to an additional twenty percent (20%) of the total Optioned Shares at
any time after the third anniversary of the Vesting Commencement Date;
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Up to an additional twenty percent (20%) of the total Optioned Shares at
any time after the fourth anniversary of the Vesting Commencement Date; and
Up to an additional twenty percent (20%) of the total Optioned Shares at
any time after the fifth anniversary of the Vesting Commencement Date.
TERMINATION PERIOD
You may exercise this Option for three months after your employment or
consulting relationship with the Company terminates, or for such longer period
upon your death or disability as provided in the Plan. If your status changes
from Employee to Consultant or Consultant to Employee, this Option Agreement
shall remain in effect. In no case may you exercise this Option after the
Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. IWL Communications, Incorporated (the "Company")
hereby grants to the Optionee named in Section I hereof (the "Optionee") an
option (the"Option") to purchase the total number of shares of Common Stock (the
"Shares") set forth in Section I hereof, at the exercise price per share set
forth in Section I hereof (the "Exercise Price") subject to the terms,
definitions and provisions of the 1997 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated herein by reference. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option Agreement.
If designated in Section I hereof as an Incentive Stock Option, this Option
is intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code
Section 422(d), this Option shall be treated as a Nonstatutory Stock Option.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in Section I hereof and with the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in the form attached hereto as EXHIBIT A) which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be
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signed by the Optionee and shall be delivered in person or by certified mail
to the Secretary of the Company. The written notice shall be accompanied by
payment of the Exercise Price. This Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by the
Exercise Price.
The Optionee shall, upon notification of the amount due (if any) as a
result of the exercise of the Option and prior to or concurrent with delivery of
the certificate representing the Shares, pay to the Company amounts necessary to
satisfy applicable federal, state and local tax withholding requirements.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed
or any automatic quotation system upon which the Shares may then be quoted.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. LOCK-UP PERIOD. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
Optionee shall not sell or otherwise transfer any Shares or other securities of
the Company during the one-year period (or such longer period as may be
requested in writing by the Managing Underwriter and agreed to in writing by the
Company) (the "Market Standoff Period") following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company that (A) in
the case of Shares acquired directly or indirectly from the Company, have been
owned by the Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
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<PAGE>
(d) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the Exercise Price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, and may
not be exercised if the issuance of such Shares upon such exercise or the method
of payment of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including any
rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
as otherwise set forth in the Plan and may be exercised during the lifetime of
Optionee only by Optionee or a permitted transferee as set forth in the Plan.
The terms of the Plan and this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may be exercised only within the term set
out in Section I hereof, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
8. TAX CONSEQUENCES. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE, PARTICULARLY WITH RESPECT TO HIS
OR HER STATE'S TAX LAWS.
9. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by Texas law except for that body of law
pertaining to conflict of laws.
10. WARRANTIES, REPRESENTATIONS AND COVENANTS. The undersigned Optionee
warrants and represents that he or she has reviewed the Plan and this Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option Agreement and fully understands all
provisions of the Plan and Option Agreement. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions relating to the Plan and Option Agreement.
Optionee further agrees to notify the Company upon any
16
<PAGE>
change in the residence address indicated below. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED
ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
OPTION AGREEMENT, NOR IN THE PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE,
SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF
EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY
WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
IWL COMMUNICATIONS, INCORPORATED
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
OPTIONEE:
-----------------------------------
Signature
-----------------------------------
Print Name
-----------------------------------
Residence Address
-----------------------------------
Area Code/Telephone Number
17
<PAGE>
EXHIBIT A
IWL COMMUNICATIONS, INCORPORATED
1997 STOCK OPTION PLAN
EXERCISE NOTICE
IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, TX 77034
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, _____________, 199__, the
undersigned ("Purchaser") hereby elects to purchase __________ shares (the
"Shares") of the Common Stock of IWL Communications, Incorporated (the
"Company") under and pursuant to the 1997 Stock Option Plan (the "Plan") and the
Stock Option Agreement dated _________, 199__ (the "Option Agreement"). The
purchase price for the Shares shall be $__________, as specified in the Option
Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company
the full purchase price for the Shares of _____________________________________
______________________________________________________________________________.
THE USE OF SHARES OF STOCK ACQUIRED OR TO BE ACQUIRED FOR EXERCISED SHARES
MAY HAVE INCOME TAX CONSEQUENCES FOR THE OPTIONEE.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. The Purchaser shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Shares
subject for which such Option is exercised including, but not limited to, rights
to vote or to receive dividends unless and until the Purchaser has satisfied all
requirements for exercise of the Option pursuant to its terms, the certificates
evidencing such Shares have been issued and the Purchaser has become a record
holder of such Shares. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date all the conditions set forth above are
satisfied, except as provided in Section 11 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents
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<PAGE>
that Purchaser has consulted with any tax consultants Purchaser deems
advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by Texas law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: IWL COMMUNICATIONS, INC.
By:
- ----------------------------- -----------------------------------
Signature Its:
----------------------------------
- -----------------------------
Print Name
ADDRESS: Address:
- ----------------------------- 12000 Aerospace Avenue, Suite 200
- ----------------------------- Houston, TX 77034
19
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
1997 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1997 Director Stock Option Plan (the
"Plan") of IWL Communications, Incorporated, a Texas corporation (the
"Company"), is to encourage ownership in the Company by outside directors of the
Company whose continued services are considered essential to the Company's
future progress and to provide them with a further incentive to remain as
directors of the Company.
2. ELIGIBILITY. Options (each, an "Option") to purchase shares
("Shares") of the Company's common stock, par value $.01 per share ("Common
Stock"), may be granted only to Outside Directors. An "Outside Director" is a
member of the Board of Directors of the Company ("Board of Directors") that is
not an Employee (each, an "Optionee"). "Employee" means any person, including
officers and directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a Director's fee by the Company shall not be
sufficient to constitute "employment" by the Company. A "Parent" means a
"parent corporation," whether now or hereafter existing, as defined in Section
424(e) of the Internal Revenue Code of 1986, as amended to date and as it may be
hereafter amended from time to time (the "Code"), and a "Subsidiary" means a
"subsidiary corporation," whether now or hereafter existing, as defined in
Section 424(f) of the Code.
3. ADMINISTRATION
(a) BOARD OF DIRECTORS. The Board of Directors of the Company shall
supervise and administer the Plan in compliance with the rules under Rule 16b-3
or any successor rule thereto ("Rule 16b-3") under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All questions of interpretation of
the Plan or of any Options issued under it shall be determined by the Board of
Directors and such determination shall be final and binding upon all persons
having an interest in the Plan. In the event it becomes necessary after the
date on which the Plan is adopted to have the Plan administered by a committee
of the Board of Directors, then a committee designated by the Board of Directors
will administer the Plan, which committee shall be constituted to comply with
the rules under Rule 16b-3 relating to the administration of employee benefit
plans for Outside Directors, and all references in the Plan to the Board of
Directors shall be deemed to be a reference to such committee.
(b) POWERS OF THE BOARD OF DIRECTORS. Subject to the provisions of
the Plan and subject to the approval of any relevant authorities, including the
approval, if required, of any national market system or established stock
exchange upon which the Common Stock is quoted or listed, the Board of Directors
shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 5(b) of the Plan;
<PAGE>
(ii) to determine the recipients of Options and the number of
shares to be covered by each Option granted hereunder, including the number
of shares to be covered by Options to be granted to an Optionee;
(iii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised, any vesting, acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or the shares of Common Stock relating thereto, based in each case
on such factors as the Board of Directors, in its sole discretion, shall
determine; and
(iv) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan, and to amend, suspend or discontinue the Plan
as provided for in Section 10 hereof.
4. STOCK SUBJECT TO THE PLAN
(a) MAXIMUM NUMBER OF SHARES. The maximum number of shares which may
be issued under the Plan shall be 100,000 shares of Common Stock, subject to
adjustment as provided in Section 9 below.
(b) TERMINATION OF OPTIONS. If any Option shall for any reason
expire or otherwise terminate without having been exercised in full, the stock
not purchased under such Option shall revert to and again become available for
issuance under the Plan unless the Plan shall have terminated; provided,
however, that shares of Common Stock that have been actually issued under the
Plan shall not be returned to the Plan and shall not become available for future
issuance under the Plan. Shares that are withheld as payment of the Exercise
Price of any Options (as set forth in Section 5(f)) shall be deemed issued for
purposes of this Section.
(c) STOCK SUBJECT TO THE PLAN. The stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
5. TERMS, CONDITIONS AND FORM OF OPTIONS
(a) OPTION AGREEMENT
Each option agreement governing an Option ("Option Agreement")
shall be in the form attached hereto as Exhibit A. In the event any provisions
of the Option Agreement and the Plan conflict, the provisions of the Plan shall
control. The provisions of separate Options need not be identical, but each
Option Agreement shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions set forth in this Section 5.
2
<PAGE>
(b) OPTION EXERCISE PRICE. The exercise price per share for each
Option granted under the Plan shall be equal to one hundred percent (100%) of
the fair market value of each such share ("Fair Market Value") on the date of
grant. The Fair Market Value shall be equal to (i) if the Common Stock is
quoted or listed on any national market system or established stock exchange,
including without limitation the Nasdaq National Market (the "NASDAQ"), the
closing sales price for such stock on the date of determination (or, if no such
price is reported on such date, such price as reported on the nearest preceding
day) as quoted on such system or exchange (or the exchange with the greatest
volume of trading in the Common Stock), as reported in THE WALL STREET JOURNAL
or such other source as the Board of Directors deems reliable, or (ii) if the
Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National
Market thereof) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the mean of the closing bid and asked prices
for the Common Stock on the date of determination (or if such prices are not
reported on such date, such prices as reported on the nearest preceding date),
as reported in THE WALL STREET JOURNAL or such other source as the Board of
Directors deems reliable; or (iii) if the fair market value is not determined
pursuant to (i) or (ii) above, the fair market value as determined in good faith
by the Board of Directors.
(c) OPTIONS NON-TRANSFERABLE. No Option shall be transferable by the
Optionee otherwise than by will, by the laws of descent and distribution, or
pursuant to a qualified domestic relations order, as defined in the Code or
Title I of the Employee Retirement Security Act of 1974, as amended ("ERISA"),
or the rules thereunder ("QDRO"), and shall be exercised during the lifetime of
the Optionee only by such person or any transferee pursuant to a QDRO. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during such person's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(d) EXERCISE PERIOD. Subject to Section 7, each Option shall become
vested and exercisable as follows: The Options will vest one-third on the day
preceding the first Annual Meeting of Shareholders of the Company held after the
date of grant and one-third on each of the two following anniversaries of that
date so long as Optionee continues to serve as a director of the Company. In
the event an Optionee ceases to serve as a director of the Company, each such
Option may be exercised by the Optionee (or, in the event of such person's
death, by such person's administrator, executor or heirs), at any time within 12
months after the Optionee ceases to serve as a director, but only to the extent
such Option was exercisable at the time of such cessation of service.
Notwithstanding the foregoing, no Option shall be exercisable after the
expiration of 10 years from the date of grant.
(e) EXERCISE PROCEDURE. Subject to Section 12, an Option shall be
deemed to be exercised when written notice ("Exercise Notice") of such exercise
has been given to the Company in accordance with the terms of the Option
Agreement by the person entitled to exercise the Option and full payment for the
shares of Common Stock with respect to which the Option is exercised has been
received by the Company. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the shares, pay by cash or check to the Company
all amounts necessary to satisfy applicable federal, state
3
<PAGE>
and local tax withholding requirements. No Option may at any time be
exercised with respect to a fractional share.
(f) PAYMENT OF EXERCISE PRICE. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either (i) in cash
or check, or (ii) at the discretion of the Board of Directors in one or a
combination of the following ways, (A) by delivery to the Company of other
shares of Common Stock of the Company to be valued at their Fair Market Value on
the exercise date (provided that any shares acquired directly or indirectly from
the Company shall have been owned by the Optionee for more than six months on
the date of surrender), or (B) withholding of shares that would otherwise be
issued upon the exercise of the Option to be valued at their Fair Market Value
on the exercise date. If the Fair Market Value of the number of whole shares
transferred or the number of whole shares subject to an Option surrendered is
less than the total exercise price of the Option, the shortfall must be made up
in cash or by check.
6. NONSTATUTORY OPTIONS. All Options granted under the Plan shall be
nonstatutory Options not entitled to special tax treatment under Section 422 of
the Code.
7. EFFECTIVE DATE AND TERM
The Plan was adopted by the Board of Directors and the shareholders of
the Company as of 5:00 p.m. on February 28, 1997 and became effective upon its
adoption. The Plan shall continue in effect until it is terminated by action of
the Board, but such termination shall not affect the terms of any outstanding
Options.
8. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS 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 Company will retain a director for any period of time.
(b) NO SHAREHOLDERS' RIGHTS FOR OPTIONEES. Neither an Optionee nor
any person to whom an Option is transferred pursuant to the Plan shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares of Common Stock subject to such Option including, but not limited to,
rights to vote or to receive dividends, unless and until such person has
satisfied all requirements for exercise of the Option pursuant to its terms, the
certificates evidencing such shares have been issued and such person has become
a record holder of such shares.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the aggregate number of shares of Common Stock
subject to Options, the number of shares of Common Stock subject to Options to
be granted on each event described in Section 5,
4
<PAGE>
the number of shares of Common Stock covered by each outstanding Option and
the number of shares of Common Stock that have been authorized for issuance
under the Plan but as to which no Options have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option, as
well as the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board of Directors,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an
Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger or consolidation
of the Company with or into another entity in which the shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their shares of Common Stock, each outstanding Option
shall be assumed or an equivalent option shall be substituted by such successor
entity or a parent or subsidiary of such successor entity. For the purposes of
this Section, the Option shall be considered assumed if, following the merger,
consolidation or sale of assets, the Option confers the right to purchase, for
each share of Common Stock subject to the Option immediately prior to the
merger, consolidation or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger, consolidation or sale
of assets by holders of Common Stock for each share held on the effective date
of the consummation of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of common stock).
10. AMENDMENT OF THE PLAN
The Board of Directors may amend or terminate the Plan in any respect
whatsoever, provided that any such amendment or termination of the Plan shall
not affect Options already granted and such Options shall remain in full force
and effect as if the Plan had not been amended or terminated.
11. NOTICE
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received. Any
5
<PAGE>
written notice to Optionees required by any provisions of the Plan shall be
addressed to the Optionee at the address on file with the Company and shall
become effective 3 days after it is mailed by certified mail, postage prepaid
to such address or at the time of delivery if delivered sooner by messenger or
overnight courier.
12. REGULATORY APPROVAL, COMPLIANCE AND OTHER MATTERS.
(a) Options shall not be exercised, and shares shall not be issued
upon such exercise, unless the exercise of such Option and the issuance and
delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended ("the Securities Act"), the Exchange Act, the
rules and regulations thereunder and the requirements of any stock exchange upon
which such shares may then be listed or approved for listing upon notice of
issuance, and such issuance shall be further subject to the approval of counsel
for the Company with respect to such compliance, including the availability of
an exemption from registration for the issuance and sale of such shares. The
inability of the Company to obtain from any regulatory body the authority deemed
by the Company to be necessary for the lawful issuance and sale of any shares
under this Plan, or the unavailability of an exemption from registration for the
issuance and sale of any shares under this Plan, shall relieve the Company of
any liability with respect to the non-issuance or sale of such shares.
(b) OTHER CONDITIONS. The Company may require any Optionee, or any
person to whom an Option is transferred pursuant to the Plan, as a condition to
exercising any such Option, (i) to give written assurances satisfactory to the
Company as to the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matter, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; (ii) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock; and
(iii) to deliver such other documentation as may be necessary to comply with
federal and state securities laws. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act and all
applicable state securities laws, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock and may enter stop
transfer orders against the transfer of the shares of Common Stock issuable upon
the exercised Options. The Company has no obligation to undertake registration
of Options or the shares of Common Stock issuable upon the exercise of Options.
(c) RULE 16b-3. With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3
6
<PAGE>
and with respect to such persons all transactions shall be subject to such
conditions regardless of whether they are expressly set forth in the Plan or
the Option Agreement. To the extent any provision of the Plan or action by
the Board of Directors fails to so comply, it shall not apply to such persons
or their transactions and shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board of Directors.
13. GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the state of
Texas without regard to its conflict of laws rules.
7
<PAGE>
EXHIBIT A
8
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT (this "Agreement") is entered into
between IWL COMMUNICATIONS, INCORPORATED, a Texas corporation (the "Company"),
and the person named on the signature page hereof ("Optionee") with the date of
grant of the option as set forth on such signature page.
To carry out the purposes of the IWL COMMUNICATIONS, INCORPORATED 1997
DIRECTOR STOCK OPTION PLAN (the "Plan"), by affording Optionee the opportunity
to purchase shares of common stock of the Company ("Common Stock"), and in
consideration of the mutual agreements and other matters set forth herein and in
the Plan, the Company and Optionee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Optionee
the right and option ("Option") to purchase all or any part of the number of
shares of Common Stock as set forth on the signature page hereto, on the terms
and conditions set forth herein and in the Plan. The Optionee may review a copy
of the Plan at the office of the Secretary of the Company at 12000 Aerospace
Avenue, Suite 200, Houston, Texas 77034. This Option shall not be treated as an
incentive stock option within the meaning of Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. VESTING SCHEDULE. Except only as specifically provided elsewhere
herein, the Option shall be exercisable in the following cumulative
installments:
Up to one-third, or ______, of the total shares ("Optioned Shares") at
any time after the Initial Vesting Date. For purposes of this Agreement, the
"Initial Vesting Date" shall mean the day immediately preceding the day on which
the Company's ______ [INSERT DATE] annual meeting of shareholders is held;
Up to an additional one-third, or _____, of the total Optioned Shares
at any time after the first anniversary of the Initial Vesting Date; and
Up to an additional one-third, or _____, of the total Optioned Shares
at any time after the second anniversary of the Initial Vesting Date.
If an installment covers a fractional share, such installment will be
rounded off to the next highest share, except the final installment, which will
be for the balance of the total Optioned Shares.
3. PURCHASE PRICE. The purchase price of Common Stock purchased pursuant
to the exercise of this Option is set forth on the signature page hereto, which
has been determined to be not less than the Fair Market Value of the Common
Stock at the date of grant of this Option.
9
<PAGE>
4. EXERCISE OF OPTION. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares.
5. METHOD OF PAYMENT. The purchase price of Exercised Shares acquired
pursuant to an Option shall be paid as set forth in the Plan.
6. NONTRANSFERABLE AND TERMINATION. This Option is not transferable by
Optionee otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations orders, and may be exercised only by
Optionee during Optionee's lifetime, except as provided in the Plan.
7. TERM. This Option shall not be exercisable in any event after the
expiration of ten years from the date of grant hereof. The purchase price of
shares as to which this Option is exercised shall be paid in full at the time of
exercise for the consideration set forth in the Plan. No fraction of a share of
Common Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof.
8. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Common Stock acquired by exercise of this Option
obligates the Company to withhold federal, state or local tax the Optionee shall
pay such amounts to the Company upon request by delivery of cash or check or in
such other manner as is permitted by the Plan.
9. COMPLIANCE WITH SECURITIES LAWS. Optionee agrees that the shares of
Common Stock which Optionee may acquire by exercising this Option will not be
sold or otherwise disposed of in any manner which would constitute a violation
of any applicable securities laws, whether federal or state. Optionee also
agrees (i) that the certificates representing the shares of Common Stock
purchased under this Option may bear such legend or legends as the Board of
Directors of the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Common Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Common
Stock purchased under this Option.
10. TAX CONSEQUENCES. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES, PARTICULARLY WITH RESPECT TO HIS OR HER STATE'S TAX
LAWS.
10
<PAGE>
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Optionee.
12. ENTIRE AGREEMENT AND GOVERNING LAW. The Plan is incorporated herein
by reference as a part of this Agreement. The Plan and this Agreement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. In the event of a
conflict between the terms and conditions of this Agreement and the Plan, the
terms and conditions of the Plan shall control. This Agreement is governed by
Texas law except for that body of law pertaining to conflict of laws.
13. MISCELLANEOUS. Optionee acknowledges receipt of a copy of the Plan
and hereby warrants and represents that he or she has reviewed the Plan and this
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Agreement and fully understands all of the
provisions of the Plan and this Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors upon any questions relating to the Plan and this Agreement. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Optionee has executed
this Agreement, all as of the day and year first above written.
IWL COMMUNICATIONS, INCORPORATED
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
-----------------------------------------------------
, Optionee
---------------
Address:
-----------------------------------------------------
-----------------------------------------------------
Date of Grant:
------------------
Exercise Price Per Share: $
-----------------
Total Number of Optioned Shares:
------------------
Total Exercise Price: $
-----------------
Type of Option: Nonstatutory Stock Option
Expiration Date:
------------------
12
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
1997 DIRECTOR STOCK OPTION PLAN
EXERCISE NOTICE
IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, _____________, 199__, the
undersigned ("Purchaser") hereby elects to purchase __________ shares (the
"Shares") of the Common Stock of IWL Communications, Incorporated (the
"Company") under and pursuant to the 1997 Director Stock Option Plan (the
"Plan") and the Director Stock Option Agreement dated _________, 199__ (the
"Option Agreement"). The per share exercise price for the Shares shall be
$__________, as specified in the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares or ___________________________________.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS STOCKHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Purchaser as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 9 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser had consulted with any tax
consultants Purchaser deems advisable in connection with the purchaser or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
13
<PAGE>
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and the Option Agreement
are incorporated herein by reference. This Exercise Notice, the Plan and the
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This Exercise Notice is
governed by Texas law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: IWL COMMUNICATIONS, INCORPORATED
By:
- --------------------------------- -----------------------------
Signature
Its:
- --------------------------------- -----------------------------
Print Name
ADDRESS: ADDRESS:
12000 Aerospace Avenue, Suite 200
- --------------------------------- Houston, Texas 77034
- ---------------------------------
14
<PAGE>
PROMISSORY NOTE
$150,000.00 Date: September 19, 1994
For value received, the undersigned IWL Communications, Inc. (the "Promisor")
promises to pay to the order of Byron Allen (the "Payee"), at 4311 FM 2351,
FRIENDSWOOD, Texas 77546, (or at such other place as the Payee may designate
in writing) the sum of $150,000.00 with interest from September 19, 1994, on
the unpaid principal at the rate of 10.00 percent annually.
The unpaid principal and accrued interest shall be payable in monthly
installments of $151,250.00, beginning on October 19, 1994, and continuing
until October 19, 1994, (the "Due Date"), at which time the remaining unpaid
principal and interest shall be due in full. THE PROMISSOR UNDERSTANDS THAT
THE PAYMENT OF THE ABOVE INSTALLMENT PAYMENTS MAY NOT FULLY AMORTIZE THE
PRINCIPAL BALANCE OF THE NOTE, AND THEREFORE, A BALLOON PAYMENT MAY BE DUE
ON THE DUE DATE. All payments on this Note shall be applied first in payment
of accrued interest and any remainder in payment of principal.
No renewal or extension of this Note, delay in enforcing any right of the
Payee under this Note, or assignment by Payee of this Note shall affect the
liability of the Promisor. All rights of the Payee under this Note are
cumulative and may be exercised concurrently or consecutively at the Payee's
option.
This Note shall be construed in accordance with the laws of the State of
Texas.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the
legal currency of the United States.
Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
Signed this 19th day of September, 1994, at IWL Communications, Inc.
Friendswood, Texas.
IWL Communications, Inc.
By: /s/ Ignatius Leonards
------------------------------
Ignatius Leonards
President
<PAGE>
OFFICE LEASE AGREEMENT
PROPERTY: 12000 AEROSPACE AVENUE
LANDLORD: ELLINGTON FIELD, LTD.
TENANT: IWL COMMUNICATIONS. INC.
<PAGE>
TABLE OF CONTENTS
SECTION ITEM PAGE
- ------- ---- ----
1. CERTAIN LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 1
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Use Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Common Area . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Change in Lease Commencement Date . . . . . . . . . . . . . . . 2
4. RENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Late Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.4 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . 3
5. SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. TERM, COMPLETION OF IMPROVEMENTS . . . . . . . . . . . . . . . . . . 7
7. ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. ASSIGNMENT OR SUBLETTING . . . . . . . . . . . . . . . . . . . . . . 8
9. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . 9
10. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
11.1 Tenant's Insurance. . . . . . . . . . . . . . . . . . . . . . .10
11.2 Landlord's Insurance. . . . . . . . . . . . . . . . . . . . . .10
11.3 Insurance Policies. . . . . . . . . . . . . . . . . . . . . . .10
11.4 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . .10
12. NO PERSONAL LIABILITY OF LANDLORD. . . . . . . . . . . . . . . . . .11
13. HOLD HARMLESS. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
14. ACCESS TO PREMISES . . . . . . . . . . . . . . . . . . . . . . . . .11
15. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
15.1 Alterations by Landlord . . . . . . . . . . . . . . . . . . . .11
15.2 Alterations By Tenant . . . . . . . . . . . . . . . . . . . . .12
16. REPAIRS AND MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . .12
16.1 Landlord's Obligations. . . . . . . . . . . . . . . . . . . . .12
16.2 Tenant's Obligations. . . . . . . . . . . . . . . . . . . . . .12
16.3 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . .12
17. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
18. DAMAGE OR DESTRUCTION. . . . . . . . . . . . . . . . . . . . . . . .13
18.1 Lease Termination . . . . . . . . . . . . . . . . . . . . . . .13
18.2 Repair or Restoration . . . . . . . . . . . . . . . . . . . . .13
<PAGE>
19. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
20. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
21. SUCCESSION TO LANDLORD'S INTEREST. . . . . . . . . . . . . . . . . .14
21.1 Attornment. . . . . . . . . . . . . . . . . . . . . . . . . . .14
21.2 Subordination . . . . . . . . . . . . . . . . . . . . . . . . .14
21.3 Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . .14
22. SURRENDER OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . .14
23. PARKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
24. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
24.1 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . .15
24.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . .15
24.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
24.4 Accord and Satisfaction. . . . . . . . . . . . . . . . . . . .15
24.5 Attorney's Fees. . . . . . . . . . . . . . . . . . . . . . . .16
24.6 Time Is Of The Essence . . . . . . . . . . . . . . . . . . . .16
24.7 Broker's Commission. . . . . . . . . . . . . . . . . . . . . .16
24.8 No Light, Air or View Easement . . . . . . . . . . . . . . . .16
24.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . .16
24.10 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . .16
24.11 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
24.12 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . .16
24.13 Compliance with Law. . . . . . . . . . . . . . . . . . . . . .16
24.14 Superior Law . . . . . . . . . . . . . . . . . . . . . . . . .16
24.15 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . .16
24.16 Execution of Lease . . . . . . . . . . . . . . . . . . . . . .16
EXHIBITS
"A" - The Premises
"B" - The Property
"C" - Improvements by Landlord
"D" - Space Plan
"E" - Rules and Regulations
ADDENDUM
<PAGE>
OFFICE LEASE AGREEMENT
THIS LEASE, dated for reference purposes May 22, 1996, is made by and between
ELLINGTON FIELD, LTD., a Texas limited partnership., as Landlord, and IWL
COMMUNICATIONS, INC., as Tenant.
1. CERTAIN LEASE PROVISIONS
The descriptions and amounts set forth below are qualified by their usage
elsewhere in this Lease including those Articles referred to in parentheses:
1.1 Premises (Article 2.1): Suite/Unit No. 200, located on the 2nd
floor, in the Building, situated at 12000 Aerospace Avenue, Houston, Harris
County, Texas 77034.
1.2 Rentable Area of Premises (Article 2.1):
approximately 11,118 square feet (the "Area")
Total Rentable Area of Building (Article 2.2):
approximately 79,615 square feet
1.3 Use Clause (Article 2.3): General Office use
1.4 Lease Term (Article 3.1): three (3) Years, 0 Months.
1.5 Lease Commencement Date (Article 3.1): No later than forty-five days
after Lease date.
1.6 Lease Expiration Date (Article 3.1): Thirty-six months after the Lease
Commencement Date.
1.7 Security Deposit: $ N/A.
1.8 Tenant's Addresses (Articles 4.1, 24.11):
(A) Notice
Address P.O. Box 1324
Friendswood, TX 77546 Attn: Keith Johnson
(B) Billing
Address P.O. Box 1324
Friendswood, TX 77546 Attn: Accounts Payable
1.9 Landlord's Addresses (Articles 4.1, 24.11):
Building, C/O Linda Dees
(A) Notice and Payment
Address P.O. Box 262263, Houston, TX 77207
1.10 Base Rent Commencement Date (Articles 4.1, 4.4): Lease Commencement
Date.
1.11 Base Rent Monthly Installments (Articles 4.1, 4.3): Months 1-34 -
$11,118.00/Month; Months 35-36 $0.00.
1.12 Additional Rent (Article 4.4):
Base Year 1996
1.13 Brokers (Article 24.7): Grubb & Ellis, Dan F. Boyles, Jr.
1.14 This Lease consists of 24 articles on 17 pages, plus Exhibits A, B, C,
D, E, and six additional page(s) of Addenda.
1
<PAGE>
2. PREMISES:
2.1 PREMISES. Landlord hereby leases to Tenant and Tenant leases from
Landlord, for the term, at the rental and upon all of the conditions set forth
herein, that certain real property known by unit number and address specified in
Article 1.1 hereof, consisting of the approximate Area specified in Article 1.2
hereof, and which is referred to herein as the "Premises". The Premises are
depicted in EXHIBIT "A" attached hereto. The Premises are located in a building
(the "Building"), which building, the real property on which it is situated, and
any parking facilities or structures appurtenant thereto, are hereinafter
collectively referred to as the "Property", and described in EXHIBIT "B"
attached hereto.
2.2 USE CLAUSE. Tenant is permitted to use the Premises for the purposes
specified in Article 1.3 hereof, and for no other purpose whatsoever. Tenant
shall obtain, at its own expense, all necessary governmental licenses and
permits, inclusive of any impact or use fees imposed by said governmental
bodies, for such use. Tenant shall not conduct any secondhand, auction,
distress, fire, bankruptcy or going-out-of-business sales.
2.3 COMMON AREA. As long as the Lease remains in effect and Tenant is not
in default hereunder, Tenant shall have the nonexclusive right, in common with
the Landlord, other tenants, subtenants, employees and invitees, to use the
common areas of the Property, which include, but are not limited to: walkways,
patios, landscaped areas and parks, sidewalks, service corridors, recreational
facilities, restrooms, stairways, elevators, plazas, malls, throughways, parking
areas and roadways, provided that Landlord shall have the right at any time to
exclude therefrom such areas as Landlord may determine so long as access to the
Premises is not unreasonably denied.
3. LEASE TERM:
3.1 TERM. The Term of this Lease shall be as defined in Article 1.4
hereof, commencing on the Lease Commencement Date specified in Article 1.5
hereof, and ending on the Lease Expiration Date specified in Article 1.6
hereof, unless sooner terminated pursuant to any provision of this Lease.
3.2 CHANGE IN LEASE COMMENCEMENT DATE. If for any reason Landlord cannot
deliver possession of the Premises to Tenant on said Lease Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of the Tenant hereunder.
However, in such case Tenant shall not be obligated under any provisions of this
Lease until possession of the Premises is tendered to Tenant, which date shall
be the new Lease Commencement Date, and the Lease Expiration Date shall remain
unchanged. In the event that Landlord shall permit Tenant to occupy Premises
prior to said Lease Commencement Date, such occupancy shall be subject to all of
the provisions of this Lease. Said early possession shall not advance the Lease
Expiration Date.
Upon Landlord's or Tenant's request, the parties agree to execute in
writing an Addendum to certify the commencement date and expiration date hereof,
but this Lease shall not be affected in any manner if either party fails or
refuses to execute such Addendum.
4. RENTS:
4.1 PAYMENT. All rents shall be payable in advance, without prior demand
or any right of offset or deduction, in monthly installments on the first day of
each calendar month of the Term hereof. Tenant shall pay all rents to Landlord
in lawful money of the United States of America at the address stated in Article
1.9(B) or to such other persons or at such other places as Landlord may
designate in writing.
If the Lease Commencement Date occurs on a day other than the first
day of a calendar month, then all rents shall be prorated for the balance of
that month based upon the actual number of days the Lease is in effect during
said calendar month. The term "Lease Year", as hereinafter used, refers to each
successive twelve-month period beginning with the Lease Commencement Date, as it
may be adjusted pursuant to Article 3.2 hereof. Notwithstanding
2
<PAGE>
anything to the contrary contained herein, after Lease expiration Landlord
shall have the right to reconcile all rents billed, paid and/or owed by
Tenant during the Term hereof and thereafter submit a final billing to
Tenant. Upon receipt thereof, Tenant shall submit payment in full to Landlord
within thirty (30) days.
4.2 LATE FEES. Should Tenant fail to pay when due any installment of rent
or any other sum payable to Landlord under the terms of this Lease, Landlord may
assess interest at eighteen percent (18%) from and after the date on which any
such sum shall be due and payable, and such interest, which shall be paid by
Tenant to Landlord at the time of payment of the delinquent sum; provided,
however, nothing charged hereby shall ever exceed the amount that may properly
be charged or recovered under the laws of the state in which the Premises are
located.
4.3 BASE RENT. Payment of Base Rent shall begin on the Base Rent
Commencement Date specified in Article 1.10. If the Base Rent Commencement Date
occurs on a day other than the first day of a calendar month, then Base Rent
shall be prorated for the balance of that month based upon the actual number of
days from the Base Rent Commencement Date through the last day of said calendar
month. The amount of each monthly installment of Base Rent for the Premises for
the entire term of this Lease shall be as specified in Article 1.11, subject to
adjustment pursuant to the following paragraph.
4.4 ADDITIONAL RENT. Commencing with the calendar year which follows the
year in which the Lease Commencement Date occurs and continuing thereafter for
each calendar year during the full term of this Lease, Landlord shall present to
Tenant prior to the beginning of each calendar year a statement of Tenant's
Forecast Additional Rental.
As used herein, "TENANT'S FORECAST ADDITIONAL RENTAL" shall mean
Landlord's reasonable estimate of Tenant's Additional Rental (defined below)
for the coming calendar year.
"TENANT'S ADDITIONAL RENTAL" as that term is used herein, shall be computed
on a calendar year basis and shall mean the sum of Tenant's Percentage Share
(defined below) of Operating Expenses (defined below), to the extent such sum
exceeds Tenant's Percentage Share of Operating Expenses during the "Base Year".
There is established under this lease a "BASE YEAR", which for these purposes is
the calendar year 1996. As used herein, "TENANT'S PERCENTAGE SHARE" shall mean a
fraction, the numerator of which is the total number of square feet of Net
Rentable Area within the Leased Premises and the denominator of which is 95% of
the total square footage of all Net Rentable Area in the Building. For the
purposes of this lease, the "TENANT'S PERCENTAGE SHARE" shall be 14.7%;
provided, however, that in the event that the amount of space leased by Tenant
shall increase or decrease subsequent to the beginning date of the term of this
lease, whether pursuant to an option to expand or otherwise, Tenant's
Proportionate Share shall be appropriately adjusted by Landlord. *See Addendum
for cap on certain Operating Expenses.
No later than one hundred twenty (120) days after the end of the
calendar year in which the Commencement Date occurs and of each calendar year
thereafter during the term of this lease, Landlord shall provide Tenant a
statement comparing the Base Year's Operating Expenses for each such calendar
year and a statement prepared by Landlord comparing Tenant's Forecast Additional
Rental with Tenant's Additional Rental. In the event that Tenant's Forecast
Additional Rental actually paid by Tenant exceeds Tenant's Additional Rental for
said calendar year, Landlord shall pay Tenant (in the form of a credit against
rentals next due or, if these rentals next due are less than the amount owed
Tenant, Landlord shall pay the difference in the form of a check) an amount
equal to such excess. In the event that Tenant's Additional Rental exceeds
Tenant's Forecast Additional Rental for said calendar year, Tenant hereby agrees
to pay Landlord, within thirty (30) days of receipt of the statement, an amount
equal to such difference ("TENANT'S ADDITIONAL RENTAL ADJUSTMENT"). The
provisions of this paragraph shall survive any expiration, termination or
cancellation of this lease.
Tenant, at Tenant's sole cost and expense, shall have the right, to be
exercised by written notice given to Landlord within one hundred eighty (180)
days after receipt of aforesaid statement showing Operating Expenses for the
preceding calendar year, to audit, at the place where Landlord maintains its
books and records, Landlord's books and records pertaining only to such
3
<PAGE>
Operating Expenses for three (3) preceding calendar years and Tenant's Base
Year, provided such audit commences within thirty (30) days after Tenant's
notice to Landlord and thereafter proceeds regularly and continuously to
conclusion, and that such audit does not unreasonably interfere with the
conduct of Landlord's business. Landlord agrees to cooperate in good faith with
Tenant in the conduct of any such audit.
"OPERATING EXPENSES", for each calendar year, shall consist of all
operating costs (defined below) for the Property.
For the purposes of this Lease, "OPERATING COSTS" shall mean all (or
where specified by Landlord as hereinafter permitted or required, an amortized
portion of) expenses, costs and accruals (excluding therefrom, however, specific
costs billed to or otherwise incurred for the particular benefit of specific
tenants of the Building) computed on an accrual basis, incurred or accrued in
connection with, or relating to, the ownership, maintenance, or operation of the
Property during each calendar year, including, but not limited to, the
following:
(1) Management fees of the building manager, not to exceed four
percent (4%) of the gross rentals collected;
(2) wages and salaries, including taxes, insurance and benefits, of
all on and off-site employees engaged in operations, maintenance or access
control, as reasonably allocated by Landlord;
(3) cost of all supplies, tools, equipment and materials to the
extent used in operations and maintenance, as reasonably allocated by Landlord;
(4) cost of all utilities including, but not limited to, the cost of
electricity, the cost of water and the cost of power for heating, lighting, air
conditioning and ventilating;
(5) cost of all maintenance and service agreements and the equipment
therein, including, but not limited to, access control service, garage
operations, window cleaning, elevator maintenance, janitorial service and
landscaping maintenance.;
(6) cost of repairs and general maintenance (excluding repairs,
alterations and general maintenance paid by proceeds of insurance), or if and to
the extent Landlord so elects in order to reduce the amount of Operating
Expenses paid by tenants of the Property in any given year or years, Landlord
may at its option amortize such cost based upon any amortization schedule in
accordance with generally accepted accounting principals, in which event the
amortized portion of such repair and maintenance costs (whether such costs were
incurred in the same year or in any prior year) shall be included as an
Operating Cost in each year of the amortization schedule as selected by
Landlord;
(7) amortization of the cost (together with reasonable financing
charges and installation costs), based upon any amortization schedule in
accordance with generally accepted accounting principals, of any system,
apparatus, device, or equipment which is installed for the principal purpose
of(i) reducing Operating Expenses, (ii) promoting safety, or (iii) complying
with governmental requirements which become effective after the Commencement
Date, in each case whether such costs were incurred in the same year or in any
prior year;
(8) the cost of all insurance, including, but not limited to, the
cost of casualty, rental abatement and liability insurance, and insurance on
Landlord's personal property, plus the cost of all deductible payments made by
Landlord in connection therewith;
(9) the cost of reasonable legal and accounting fees; and
(10) all taxes, assessments and governmental charges, whether or not
directly paid by Landlord, whether federal, state, county or municipal and
whether they be by taxing districts or authorities presently taxing the Property
and said common areas or by others subsequently created or otherwise, and any
other taxes and assessments attributable to the Property and said common
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areas or their operation, excluding, however, taxes and assessments
attributable to the personal property of other tenants, federal and state
taxes on income, death taxes, franchise taxes, and any taxes imposed or
measured on or by the income of Landlord from the operation of the Property;
provided, however, that if at any time during the term of this lease, the
present method of taxation or assessment shall be so changed that the whole
or any part of the taxes, assessments, levies, impositions or changes now
levied, assessed or imposed on real estate and the improvements thereon shall
be discontinued and as a substitute therefor, or in lieu of or in addition
thereto, taxes, assessments, levies, impositions or charges shall be levied,
assessed or imposed, wholly or partially, as a capital levy or otherwise, on
the rents received from the Property or the rents reserved herein or any part
thereof, then such substitute or additional taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or imposed with
respect to the Property, shall be deemed to be included within the operating
costs. Consultation, legal fees and costs resulting from any challenge of tax
assessments as reasonably allocated by Landlord shall also be included in
operating costs. It is agreed that Tenant will be responsible for ad valorem
taxes on its personal property and on the value of the leasehold improvements
in the Leased Premises to the extent that the same exceed Building standard
allowances. In the case of special taxes and assessments which may be payable
in installments, only the amount of each installment accruing during a
calendar year shall be included in the operating costs for such year.
Notwithstanding any language contained herein to the contrary, Tenant
hereby agrees that, during any calendar year in which the entire Building is not
completely occupied, Landlord shall compute all Variable Operating Costs
(defined below) for such calendar year at 95% occupancy. For purposes of this
lease, the term "VARIABLE OPERATING COSTS" shall mean any operating cost that is
variable with the level of occupancy of the Building (e.g., tenant utilities and
tenant cleaning services). In the event that Landlord excludes from "OPERATING
COSTS" any specific costs billed to or otherwise incurred for the particular
benefit of specific tenants of the Building, Landlord shall have the right to
increase "OPERATING COSTS" by an amount equal to the cost of providing standard
services similar to the services for which such excluded specific costs were
billed or incurred.
Notwithstanding anything to the contrary in this Section 5.4, the
following items shall be expressly excluded from Operating Costs:
(1) Repairs or other work occasioned by (i) fire, windstorm, or other
casualty of the type which Landlord has insured or is required to insure
pursuant to the terms of this Lease, or (ii) by the exercise of the right of
eminent domain;
(2) Leasing commissions, attorney's fees, costs and disbursements and
other expenses incurred in connection with negotiations or disputes with other
tenants, other occupants or prospective tenants or other occupants, and legal
fees incurred in connection with this Lease or the operation of the Building
that do not result in a reduction of Operating Costs;
(3) Expenses incurred in tenant buildout, renovating, or otherwise
improving or decorating, painting, or redecorating space for other tenants or
other occupants of vacant space;
(4) Costs incurred by Landlord for alterations which are considered
capital improvements, capital repairs, capital equipment and capital tools all
in conformity with generally accepted accounting principals consistently
applied, except to the extent included as an operating cost under clauses (6) or
(7) of the preceding definition of operations costs.
(5) Depreciation and amortization, except to the extent included as
an operating cost under clauses (6) or (7) of the preceding definition of
operations costs.
(6) All other costs of a capital nature, including, but not limited
to, capital improvements, capital repairs, capital equipment and capital tools
all in conformity with generally accepted accounting principles consistently
applied, except to the extent included as an operating cost under clauses (6) or
(7) of the preceding definition of operations costs.
(7) Expenses in connection with services or other benefits of a type
which are not
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provided Tenant but which are provided to another tenant or occupant of the
Building;
(8) Costs incurred due to violation by Landlord or any tenant or
other occupant of the terms and conditions of any lease or other rental
arrangement covering space in the Building (or any portion thereof);
(9) Overhead and profit increment paid to subsidiaries or other
affiliates of Landlord for services on or to the Building, the Leased Premises
and parking lots (or any portion thereof), to the extent only that the costs of
such services exceed competitive costs of such services were they not so
rendered by a subsidiary or other affiliate of Landlord;
(10) Payments of principal and/or interest on debt or amortization
payments on any mortgage or mortgages executed by Landlord covering the
Building, Leased Premises or parking lots (or any portion thereof), rental
concessions or negative cash flow guaranties and rental payments under any
ground or underlying leases or lease;
(11) All general administrative overhead expenses of Landlord for
services not specifically performed for the Building;
(12) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;
(13) All items and services for which Tenant pays directly to third
parties or for which Tenant reimburses Landlord or pays third persons or for or
with respect to which Landlord provides selectively to one or more tenants or
occupants of the Building other than Tenant, without reimbursements;
(14) Advertising and promotional expenditures;
(15) Any costs, fines or penalties incurred due to violations by
Landlord of any governmental rule or authority;
(16) Costs of sculpture, paintings or other art;
(17) Wages, salaries or other compensation of any kind or nature paid
to any executive employees above the grade of Building Manager;
(18) Rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment ordinarily considered to be
of a capital nature, except equipment which is used in providing janitorial
services and which is not affixed to the Building; and
(19) Any other expense or cost which under generally accepted
accounting principles and practices consistently applied would not be considered
a normal maintenance or operating expense of the Building.
5. SERVICES:
Landlord shall maintain the public and common areas of the Building, such
as lobbies, stairs, elevators, corridors and restrooms in good order and
condition and in a manner that is consistent with other Class "A" office
buildings in the Clear Lake area except for damage occasioned by the act of
Tenant, which damage shall be repaired by Landlord at Tenant's expense.
Landlord shall furnish the Premises with (i) electricity for building
standard fluorescent light fixtures and electricity for office machines and
other electrical devices that can operate on Landlord's typical 110/120 volt
multi-duplex outlet circuits provided by Landlord, however Tenant shall pay, as
additional rent, the cost for any electricity consumed in operating electrical
equipment with a name plate rating equal to or greater than 5 amperes at 110/120
volts single phase or its equivalent consumption at a higher voltage, (ii) heat
and air conditioning to the extent reasonably
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required for the comfortable occupation of the Premises during the following
Building Operating Hours: 8:00 a.m. to 6:00 p.m. weekdays and 8:00 a.m. to
1:00 p.m. on Saturdays (exclusive of Sundays and state and national holidays)
or such shorter period specified or prescribed by any applicable policies or
regulations adopted by any utility or government agency. Any usage by Tenant
of heating or air conditioning for periods other than Building Operating Hours
shall be paid for by Tenant, as additional rental upon receipt by Tenant of a
statement therefor from Landlord, at a rate of $25 per hour, (iii) elevator
service 24 hours a day, 7 days a week, (iv) lighting replacement (for building
standard lights), (v) restroom supplies, (vi) janitorial service on five (5)
day/week basis, excluding holidays; provided, however, that if tenant
improvements are not consistent in quality and quantity with building standard
improvements, Tenant shall pay any cleaning and janitorial costs attributable
thereto, (vii) perimeter locking system for security of the building; provided,
however, that Landlord shall not be liable to Tenant for any losses, including
personal injury and property damage that may result to Tenant from theft,
burglary or intentional conduct on the part of any person or entity except
Landlord, Landlord's agents, and/or Landlord's employees.
It is understood that Landlord does not warrant that any of the services
referred to above, or any other services which Landlord may supply, will be free
from interruption. Tenant acknowledges that any one or more such services may be
suspended or reduced by reason of accident or repairs, alterations or
improvements necessary to be made, by strikes or by any cause beyond the
reasonable control of Landlord, or by orders or regulations of any federal,
state, county or municipal authority. Any such interruption or suspension of
services shall never be deemed an eviction or disturbance to Tenant's use and
possession of the Premises or any part thereof, or, except as hereinafter
provided, render Landlord liable to Tenant for damages by abatement of rent, or
relieve Tenant of performance of Tenant's obligation under this Lease. Landlord
will use its reasonable efforts in the event of a strike to secure parties not
involved in the labor dispute to provide minimum services for cleaning
restrooms, waste removal, and janitorial services.
In the event of any interruption of any services furnished by Landlord,
Landlord shall use reasonable diligence to restore such service and, in the
event of the interruption of any such services furnished by Landlord for a
period in excess of forty-eight (48) hours, to the extent that Tenant is
prevented from using the Leased Premises in the ordinary course of its business
and actually ceases operating its business at the Leased Premises as a result
thereof, after Tenant provides notice thereof to Landlord, rent shall abate
during the period of such interruption. Tenant can cancel the lease if
interruption of services exceeds sixty (60) days.
Tenant shall notify Landlord of any need for an increase in power usage.
Failure to do so and should an increase in usage of power by Tenant be
recognized by Landlord, it shall be deemed that the increased amount of usage
shall have been initiated the first day of occupancy of the Premises by Tenant.
Whenever heat generating machines or equipment or lighting other than
building standard lights are used in the premises by Tenant which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right to install supplementary air conditioning units in the Premises,
and the cost thereof, including the cost of installation and the cost of
operating and maintenance thereof, shall be paid by Tenant to Landlord upon
billing by Landlord. If Tenant installs lighting requiring power in excess of
that required for normal desk-top office equipment or normal copying equipment
as determined by Landlord, Tenant shall pay to Landlord upon billing for the
cost of such excess power as additional rent, together with the cost of
installing any additional risers or other facilities that may be necessary to
furnish such excess power to the Premises.
6. TERM, COMPLETION OF IMPROVEMENTS:
The term of this Lease shall commence and unless sooner terminated as
hereinafter provided, shall end on the dates respectively specified in Articles
1.5 and 1.6 hereof. Prior to the commencement of the term Landlord shall
complete, construct or install in the Premises the improvements to be
constructed or installed by Landlord pursuant to the provisions of Exhibit "C".
The Premises shall be deemed complete and possession delivered when Landlord has
substantially completed these improvements. "Substantial Completion" shall mean
when (i) installation of building standard improvements has occurred, (ii)
Tenant has direct access from street to the elevator
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lobby on the floor where the Premises are located, and (iii) building
services are ready to be furnished to the Premises. Substantial Completion
shall be deemed to have occurred notwithstanding a requirement to complete
"punchlist" or similar corrective work. Landlord shall use its best efforts
to advise Tenant of the anticipated date of completion at least 30 days prior
to such date, but the failure to give such notice shall not constitute a
default hereunder by Landlord. If Landlord, for any reason whatsoever, cannot
deliver possession of the Premises to Tenant at the commencement of said
term, as above specified, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, but
in that event rental shall be waived for the period between the commencement
of said term and the time when Landlord can deliver possession. No delay in
delivery of possession shall operate to extend the term hereof
In the event Tenant does not occupy the space designated herein, all
interior finishing costs become due and payable by Tenant upon billing by
Landlord.
In the event Landlord provides Tenant any concessions which may include but
not be limited to rent abated occupancy, and Tenant Improvements; Tenant
acknowledges, understands and agrees that (i) any concessions are personal to
Tenant and shall not be assigned or sublet, in whole or in part, to any assignee
or subtenant without the prior written approval of Landlord, and (ii) Landlord
has provided any concessions to Tenant in reliance upon Tenant's warranty that
Tenant shall faithfully and timely perform all terms and conditions in this
Lease. Accordingly, in the event Tenant fails, after written notice to Tenant,
to timely perform any term and condition of this Lease, including, without
limitation, the timely payment of rent, any concessions herein provided Tenant
shall be immediately due and payable as additional rent without further notice
or demand to Tenant.
7. ACCEPTANCE:
Tenant acknowledges that it has fully inspected the Premises, and hereby
accepts such "As Is". Tenant also acknowledges that the Premises are suitable
for the purposes for which the same are leased, in their present condition plus
the Tenant Improvements to be performed by Landlord pursuant to Exhibit "C".
Tenant further acknowledges that Landlord has made no warranties or
representations as to either the condition or the suitability of the Premises in
terms of the Use as specified in Article 1.3. This Lease is, and shall be
considered to be, the only agreement between the parties hereto and their
representatives and agents. All negotiations and oral agreements acceptable to
both parties have been merged into and are included herein. There are no other
representations or warranties between the parties and all reliance with respect
to representations is solely upon the representations and agreements contained
in this document.
8. ASSIGNMENT OR SUBLETTING:
Tenant shall not voluntarily or by action of law transfer, assign, sublet,
mortgage or otherwise transfer or encumber all or any part of Tenant's interest
in this Lease or in the Premises without Landlord's prior written consent (which
consent shall not be unreasonably withheld), nor shall Tenant suffer or permit
the Premises or any part thereof to be used or occupied by others except
Tenant's employees without Landlord's prior written consent. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void and shall constitute a breach of this Lease. Regardless of
Landlord's consent, no subletting or assignment or other transfer shall release
Tenant of Tenant's obligation or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder.
As a condition of obtaining Landlord's consent, Tenant shall submit to
Landlord with its request the effective date of the transfer (it must be at
least thirty (30) days after submission date), the name of the proposed assignee
or subtenant, the terms and provisions of the proposed transaction, the proposed
use, which must be consistent with the provisions of Article 1.3 hereof, a
financial statement, and a business history ("NOTICE"). Landlord shall respond
to Tenant with its approval or disapproval of the proposed subtenant within
fifteen (15) days from the date Landlord receives the Notice. If no response is
received within said fifteen (15) day period, the subtenant shall be deemed
approved.
In addition, Tenant shall execute an agreement with Landlord agreeing to
pay to Landlord,
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as Additional Rent, fifty percent (50%) of all monies or other consideration
received by Tenant from its transferee in excess of the amounts owed by
Tenant to Landlord under this Lease, which Additional Rent shall be paid to
Landlord as and when received by Tenant.
9. CONDUCT OF BUSINESS:
Tenant agrees to conduct its business at all times in a first class manner
consistent with reputable business standards and practices.
10. DEFAULTS AND REMEDIES:
10.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant;
(A) The failure by Tenant to make any payment of Base Rent, Additional
Rent or any other payment required to be made by Tenant hereunder, as and when
due; or
(B) More than two defaults by Tenant within any one Lease Year for
the nonpayment of rent hereunder, necessitating that Landlord, because of
such defaults, shall have served upon Tenant within said Lease Year more than
two written notices. This default shall be deemed a non-curable default; or
(C) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than Paragraph (A) above, where such failure shall continue for a period
of twenty (20) business days after written notice thereof from Landlord to
Tenant; or
(D) The insolvency of the Tenant or the execution by Tenant of an
assignment for the benefit of creditors; or
(E) The filing by or for reorganization or arrangement under any law
relating to bankruptcy or insolvency; or
(F) The appointment of a receiver or trustee to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease; or
(G) The vacating or abandonment of the Premises for a period of three
(3) days or more without notice to Landlord, or dispossession by process of law
or otherwise.
10.2 REMEDIES. Upon the occurrence of any event of default, Landlord shall
have the right at any time thereafter to pursue any one or more of the following
remedies with or without notice or demand. Pursuit of any of the following
remedies shall not preclude pursuit of any of the other remedies herein provided
or any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rents due to Landlord
hereunder or of any damages accruing to Landlord by reason of the Tenant's
violation of any of the terms, conditions or covenants herein contained.
(A) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rents, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor. 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 and expel or
remove Tenant and any other person who may be occupying the Premises, by force
if necessary, without being liable for prosecution or any claim for damages
therefor, and relet the Premises and receive the rents
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therefrom. Tenant agrees to pay to Landlord on demand any deficiency that may
arise by reason of such reletting.
(C) Enter upon the Premises, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and do whatever Tenant
is obligated to do under the terms of this Lease. Tenant agrees to reimburse
Landlord on demand for expenses which Landlord may incur in effecting compliance
with Tenant's obligations under this Lease, and Tenant further agrees that
Landlord shall not be liable for any damages resulting to the Tenant from such
action.
(D) At its option, declare the rents for the entire remaining Term,
and other indebtedness if any, immediately due and payable without regard to
whether or not possession shall have been surrendered to or taken by Landlord,
and may commence action immediately thereupon and recover judgment therefor.
Any rents which may be due Landlord, whether by acceleration or
otherwise, as provided herein, shall include Base Rent, and any Additional Rent
provided for herein.
(E) Demand payment for any rents be made by certified check,
cashier's check or money order.
11. INSURANCE:
11.1 TENANT'S INSURANCE. Tenant, at its sole expense, shall obtain and keep
in force during the Term of this Lease the following policies of insurance,
naming Landlord as a co-insured:
(A) Comprehensive general liability insurance and personal injury
liability insurance, insuring Tenant against liability for injury to persons or
damage to property occurring in or about the Premises or arising out of the
ownership, maintenance, use or occupancy thereof. Said insurance shall specify a
single occurrence policy limit of at least $1,000,000;
(B) All Risk property insurance, including coverage against damage
caused by fire, windstorm, explosion, aircraft, vehicles, smoke, riot or
vandalism on all of Tenant's personal property, trade fixtures, leasehold
improvements and furnishings in the minimum amount of 80% of their replacement
cost;
(C) Worker's Compensation insurance insuring Tenant from all claims
for personal injury, disease and/or death under the worker's compensation law of
the state where the Building is located, in the amounts required by law.
11.2 LANDLORD'S INSURANCE. Landlord shall obtain and keep in force during
the Term of this Lease fire and extended coverage on the Building. Tenant agrees
that it will not store, keep, use, or sell in or upon the Premises, gasoline and
related products, firearms, explosives or any other article which may be
prohibited by the standard form of fire insurance policy, or which will increase
Landlord's insurance cost.
11.3 INSURANCE POLICIES. Insurance required to be obtained by Tenant
hereunder shall be in companies rated A+, AAA or better in "Best's Insurance
Guide", and licensed to do business in the state where the policy is written.
Tenant shall furnish Landlord proof of insurance policies within ten (10) days
after the execution of this Lease but not later than ten (10) days prior to
possession of the Premises. Such policies shall provide that coverage may not be
canceled or reduced without at least ten (10) days written notice first being
given to Landlord. If Tenant shall fail to procure and maintain the insurance
required hereunder, Landlord may but shall not be required to procure and
maintain the same, and any amounts paid by Landlord for such insurance shall be
Additional Rent, which shall be due and payable by Tenant on the next succeeding
date on which a Base Rent installment is due.
11.4 WAIVER OF SUBROGATION. As long as their respective insurers so permit
without additional premium, Tenant and Landlord each waives any and all rights
of recovery against the other, or against the officers, employees, agents and
representatives of the other for loss or damage
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to such waiving party or its property or the property of others under its
control, where such loss or damage is insured under any insurance policy in
force at the time of such loss or damage.
12. NO PERSONAL LIABILITY OF LANDLORD:
"Landlord", as used in this Lease insofar as covenants or obligations on
the part of Landlord are concerned, shall be limited to mean and include only
the owner or owners at the time in question of the Premises. In the event of any
transfer of title, the Landlord named herein shall automatically be freed and
relieved from and after the date of such transfer or conveyance of all personal
liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, provided
that any funds in the hands of such Landlord at the time of such transfer shall
be turned over to the grantee. Tenant shall look solely to the estate and
property of Landlord in the Property of which the Premises are a part for the
satisfaction of Tenant's remedies for collection of a judgment or other judicial
process requiring the payment of money by Landlord in the event of any default
or breach by Landlord of any of the terms, covenants and conditions of Lease to
be observed and/or performed by Landlord, and no other property or assets of
Landlord, its partners or agents shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies.
13. HOLD HARMLESS:
Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, liabilities, damages and costs, including attorneys' fees, incurred by
Landlord which may arise from Tenant's use of the Premises or from the conduct
of its business or from any activity, work or things which may be permitted or
suffered by Tenant in, on or about the Premises, and shall further indemnify,
defend and hold Landlord harmless from and against any and all claims,
liabilities, damages and costs, including attorneys' fees, incurred by Landlord
which may arise from any breach or default in the performance of any obligation
on Tenant's part under this Lease or which may arise from any negligence of
Tenant or any of its agents, representatives, customers, employees or invitees.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all liabilities, damages and costs, including attorneys' fees, which may
arise from any injury or loss incurred as a result of Landlord, its agents,
representatives or designees entering the Premises under an emergency
circumstance, such as fire or similar event, when Tenant is negligent.
14. ACCESS TO PREMISES:
Landlord, its agents, representatives and designees shall have the right to
enter the Premises at any time to examine and inspect the same, or to make such
repairs, additions or alterations as Landlord may deem necessary or proper for
the safety, improvement or preservation thereof. Landlord shall give Tenant at
least twenty-four (24) hours notice (excepting emergencies) prior to entering
the Premises and shall make all reasonable efforts to conduct any inspections
and make any repairs after normal business hours. Landlord shall also have the
right to enter the Premises during Tenant's regular business hours, to exhibit
same to prospective purchasers, mortgagees, lessees and tenants (only six (6)
months prior to the Lease Expiration Date in the case of lessees and tenants).
15. ALTERATIONS:
15.1 ALTERATIONS BY LANDLORD. The Building and common areas are at all
times subject to the exclusive control and management of Landlord. Without
limiting the generality of the foregoing, Landlord has the right in this
management and operation of the Building to do and perform such acts in and to
the Building in the use of good business judgment the Landlord determines to be
advisable for the more efficient and proper operation of the Building provided
such acts do not materially interfere with Tenant's ability to use the Premises,
including:
(A) Obstruct or close off all or any part of the Property for the
purpose of maintenance, repair or construction;
(B) Use any part of the Common Area for merchandising, display,
decorations, entertainment, and structures designed for retail selling or
special features or promotional activities;
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(C) Change area, level, location, arrangement or use of Property or
any part thereof;
(D) Construct other buildings, structures or improvements on the
Property and make alterations thereof, additions thereto, subtractions
therefrom, or rearrangements thereof, build additional stories on any building,
and construct additional buildings or facilities adjoining or proximate to the
Property;
(E) Construct multiple deck, elevated or underground parking
facilities, and expand, reduce or alter same in any manner whatsoever.
15.2 ALTERATIONS BY TENANT. Tenant shall not make any structural or
mechanical alterations in any portion of the Premises. Tenant shall not make any
interior alterations without first obtaining the written consent of Landlord.
All alterations, additions and improvements provided for herein shall become,
upon completion, the property of Landlord subject to the terms of this Lease;
however, if Landlord at its sole option so elects, Tenant shall promptly remove
all alterations, additions and improvements and any-other property placed in the
Premises by Tenant and Tenant shall be responsible for any damage caused by such
removal.
16. REPAIRS AND MAINTENANCE:
16.1 LANDLORD'S OBLIGATIONS. Landlord shall keep in good order, condition
and repair the structural portions of the Building and those portions of the
Property not occupied or leased by any tenant, and all costs incurred by
Landlord in making such repairs or performing such maintenance shall be
operating expenses as defined in Article 5.4, provided that Landlord shall have
no obligation to perform any act which is the obligation of Tenant or any other
tenant in the Building. Tenant expressly waives the benefit of any statute now
or hereafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's expense.
16.2 TENANT'S OBLIGATIONS. Tenant, at Tenant's expense, shall keep in good
order, condition and repair the Premises and every part thereof including,
without limiting the generality of the foregoing, all plumbing and sewer lines
to the point where they intersect with common lines, fixtures, interior walls
and interior surfaces of exterior walls, ceilings, windows, doors and plate
glass located within or upon the Premises, ordinary wear and tear excepted. All
repairs made by Tenant shall be at least of the same quality, design and class
as that of the original work.
If Tenant refuses or neglects to make repairs and/or to maintain the
Premises or any part thereof in a manner reasonably satisfactory to Landlord,
Landlord shall have the right, but not the obligation, upon giving Tenant
reasonable written notice of its election to do so, to make such repairs or
perform such maintenance on behalf of and for the account of Tenant. Such work
shall be paid for by Tenant, as Additional Rent, promptly upon receipt of a bill
therefor.
16.3 SURRENDER. On the last day of the Term hereof, or on any sooner
termination or date on which Tenant ceases to possess the Premises, Tenant shall
surrender the Premises, and the keys thereto, to Landlord in good and clean
condition, ordinary wear and tear excepted. Prior to such surrender, Tenant
shall repair any damage to the Premises occasioned by its removal of trade
fixtures, furnishings and equipment, which repair shall include the patching and
filling of holes and repair of structural damage.
17. LIENS:
Tenant shall suffer no liens of any kind to be placed upon the Premises or
the Property. If any lien is placed upon the Premises or the Property as a
result of any work done on behalf of Tenant, or as a result of any goods or
services sold or rendered to Tenant, then Tenant shall, within ten (10) days of
the imposition of the lien, cause said lien to be removed, at Tenant's sole
expense. At any time Tenant either desires to or is required to make repairs or
alternations in accordance with this Lease, Landlord may require Tenant, at
Tenant's sole cost and expense, to obtain and provide to Landlord a lien and
completion bond (or such other applicable bond as determined by Landlord) in an
amount equal to one and one-half times the estimated cost of such improvements
to insure
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Landlord against liability including but not limited to liability for mechanics'
and materialmen's liens and to insure completion of the work.
18. DAMAGE OR DESTRUCTION:
If the Premises or the Building shall be damaged or destroyed by fire or
other casualty, Landlord shall have the following options:
18.1 LEASE TERMINATION.
(A) If the Building or the Premises is damaged or destroyed to the
extent of fifty percent (50%) or more of its reasonable market value prior to
the time of said damage or destruction, Landlord may terminate this Lease as of
the date of the occurrence; provided, however that if the Landlord shall fail to
complete repairs or restoration to the Premises in accordance with Section 18.2
hereof within three (3) months of the date of such damage or destruction, Tenant
may elect to terminate this Lease.
(B) If the Building or the Premises is damaged or destroyed to the
extent of less than fifty percent (50%) of its reasonable market value prior to
the time of said damage or destruction but the Building cannot, in the sole
judgment of Landlord, be operated economically as an integral unit then Landlord
may terminate this Lease as of the date of the occurrence.
(C) If the Premises are damaged or destroyed within the last twenty-
four (24) months of the Term of this Lease or any extension thereof, to the
extent that Tenant cannot carry on Tenant's business, then Landlord and Tenant,
may terminate this Lease as of the date of the occurrence.
18.2 REPAIR OR RESTORATION. If Landlord elects to repair or restore the
Premises to the same condition as existed before such damage or destruction, it
shall proceed with reasonable dispatch to perform the necessary work. However,
notwithstanding anything in this Lease to the contrary, if the cost of repair or
restoration exceeds any insurance proceeds available for such work, Landlord may
terminate this Lease unless Tenant shall, after notice of the amount of
deficiency, pay to Landlord that deficiency. Upon Landlord's election to repair
or restore the Premises, the Base Rent shall be abated until such work is
completed but Landlord shall not be liable to Tenant for any delay which arises
by reason of labor strikes, adjustments of insurance or any other cause beyond
Landlord's control, and in no event shall Landlord be liable for any loss of
profits or income. If fire or other casualty causing damage to the Premises or
other parts of the Building shall have been caused by the negligence or
misconduct of the Tenant, its agents, representatives, employees, or of any
other person entering the Premises under express or implied invitation of
Tenant, such damage shall be repaired by Landlord at the expense of Tenant
despite contrary provisions appearing in this Lease and in such event there
shall be no abatement of rent.
19. CONDEMNATION:
If the Premises shall be taken by right of eminent domain, in whole or in
part, for public purposes or should be sold by Landlord under the threat of the
exercise of such power, then this Lease, at the option of Landlord, shall
terminate and the Rent shall be properly apportioned to the date of such taking,
and the Landlord shall receive the entire award for the lands and improvements
so taken, or the entire amount of any payment made under the threat of the
exercise of power of eminent domain, and Tenant shall have no claim for the
value of any portion of its leasehold estate so terminated except any claim to
which Tenant is solely entitled not affecting Landlord's claim. If less than a
substantial part of the Premises shall be taken, this Lease shall not terminate
but Landlord, at its sole expense, shall promptly restore and reconstruct the
Premises, provided such restoration and reconstruction shall make the same
reasonably suitable for the uses for which the Premises are leased, but in no
event shall Landlord be required to expend any amount greater than the amount
received by Landlord as compensation for the portion of the Premises taken by
the condemnor. Tenant's rental obligations during the unexpired portion of this
Lease shall be adjusted proportionately to reflect the gross leasable area
remaining in the Premises, as of the date on which the condemning authority
takes title or possession.
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20. FORCE MAJEURE:
In the event that either party hereto shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of
strikes, lockouts, inability to procure materials, loss of utility services,
restrictive governmental laws or regulations, riots, insurrection, war, acts of
God, or other reason of a like nature not the fault of the party delayed in
performing work or doing acts required under the terms of this Lease, then
performance of such act shall be excused for the period of delay and the period
for the performance of any such act shall be extended for a period equivalent to
the period of such delay.
21. SUCCESSION TO LANDLORD'S INTEREST:
21.1 ATTORNMENT. Tenant shall attorn and be bound to any of Landlord's
successors under all terms, covenants and conditions of this Lease for the
balance of the remaining Term, provided said successors recognize Tenant's
rights outlined in this Lease.
21.2 SUBORDINATION. This Lease shall be subordinate to the lien of any
mortgage or security deed or the lien resulting from any other method of
financing or refinancing now or hereafter in force against the Property, any
portion thereof, or upon any buildings hereafter placed upon the land of which
the Premises are a part, and to any and all advances to be made under such
mortgages, and all renewals, modifications, extensions, consolidations and
replacements thereof. The aforesaid provisions shall be self-operative and no
further instrument shall be required to evidence such subordination. Tenant
covenants and agrees to execute and deliver upon demand such further instrument
or instruments subordinating this Lease on the foregoing basis to the lien of
any such mortgage or mortgages as shall be desired by Landlord and any
mortgagees or proposed mortgagees.
21.3 ESTOPPEL CERTIFICATE. Within ten (10) days after request therefor by
Landlord, or in the event that upon any sale, assignment or hypothecation of the
Premises and/or the land thereunder by Landlord an estoppel certificate shall be
required from Tenant, Tenant agrees to deliver in recordable form a certificate
to any proposed mortgagee or purchaser, or to Landlord, certifying that this
Lease is unmodified and in full force and effect (or if modified, the same is in
full force and effect as modified, and stating the modifications), that there
are no defenses or offsets thereto (or stating those claimed by Tenant) and the
dates to which Base Rent and Additional Rent have been paid.
22. SURRENDER OF PREMISES:
22.1 At the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord broom clean and in the same condition as when
tendered by Landlord, reasonable wear and tear and insured casualty excepted.
Tenant shall promptly repair any damage to the Premises caused by the removal of
any furniture, trade fixtures or other personal property placed in the Premises.
22.2 Should Tenant, with Landlord's written consent, hold over at the end
of the term hereof, Tenant shall become a Tenant at will and any such holding
over shall not constitute an extension of this Lease. During such holding over,
Tenant shall pay rent and other charges at 125% of the highest monthly rate
provided herein. If Tenant holds over at the end of the term hereof without
Landlord's written consent, Tenant shall pay Landlord as liquidated damages a
sum equal to 150% the rent to be paid by Tenant to Landlord for all the time
Tenant shall so retain possession of the Premises; provided that the exercise of
Landlord's rights under this clause shall not be interpreted as a grant of
permission to Tenant to continue in possession.
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23. PARKING:
The parking areas, or designated portions thereof, shall be available for
the use of tenants of the Building and, to the extent designated by Landlord,
the employees, agents, customers and invitees of said tenants shall be subject
to the Rules, Regulations, Charges, and Rates as set forth by the Landlord from
time to time. However, Landlord may restrict to certain portions of the parking
areas parking for the Tenant and other tenants of the Building and their
employees and agents, and may designate other areas to be used at large only by
customers and invitees of the Building.
Notwithstanding anything elsewhere herein contained, Landlord reserves the
right from time to time to make reasonable changes in, additions to and
deletions from the parking areas and the purposes to which the same may be
devoted, and the use of parking areas shall at all times be subject to such
reasonable rules and regulations as may be promulgated by Landlord provided that
Landlord shall not reduce Tenant's parking rights as described in subparagraph
below (although it may change the locations thereof).
Notwithstanding the above, Tenant shall have rights to no less than thirty-
six (36) parking spaces in the surface parking lot adjacent to the Building for
Tenant's employees.
Landlord, or its agents (if Landlord has delegated such privileges), shall
have the right to cause to be removed any cars of Tenant, its employees or
agents that are parked in violation hereof or in violation of Regulations of the
Building, without liability of any kind to Landlord, its agents or employees,
and Tenant agrees to hold Landlord harmless from and defend it against any and
all claims, losses, or damages asserted or arising in respect to or in
connection with the removal of any such automobiles as aforesaid. Tenant shall
from time to time upon request of Landlord supply Landlord with a list of
license plate numbers of all automobiles operated by its employees and agents
who are to have parking privileges hereunder. Landlord may, as a part of the
regulations promulgated by Landlord, if for use of the Parking Areas, require
that Tenant cause an identification sticker issued by Landlord to be affixed to
all automobiles of Tenant and its employees or agents who are authorized to park
in the Parking Areas.
24. MISCELLANEOUS:
24.1 PARTIAL INVALIDITY. If any term, covenant or condition of this Lease
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term, 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 term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
24.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Lease shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, executors, successors and
assigns.
24.3 WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition for any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No covenant, term or condition of this Lease shall be deemed to have been
waived by Landlord, unless such waiver be in writing by Landlord.
24.4 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord
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may accept such check or payment without prejudice to Landlord's right to
recover the balance of such rent or pursue any other remedy in this Lease
provided.
24.5 ATTORNEY'S FEES. In the event any action is commenced for any breach
of any covenant, condition or agreement herein contained, the prevailing party
in such action shall be entitled to receive all costs incurred in such action,
including without limitation, all reasonable attorneys' fees.
24.6 TIME IS OF THE ESSENCE. Time is of the essence of this agreement.
24.7 BROKER'S COMMISSION. Tenant warrants that it has had no dealing with
any broker or agent, which Landlord will be responsible for payment, in
connection with this Lease except as designated in Article 1.13, and covenants
to pay, hold harmless and indemnify Landlord from and against any and all cost,
expense or liability for any compensation, commissions and charges claimed by
any other broker or agent with respect to this Lease or the negotiation thereof.
24.8 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
24.9 ENTIRE AGREEMENT. This Lease and the Exhibits and Addenda attached
hereto and forming a part hereof, set forth all the covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Premises and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them other than as are herein
set forth. Except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this Lease shall be binding upon Landlord or
Tenant unless reduced to writing and signed by them.
24.10 APPLICABLE LAW. The validity, performance and enforcement of this
Lease shall be governed by the laws of the state in which the Building is
located.
24.11 NOTICES. Whenever under this Lease provision is made for any demand,
notice or declaration of any kind, or where it is deemed desirable or necessary
by either party to give or serve any such notice, demand or declaration to the
other party, it shall be in writing and sent by certified mail, return receipt
requested, postage prepaid, to the address set forth in Articles 1.8(A) and
1.9(A) hereof, or to such other address as may be given by a party to the other
by proper notice hereunder. The date on which the certified mail is deposited
with the United States Postal Service shall be the date on which any proper
notice hereunder shall be deemed given.
24.12 QUIET ENJOYMENT. Landlord warrants that it has full right and power
to execute and perform this Lease and that Tenant, on payment of the sums due
hereunder and performance of all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, shall peacefully and
quietly have, hold and enjoy the Premises during the Term of this Lease and any
extension or renewal hereof
24.13 COMPLIANCE WITH LAW. Tenant shall comply with all present and future
laws, ordinances and regulations applicable to the use of the Premises, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisance in, upon or connected with the
Premises, all at Tenant's sole expense.
24.14 SUPERIOR LAW. If any provision of this Lease is ever in conflict and
subordinate to any applicable law or regulation, either now in effect or
hereafter adopted, said law or regulation shall control.
24.15 EXHIBITS. The Exhibits and Addendum listed in Article 1.14 are
attached hereto and by this Article made a part hereof.
24.16 EXECUTION OF LEASE. The submission of this Lease for examination does
not constitute a reservation of or option for the Premises and this Lease
becomes effective as a lease only upon
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execution and delivery thereof by Landlord and Tenant. If Tenant is a
corporation, Tenant shall furnish Landlord with such evidence as Landlord
reasonably requires to evidence the binding effect on Tenant of the execution
and delivery of this Lease.
IN WITNESS WHEREOF, the parties have subscribed their respective signatures
in execution hereof, on the day and year written.
TENANT: IWL COMMUNICATIONS, INC. LANDLORD: ELLINGTON FIELD, LTD.
By: /s/ J. KEITH JOHNSON By: B/M/E, INC., GENERAL PARTNER
-------------------------------- /s/ M. E. Bailey
Name: KEITH JOHNSON ------------------------------------
Title: VICE PRESIDENT Name: M. E. BAILEY
Date: 5/17/96 Title: PRESIDENT OF GENERAL PARTNER
Date: 5/17/96
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EXHIBIT "A" - THE PREMISES
[DRAWING DEPICTING SECOND FLOOR PLAN]
<PAGE>
EXHIBIT "B"
PROPERTY DESCRIPTION
Being a tract of land containing 7.2696 acres, being part of and out of that
certain tract of land conveyed to the United States of America and commonly
known as part of Ellington Air Force Base, in the Luke Hemenway Survey,
Abstract 801, Harris County, Texas, and being more particularly described as
follows: (All bearings referenced to the Texas Coordinate System, South
Central Zone and based on City of Houston Monument 5851-1617, Ellington 1952
Tri Station X=3215019.21, Y=662268.83, using a combined scale factor of
.9998723).
COMMENCING at a found bronze rod in concrete, Number 444, said rod being in
the northerly line of the Galveston Houston and Henderson Railroad Company
Tract and the west line of Ellington Air Force Base Tract, 50 feet northerly
and perpendicular to the centerline of the main railroad tract;
THENCE South 41 deg. 15' 12" East, 1075.65 feet along said common line of the
G.H. & H.R.R Company Tract and Ellington Air Force Base Tract, 50 feet
northerly and parallel with the main railroad tract to a found 5/8-inch iron
rod, from which said City of Houston Monument 5851-1617 bears South 45 deg.
22' 16" East, 196.22 feet;
THENCE North 48 deg. 44' 48" East, 408.00 feet to a "X" in concrete for the
POINT OF BEGINNING of the herein described tract;
THENCE continuing North 48 deg. 44' 48" East, 417.00 feet to a 1/2-inch iron
rod marking the beginning of a curve to the right;
THENCE 39.27 feet along the arc of said curve to the right, having a central
angle of 90 deg. 00' 00", a radius of 25.00 feet and a chord bearing South 86
deg. 15' 12" East, 35.36 feet to a set 1/2-inch iron rod marking the end of
said curve;
THENCE South 41 deg. 15' 12" East, 158.01 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the left;
THENCE 130.90 feet along the arc of said curve to the left, having a central
angle of 30 deg. 00' 00", a radius of 250.00 feet and a chord bearing South
56 deg. 15' 12" East, 129.41 feet to a set 1/2-inch iron rod marking the end
of said curve;
THENCE South 71 deg. 15' 12" East, 84.02 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the right;
THENCE 22.78 feet along the arc of said curve to the right, having a central
angle of 90 deg. 00' 00", a radius of 14.50 feet and a chord bearing South 26
deg. 15' 12" East, 20.51 feet to a set 1/2-inch iron rod marking the end of
said curve;
EXHIBIT "B" - Page 1
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THENCE South 18 deg. 44' 48" West, 65.22 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the right;
THENCE 36.39 feet along the arc of said curve to the right, a central angle
of 30 deg. 00' 00", a radius of 69.50 feet and a chord bearing South 33 deg.
44' 48" West, 35.98 feet to a set 1/2-inch iron rod marking the end of said
curve;
THENCE South 48 deg. 44' 48" West, 6.96 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the right;
THENCE 38.48 feet along the arc of said curve to the right, a central angle
of 90 deg. 00' 00", a radius of 24.50 feet and a chord bearing North 86 deg.
15' 12" West, 34.65 feet to a set 1/2-inch iron rod marking the end of said
curve;
THENCE South 48 deg. 44' 48" West, 25.00 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the right;
THENCE South 41 deg. 15' 12" East, 255.50 feet to a set 1/2-inch iron rod
marking the beginning of a curve to the right;
THENCE 77.75 feet along the arc of said curve to the right, a central angle
of 90 deg. 00' 00", a radius of 49.50 feet and a chord bearing South 3 deg.
44' 48" West, 70.00 feet to a set 1/2-inch iron rod marking the end of said
curve;
THENCE South 48 deg. 44' 48" West, 7348.50 feet to a set 1/2-inch iron rod;
THENCE North 41 deg. 15' 12" West, 359.00 feet to a set 1/2-inch iron rod;
THENCE North 48 deg. 44' 48" East, 33.49 feet to a set 1/2-inch iron rod;
THENCE North 41 deg. 15' 12" West, 364.00 feet to the POINT OF BEGINNING and
containing 316,665 square feet or 7.2696 acres of land;
TOGETHER WITH THE FOLLOWING EASEMENT ESTATE:
PROPOSED LOOP ROAD ALONG THE SOUTHEAST SIDE OF HEREIN DESCRIBED 7.2696 ACRE
TRACT: (Located in the Luke Hemenway Survey, A-801, Harris County, Texas)
BEGINNING at the most southerly corner of herein described 7.2696 acre tract;
THENCE North 48 deg. 44' 48" East, 348.50 feet;
THENCE northerly along a curve to the left with a radius of 49.50 feet, a
distance of 77.75 feet;
THENCE North 41 deg. 15' 12" West, 255.50 feet;
EXHIBIT "B" - Page 2
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THENCE North 48 deg. 44' 48" East, 25.00;
THENCE easterly along a curve to the left with a radius of 24.50 feet, a
distance of 38.48 feet;
THENCE North 48 deg. 44' 48" East, a distance of 6.96 feet;
THENCE northeasterly along a curve to the left with a radius of 69.50 feet, a
distance of 36.39 feet;
THENCE North 18 deg. 44' 48" East, 65.22 feet;
THENCE northerly along a curve to the left with a radius of 14.50 feet, a
distance of 22.78 feet to a point in the southerly line of future Nelson Road;
THENCE South 71 deg. 15' 12" East, 97.00 feet along the southerly line of
said Nelson Road;
THENCE westerly along a curve to the left with a radius of 14.50 feet, a
distance of 22.78 feet;
THENCE South 18 deg. 44' 48" West, 65.22 feet;
THENCE southwesterly along a curve to the right with a radius of 137.50 feet,
a distance of 68.57 feet to a point of reverse curve;
THENCE southerly along a curve to the left with a radius of 24.50 feet, a
distance of 37.87 feet;
THENCE South 41 deg. 15' 12" East, 138.55 feet;
THENCE southerly along a curve to the right with a radius of 85.50 feet, a
distance of 134.30 feet;
THENCE South 48 deg. 44' 48" West, 348.50 feet;
THENCE North 41 deg. 15' 12" West, 36.00 feet to the POINT OF BEGINNING.
EXHIBIT "B" - Page 3
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EXHIBIT "C"
IMPROVEMENTS BY LANDLORD
1. Landlord shall, at its sole cost and expense, furnish and install within
the Premises, and substantially in accordance with EXHIBIT "D" attached hereto
and made a part hereof, the following improvements:
A. Move walls in Rooms 215 & 216, including electrical and lights.
B. All existing painted walls to receive new building standard paint,
color to be selected by Tenant. Existing vinyl to be cleaned; or
replaced if damaged.
C. Clean carpet and install new carpet where stains cannot be removed.
All carpet shall be of similar quality on all floors except Room 218.
Remove existing carpet in Room 218 and install VCT tile. The colors
for the VCT tile shall be selected by Tenant.
D. New partitions, per plans.
E. Balance HVAC system and provide heating and air conditioning to the
entire Premises, consistent with Houston Suburban Class A Buildings.
F. Rewire and relocate light fixtures as necessary, with a minimum of two
building standard fixtures per private office.
G. Change lock cores.
H. Relocate sprinkling system heads as necessary.
I. Program Barber Coleman security system.
2. Except for the above mentioned, Tenant shall accept the Premises in "as-is"
condition.
A. Any additional interior improvements, additions, or alterations,
required by Landlord shall be furnished and installed at Tenant's sole cost and
expense. Any such additional work which is normally performed by the
construction trades shall be accomplished by Landlord's general contractor at
such costs as shall have been agreed to between Landlord and Tenant.
B. In order for Landlord to prepare the necessary construction plans
required to accomplish the completion of the Premises, including the building
standard installations hereinabove described, as well as any additional
construction work required by Tenant, Tenant shall, within ten (10) days
following the execution of this Lease, furnish to Landlord in writing full and
complete information as will be required to complete said plans. Said
information shall include the following details:
i. Designation of the areas within the Premises to be carpeted and tiled
and selection from Landlord's building standard selections.
ii. interior wall paint building standard selections.
iii. Detailed plans and specifications of all non-standard construction
work to be accomplished within the premises by Landlord's general
contractor.
C. All work not within the scope of the normal construction trades
employed on the Building, such as, the furnishing and installing of drapery,
furniture, telephones, office equipment, etc., shall be furnished and installed
by Tenant at Tenant's expense. Contractors and labor employed
<PAGE>
by Tenant to accomplish such non-construction installations shall be subject
to Landlord's approval and to the administrative supervision of Landlord's
general contractor. Landlord shall give access and entry to the Premises
during the construction of the Premises to Tenant's contractors and labor to
enable Tenant to prepare the Premises for Tenant's use and occupancy. All
such non-construction work performed by Tenant's contractors or labor shall
be accomplished in such a manner as to not unreasonably interfere with or
delay the work of Landlord's general contractor in the completion of the
Premises.
D. Tenant agrees that in the event Tenant shall have failed by the time
hereinabove specified to furnish Landlord with the necessary information to
complete the Premises or should Tenant, its contractors or labor otherwise cause
delay in Landlord's preparation of the Premises, thereby delaying Tenant's
occupancy of the Premises beyond the commencement date of this Lease as
stipulated herein, then Landlord may at its option require Tenant to commence
payment of rental on the stated commencement date of this Lease as hereinabove
set forth.
E. Landlord represents and warrants that the Premises and the
improvements to be constructed therein shall be suitable for normal office use
and comply with all laws, statutes, ordinances and governmental rules and
regulations which apply to Tenant. Landlord represents and warrants that the
Premises and all improvements to be constructed therein shall be free from
defects in materials and workmanship for a period of one year following
Substantial Completion, and that Landlord shall promptly repair any and all such
defects at Landlord's sole cost and expense.
F. Tenant will submit a "punch list" of any items not completed in
accordance with plans and specifications within thirty (30) days after Tenant
occupies the Premises, and Landlord will cause contractor to correct or complete
all valid items included on such punch list or will do so itself within thirty
(30) days after receipt of the punch list.
G. Landlord agrees to complete all architectural plans required to
construct the improvements to Premises to be constructed by Landlord in
accordance with this Exhibit "C", at no additional cost to Tenant within 15 days
of the date of the Lease.
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EXHIBIT "D"
SPACE PLAN
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
Tenant agrees to comply with and observe the following rules and
regulations, and Tenant's failure to keep and observe them shall constitute a
default of this Lease. Landlord reserves the right from time to time to amend or
supplement said rules and regulations, and to adopt and promulgate additional
rules and regulations applicable to the Premises and the Property. Notice of
such amended or additional rules and regulations shall be given to Tenant, and
Tenant agrees thereupon to comply with and observe all rules and regulations and
amendments and additions thereto.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other Tenant or Tenants, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the Tenants of the Building.
These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
1. No Tenant shall allow the Premises to be used for lodging, nor shall
cooking be done or permitted by any Tenant on the Premises; except, use by the
Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea,
hot chocolate and similar beverages or microwave ovens or similar appliances
installed for occasional use by Tenant's employees or invitees shall be
permitted, provided that such use is in accordance with all applicable federal,
state and city laws, codes, ordinances, rules and regulations.
2. Neither Tenant, its agents nor its employees shall solicit business in
the parking area or other common areas, nor shall Tenant, its agents or its
employees, distribute or display any handbills or other advertising matter in or
on automobiles or other vehicles parked in the parking area, or in other common
areas. If any such materials are distributed, Tenant shall pay Landlord for the
cost of cleanup.
3. No serial, antenna, satellite dish or similar device shall be erected
on the roof or exterior walls of the Building or on the grounds, without the
prior written consent of Landlord except that which has been already approved
per the attached Addendum. Any such device so installed without such consent
shall be subject to removal without notice at any time, without liability to the
Landlord therefor; costs incurred by Landlord for such removal shall be paid by
Tenant.
4. No loudspeakers, televisions, phonographs, radios or other devices
shall be used a manner so as to be heard or seen outside of the Premises without
the prior written consent of Landlord.
5. The leased premises and entire facility are "No Smoking" areas. No
smoking of cigarettes, cigars or pipes is allowed. No Tenant shall use or keep
or permit to be used or kept any foul or obnoxious gas or substance in the
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or to other occupants of the Building by
reason of noise, odors or vibrations, or interfere in any way with other Tenants
or those having business therein.
6. The plumbing facilities, including fixtures and appliances, shall not
be used for any purpose other than that for which they are constructed, and no
foreign substance of any kind shall be deposited therein. The expense of any
breakage, stoppage, or damage resulting from a violation of this provision shall
be borne by the Tenant whose employees, agents or invitees shall have caused
same. Tenant shall be responsible for all sanitary sever lines up to the limit
of Tenant's private sewer line, whether or not such lines are located within the
Premises.
<PAGE>
7. Tenant's access to the roof is limited to maintenance of equipment
installed with Landlord's approval and inspections for damage to that equipment.
Neither Tenant nor its agents or employees shall enter upon the roof at any time
without the express prior approval of Landlord.
8. Tenant and its employees shall park their motor vehicles only in those
parking areas designated for that purpose by Landlord, and Tenant shall provide
landlord with a list of its employees' motor vehicle license tag numbers. If
Tenant and/or its employees are in violation of this rule, Landlord shall have
the right to tow said vehicle at Tenant's expense.
9. No Tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, without Landlord's prior written approval.
10. Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name of the Building.
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without the prior written
consent of Landlord, and such items shall be installed as instructed by
Landlord.
12. Should a Tenant require telegraphic, telephonic, annunciator or any
other communication service, the Landlord will direct the electricians and
installers where and how the wires are to be introduced and placed, and none
shall be introduced or placed except as the Landlord shall direct.
13. The Landlord has the right to evacuate the Building in event of
emergency or catastrophe.
14. Tenant agrees not to allow or keep any animals or pets of any kind on
the Premises, except those guide dogs which are for the direct purposes of
aiding and assisting the visually impaired.
15. The requirements of the Tenants will be attended to only upon
application by telephone or in person at the office of Landlord. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
16. The sidewalks, halls, passages, exists, entrances, elevators and
stairways of the Building shall not be obstructed by any of the Tenants or used
by them for any purpose other than for ingress to and egress from their
respective Premises. The halls, passages, exists, entrances, elevators and
stairways are not for the general public, and Landlord shall in all cases retain
the right to control and prevent access thereto of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interest of the Building and its Tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
any tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities.
17. No sign, placard, picture, name, advertisement or notice, visible from
the exterior of any Tenant's business shall be inscribed, painted, affixed or
otherwise displayed by any Tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to Tenant general
guidelines relating to signs inside the Building on the office floors. Tenant
agrees to conform to such guidelines, but may request approval of Landlord for
modifications, which approval will not be unreasonably withheld. Material
visible from outside the Building will not be permitted.
18. Tenant shall not allow a fire or bankruptcy sale or any auction to be
held on the Premises or allow the Premises to be used for the storage of
merchandise held for sale to the general public.
<PAGE>
19. No Tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises, unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. No Tenant shall cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Janitor services will not be
furnished on nights when rooms are occupied after 9:30 p.m. unless, by agreement
in writing, service is extended to a later hour for specifically designated
rooms.
20. Landlord will furnish each Tenant free of charge with fifty (50) keys
to each door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. No Tenant shall have any keys made. No Tenant shall alter any
lock or install a new or additional lock or any bolt on any door of its Premises
without the prior written consent of Landlord. Tenant shall in each case furnish
Landlord with a key for any such lock. Each Tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Building which shall
have been furnished to Tenant.
21. No Tenant shall use any method of heating or air conditioning other
than that supplied by Landlord.
22. Landlord reserves the right to exclude from the Building, between the
hours of 6:00 p.m. and 7:00 a.m. and at all hours on Sundays, legal holidays and
on Saturdays any person who, in Landlord's sole opinion, has no legitimate
business in the Building. Landlord shall in no case be liable for damages for
any error with regard to the admission to or exclusion from the Building of any
person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate, including closing
doors.
23. The directory of the Building will be provided for the display of the
name and location of Tenants and Landlord agrees to provide one (1) directory
strips at no cost to Tenant. Any additional name which Tenant shall desire to
place upon said directory must first be approved by Landlord in writing, and, if
so approved, a charge will be made therefore.
24. Each Tenant shall see that the doors of its Premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Tenant or Tenant's employees leave the Premises, so as to prevent waste
or damage, and for any default or carelessness in this regard Tenant shall make
good all injuries sustained by other tenants or occupants of the Building or
Landlord. All Tenants shall keep the doors to the Building corridors closed at
all times except for ingress and egress.
25. Except with the prior written consent of Landlord, no Tenant will
sell, or permit the sale at retail, of newspapers, magazines, periodicals,
theatre tickets or any other goods or merchandise to the general public in or on
the Premises, nor shall any Tenant carry on, or permit or allow any employee or
other person to carry on, the business of stenography, typewriting or any
similar business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises of any
Tenant be used for manufacturing of any kind, or any business or activity other
than that specifically provided for in such Tenant's lease.
26. Landlord shall designate how all office equipment, furniture,
appliances and other large objects or property ("Equipment") shall be moved in
and/or out of the Building. The persons employed to move such Equipment in or
out of the Building must be acceptable to Landlord. Landlord shall have the
right to prescribe the weight, size and position of all Equipment brought into
the Building. Heavy objects shall, if considered necessary by Landlord, stand on
wood strips of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such Equipment
from any cause, and all damage done to the Building by moving or maintaining
such Equipment shall be repaired at the expense of Tenant.
Tenant agrees to coordinate all moving activities of office equipment and
furniture in and out of the Building with Landlord or Landlord's agent, and to
use the services of an insured professional
<PAGE>
moving company. Tenant acknowledges that any attempts to bring in or take out
any office equipment or furniture from the Building without prior written
approval of Landlord or Landlord's agent will be prevented by the on-site
security guard.
27. Hand trucks shall not be used in any space or public halls of the
Building, either by any Tenant or others, except those equipped with rubber
tires and side guards or such other material-handling equipment as Landlord may
approve. No other vehicles of any kind shall be brought by any Tenant into the
Building or kept in or about the Premises. In all instances, the Freight
Elevator shall be used to transfer or move supplies, equipment, furniture, etc.
28. Each Tenant shall store all its trash and garbage within its Premises.
No material shall be placed in the trash boxes, receptacles or common areas if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash ordinance governing such
disposal. All garbage and refuse disposal shall be made only through entry ways
and elevators provided for such purposes and at such times as Landlord shall
designate.
<PAGE>
Addendum
1. Renewal Option.
Subject to the terms contained in this Renewal Option, Tenant shall have,
and is hereby granted the option (the "RENEWAL OPTION") to extend the term of
this Lease for one (1) additional period of five (5) years. The extended term
("EXTENDED TERM") shall commence upon the day immediately succeeding the date of
the expiration of the initial term of this Lease (the "EXTENDED TERM
COMMENCEMENT DATE"). The Renewal Option may only be exercised by Tenant giving
written notice thereof no later than six (6) months prior to the expiration of
the initial term. If Tenant fails to give notice of exercise of the Renewal
Option within such specified time period, Tenant's Renewal Option shall be
deemed waived and of no further force and effect.
The right of Tenant to extends this Lease as provided for herein can be
exercised only if, at the time of such exercise and upon the commencement of the
Extended Term, (i) Tenant is not in default under this Lease beyond any
applicable grace period, and (ii) Tenant is in possession of at least fifty
percent (50%) of the Leased Premises (unless Landlord, in its sole discretion,
elects to waive either such condition). In the event that either of such
conditions are not satisfied or waived by Landlord, Tenant's Renewal Option
shall be terminated and of no further force and effect.
If Tenant shall have elected (in accordance with and subject to the
provisions of this Renewal Option) to renew the term of this Lease, the Extended
Term shall be upon, and subject to, all of the terms, covenants and conditions
provided in this Lease except that (a) the Base Rental during the Extended Term
shall be determined in accordance with the procedure for determining Fair Market
Value (defined below) but in no event shall the annual Base Rental be less than
$12.00 per square foot of Net Rentable Area per year, (b) Tenant shall not have
the right to assign the Renewal Option to any sublessee of the Leased Premises
or assignee of the Lease, nor may any such sublessee or assignee exercise the
Renewal Option, and (c) except for any terms, covenants and conditions that are
expressly or by their nature inapplicable to the Extended Term including,
without limitation, this Renewal Option shall no longer be applicable.
With respect to the renewal option, the applicable "Fair Market Value"
annual rental rate shall be that rate charged for space of comparable size and
condition in comparable buildings in the Gulf Freeway/Clear Lake area, taking
into consideration the location, quality and age of the Building, floor level,
extent of leasehold improvements (existing or to be provided), rental
abatements, lease takeovers/assumptions, moving expenses and other concessions,
term of lease, extent of services to be provided, distinction between "gross"
and "net" lease, base year or amount allowed by Landlord for payment of building
operating expenses (expense stop), the time the particular rental rate under
consideration became or is to become effective, or any other relevant term or
condition ("FAIR MARKET VALUE"). As soon as reasonably practicable after
receiving Lessee's notice of its intention to renew, Lessor shall provide
written notice to Lessee of its determination of the Fair Market Value for the
Renewal Term. For a period of thirty (30) days thereafter, Lessee shall have the
right to accept or reject such Fair Market Value. In the event Lessee fails to
provide written notice of its acceptance of such Fair Market Value within such
thirty day period, Lessee shall be deemed to have rejected such rate. If
Landlord and Tenant are unable to mutually agree upon the Fair Market Value
within said thirty (30) day period, each party shall within fifteen (15) days
select an arbitrator who shall be a real estate broker licensed in the city in
which the Building is situated and having a minimum of five years experience in
leasing commercial office space. Notice shall be given to the other party of the
name of the arbitrator selected. The two arbitrators shall within fifteen (15)
days select a third arbitrator having like qualifications. A majority of the
three arbitrators shall within thirty (30) days determine the Fair Market Value
and notify the Landlord and Tenant of their decision which shall be binding and
final. If any of the arbitrators are not selected within the time specified, the
selection shall promptly be made by the County Judge having jurisdiction over
the County in which the Building is situated. The cost of arbitration shall be
shared equally by Landlord and Tenant. If the Fair Market Value has not been
determined by the commencement of the Renewal
<PAGE>
term of the Lease, Tenant shall continue to pay rent at the same rate and
other terms as paid at the end of the preceding term until the Fair Market
Value is determined. Tenant shall pay Landlord the difference between Fair
Market Value paid at the old rate and Fair Market Value due pursuant to the
rate resulting from the determination of the Fair Market Value.
2. Tenant's Satellite Dish/Microwave Antenna
Tenant shall have the right to install Tenant's satellite dish and
microwave antenna on the Property. The location of said installation shall be
mutually agreed upon by and between Tenant and Landlord. Tenant agrees to obtain
all necessary permits and approvals by the City of Houston and any other
governing body, prior to said installation. In the event Tenant does not receive
said approval, Tenant shall still be bound by all of the terms and conditions of
the Lease. Installation and removal of such dish and antenna shall be at the
cost of Tenant and without any damage to the Property.
3. Option to Lease Additional Space.
A. Landlord hereby grants to Tenant a right of first refusal to lease
additional space on the first and second floors of the Building (this space
totals 7,343 S.F. on the second floor and 7,965 S.F. on the first floor and is
depicted in Exhibit to Addendum "AA") upon the same terms and conditions as
offered by a bona fide third party, except the lease term for said space shall
not be longer than 60 months unless otherwise agreed to by Tenant. Tenant may
exercise this option, provided it is not in default under this Lease. In the
event Landlord wishes to lease any or all of said space, Landlord shall give
written notice to Tenant and Tenant shall have ten (10) days from receipt of
said notice to exercise its option as stated herein. Said notice shall include
all the terms and conditions included in the bona fide third party offer. The
option granted in this paragraph shall terminate and become void after June 30,
1998.
B. Landlord hereby grants to Tenant an option upon the same terms and
conditions as this Lease, except as hereinafter provided, to lease additional
space on the first floor and second floor of the Building for the same term as
this Lease as hereinafter provided. (This space totals 7,343 S.F. on the second
floor and 7,965 S.F. on the first floor and is depicted in Exhibit to Addendum
"AA".) The additional space must not be subject to an existing lease to a third
party or an offer by a third party to lease all or part of such additional
space. Annual Base Rent shall be $12.00 per rentable square foot of the
additional premises with a buildout allowance of $12.00 per sq. ft. for the
first floor and $3.00 per sq.ft. for the second floor. Tenant may exercise this
option, provided it is not in default under this Lease, by giving Landlord ten
(10) days prior written notice of its agreement to lease such additional space
upon the terms set forth in this Lease. The option granted in this paragraph
shall terminate and become void as of July I, 1997.
C. If Tenant exercises its option to lease the second floor space pursuant
to either paragraph A or B above, Tenant shall have the exclusive right to
utilize all existing equipment/improvements located on the second floor
including but not limited to, the raised computer flooring, battery back-up
system, and Liebert air conditioning units. Tenant shall have this right
throughout the term of the Lease and any renewals. Landlord, at Landlord's
expense, agrees to install a meter to monitor the electrical consumption of the
Liebert air,conditioning units and Liebert KVA UPS system. Tenant agrees to
maintain said meter and pay as additional rent, the cost of all electricity
consumed by the use of the Liebert air conditioning units and Liebert KVA UPS
system.
4. Monument Sign.
Landlord grants Tenant the right to install a monument sign for Tenant's
sole use if all of the second floor option space is leased. Said signage shall
be subject to the approval of the City of Houston. Location and Design is
included as Exhibit "F". Landlord's contribution to the cost of installation
shall not exceed $2000.00. (See Exhibit to Addendum "BB")
<PAGE>
5. Caps on Certain Operating Expenses.
For the purpose of determining Tenant's Additional Fair Market Value,
Operating Expenses (exclusive of the Non-Capped Operating Expenses, as
hereinafter defined) for any calendar year in which the term of this Lease
commences by more than five percent (5%) per year on a cumulative basis,
compounded annually. For example, if Operating Expenses (exclusive of Non-Capped
Operating Expenses) during the calendar year in which the term of this Lease
commences were $100,000, the cap on Operating Expenses (exclusive of Non-Capped
Operating Expenses) for the fourth full calendar year would be $121,550.63
($100,000 times 1.05 times 1.05 times 1.05 times 1.05). It is understood and
agreed that there shall be no cap on Non-Capped Operating Expenses, which are
hereby defined to mean all utility expenses, insurance premiums and real estate
taxes.
<PAGE>
EXHIBIT TO ADDENDUM "BB" - MONUMENT SIGN
[Drawing depicting location of tenant monument sign on the property]
<PAGE>
EXHIBIT TO ADDENDUM "AA"
OPTION SPACE
[Drawing depicting second floor plan of 7,343 sq. ft. net rentable area]
Page 1
<PAGE>
EXHIBIT TO ADDENDUM "AA"
OPTION SPACE
[Drawing depicting first floor plan of 7,965 sq. ft. net rentable area]
EXHIBIT TO ADDENDUM "AA" - Page 2
<PAGE>
FIRST AMENDMENT OF LEASE
AMENDMENT OF LEASE dated this 2nd day of August, 1996 by and between
Ellington Field, Ltd., a Texas limited partnership, ("Landlord") and IWL
Communications, Inc., a Texas corporation ("Tenant").
RECITALS:
A. Landlord and Tenant entered into a certain lease agreement dated May
22, 1996 (the "Lease"), demising Suite 200 consisting of 11,118 rentable
square feet ("Premises") in 12000 Aerospace Blvd., Houston, Texas.
B. Landlord and Tenant desire to amend the Lease to reflect an
expansion of Premises and to revise the rental provisions of the Lease and
make certain other revisions thereto, upon and subject to the terms,
covenants and conditions hereinafter set forth.
AGREEMENTS:
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. EXPANSION PREMISES. Subject to and upon the terms, provisions and
conditions set forth in the Lease Landlord does hereby lease, demise and let
to Tenant and Tenant does hereby lease and take from Landlord, effective on
the Expansion Premises Commencement Date (as hereinafter defined), to become
a part of the Premises, an additional four hundred and twelve (412) square
feet of net rentable area (the "Expansion Premises") located on the second
(2nd) floor of the Building as reflected on the floor plan thereof attached
hereto and made apart hereof for all purposes as Exhibit "A". Upon the
addition of the Expansion Premises to the Premises, the total area in the
Premises shall be eleven thousand five hundred thirty (11,530) square feet of
net rentable area. Except as specified in this First Amendment, all
references to "Premises" in the Lease shall include the Expansion Premises.
2. RENTAL. Commencing on the Expansion Premises Commencement Date the
Base Rent Monthly Installments shall increase by four hundred twelve and
NO/100ths Dollars ($412.00), for a revised Base Rent Monthly installment of
eleven thousand five hundred thirty and NO/100ths Dollars ($11,530.00). The
rental abatement in months 35 and 36 of the Lease shall also apply to the
Expansion Premises.
3. ADDITIONAL RENT. Article 4.4 of the Lease is amended to reflect that
"Tenant's Percentage Share" as of the Expansion Premises Commencement Date
will be 15.24%. Tenant's Additional Rental with respect to the Expansion
Premises will be calculated in accordance with Article 4.4 of the Lease.
4. PARKING. Tenant will have the right to use two (2) additional
unreserved parking spaces in the surface parking lot at no charge during the
Term.
<PAGE>
5. TENANT IMPROVEMENTS. Landlord shall make the following improvements
to the Expansion Premises:
1) Construct approximately 40 linear feet of drywall as per the
attached plan.
2) Paint all walls (new and existing) with building standard paint.
3) Install six (6) new 110 volt duplex outlets as shown on me
attached plan.
Except for the above, Tenant agrees to accept the Expansion Premises in "AS
IS" condition.
6. BROKERS. Landlord and Tenant represent and warrant to each other
that they have not dealt with any real estate broker other than The Grubb &
Ellis Company, in connection with this First Amendment of Lease. Landlord
shall be solely responsible for paying the leasing commissions to the
aforementioned brokers. Landlord and Tenant agree to indemnify, defend and
hold the other harmless for any loss, cost, liability or expense suffered or
incurred by the other party as a result of a claim or claims for brokerage
commissions, finder's fees or similar fees from any third party based on the
act or omission of the party in breach of warranty described above.
7. RATIFICATION. Except as amended by the terms of this First Amendment
of Lease, all of the terms, covenants and conditions of the Lease and the
rights and obligations of the Landlord and Tenant thereunder shall remain in
full force and effect, and hereby are ratified and affirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment of
Lease on the date first above written.
LANDLORD: TENANT:
ELLINGTON FIELD, LTD. IWL COMMUNICATIONS, INC.
By: /s/ Ed Bailey
-----------------------------
Ed Bailey By: /s/ Keith Johnson
General Partner -----------------------------
Name: Keith Johnson
---------------------------
Title: Executive V.P.
---------------------------
<PAGE>
EXHIBIT "A"
COMMUNICATION ROOM ADD
[Drawing depicting floor plan of 412 sq. ft. net rentable area]
<PAGE>
SECOND AMENDMENT OF LEASE
AMENDMENT OF LEASE dated this 14 day of OCTOBER, 1996 by and between
Ellington Field, Ltd., a Texas limited partnership, ("Landlord") and IWL
Communications, Inc., a Texas corporation ("Tenant").
RECITALS:
A. Landlord and Tenant entered into a certain lease agreement dated May
22, 1996 (the "Lease"), demising Suite 200 consisting of 11,118 rentable
square feet ("Premises") in 12000 Aerospace Blvd., Houston, Texas.
B. Landlord and Tenant entered into a certain First Amendment of Lease
dated August 2, 1996, whereby approximately 412 square feet of net rentable
area was added to the Premises.
C. Landlord and Tenant desire to amend the Lease to reflect an
expansion of Premises and to revise the rental provisions of the Lease and
make certain other revisions thereto, upon and subject to the terms,
covenants and conditions hereinafter set forth.
AGREEMENTS:
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. EXPANSION PREMISES. Subject to and upon the terms, provisions and
conditions set forth in the Lease, Landlord does hereby lease, demise and let to
Tenant and Tenant does hereby lease and take from Landlord, effective on the
Expansion Premises Commencement Date (as hereinafter defined), to become a part
of the Premises, an additional three thousand three hundred and three (3,303)
square feet of rentable area (the "Expansion Premises") located on the second
(2nd) floor of the Building as reflected on the floor plan thereof attached
hereto and made apart hereof for all purposes as Exhibit "A". Upon the addition
of the Expansion Premises to the Premises, the total area in the Premises shall
be fourteen thousand eight hundred thirty-three (14,833) square feet of rentable
area. Except as specified in this First Amendment, all references to "Premises"
in the Lease shall include the Expansion Premises.
2. TERM AND EXPANSION PREMISES COMMENCEMENT DATE.
2.1 Subject to and upon the terms and conditions set forth herein, this
Second Amendment of Lease shall continue in full force and effect for a term
(the "Term") of thirty-two (32) months beginning on the seventh (7th) day of
November, 1996 (the "Expansion Premises Commencement Date") and ending on the
sixth (6th) day of July 1999 (the "Expiration Date").
2.2 CHANCE IN EXPANSION PREMISES COMMENCEMENT DATE. If for any reason
Landlord cannot deliver possession of the Expansion Premises to Tenant on said
Expansion Premises
<PAGE>
Commencement Date, Landlord shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Second Amendment of Lease
or the obligations of the Tenant hereunder. However, in such case Tenant
shall not be obligated under any provisions of this Second Amendment of Lease
until possession of the Expansion Premises is tendered to Tenant, which date
shall be the new Expansion Premises Commencement Date, and the Expiration
Date shall remain unchanged. In the event that Landlord shall permit Tenant
to occupy Premises prior to said Expansion Premises Commencement Date, such
occupancy shall be subject to all of the provisions of this Second Amendment
of Lease. Said early possession shall not advance the Expansion Premises
Expiration Date.
3. RENTAL. Commencing on the Expansion Premises Commencement Date the
Base Rent Monthly Installments shall increase by three thousand three hundred
three NO/100ths Dollars ($3,303.00), for a revised Base Rent Monthly Installment
of fourteen thousand eight hundred thirty-three and NO/100ths Dollars
($14,833.00). The rental abatement in months 35 and 36 of the Lease shall also
apply to the Expansion Premises.
4. ADDITIONAL RENT. Article 4.4 of the Lease is amended to reflect that
"Tenant's Percentage Share" as of the Expansion Premises Commencement Date will
be 19.61%. Tenant's Additional Rental with respect to the Expansion Premises
will be calculated in accordance with Article 4.4 of the Lease.
5. PARKING. Tenant will have the right to use fourteen (14) additional
unreserved parking spaces in the tenant surface parking lot at no charge during
the Term.
6. LANDLORD'S WORK. (a) Landlord shall deliver the Expansion Premises to
Tenant with the work completed as depicted on Exhibit "B" attached hereto (the
"Work"), all in accordance with specifications. Landlord shall use its best
efforts to complete the work on or before the Expansion Premises Commencement
Date.
(b) Also, as part of the Work, Landlord shall clean the carpet in the
Expansion Premises and replace the carpet in any areas where stains cannot be
removed. The cost to run data and telephone cables shall be the responsibility
of Tenant and at Tenant's sole cost. Landlord agrees to provide "pull strings"
in new walls where indicated on Exhibit "B".
(c) Landlord has not agreed to perform any other work in the Expansion
Premises and all additional work necessary to complete the New Premises shall be
done in accordance with the terms and conditions of the Lease.
(d) Landlord shall provide to Tenant a tenant improvement allowance
("Tenant Improvement Allowance") of up to nine thousand nine hundred nine and
NO/100ths Dollars ($9,909.00) toward the cost of the Work described in
subparagraphs (a), (b) and (c) above. To the extent that the cost of the Work
exceeds the Tenant Improvement Allowance, Tenant shall reimburse Landlord for
such excess cost, up to an amount of seven thousand nine hundred ninety-one and
NO/100ths Dollars ($7,991.00), within ten (10) days of presentation by Landlord
to Tenant of invoices therefor.
<PAGE>
Except for the above, Tenant agrees to accept the Expansion Premises in "AS IS"
condition.
7. BROKERS. Landlord and Tenant represent and warrant to each other that
they have not dealt with any real estate broker other than the Grubb & Ellis
Company, in connection with this First Amendment of Lease. Landlord shall be
solely responsible for paying the leasing commissions to the aforementioned
brokers. Landlord and Tenant agree to indemnify, defend and hold the other
harmless for any loss, cost, liability or expense suffered or incurred by the
other party as a result of a claim or claims for brokerage commissions, finder's
fees or similar fees from any third party based on the act or omission of the
party in breach of warranty described above.
8. RATIFICATION. Except as amended by the terms of this First Amendment
of Lease, all of the terms, covenants and conditions of the Lease and the rights
and obligations of the Landlord and Tenant thereunder shall remain in full force
and effect, and hereby are ratified and affirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment of
Lease on the date first above written.
LANDLORD: TENANT:
ELLINGTON FIELD, LTD. IWL COMMUNICATIONS, INC.
By: /s/ Ed Bailey
------------------------
Ed Bailey By: /s/ Ignatius Leonards
General Partner --------------------------
Name: Ignatius Leonards
------------------------
Title: President
-----------------------
<PAGE>
EXHIBIT "A"
EXPANSION PREMISES
SUITE 210
[Drawing depicting floor plan of 3303 sq. ft. net rentable area]
<PAGE>
EXHIBIT "B"
[Drawing depicting floor plan of the same net rentable
area as set forth on Exhibit "A" marked to show
location of certain action by landlord]
<PAGE>
Cablewave Systems
Authorized Distributor Agreement
made by and between
RADIO FREQUENCY SYSTEMS, INC.
CABLEWAVE SYSTEMS DIV.
60 Dodge Avenue
North Haven, CT 06473
Hereinafter referred to as "CS"
and
IWL COMMUNICATIONS, INC.
1000 River Bend Blvd
River Bend Business Ctr
Suite R
St. Rose, LA 70087
Hereinafter referred to as "DISTRIBUTOR" and/or IWL COMMUNICATIONS, INC.
The parties agree:
1. SCOPE OF AGENCY
1.1 CS hereby appoints IWL COMMUNICATIONS, INC. to be its duly authorized
DISTRIBUTOR for the sale of CS products as set forth in Exhibit A hereto.
2. FUNCTION OF DISTRIBUTOR
2.1 The function of the DISTRIBUTOR as it pertains to this agreement is to
provide an effective and efficient channel of distribution for the sale of
CS products, which is predicated upon providing customers with high quality
products and on time services.
FURTHER THE DISTRIBUTOR SHALL MAINTAIN SUFFICIENT INVENTORY OF CS PRODUCTS
TO ASSURE THE CUSTOMER THE FASTEST AND EASIEST METHOD FOR RECEIVING CS
PRODUCT SHIPPED FROM AN "IN STOCK" POSITION FROM THE DISTRIBUTOR'S
FACILITY.
2.2 The DISTRIBUTOR agrees to work closely with CS, advising CS of any
technical advances, customer problems, needs, and market trends.
3.0 SPECIFIC OBLIGATIONS OF DISTRIBUTOR
3.1 To preserve the strict confidentiality of information obtained by IWL
COMMUNICATIONS, INC. concerning the business or affairs of CS, including,
without limiting, the generality of the foregoing, trade secrets, customer
lists, and information concerning the design or method of manufacture of CS
products, and to refrain from disclosing, during the terms of this
Agreement or any time thereafter, any such information to any person or
persons, natural or corporate, or the use of such information by
DISTRIBUTOR.
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
3.2 The DISTRIBUTOR agrees that it has no authority to make warranties or
representations other than published, standard warranties, to customers or
others in the name of CS and will indemnify and hold harmless CS from any
notice, claim, demand or suit arising out of or related to any warranty or
representation alleged to have been made by DISTRIBUTOR or any of its
agents, servants, employees, officers or directors.
3.3 The DISTRIBUTOR agrees to provide monthly "Point-of-shipment reports to CS
by the 15th (or next business day) of each month. Said report shall
accurately list sales by the first three digit zip code in each CS product
category. Time is of the essence as to delivery of this report to CS. This
report will provide the basis from which Manufacturer's Representative
commissions will be determined, therefore, CS reserves the right to have
periodic independent financial audit of the Point-of-Shipment reports and
substantiating documentation as required.
3.4 The DISTRIBUTOR agrees to provide to CS by the 15th of (or next business
day) of each month an inventory-on-hand report. Identifying all CS products
currently in inventory.
3.5 The DISTRIBUTOR shall pay all expenses incurred by it in connection with
the conduct of its authority to solicit sales, and shall not, without prior
written authority, incur any expenses on behalf of CS.
4.0 SPECIFIC OBLIGATIONS OF CS TO DISTRIBUTOR
4.1 The Distributor is authorized to purchase for resell, CS products as
defined in Exhibit A of this agreement.
4.2 The discounts that will apply to the Distributor under this agreement are
as set forth in Exhibit B herein.
4.3 CO-OP Advertising will be authorized in accordance with the procedures
outlined in Exhibit C to this agreement.
4.4 CS "Return Material Policies" are as defined in Exhibit D to this
agreement.
5.0 GENERAL PROVISIONS
5.1 The DISTRIBUTOR agrees to make payment on all invoices within sixty (60)
days after invoice date. In the event that invoices are not paid when due,
CS may discontinue further shipments on open account and terminate this
agreement, while retaining all its rights hereunder.
2
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
5.2 The following CS standard warranty shall apply to all products sold to IWL
COMMUNICATIONS, INC. Associated cost to be incurred in the repair or
replacement of defective products under warranty will be negotiated between
IWL COMMUNICATIONS, INC. and CS on a case-by-case basis.
WARRANTY - Seller warrants that any equipment sold hereunder shall be free
from defects in materials and workmanship for one (1) year after shipment.
To make a claim under this warranty, the Buyer must notify the Seller in
writing immediately after the Buyer discovers or should have discovered the
defect and receive authorization to return the defective equipment to
Seller. Seller's sole and exclusive liability shall be to replace the
defective CS product and ship it back to the Buyer. This warranty does not
apply to defects not caused by the Seller, such as acts of God, abuse,
improper installation or alteration. Equipment supplied as a warranty
replacement shall be warranted for the remainder of the original warranty
period.
NO EXPRESS WARRANTIES AND NO IMPLIED WARRANTIES WHETHER OF MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE OR OTHERWISE (EXCEPT AS TO TITLE)
OTHER THAN THOSE SET FORTH ABOVE SHALL APPLY TO EQUIPMENT SOLD BY SELLER
AND NO WAIVER, ALTERATION OR MODIFICATION OF THE FOREGOING SHALL BE BINDING
AGAINST SELLER UNLESS SIGNED BY AN EXECUTIVE OFFICER OF THE SELLER.
5.3 Product shipments will be made in accordance with the shipping procedures
outlined in Exhibit B-1 included herein.
5.4 All orders placed by Distributor under this agreement will be subject to CS
general conditions of sale.
6.0 TERMS OF AGREEMENT
6.1 The Agreement shall come into effect on MARCH 1, 1996 and be in force
unless terminated by either of the parties hereto.
6.2 Notice of such termination shall be given in writing and become effective
60 (sixty) days after receipt of such notice. Such termination requires
certified mail with return receipt.
6.3 Either party shall have the right to immediately terminate the Agreement on
60 (sixty) days prior notice to the other party by certified mail, return
receipt requested. Said right may be exercised either with or without
cause.
7.0 DISPUTES AND COMPETENT COURT
3
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
7.1 The parties hereto shall endeavor to settle amicably any differences or
disputes arising from the performance of this Agreement.
7.2 If legal proceedings should prove necessary, the parties agree that any
action related to or arising out of this Agreement shall be brought within
the State of Connecticut, and the parties do further stipulate and agree
that the courts of the State of Connecticut shall have jurisdiction with
respect to any such actions. This Agreement is entered into the State of
Connecticut and the State of Connecticut has substantial relationship to
the subject matter of this Agreement.
7.3 This Agreement and the rights and obligations of the parties hereto shall
be governed by U.S. law.
7.4 This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements between the parties and their predecessors,
whether written or oral.
8.0 AMENDMENTS AND MODIFICATIONS
8.1 No amendment or modification to this agreement shall be valid, binding or
enforceable unless in writing signed by the parties.
9.0 ASSIGNMENT
9.1 Neither the rights nor the duties of either party hereunder may be assigned
to any third party without the express written consent of the other party.
WHEREOF, the parties have caused this agreement to be signed and dated.
IWL COMMUNICATIONS, INC. RADIO FREQUENCY SYSTEMS, INC.
CABLEWAVE SYSTEMS DIV.
By: By: /s/ CHARLES H. LINKE
---------------------------- -------------------------------
Charles H. Linke
V.P. Sales & Mktg.
Date Date
Signed: Signed: 2/19/96
---------------------------- -------------------------------
4
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS PRODUCT LISTING
EXHIBIT A
IWL COMMUNICATIONS, INC. is duly authorized as a DISTRIBUTOR to sell the
following Cablewave Systems RF & Microwave standard transmission line products
(REF: Cablewave Systems Catalog 720C).
* Flexwell Low Loss Foam Dielectric coaxial cables 1/4" through 1 5/8"
diameter.
* Flexwell FLC, coaxial cable connectors.
* Flexwell Coaxial Cable Installation Accessories.
ADDITIONAL SUPPLEMENTARY PRODUCTS
The following products offered to Distributors are in support of limited/small
quantity sales. All orders for the products listed below will be dropshipped
from Cablewave Systems direct to the end customer of the Distributor.
* Flexwell Air Dielectric coaxial cables 1/4" through 1-5/8" diameter.
* Flexwell Elliptical Waveguide from 2.3 GHz to 19.7 GHz.
* Flexwell Elliptical Waveguide Connectors and Installation Accessories
* Standard and High Performance Microwave Antennas and Associated
Accessories. (Ref. Cablewave Systems Microwave Catalog 800)
* Dehydrators and Pressurization Accessories.
BY: /s/ CHARLES H. LINKE DATE: 2/19/96
-------------------------- ---------------------------
Charles H. Linke
V.P. Sales & Mktg.
5
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS DISCOUNT PROGRAM
EXHIBIT B
The following discounts apply to the prices listed in the most current Cablewave
Systems published price list in effect during the period of this agreement.
Discounts offered herein are predicated upon the Distributor placing stocking
orders with ship dates of two weeks ARO or greater. If ship dates are less
than two weeks ARO discounts will be reduced by XXX.
Cablewave Systems agrees to consider offering an additional project discount to
IWL COMMUNICATIONS INC. on any major project, wherein the purchase order value
would exceed XXX after normal discounts have been applied.
Distributor discounts will be reviewed annually and adjusted in accordance with
Cablewave Systems discount policy as compared to the Distributor purchase volume
for the preceding twelve month period.
DESCRIPTION DISCOUNT
- ----------- --------
Flexwell Low Loss Foam Dielectric coaxial cables
1/4" through 1 5/8" diameter.
(Bulk Length) XXX
---
(Cut Length) XXX
---
Flexwell FLC coaxial cable connectors XXX
---
Flexwell Coaxial Cable Installation Accessories XXX
---
ADDITIONAL SUPPLEMENTARY PRODUCTS
Flexwell Air Dielectric coaxial cables XXX
1/2" through 2 1/4" diameter. ---
Flexwell Air Dielectric coaxial cable connectors XXX
---
Flexwell Elliptical Waveguide from 2.3 GHz XXX
to 19.7 GHz ---
Flexwell Elliptical Waveguide Connectors XXX
and Installation Accessories ---
Standard and High Performance Microwave XXX
Antennas and associated Accessories ---
(Ref: Cablewave Systems Microwave Catalog 800)
All orders for air dielectric cable, elliptical waveguide, connectors and
accessories, microwave antennas, and pressurization equipment will be
dropshipped to the distributor's end customer.
6
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS DISCOUNT PROGRAM
EXHIBIT B
DEFINITIONS:
Bulk length cable:
1) Any existing cable stock on reels which does not require rereeling,
cutting or special handling and which is ordered by the Distributor in
accordance with the reel lengths available and in stock at the time. (e.g.,
Distributor requests 2500 ft. of Flexwell 1/2" FLC12-50J, Cablewave's
nearest in stock full reel length for 1/2" FLC12-50J is 2800. Distributor
would order the 2800 ft. reel to receive the Bulk length cable discount.
Cut length cable:
1) Cable ordered by the Distributor in specified lengths which require cutting
or special handling.
BY: /s/ CHARLES H. LINKE DATE: 2/19/96
----------------------------- --------------------------
Charles H. Linke
V.P. Sales & Mktg.
7
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS
SHIPPING DELIVERY PROCEDURES
EXHIBIT B-1
Any single orders placed for $5,000 and above and designated for shipment to
one address in the U.S. (forty eight contiguous states) with a ship date of 2
weeks ARO or greater will be shipped freight paid by CS. Shipments of
Microwave Antenna Systems are excluded from this and will be shipped Freight
Collect or prepay and add. CS reserves the right to determine carrier and
best surface means for these shipment. Any special shipping requirements
(e.g. air freight) will be shipped freight collect or prepay and add.
All other shipments will be made F.O.B. CS plant collect or prepay and add
and CS will make a best effort to choose the least expensive method unless a
premium cost routing is specified by the DISTRIBUTOR.
Commercial packing costs are included in the price of the CS products. All
cable products shipped to the DISTRIBUTOR will be 100% completely lagged or
plywood wrapped and banded at no charge to the Distributor. If export
packing is required, an additional charge will be made to the DISTRIBUTOR.
Orders placed under this Agreement will be subject to factory shipment dates
of one week after receipt of order (ARO) or greater and are subject to
inventory availability.
In the event of stock outs, Distributor may request an earlier factory
shipment date rather than one week ARO, however, expedited shipment dates
will be subject to inventory availability.
Emergency shipments requiring expedited delivery other than stock outs will
be considered on a case-by-case basis.
BY: /s/ CHARLES H. LINKE DATE: 2/19/96
----------------------------- --------------------------
Charles H. Linke
V.P. Sales & Mktg.
8
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS CO-OP
ADVERTISING PROGRAM
EXHIBIT C
To encourage authorized distributors to advertise CS products, CS will
participate in advertising promotions for CS products which
are mutually agreed upon in advance and financial obligations on
the part of CS have been preapproved.
CS shall work closely with the DISTRIBUTOR in the following areas:
1) Media advertising
2) Trade shows
3) Technical literature
4) Technical training
5) Publications / Catalogs
6) Product samples
BY: /s/ CHARLES H. LINKE DATE: 2/19/96
----------------------------- --------------------------
Charles H. Linke
V.P. Sales & Mktg.
9
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT Cablewave Systems
CABLEWAVE SYSTEMS RETURN MATERIAL
PROGRAM
EXHIBIT D
A. Ongoing Overstock Inventory Rotation
The following terms are intended to encourage the Distributor to
participate in the purchase of all product line categories identified in
Exhibit A to this agreement, specifically new products which may be
introduced during the term of this agreement.
1. Overstock rotation on individual items can not exceed XXXX of the total
units of any one model purchased during the year without prior written
authorization.
2. "Specials", obsolete/discontinued items or stock over two years old
are not eligible for overstock rotation.
3. All overstock rotation returns must be in new unused original
condition as shipped from C.S..
4. No overstock returns allowed between 15 October and 31 December.
5. After inspection and acceptance by CS a full credit will be issued to
the Distributor's account.
B. Material Return Procedure
1. Cablewave products found to be defective shall be returned within
thirty days after inspection and acceptance.
2. Material returns will be administered in accordance with CS standard
sales department procedures.
3. Defective material must be identified by Sales Order Number, nature of
suspected defect or problem, and the MRA (Material Return
Authorization) number.
4. Upon inspection by Cablewave Systems and appropriate credit will be
issued to the Distributor's account.
BY: /s/ CHARLES H. LINKE DATE: 2/19/96
----------------------------- --------------------------
Charles H. Linke
V.P. Sales & Mktg.
10
<PAGE>
EXHIBIT 10.8
[LETTERHEAD]
MEMORANDUM OF UNDERSTANDING
This letter constitutes a Memorandum of Understanding between
Interstate FiberNet (IFN) operating on its behalf and on behalf of
Entergy Technology Corporation (ETC), and IWL Communications, Inc.
(IWL Connect), together referred to herein after as the "parties";
and is for the purpose of defining a contractual relationship
between the parties for the interconnection, co-location, and
leasing capacity of each of the parties fiber optic networks, as
defined herein, in order to provide a reliable and flexible fiber
optic network in Texas, Louisiana, and other locations on ETC's
network.
1. PREMISES AND MUTUAL AGREEMENTS
A. ETC desires to extend its fiber optic network from the
Scott, LA point-of-presence (pop) into Lafayette, LA, for
the purposes of serving its customers and IWL with fiber
optic services over the ETC and IFN networks.
B. IWL desires to provide transport facilities between its
pop in Lafayette, LA and the ETC pop in Scott, LA for the
purposes of serving its customers in Lafayette with fiber
optic services over the ETC and IFN networks and for the
purpose of providing termination for customers originating
in other cities on the ETC and IFN networks.
C. The parties may from time to time provide each other
transport capacity on a leased basis at prevailing carriers'
carrier rates. In this regard, IFN and IWL intend to execute
an IFN Master Capacity Lease for the lease by IWL and IFN
transport services on its network and the ETC network, a
copy of which is included herein as Exhibit 1.
2. NETWORK CONFIGURATION
The parties agree that the network diagram, shown as Exhibit 2,
represents the general configuration of the proposed Lafayette
network with interconnection to IFN and ETC's network in Scott.
3. RESPONSIBILITIES OF THE PARTIES
A. IWL
1) Construct a fiber ring of at least 12 Corning SMF-28
fibers connecting ETC's pop in Cameron Street with
IWL's fiber ring.
2) Provide connection to Bell's pop, MCI's pop, and other
IWL terminal locations including Add/Drop multiplexer
functionality (ADM), as required, to service these
locations on the ring.
3) Provide IFN and ETC with preferential pricing for DS-3
service from ETC's Access Customer Terminal Location
(ACTL) on Cameron Street to the Lafayette Bell POP
located at 530 S. Buchannan Street at cost of $XXXX/
month/DS-3.
<PAGE>
4) Provide IFN and ETC with preferential pricing for DS-3
service for TEC's Access Customer Terminal Location
(ACTL) on Cammeron Street to a XXX Pop located at 102
Versailles Boulevard at a cost of $XXX/month/DS-3.
This is based on a minimum of 12 DS-3's implemented
to XXX over a 3 year term with XXX allowing IWL to
co-locate at their POP.
5) Provide IFN and ETC with preferential pricing for DS-1
and DS-3 services at a price XXXXX below Bells tariffed
pricing for providing the equivalent service including
HICAP services such as: SMARTring, Lightgate 1,
Lightgate 2, and Lightgate 3 between MCI or Bell's POP
to any on-net location on IWL's fiber ring.
6) Provide IFN and ETC with preferential pricing for DS-1
and DS-3 services at a price XXXXX below Bells tariffed
pricing for providing the equivalent service between
IFN and ETC's Access Customer Terminal Location (ACTL)
in Scott and any on-net location on IWL's fiber ring
where that customer in not acting as an Access Customer
(AC) or Access Provider (AP) but where IWL is treated
as the AP.
B. IFN/ETC
1) Provide ADM functionality at Scott for ETC backbone access
2) Provide IWL preferential pricing for ETC DS-1 and DS-3
services at a price of $XXXX and $XXXX per DS-0 airline
mile, respectively between any two points on ETC's network.
3) Provide IWL preferential pricing for DS-1 and DS-3 services
between any two points on IFN's network at rates to be
determined based on volume but not to exceed $XXXX and
$XXXX per DS-O airline mile for DS-1 and DS-3 services,
respectively.
C. Operations Standards
The parties will mutually agree to a formal set of policies
and procedures defining all operational aspects of the
transport services to be provided to customers, including
but not limited to, order entry, provisioning, trouble
reporting, maintenance and repair. IFN's Operations Manual
is attached as Exhibit 3, and is the suggested master
document governing operations standards.
2
<PAGE>
5. FINAL AGREEMENT
The parties agree to move forward expeditiously to conclude a final
agreement that will embody the intent contained herein. The parties
agree that the final agreement will be for an initial term of five
years, with two additional five year option terms.
Please confirm, by signing and returning this letter, that the
foregoing reflects our mutual non-binding understanding and sets
forth the basis for proceeding to draft a final Agreement.
IFN IWL
By By /s/ Ignatius Leonards
---------------------------- ----------------------------
Title Title President
------------------------- -------------------------
Date Date 7-11-96
-------------------------- --------------------------
ETC
By /s/ Earl J. Frederic
----------------------------
Title General Manager
-------------------------
Date 7/24/96
--------------------------
3
<PAGE>
ITAR-TASS/IWL SATELLITE INFORMATION NETWORK
SERVICES AGREEMENT
CONTRACT NUMBER - TSINSA003
MAY 1, 1994
BETWEEN:
[LOGO] [LOGO]
<PAGE>
SATELLITE INFORMATION NETWORK SERVICE AGREEMENT
This SATELLITE INFORMATION NETWORK SERVICE AGREEMENT is made as of 1 May 1994
in Houston, Texas by and between IWL Communications, Inc. (hereinafter
referred to as "IWL") and the Information Telegraphy Agency of Russia
ITAR-TASS (hereinafter referred to as "ITAR-TASS") which is designated agent
according to the laws of the Russian Federation.
This contract replaces previous contracts TSINS001 and TSINSA002.
INTRODUCTION
THE ESSENCE OF THIS AGREEMENT
Whereas, there are many companies with operations in the Russian Federation
and these companies require dedicated communication facilities for both voice
and data between their Russian offices and their offices in other countries;
Whereas, ITAR-TASS is a designated agent, in the Russian Federation, for
utilization of the INTELSAT space segment and is an entity duly organized and
validly existing and has all the requisite power and authority to execute and
deliver, and to perform all obligations under this agreement;
Whereas IWL Communications, Inc. is a corporation duly organized and in good
standing in the state of Texas, USA, and has all the requisite power and
authority to execute and deliver, and to perform all the obligations under
this agreement; and
The parties agree to work together to provide Information and Communications
services for the Customers in Russia and outside Russia using INTELSAT
satellite capacity or other communications facilities.
1.0 SERVICES AND RESPONSIBILITIES OF IWL COMMUNICATIONS, INC.
1. Subject to the terms and conditions hereof, including the attached
exhibits, IWL shall provide the following services:
1.1 Marketing services for telecommunications services to customers.
1.2 Cooperation with ITAR-TASS in developing a proposal/quotation to the
customers for presentation to said customers by IWL Communications, Inc.
IWL will prepare the quotations which include IWL, ITAR-TASS and all other
costs which include licensing, testing, and transportation costs if
applicable.
1.3 Project management, engineering, purchasing, testing and shipping of all
equipment and services required to fulfill the non-Russian portion of the
requirements customer contracts obtained under this agreement.
<PAGE>
1.4 Customs clearance for all customer equipment to be purchased or leased
by customer and installed in Russia and assistance to ITAR-TASS, at
ITAR-TASS's request, in customs clearance for equipment purchased for its
own network..
1.5 Installation and testing of equipment purchased or leased by the customer
and assistance to ITAR-TASS, at ITAR-TASS's request, to install and test
equipment purchased for ITAR-TASS's network.
1.6 Network monitoring and maintenance services for the non-ITAR-TASS earth
station or backbone and customer premise equipment.
1.7 Technical support to ITAR-TASS as requested by ITAR-TASS in support of any
project under this agreement.
1.8 IWL Communications, Inc. shall sell, on an agreed payment schedule, to
ITAR-TASS the equipment contained in the ITAR-TASS communications backbone
network which was supplied by IWL under the previous contracts. IWL may
sell or lease additional equipment to ITAR-TASS as agreed between the
parties.
1.9 Payments to ITAR-TASS, on a monthly basis, the amounts listed in Appendix A
in accordance to the terms of each customer contract as service is
initiated and terminated.
2.0 SERVICES AND RESPONSIBILITIES OF ITAR-TASS
Subject to the terms and conditions hereof, including the attached
exhibits, ITAR-TASS shall provide the following services:
2.1 Obtain all necessary approvals to insure legal operation of the ITAR-TASS
proposed communication services offered by ITAR-TASS in the Russian
Federation, where IWL is unable to obtain necessary approval.
2.2 Marketing and sales support, as requested by IWL, in conjunction with joint
bids.
2.3 Proposals/quotations for all communication services in the Russian
Federation associated with any joint bid under this agreement. If ITAR-TASS
cannot provide the services or the services are not economically feasible
when compared to market conditions at the time of quotation, IWL shall have
the right to obtain communication services from other sources.
2.4 Implementation, monitoring and 24-hour maintenance of a communications
backbone network in the Russian Federation. ITAR-TASS shall purchase or
lease all equipment associated with earth stations, cable systems, and the
network. IWL Communications Inc. may be solicited for purchase of the
equipment at the option of ITAR-TASS. This responsibility does not include
customer equipment unless specifically notes in Appendix A.
<PAGE>
2.5 ITAR-TASS shall provide complete (both halves) space segment for
communications services to the Russian Federation and may provide services
to other countries. If space segment is not available or economically
feasible when compared to market conditions, IWL shall have the right to
obtain space segment or fiber optic connections from any other source. IWL
may pay COMSAT or other authorized telecommunication entities on behalf of
ITAR-TASS as specified in attachments to Appendix A.
2.6 Payment to IWL for the communications equipment supplied for the ITAR-TASS
communications earth station and backbone network per Appendix B.
3.0 SERVICE FEES AND ACCOUNTING PRINCIPLES
3.1 IWL will make proposals to customers after soliciting a quotation for
services from ITAR-TASS. IWL will treat ITAR-TASS as service provider and
will consider the Russian services as IWL's cost in the proposals to the
customers. IWL will submit to ITAR-TASS description of services,
approximate start date, term, and resource requirements associated with
proposed service. ITAR-TASS will provide approval of estimates and/or
quotations within ten (10) working days of submittal by IWL. IWL will
submit to ITAR-TASS all charges to customers based on associated ITAR-TASS
services before IWL signs contract with the cusomter. After award of a
contract, Appendix A will be amended and the additional payments added.
IWL will administer the customer contract and pay the amount specified in
ITAR-TASS's proposal less payments due to IWL for ITAR-TASS's equipment
purchases, subcontract charges and labor charges in support of the
ITAR-TASS communication earth station and backbone network. IWL will
provide ITAR-TASS with a statement of the total contract value. Labor
rates will be charged in accordance with Appendix C.
3.2 In the event a customer contract obtained by IWL involves the purchase or
lease of equipment by said customer from IWL, and ITAR-TASS is involved in
providing communication services as part of this contract, IWL will provide
an accounting schedule to ITAR-TASS, after IWL receives full payment from
customer for said equipment. The accounting schedule will state the profit
contained in the equipment sale. IWL will make payment to ITAR-TASS of XXX
of said profit. Profit is defined as the equipment sales price less all
associated costs which includes but is not limited to the direct equipment
costs, bank interest, allocated general and administration costs,
engineering costs, and project management expenses, purchasing, marketing,
and shipping costs.
3.3 If ITAR-TASS requires spare parts or additional communications equipment,
IWL will supply this equipment at IWL's cost (as defined in 3.2) plus XXX
profit. The equipment will be added to the list contained in appendix B and
the monthly payment for the equipment will be adjusted for the remaining
term.
<PAGE>
3.4 IWL Communications may make other payments on behalf of ITAR-TASS for
miscellaneous items or training classes. These costs will be deducted each
month from the total amount to be paid to ITAR-TASS at XXX profit above
IWL's costs as defined in section 3.2. ITAR-TASS shall approve all such
expenditures prior to their being incurred. IWL will provide ITAR-TASS with
an itemized list of all expenses paid on behalf of ITAR-TASS.
3.5 All payments made under this agreement shall be made in U.S. dollars.
Payment shall be deemed to be made when the funds are electronically
transferred to a specified account or when a check is placed in the mail to
the designate address.
3.6 IWL Communications, Inc. will keep detailed accounts of the transactions
under this contract. All labor charges assessed to ITAR-TASS by IWL will be
documented by IWL time records which will reflect the individual performing
services and the related time expended in performing those services..
3.7 ITAR-TASS will pay for all banking charges and currency conversion charges
relating to payments to ITAR-TASS under this agreement.
3.8 In event that a customer reduces payments to IWL due to network outages,
if the outage is Russian circuit problems, IWL shall reduce the payment due
under section 3.1 and 3.2 to ITAR-TASS by corresponding amount. If the
outage is due to a non-Russian circuit problem, payment to ITAR-TASS shall
not be reduced.
3.9 ITAR-TASS shall provide maintenance support to those customers as noted in
Appendix A.
3.10 In the event the balance owed IWL by ITAR-TASS exceeds the amount of
customer contracts in-place, ITAR-TASS will agree to pay the amount
exceeded balance directly.
4.0 OTHER TERMS AND CONDITIONS
4.1 Both parties agree to work in close coordination to perform communication
services to customers, however this agreement is not exclusive. Either
party can work with other entities if in the opinion of either party,
financial or technical considerations dictate a different working
arrangement.
4.2 IWL Communications, Inc. has the first right of refusal on 6.0 MHz of
bandwidth on the Atlantic Ocean Region, 4.5 MHz of bandwidth on the Indian
Ocean Region, and 3.0 MHz of bandwidth on the Asia-Pacific Region INTELSAT
satellites. If IWL does not purchase this space segment, ITAR-TASS shall be
free to sell the service to another party. In the event that ITAR-TASS is
not able to move the current VSNL carriers to the low gain transponder, the
IOR allotment will be 3.5 MHz in SVOL 2282 and 1.0 MHz in SVOL 2281. In the
event that the transponder bearing SVOL 2281 is reconfigured to high gain,
this issue shall be moot.
<PAGE>
4.3 ITAR-TASS shall have the first right of refusal on all contracts for
communications services to the Russian Federation proposed by IWL
Communications, Inc.. IWL may use an alternate entity only if the economic
considerations or technical solution offered by ITAR-TASS is not
competitive.
4.4 Appendix D contains prices for standard services from ITAR-TASS for space
segment and communications services. Under certain conditions, both parties
may negotiate in good faith changes to the terms in Appendix D subject to
the following guidelines:
- If an opportunity arises where IWL may charge in excess of XXX times
ITAR-TASS's charges to IWL, ITAR-TASS has the right to renegotiate
price to IWL for this opportunity only.
- If an opportunity arises where IWL must charge the customer less than
XXX times ITAR-TASS's charges to IWL, IWL and ITAR-TASS have the right
to renegotiate the price to IWL for this opportunity.
- If ITAR-TASS does not provide written approval or notification of its
desire to renegotiate within three (3) working days of IWL submission,
approval will be assumed.
4.5 The period of this contract will be five (5) years from the date of
signature, or ITAR-TASS has the right to terminate this agreement if the
ITAR-TASS/ INTELSAT contract is terminated. Either party to this
contract has the right to terminate this agreement with a sixty (60) day
written notice, if business conditions or political events indicate that
termination is required in the opinion of either party.
4.6 In the event of termination of this agreement for any reason, both parties
agree to continue to provide the communications services under contract at
the time of termination. IWL Communications, Inc. will continue to make
payments for communication services and ITAR-TASS agrees to continue to
make payments for all equipment purchased.
4.7 This contract and the rights and obligations of each hereunder may be
assigned if the other party provides written consent.
4.8 This contract shall be binding on successors to each party.
4.9 Each party agrees that they will not compete for projects prepared by the
other party directly or indirectly.
4.10 Both parties agree that they will not disclose, to any third party,
competition sensitive material. This includes but is not limited to
customer information, pricing information, technical information or
project information relating to any business which is covered by
this contract. Both parties agree to execute a
<PAGE>
confidentiality/non-disclosure agreement which binds both parties for
a period of three years.
5.0 ARBITRATION
Any dispute arising under this Agreement between the parties hereto shall
be submitted to, and finally and conclusively resolved, settled, and
determined under the International Arbitration Rules (the "Rules") of the
London court of International Arbitration ("LCIA") by a panel of three
arbitrators appointed in accordance with the Rules. The arbitration shall
take place in Stockholm, Sweden. Notice of such dispute must be timely
given by serving upon the other party written notice of the complaint,
including the specific paragraphs or subparagraphs of this Agreement
allegedly violated and the remedy sought. The complainant must thereafter
within thirty (30) days, or by written agreement within any longer agreed
upon period, request arbitration.
The panel of three arbitrators shall be chosen from a list of at least
seven (7) qualified arbitrators appointed by the LCIA, all of whom must be
familiar with general international business practices. The parties shall
alternately strike names until three names remain, which persons shall
serve as arbitrators. The party to strike first shall be determined by lot.
The arbitration shall be conducted and governed pursuant to the Rules and
accepted commercial practices. The award shall be accompanied by a written
opinion setting forth the reason for the award and the facts relied upon.
Arbitrators shall promptly hear the matter and shall within sixty (60) days
from the hearing, render a decision, which decision shall be final,
binding, and conclusive on the parties and their respective successors and
assigns, and entitled to be enforced to the fullest extent permitted by
law. Each party hereby agrees that any arbitration award may be enforced in
any location where such party owns assets. Each party further acknowledges
that this Agreement and any award rendered pursuant to it shall be governed
by the 1958 United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards. ITAR-TASS hereby waives any claims of sovereign
immunity it may have regarding claims of IWL under this Agreement.
Each party shall pay its own expenses of arbitration and the expenses of
the arbitrators shall be equally shared provided, however, that is in the
opinion of the arbitrators any claim for indemnification by any party
hereunder or any defense or objection thereto by the other party was
unreasonable, the arbitrators may assess, as part of the award, all or any
part of the arbitration expense (including reasonable attorneys' fees and
costs) of the other party and of the arbitrators against the party raising
such unreasonable claim, defense or objection. Nothing herein set forth
shall prevent the parties from settling any dispute by mutual agreement at
any time.
<PAGE>
6.0 FORCE MAJEURE
Each party to this Agreement shall be excused from performance hereunder
for any period of time and to the extent that it is prevented from
performing any of its obligations pursuant hereto, in whole or in part,
by a natural disaster, fire, explosion, transportation contingencies,
quarantine, restriction, epidemic, natural catastrophe, war, civil
disturbance, acts of the government of any country or of any governmental
agency of official thereof, court order, labor dispute, third party
non-performance, or other causes, events, or circumstances beyond its
reasonable control, and such non-performance shall not be a default under
this Agreement nor a ground for termination of this Agreement as long as
the excused party makes reasonable efforts to remedy, if and to the extent
reasonably possible, the cause for such non-performance. Should the force
majeure continue in effect for a period exceeding one-year and through best
efforts of the parties this Agreement shall be terminated.
7.0 AMENDMENTS
This Agreement may be amended, modified, or supplemented only by an
instrument in writing executed by the party against which enforcement of
the amendment, modification or supplement is sought and valid only if
signed by both parties.
8.0 ENTIRE AGREEMENT
This Agreement, all exhibits hereto, and all other documents executed or
delivered pursuant to this Agreement, contain the complete Agreement
between the parties with respect to the transactions contemplated hereby
and supersede all prior Agreements and understandings, whether oral or
written, between the parties with respect to such transactions. This
Agreement is signed in Houston, Texas in four originals, two in English and
two in Russian. All originals have the same legal force.
9.0 LEGAL ADDRESSES OF PARTIES
INFORMATION TELEGRAPH AGENCY OF RUSSIA - ITAR-TASS
Address: Tverskoi Bld. 10
Moscow, Russia 100139
Telephone: 7 095 290 4735
Facsimile: 7 095 203 3049
IWL COMMUNICATIONS, INC.
Address: 4311 FM 2351
Friendswood, Texas 77546
<PAGE>
Telephone: 101 713 482-0289
Facsimile: 101 713 482-9144
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
INFORMATION TELEGRAPH AGENCY IWL COMMUNICATIONS, INC.
OF RUSSIA - ITAR-ITAR-TASS
By: /s/ Andrew Grigoriev By: /s/ Ignatius Leonards
---------------------------------- --------------------------------
Its: Head of Satellite Communications Its: President
<PAGE>
APPENDIX A
<PAGE>
SAMPLE FORMAT
Contract # Date:
--------------- -----------------
Customer: AMOCO
---------------
Delivery Date:
------------
- -------------------------------------------------------------------------------
Description:
- -------------------------------------------------------------------------------
Contract Revenue Contract Costs
------------------
Profit
- -------------------------------------------------------------------------------
Distribution of Funds:
ITAR-TASS IWL Communications, Inc.
- -------------------------------------------------------------------------------
<PAGE>
APPEN_A.XLS
APPENDIX A
Schedule of Lease Contracts
<TABLE>
SERVICE START TERMINAL MONTHS LEASE
LESSEE DESCRIPTION LOCATIONS SAT CIRCUIT DATE DATE TERM REMAINING REVENUE TASS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conoco Space Segment Moscow Houston AOR 64.0K 7/10/92 7/9/95 36 15 $XXXXXX $XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Conoco Equipment Moscow Houston AOR N/A 7/10/92 7/9/97 60 39 XXXXX XX
- -----------------------------------------------------------------------------------------------------------------------------------
Conoco Maintenance Moscow Houston AOR N/A 7/10/92 7/9/97 60 39 XXXXX XXX
- -----------------------------------------------------------------------------------------------------------------------------------
Tripetrol Space Segment/ Moscow Houston AOR 12.0K 3/24/93 3/23/94 12 Expired XXXXX XXXXX
Equip.
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Space Segment Arkhangelsk Houston IOR 64.0K 8/15/93 8/14/98 60 52 XXXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Space Segment Arkhangelsk Moscow IOR 19.2K 8/15/93 8/14/98 60 52 XXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Cable Charge Moscow Petushkee IOR N/A 8/15/93 8/14/98 60 52 XXXXX X
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights Ark, Ard,
Company Equipment Usinsk Houston IOR N/A 8/15/93 8/14/98 60 52 XXXXXX XXX
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Space Segment Arkhangelsk Ardalin IOR 32.0K 3/14/94 3/13/99 60 59 XXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Space Segment Arkhangelsk Usinsk IOR 19.2K 3/14/94 3/13/99 60 59 XXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Polar Lights
Company Space Segment Ardalin Houston IOR 32.0K 3/14/94 3/13/95 12 11 XXXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Neftel Group Space Segment Nizhnevartovsk Oslo IOR 128.0K 12/20/93 12/19/96 36 32 XXXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Harris Space Segment Somalia United AOR 1,500.0K 1/7/94 1/6/95 12 9 XXXXXX XXXXXX
Electronics States
- -----------------------------------------------------------------------------------------------------------------------------------
Exxon Space Segment/ Moscow Houston AOR 64.0K 4/18/94 4/17/99 60 60 XXXXX XXXXX
Equip.
- -----------------------------------------------------------------------------------------------------------------------------------
Amoco Space Segment Moscow Tulsa AOR 64.0K Open 36 36 XXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Amoco Space Segment Neftyugansk London IOR 64.0K Open 36 36 XXXXXX XXXXX
- -----------------------------------------------------------------------------------------------------------------------------------
Totals $XXXXXXX $XXXXXX
-----------------
-----------------
</TABLE>
IWL has included payment to COMSAT and other non-Russian signatories in its
portion of the revenue
<PAGE>
APPENDIX B
<PAGE>
APP_B1.XLS
SCHEDULE OF IWL / SSI EQUIPMENT
SOLD TO ITAR/TASS
<TABLE>
Manufacturer Serial Each Extended
Quantity Description Manufacturer Number Number Comments Price Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 MULTIPLEXER PCSI CS8000 3409 2 voice/ 2 data ports XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MULTIPLEXER PCSI CS8000 5733 2 data ports XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MULTIPLEXER PCSI CS8000 2032 1 voice/3 data ports XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 FIBER OPTIC MODEM RAD FOM-40 4121367 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 FIBER OPTIC MODEM RAD FOM-40 4121368 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 FIBER OPTIC MODEM RAD FOM-40 4083907 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 FIBER OPTIC MODEM RAD FOM-40 4093906 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SUPERGROUP MODEM DTS 2001 93217200102 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SUPERGROUP MODEM DTS 2001 93217200103 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 REFERENCE GENERATOR DTS 3050 3050001A002 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
6 DSU UDS MR1 N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MODEM SHELF RAD MCS12 N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 GROUP MODEM FAIRCHILD GB200 Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 BERT TEST SET TTC 2000 154470 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI MULTIPLEXER RAD MP2000 N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD LS-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
3 TI MULTIPLEXER CARD RAD HS-2 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD CL-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
3 TI MULTIPLEXER CARD RAD ML-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD PS-2 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MISCELLANEOUS PARTS VARIOUS N/A N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 DOWNCONVERTER LNR 1130 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 DOWNCONVERTER LNR Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 DOWNCONVERTER LNR Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MULTIPLEXER PCSI CS8000 3394 1 voice/ 3 data ports XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MULTIPLEXER PCSI CS8000 3408 1 voice/ 1 data port XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM100 1032 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM100 1033 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM650 1821 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM650 9381 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM650 8241 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS EF DATA SDM650 8240 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS COMSTREAM CM701 63361 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS COMSTREAM CM701 63422 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SATELLITE MODEMS COMSTREAM CM701 63052 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 REED SOLOMON CARDS COMSTREAM RS01 Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SUPERGROUP MODEM DTS 2001 Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 SUPERGROUP MODEM DTS 2001 93341200104 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 REFERENCE GENERATOR DTS 3050 3050001A001 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 GROUP MODEM FAIRCHILD GB200 Unknown XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI MULTIPLEXER RAD MP2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD LS-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD HS-2 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD CL-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI MULTIPLEXER CARD RAD ML-1 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI MULTIPLEXER CARD RAD ML-11 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 TI MULTIPLEXER CARD RAD PS-2 N/A Cards for MP 2000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 LINE DRIVER RAD ASM-20 3132826 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 LINE DRIVER RAD ASM-20 3132824 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI REPEATER RAD RPT-TI 3261358 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 TI REPEATER RAD RPT-TI 3261357 XXX XXX
- -----------------------------------------------------------------------------------------------------------------
1 TI REPEATER RAD RPT-TI 3261356 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 ALARM PANEL XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 POWER SUPPLY NEWMAR N/A N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 EQUIPMENT CABINET N/A N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 MISCELLANEOUS PARTS VARIOUS N/A N/A XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 BERT TEST SET TTC 600
- ------------------------------------------------------------------------------------------------------------------
2 BERT INTERFACE TTC 40202
- ------------------------------------------------------------------------------------------------------------------
2 BERT INTERFACE CABLE TTC 10214
- ------------------------------------------------------------------------------------------------------------------
2 BERT INTERFACE TTC 30609
- ------------------------------------------------------------------------------------------------------------------
2 BERT INTERFACE CABLE 3 PIN TO BANTAM
- ------------------------------------------------------------------------------------------------------------------
2 BERT INTERFACE TTC TI INTERFACE
- ------------------------------------------------------------------------------------------------------------------
BERT TOTAL XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 OSCILLOSCOPE TEKTRONICS 10419 60 MHZ XXX XXX
- ------------------------------------------------------------------------------------------------------------------
1 OSCILLOSCOPE TEKTRONICS 10419 100 MHZ XXX XXX
- ------------------------------------------------------------------------------------------------------------------
4 MULTIMETER FLUKE 77 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 HIGH TEMPERATURE PROBE 80K-40 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 HIGH TEMPERATURE PROBE 80T-150V XXX XXX
- ------------------------------------------------------------------------------------------------------------------
4 TESTERS INTERFACES V.35 WITH DC PS XXX XXX
- ------------------------------------------------------------------------------------------------------------------
10 CORDLESS TELEPHONE TROPEZ 900DL XXX XXX
- ------------------------------------------------------------------------------------------------------------------
2 FAX MACHINE PITNEY BOWES 7800 XXX XXX
- ------------------------------------------------------------------------------------------------------------------
--------
TOTAL SALES PRICE $561,917
--------
--------
</TABLE>
E PAYMENT SCHEDULE IS CONTAINED IN ATTACHMENT 1
Page 1
<PAGE>
ATTACHMENT 1
Interest Vision
IWL Sale of Equipment to ITAR-TASS
Loan or Annuity Variables:
Start Date: May 1, 1994 End Date: May 1, 1997
Start Payment: May 1, 1994 No. of Payments: 36
Start Interest: May 1, 1994 Interest Rate: 10.000%
Payment Freq.: Monthly Initial Principal: $561917.00
Compound Freq.: Monthly Payment Amount: $18136.24
Days in Mo./Yr.: Actual No. Balloon: $0.00
Payment Mode: In Arrears Amortization Method: Simple Int.
Payment Interest Interest
No. Date Amount Amount Rate/Yr. Principal Balance
May 1, 1994 0.00 0.00 0.000 0.00 561917.00
1 Jun 1, 1994 18136.24 4772.45 10.000 13363.80 548553.20
2 Jul 1, 1994 18136.24 4508.66 10.000 13627.59 534925.61
3 Aug 1, 1994 18136.24 4543.20 10.000 13593.04 521332.58
4 Sep 1, 1994 18136.24 4427.76 10.000 13708.49 507624.09
5 Oct 1, 1994 18136.24 4172.25 10.000 13963.99 493660.10
6 Nov 1, 1994 18136.24 4192.73 10.000 13943.51 479716.58
7 Dec 1, 1994 18136.24 3942.88 10.000 14193.37 465523.22
8 Jan 1, 1995 18136.24 3953.76 10.000 14182.48 451340.73
9 Feb 1, 1995 18136.24 3833.30 10.000 14302.94 437037.79
10 Mar 1, 1995 18136.24 3352.62 10.000 14783.62 422254.17
11 Apr 1, 1995 18136.24 3586.27 10.000 14549.98 407704.19
12 May 1, 1995 18136.24 3350.99 10.000 14785.25 392918.94
13 Jun 1, 1995 18136.24 3337.12 10.000 14799.12 378119.82
14 Jul 1, 1995 18136.24 3107.83 10.000 15028.41 363091.41
15 Aug 1, 1995 18136.24 3083.79 10.000 15052.45 348038.95
16 Sep 1, 1995 18136.24 2955.95 10.000 15180.30 332858.66
17 Oct 1, 1995 18136.24 2735.82 10.000 15400.42 317458.24
18 Nov 1, 1995 18136.24 2696.22 10.000 15440.02 302018.22
19 Dec 1, 1995 18136.24 2482.34 10.000 15653.90 286364.31
20 Jan 1, 1996 18136.24 2425.49 10.000 15710.75 270653.56
21 Feb 1, 1996 18136.24 2292.42 10.000 15843.82 254809.74
22 Mar 1, 1996 18136.24 2018.98 10.000 16117.26 238692.48
23 Apr 1, 1996 18136.24 2021.71 10.000 16114.53 222577.95
24 May 1, 1996 18136.24 1824.41 10.000 16311.83 206266.11
25 Jun 1, 1996 18136.24 1747.06 10.000 16389.18 189876.93
26 Jul 1, 1996 18136.24 1556.37 10.000 16579.88 173297.06
27 Aug 1, 1996 18136.24 1467.82 10.000 16668.43 156628.63
28 Sep 1, 1996 18136.24 1326.64 10.000 16809.61 139819.02
29 Oct 1, 1996 18136.24 1146.06 10.000 16990.19 122828.83
30 Nov 1, 1996 18136.24 1040.35 10.000 17095.89 105732.94
31 Dec 1, 1996 18136.24 866.66 10.000 17269.58 88463.36
32 Jan 1, 1997 18136.24 751.33 10.000 17384.91 71078.45
<PAGE>
Payment Interest Interest
No. Date Amount Amount Rate/Yr. Principal Balance
33 Feb 1, 1997 18136.24 603.68 10.000 17532.56 53545.89
34 Mar 1, 1997 18136.24 410.76 10.000 17725.48 35820.41
35 Apr 1, 1997 18136.24 304.23 10.000 17832.02 17988.39
36 May 1, 1997 18136.24 147.85 10.000 17988.39 0.00
-2-
<PAGE>
APPENDIX C
<PAGE>
STANDARD RATE SHEET
EFFECTIVE 01/01/94
DOMESTIC SERVICE:
Monday - Friday 7:00 A.M. - 6:00 P.M. $XXXXX/Hour
Overtime $XXXXX/Hour
Holidays $XXXXXX/Hour
MOBILE INSTALLATION (IN-HOUSE) STANDARD VEHICLES:
Dash Mount $XXXXXX/Each
Trunk Mount $XXXXXX/Each
Removals $XXXXX/Each
Non-Standard Vehicles T&M
(Field installs and removals will be at the above rates
plus travel time and mileage)
MILEAGE CHARGES: $XXXX/Mile
TOWER CLIMB CHARGE: $XXXX/Foot
ENGINEERING AND PROJECT MANAGEMENT:
Engineer $XXXXXX/Day
Project Manager $XXXXXX/Day
Field Manager $XXXXXX/Day
Data Communications or Satellite/Microwave Technician $XXXXXX/Day
Field Survey Technician $XXXXXX/Day
Civil Engineer (Structure and Soil Analysis/Survey) $XXXXXX/Day
FCC FORMS PREPARATION*:
Form 403 (Satellite) $XXXXXX/Each
Form 402 (Microwave) $XXXXXX/Each
Form 574 (Two-Way):
Basic Form and One (1) Transmitter $XXXXXX/Each
Additional Transmitters Per Form $XXXXX/Each
Form 155 (Fee Processing) $XXXXX/Each
Renewals $XXXXX/Each
*Does not include coordination of FCC fees
NOTE: Additional charges may apply in areas where service being provided
includes adverse environmental conditions or political instability.
CONFIDENTIAL
<PAGE>
STANDARD RATE SHEET (CONTINUED)
ENGINEERING STUDIES:
Mobile/Two-Way/Trunking Coverage Study $XXXXXX/Freq or Site
Additional Plots $XXXXXX/Each
Microwave Path Studies (USGS Only):
Path Profiles $XXXXXX/Each
Reliability Analysis $XXXXXX/Each
Microwave Path Studies
(USGS with 7.5 Minute Map Verification):
Path Profiles $XXXXXX/Each
Reliability Analysis $XXXXXX/Each
Satellite Engineering:
Radiation Hazard Study $XXXXXXXX/Each
Link Budget $XXXXXXXX/Each
TEST EQUIPMENT RENTAL:
Transmission Test Set (Osc-Level) $XXXXXX/Week
Frequency Selective Voltmeter $XXXXXX/Week
Microwave Spectrum Analyzer $XXXXXX/Week
Microwave Power Meter $XXXXXX/Week
Microwave Directional Coupler $XXXXX/Week
Microwave Detectors $XXXXX/Week
Microwave Signal Generators $XXXXXXXX/Week
T1-56kb Digital Analyzer (BERT) $XXXXXX/Week
NPR Test Equipment $XXXXXX/Week
X-Y Plotter $XXXXXX/Week
IFR 1200 Service Monitor $XXXXXX/Week
Strip Chart Recorder $XXXXXX/Week
Portable GPS Receiver $XXXXXX/Week
Video "Cam-Corder" $XXXXXX/Week
Computer (Portable/Laptop/Desktop) $XXXXXX/Week
Other Test Equipment (Prices Quoted
as Needed)
OTHER:
* Any third party expenses such as lodging, meals, or special travel will be
billed to customer at Cost plus XXX administrative fee.
* Any delays beyond the control of IWL Communications, Inc. are billed to the
customer as travel time plus mileage.
* A minimum of one (1) hour will be charged for all ship and call out
services.
* All charges are based upon "portal-to-portal" billing.
* All rates based on the customer providing local and offshore
transportation.
CONFIDENTIAL
<PAGE>
APPENDIX D
<PAGE>
STANDARD ITAR-TASS SERVICE PRICE
DEFINITIONS:
1. COST will be as defined in Section 3.2 of this contract.
2. SPACE SEGMENT COST is the documented Intelsat tariff charges to ITAR-TASS
minus any lease charge abatement or rebates due to signatory transit
arrangements.
3. INTELSAT TARIFF CHARGES is $XXXXXX per 100 KHz AOR and $XXXXXX per 100 KHz
IOR.
I. RECURRING PER MONTH:
1. For circuits between Russian Territory and COMSAT Controlled Territory
that transit the TASS Earth Station at Petushkee. Space Segment and
Petushkee Earth Station resources per circuit:
Up to 128 kbps: $XXXXXXXX + N* (XXX*SPACE SEGMENT COST)
where N = using satellite capacity (max EIRP or BW)
-----------------------------------------
100 KHz
More than 128 kbps: TO BE AGREED ON A CASE-BY-CASE BASIS.
2. For circuits between Russian Remote Sites and COMSAT Controlled
Territory that do not transit the TASS Earth station at Petushkee.
Space Segment services per circuit:
Up to 128 kbps: $XXXXXX + N* (XXX*SPACE SEGMENT COST)
where N = using satellite capacity (max EIRP or BW)
-----------------------------------------
100 KHz
More than 128 kbps: TO BE AGREED ON A CASE-BY-CASE BASIS.
3. Space Segment and Earth Station service for IWL circuits that transit
the TASS Earth Station at Petushkee associated with Russian Domestic
Earth Stations, or circuits that transit non-billing and non-
participating correspondents, including:
- Space Segment
- Signatory support of operating and frequencies licenses procedures
- INTELSAT, Russian PTT, other administration of PTT interfaces
Up to 128 kbps: $XXXXXXXX + N* (XXX*SPACE SEGMENT COST)
<PAGE>
More than 128 kbps: TO BE AGREED ON A CASE-BY-CASE BASIS.
4. Space Segment service for IWL circuits that do not transit the TASS
Earth Station at Petushkee associated with Russian Domestic Earth
Stations, that transit non-billing and non-participating
correspondents, including:
- Space Segment
- Signatory support of operating and frequencies licenses procedures
- INTELSAT, Russian PTT, other administration of PTT interfaces
Up to 128 kbps: $XXXXXX + N* (XXX*SPACE SEGMENT COST)
More than 128 kbps: TO BE AGREED ON A CASE-BY-CASE BASIS.
5. Space segment for IWL circuits not associated with Russian Remote
Earth Stations: TO BE AGREED ON A CASE-BY-CASE BASIS.
6. Space segment for IWL circuits that transit billing and participating
correspondents other than COMSAT: TO BE AGREED ON A CASE-BY-CASE.
BASIS.
7. Link between Petushkee Earth Station and Moscow ITAR-TASS Technical
Center: PER 64 kbps - $XXXXXX
8. Fiber Optic link between Moscow ITAR-TASS Technical Center and
Ostankino technical node: $XXXXXX + L * $XXXXX (where L = number of 64
kb circuits)
9. Fiber Optic link between Moscow ITAR-TASS Technical Center or
Ostankino and IWL customer location: TO BE AGREED ON A CASE-BY-CASE
BASIS.
10. Cable link between Moscow ITAR-TASS Center or Ostankino and IWL
customer location: COST + XXX
11. Maintenance, per one (1) circuit:
EARTH STATION EQUIPMENT $XXXXXX
CABLE EQUIPMENT $XXXXXX
FIBER OPTIC EQUIPMENT $XXXXXX
MOSCOW CUSTOMER EQUIPMENT $XXXXXX
REMOTE EARTH STATION* $XXXXXX PER DAY, PER MAN, AND TRAVEL EXPENSES
* ON A CASE-BY-CASE BASIS
<PAGE>
12. Services provided by third parties (i.e., COMSAT or any PTT
administration charges): COST + XXX
13. Project management, per one (1) contract with customer: $XXXXXX
II. NON-RECURRING:
1. Installation of Space Segment circuit including:
- Petushkee equipment installation
- SSOG link-up procedure for Petushkee Earth Station
- INTELSAT interfaces
- Correspondent signatory arrangements
$XXXXXXXX
2. Signatory support of SSOG procedures for IWL remote Earth Stations:
$XXXXXX per each procedure.
3. Installation of terrestrial circuit: $XXXXXXXX
4. Installation of Moscow customer equipment: $XXXXXX
5. Frequencies license procedure (without guarantee of positive result
and term): COST + XXX
6. Services provided by third parties: COST + XXX
7. Support of custom's clearance will be at: ITAR-TASS's COST + XXX.
<PAGE>
STANDARD RATE SHEET
EFFECTIVE 01/01/94
DOMESTIC SERVICE:
Monday - Friday 7:00 A.M. - 6:00 P.M. $XXXXX/Hour
Overtime $XXXXX/Hour
Holidays $XXXXXX/Hour
MOBILE INSTALLATION (IN-HOUSE) STANDARD VEHICLES:
Dash Mount $XXXXXX/Each
Trunk Mount $XXXXXX/Each
Removals $XXXXX/Each
Non-Standard Vehicles T&M
(Field installs and removals will be at the above rates plus travel time
and mileage)
MILEAGE CHARGES: $XXXX/Mile
TOWER CLIMB CHARGE: $XXXX/Foot
ENGINEERING AND PROJECT MANAGEMENT:
Engineer $XXXXXX/Day
Project Manager $XXXXXX/Day
Field Manager $XXXXXX/Day
Data Communications or Satellite/Microwave Technician $XXXXXX/Day
Field Survey Technician $XXXXXX/Day
Civil Engineer (Structure and Soil Analysis/Survey) $XXXXXX/Day
FCC FORMS PREPARATION*:
Form 403 (Satellite) $XXXXXX/Each
Form 402 (Microwave) $XXXXXX/Each
Form 574 (Two-Way):
Basic Form and One (1) Transmitter $XXXXXX/Each
Additional Transmitters Per Form $XXXXX/Each
Form 155 (Fee Processing) $XXXXX/Each
Renewals $XXXXX/Each
* Does not include coordination of FCC fees
NOTE: ADDITIONAL CHARGES MAY APPLY IN AREAS WHERE SERVICE BEING PROVIDED
INCLUDES ADVERSE ENVIRONMENTAL CONDITIONS OR POLITICAL INSTABILITY.
CONFIDENTIAL
<PAGE>
STANDARD RATE SHEET (CONTINUED)
ENGINEERING STUDIES:
Mobile/Two-Way/Trunking Coverage Study $XXXXXX/Freq or Site
Additional Plots $XXXXXX/Each
Microwave Path Studies (USGS Only):
Path Profiles $XXXXXX/Each
Reliability Analysis $XXXXXX/Each
Microwave Path Studies
(USGS with 7.5 Minute Map Verification):
Path Profiles $XXXXXX/Each
Reliability Analysis $XXXXXX/Each
Satellite Engineering:
Radiation Hazard Study $XXXXXXXX/Each
Link Budget $XXXXXXXX/Each
TEST EQUIPMENT RENTAL:
Transmission Test Set (Osc-Level) $XXXXXX/Week
Frequency Selective Voltmeter $XXXXXX/Week
Microwave Spectrum Analyzer $XXXXXX/Week
Microwave Power Meter $XXXXXX/Week
Microwave Directional Coupler $XXXXX/Week
Microwave Detectors $XXXXX/Week
Microwave Signal Generators $XXXXXXXX/Week
TI-56kb Digital Analyzer (BERT) $XXXXXX/Week
NPR Test Equipment $XXXXXX/Week
X-Y Plotter $XXXXXX/Week
IFR 1200 Service Monitor $XXXXXX/Week
Strip Chart Recorder $XXXXXX/Week
Portable GPS Receiver $XXXXXX/Week
Video "Cam-Corder" $XXXXXX/Week
Computer (Portable/Laptop/Desktop) $XXXXXX/Week
Other Test Equipment (Prices Quoted as Needed)
OTHER:
* Any third party expenses such as lodging, meals, or special travel will be
billed to customer at Cost plus XXX administrative fee.
* Any delays beyond the control of IWL Communications, Inc. are billed to the
customer as travel time plus mileage.
* A minimum of one (1) hour will be charged for all ship and call out
services.
* All charges are based upon "portal-to-portal" billing.
* All rates based on the customer providing local and offshore
transportation.
CONFIDENTIAL
<PAGE>
SUPPLEMENT No 1
OF 8 JUNE 1994
To the Services Agreement between
ITAR-TASS and IWL
The Contract Number - TSINSA003
In purpose of developing of the ITAR-TASS Information Network and in
accordance with item No 1.8 of the Contract IWL is providing ITAR-TASS with
communication equipment on CIF Moscow conditions.
SPECIFICATION
- ----------------------------------------------------------------------------
Item Qty Description Cost $
- ----------------------------------------------------------------------------
1. 2 SSE 20 Watt C-band Radio with M&C XXX
(s/n 01-02574, 01-02575)
1.1. 2 SSE Power Supply
(s/n 01-02574, 01-02575)
1.2. 2 SSE HPA (s/n 01-02574, 01-62575)
1.3. 1 SSE Interface Box (s/n 01-06021)
1.4. 1 SSE 1+1 Protection Switch
(s/n 01-0604)
2. 2 CM 701 Modem (s/n 64030, 64031) XXX
3. 1 CX 101 Protection (s/n 525) XXX
4. 2 CS8000/4 Voice Card XXX
(s/n 7468, 7489)
5. 1 Installation Kit Rails, XXX
Installation Kit Hardware
6. 1 250' RG69, 3' WR137 TWISTFLEX, XXX
5 RTU, 2-66BLOCK, 1 Monitor
Panel, 2 Manuals
- ------------------------------------------------------------------------------
The total price of equipment: XXX
- ------------------------------------------------------------------------------
Equipment provider Equipment purchaser
IWL ITAR-TASS
----------------------------- ------------------------
Mr. Prosvirjakov Mr. Jashenkov
Director of Moscow Deputy General
office Director
Date: 8 JUNE 1994 Date: 8 JUNE 1994
<PAGE>
QUOTATION
- ----------------------------------------------------------------------------
ITEM QTY DESCRIPTION MFG PURCHASE
- ----------------------------------------------------------------------------
V. TASS MOSCOW SPARE PARTS $10,733
- ----------------------------------------------------------------------------
SPARES SUBSYSTEM
----------------
5.1 5 Attenuator, 1 dB, 70 MHz Pasternack XXX
5.2 5 Attenuator, 3 dB, 70 MHz Pasternack XXX
5.3 5 Attenuator, 6 dB, 70 MHz Pasternack XXX
5.4 5 Attenuator, 10 dB, 70 MHz Pasternack XXX
5.5 5 Attenuator, 20 dB, 70 MHz Pasternack XXX
5.6 1000 Ft. RG-59 Coaxial Cable Belden XXX
5.7 500 Ft. RG-142 Coaxial Cable Belden XXX
5.8 1000 Ft. Low Voltage Computer Cable,
25 cond. 24 AWG Belden XXX
5.9 500 Ft. Low Voltage Computer Cable,
8 cond. 24 AWG Shielded Belden XXX
5.10 100 Connector, BNC-Type Male Amphenol XXX
5.11 30 N-Type Male for RG-142 Andrew XXX
5.12 10 SMA Male Connector for PHJ1-50
Heliax Cable Andrew XXX
5.13 10 SMA Male Connector for RG-142 Cable Andrew XXX
5.14 50 V.35 Connectors, Male 34 Pin AMP XXX
5.15 50 V.35 Connectors, Female 34 Pin AMP XXX
5.16 20 DB-25 Connectors, Male 25 Pin AMP XXX
5.17 20 DB-25 Connectors, Female 25 Pin AMP XXX
5.18 10 DB-15 Connectors, Male 15 Pin AMP XXX
5.19 10 DB-15 Connectors, Female 15 Pin AMP XXX
5.20 10 DB-9 Connectors, Male 9 Pin AMP XXX
5.21 10 DB-9 Connectors, Female 9 Pin AMP XXX
5.22 4 N-Type Male to N-Type Male Adaptor Andrew XXX
5.23 4 1:2 Divider, BNC 70 MHz Merrimac XXX
5.24 4 1:4 Divider, BNC 70 MHz Merrimac XXX
5.25 2 1:2 Divider, N-Type 4 GHz Merrimac XXX
5.26 30 BNC Terminations - 75 Ohm King XXX
5.27 1000 Tyraps, 7-5/16" T&B XXX
5.28 1000 Tyraps, 5-1/2" T&B XXX
5.29 6 Extractors for V.35 Pins Winchester XXX
5.30 4 Crimp Tools for BNC Coax Connectors Jensen XXX
5.31 2 Wire Cutters Jensen XXX
<PAGE>
QUOTATION
- ------------------------------------------------------------------------------
ITEM QTY DESCRIPTION MFG PURCHASE
- ------------------------------------------------------------------------------
III. TASS MOSCOW COMMUNICATIONS SYSTEM XXX
--------------------------------------------------------------------
MULTIPLEXOR SUBSYSTEM
---------------------
3.1 1 Voice/Data Multiplexor PCSI XXX
*Consist of: Base Unit with
-One - 4 Port Data Module, RS232 Int.
-V.35/RS449/DS-1 Interfaces, Up to 128K Agg.
3.2 2 Voice/Fax III Module with CELP and ATC Algor. PCSI XXX
3.3 1 Rack Mount Kit, fixed, no handles,
without slides PCSI XXX
3.4 1 Lot, Misc. Data Cables, Connectors IWL XXX
IWL/TASS DIGITAL NETWORK SUBSYSTEM
----------------------------------
3.5 4 MP-2000 Dual Channel High Speed Data Card RAD XXX
3.6 4 Lot, Misc. Data Cables, Connectors IWL XXX
INTEGRATION, PROGRAMMING, AND TESTING
-------------------------------------
PROJECT INTEGRATION INCLUDES:
3.7 1 a. Lot, Integration and Testing of
Digital Network Equipment IWL XXX
3.8 1 b. Lot, Integration Multiplexers IWL XXX
3.9 1 c. Lot, Programming of Multiplexers IWL XXX
3.10 1 d. Lot, End-to-End System Test IWL XXX
IV. TASS MOSCOW PABX OPTION XXX
---------------------------------------------------------------------
PABX SUBSYSTEM
--------------
4.1 1 SX50 Basic Frame w/Power Supply Mitel XXX
4.2 1 Operator Console Mitel XXX
4.3 2 16ckt. ONS Linecard for Analog Stations Mitel XXX
4.4 1 COV Digital Line Card (for Supersets -
8 ckts.per card) Mitel XXX
4.5 1 8ckt. LS/GS Trunk Card Mitel XXX
4.6 4 Universal Card Mitel XXX
4.7 16 E&M Piggyback Cards (4ea. per Universal Card) Mitel XXX
4.8 1 MOH/Paging Card Mitel XXX
4.9 1 MS-53 Software Set Mitel XXX
4.10 1 Wall Mounting Plate Mitel XXX
4.11 4 Superset 4 Telephone Instrument (w/display) Mitel XXX
4.12 28 Telephone Sets "type 2500" Comdial XXX
4.13 1 Miscellaneous Cables, Connectors, and Hardware IWL XXX
INTEGRATION, PROGRAMMING, AND TESTING
-------------------------------------
PROJECT INTEGRATION INCLUDES:
4.14 1 a. Lot, Integration and Programming of PABX IWL XXX
<PAGE>
EQP2BUY.XLS
IWL / SSI EQUIPMENT
<TABLE>
PETUSHKEE
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Manufacturer Each Extended
Quantity Description Manufacturer Number Comments Price Price
- ------------------------------------------------------------------------------------------------------
RF/IF
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 DOWNCONVERTER LNR DC4L-D5 $ XXXXXX $ XXXXXX
- ------------------------------------------------------------------------------------------------------
2 DOWNCONVERTER SWITCH LNR DC SAM1 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
2 UPCONVERTER SWITCH LNR UC SAM1 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 MODEM PROTECTION SWITCH COMSTREAM CX801 $ XXXXXX $ XXXXXX
- ------------------------------------------------------------------------------------------------------
1 INTEGRATION MATERIALS VARIOUS $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
PET-WIT
- ------------------------------------------------------------------------------------------------------
1 T1 MULTIPLEXER RAD MP2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 T1 MULTIPLEXER CARD RAD LS-1 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
3 T1 MULTIPLEXER CARD RAD HS-2 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
2 T1 MULTIPLEXER CARD RAD CL-1 Cards far MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
2 T1 MULTIPLEXER CARD RAD ML-20 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
2 T1 MULTIPLEXER CARD RAD PS-2 Cards far MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
PET-MOS
- ------------------------------------------------------------------------------------------------------
1 T1 MULTIPLEXER CARD RAD HS-2 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 T1 REPEATER RAD RPT-T1 $ XXX $ XXX
- ------------------------------------------------------------------------------------------------------
1 PROTECTION SWITCH DTS 4601 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 STRATUM 2 CLOCK LARSE CLOCK FOR T1 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
M&C
- ------------------------------------------------------------------------------------------------------
1 M&C SYSTEM TIW SYSCON MAC270 $ XXXXX $ XXXXXX
- ------------------------------------------------------------------------------------------------------
SPARES
- ------------------------------------------------------------------------------------------------------
1 REFERENCE GENERATOR DTS 3050 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
2 T1 REPEATER RAD RPT-T1 $ XXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 T1 MULTIPLEXER CARD RAD HS-2 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 SUPERGROUP MODEM DTS 2001 $XXXXXX $ XXXXXX
- ------------------------------------------------------------------------------------------------------
SUBTOTAL - PETUSHKEE $XXXXXXX
MOSCOW
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Manufacturer Each Extended
Quantity Description Manufacturer Number Comments Price Price
- ------------------------------------------------------------------------------------------------------
MOS-PET
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 T1 MULTIPLEXER CARD RAD HS-2 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 PROTECTION SWITCH DTS 4601 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 INTEGRATION MATERIALS VARIOUS $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
M&C
- ------------------------------------------------------------------------------------------------------
1 M&C SYSTEM TIW SYSCON MAC270 $XXXXXX $ XXXXXX
- ------------------------------------------------------------------------------------------------------
SPARES
- ------------------------------------------------------------------------------------------------------
1 REFERENCE GENERATOR DTS 3050 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 PROTECTION SWITCH DTS 4601 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 T1 MULTIPLEXER CARD RAD HS-2 Cards for MP 2000 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 FIBER DRIVER RAD FOM-40 $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
SUBTOTAL - MOSCOW $ XXXXXX
TRAINING
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
1 PBX TRAINING MITEL SX-50 SELF STUDY $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 MODEM TRAINING DTS 2001 1 DAY $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 SWITCH TRAINING DTS 4601 1 DAY $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
5 TRAVEL PER DIEM DTS MINIMUM 5 DAY $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
1 AIRLINE TICKET DTS ROUND TRIP $ XXXXX $ XXXXX
- ------------------------------------------------------------------------------------------------------
SUBTOTAL - TRAINING $ XXXXXX
----------
TOTAL SALES PRICE $XXXXXXX
----------
----------
</TABLE>
Page 1
<PAGE>
[LETTERHEAD]
April 28, 1994
IWL Communications, Inc.
4311 FM 2351
Friendswood, Texas 77546
Attention: Mr. Ignatius W. Leonards
Subject: IWL Proposal SM-94-04-0006
Dear Mr. Leonards,
Please purchase all items contained in Section III entitled "TASS/Moscow
Communications System" and all items in Section V entitled "TASS Moscow Spare
Parts". Please add these items to our Basic Agreement Contract Number TSINSA003
Appendix B and use a three-year installment payment plan.
Sincerely,
/s/ DR. ANDREW K. GRIGORIEV
- -----------------------------------
Dr. Andrew K. Grigoriev
Head of Satellite Communication Department
<PAGE>
SUPPLEMENT No 3
of 8 December 1994
To the Services Agreement between
ITAR-TASS and IWL
The Contract Number - TSINSA003
In purpose of developing of the ITAR-TASS Information Network and in
accordance with item No 1.8 of the Contract IWL is Providing ITAR-TASS with
communication equipment on CIF Moscow conditions.
SPECIFICATION
NN QUANTITY DESCRIPTION UNIT PRICE $ EXT. PRICE $
1. TEST EQUIPMENT
1.1 2 Fiber optic tester - HP140A XXXXX XXXXX
1.2 2 Option for tester - HP81401A XXXXX XXXXX
1.3 2 Option for tester - HP81412A XXXXX XXXXX
1.4 4 Cross connector - HP81000F1 XXX XXX
TOTAL: XXXXXX
2. MODEM EQUIPMENT
2.1 5 Supergroup modem DIV SG MDM XXXXXX XXXXXXX
2.2 1 DTS modem card XXXXX XXXXX
2.3 3 Protection switch XXXXX XXXXXX
2.4 4 Repeater T-1 XXX XXXXX
2.5 1 Power supply 24 V Newmar XXX XXX
TOTAL: XXXXXXX
SUPER TOTAL: XXXXXXX
Parties agreed that the list of above mentioned equipment is the continuation of
the Appendix B of the Contract TSINSA 003 (Schedule of IWL Equipment sold to
ITAR-TASS) and the payment will be provided monthly as it is indicated in
Appendix D of the Contract.
Equipment provider Equipment purchaser
IWL ITAR-TASS
- ------------------------ ------------------------
V. Prosvirjakov V. Jashenkov
Director of Moscow Deputy General
office Director
Date: 8 December 1994 Date: 8 December 1994
<PAGE>
SUPPLEMENT No 4
OF 21 DECEMBER 1994
TO THE SERVICE AGREEMENT BETWEEN
ITAR-TASS AND IWL
THE CONTRACT NUMBER - TSINSA003
In purpose of developing of the ITAR-TASS Information Network, and in
accordance with item No 1.8 of the Contract IWL is providing ITAR-TASS with
communication equipment on CIF Moscow conditions.
SPECIFICATION
- -----------------------------------------------------------------------------
NN QTY DESCRIPTION PURCHASE
- -----------------------------------------------------------------------------
1 2 3 4
- -----------------------------------------------------------------------------
I. ASSOCIATE HUB ELECTRONICS SUBSYSTEM. $XXXXX
1.1 1 Satellite Modem, Variable Rate, V.35/RS449/DS-1,
Closed Network Modem, 19.2Kbps to 2,048Kbps
1.2 1 Satellite Moddem Doppler Shift Buffer
1.3 1 CSU/DSU for Fiber Backhaul Circuit
1.4 1 Lot, Electronic Enclosure, Misc. Cables
II. ASSOCIATED MOSCOW CUSTOMER SITE EQUIPMENT $XXXXX
2.1 1 Voice/Data Multiplexor consist of:
Base Unit with One-4 Port Data Module, RS232 Int.
V.35/RS449/ds-1 Int., Up to 128Kbps Agg.
2.2 2 Voice/Fax III Module with CELP and ATC Algor.
2.3 1 Rack Mount Kit, slides
2.4 1 CSU/DSU for Fiber Backhaul Circuit
2.5 1 Lot, Misc. Data Cables, Connectors
III. ADD. MOSCOW MULTIPLEXOR SUBSYSTEM $XXXXX
3.1 4 Voice/Data Multiplexor consist of:
Base Unit with One-4 Port Data Module, RS232 Int.
V.35/RS449/ds-1 Int., Up to 128Kbps Agg.
3.2 6 Voice/Fax III Module with CELP and ATC Algor.
3.3 1 Data Port Module, 4 Port RS232
3.4 4 Rack Mount Kit, slides
3.5 1 Lot, Misc. Data Cables, Connectors
3.6 1 Megaplex-2000 Redundant Multiplexer incl.
a) Chassis w/Redundant Power Supplies - 220VAC
b) Redundant Common Control Cards
C) Redundant Main Link Cards (ML-20)
3.7 4 Megaplex-2000 High Speed Data Card
3.8 2 Megaplex-2000 6 Ch. Low Speed Data (LS-1)
3.9 1 Lot, Misc. Data Cables, Connectors
Page 1
<PAGE>
- --------------------------------------------------------------------
1 2 3 4
- --------------------------------------------------------------------
IV, ADD. MOSCOW LINE DRIVER SUBSYSTEM $ XXXX
4.1 2 ASM-20 Syncronous Short Range Modem
4.2 1 MCS-C20 TWO ASM-20 Card, 128Kbps, V.35
4.3 3 ASM-10 Async/Sync Short Range Modem
4.4 1 MCS-10 TWO ASM-10 Card
4.5 1 Lot, Misc. Data Cables, Connectors
- --------------------------------------------------------------------
TOTAL: $XXXXXX
- --------------------------------------------------------------------
Parties agreed that the list of above mentioned equipment is the
continuation of the Appendix B of the Contract TSINSA003 (Schedule of IWL
Equipment sold to ITAR-TASS) and the payment will be provided monthly as it
is indicated in Appendix D of the Contract.
Equipment provider Equipment purchaser
IWL ITAR-TASS
- ------------------------ ------------------------
V. Prosvirjakov V. Jashenkov
Director of Moscow Deputy General Director
Date: 21 December 1995 Date: 21 December 1995
Page 2
<PAGE>
SELECT PARTNER AGREEMENT
FOR
PRODUCTS
BETWEEN
NEWBRIDGE NETWORKS INC.
AND
IWL COMMUNICATIONS. INC.
<PAGE>
TABLE OF CONTENTS
Page
1. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SELECT Partner's Obligations. . . . . . . . . . . . . . . . . . 1
3. SELECT Partner's Representations and Warranties . . . . . . . . 2
4. Newbridge's Obligations . . . . . . . . . . . . . . . . . . . . 3
5. Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Referral Accounts . . . . . . . . . . . . . . . . . . . . . . . 4
6. Demonstration Products/Price Terms. . . . . . . . . . . . . . . 5
7. Co-Operative Advertising. . . . . . . . . . . . . . . . . . . . 5
8. Product Specification Changes . . . . . . . . . . . . . . . . . 6
9. Software License. . . . . . . . . . . . . . . . . . . . . . . . 6
10. Industrial Secrets and Industrial Property Rights . . . . . . . 6
11. Patent, Copyright and Trade Secret Infringement . . . . . . . . 6
12. Product Warranty. . . . . . . . . . . . . . . . . . . . . . . . 7
13. Disclaimer of Employment Relationship . . . . . . . . . . . . . 8
14. No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 8
15. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 8
16. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 9
17. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exhibit A - Newbridge Networks Products
Exhibit B - Newbridge Discounts for Direct Products
Exhibit C - Newbridge Direct Purchase Request Form
Exhibit D - Newbridge International Direct Purchase Request Form
Exhibit E - Newbridge Finder's Fee Request Form
Exhibit F - Newbridge End User Software License Agreement
<PAGE>
SELECT PARTNER AGREEMENT
This SELECT PARTNER AGREEMENT ("Agreement") is made effective as of 11TH ,
day of October, 1996, by and between, NEWBRIDGE NETWORKS INC., a corporation
organized and existing under the laws of the State of Delaware, with its
principal place of business at 593 Herndon Parkway, Herndon, Virginia 22070
(hereinafter called "Newbridge"), and IWL COMMUNICATIONS. INC., a corporation
organized and existing under the laws of the State of TEXAS, with its
principal place of business at, 4311 FM 2351, FRIENDSWOOD, TEXAS 77546,
(hereinafter called "SELECT Partner").
WHEREAS Newbridge desires to appoint the SELECT Partner to actively promote
sales or use of its products (hereinafter called "Products"), as more fully
set forth on Exhibit A attached hereto, and to provide a high level of
pre-sales and after-sales support to purchasers of such Products; and
WHEREAS the SELECT Partner desires to accept such appointment.
NOW THEREFORE, in consideration of the mutual premises and agreements
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
mutually covenant and agree with each other as follows:
1. TERM
A. This Agreement shall remain in effect for a period of one year from
its effective date. Thereafter, it shall remain in effect unless
terminated by either party upon at least ninety (90) days prior
written notice.
B. The SELECT Partner program, as set forth herein, shall be in effect
during each Newbridge fiscal year, May 1 through April 30 (hereinafter
called "Program Year") during the term of this Agreement. Newbridge
reserves the right to modify the SELECT Partner program for any
subsequent Program Year.
2. SELECT PARTNER'S OBLIGATIONS
SELECT Partner agrees:
A. To purchase annually a minimum of XXXXX, net of any discounts, of
the Newbridge Products listed on Exhibit A herein through one or
more of Newbridge's Distributors (hereinafter called "Distributors").
B. For those Newbridge Products not listed on Exhibit A herein or those
Products identified as "Non-Dist" in the Newbridge price list, SELECT
Partner may purchase such Products directly from Newbridge subject to
the following: (i) all such direct sales shall be subject to approval
and acceptance by Newbridge prior to the placement of any orders, (ii)
discounts for the Non-Dist Products are those shown in Exhibit B and
(iii) all direct sales will require the completion of a "DIRECT
PURCHASE REQUEST" form (Exhibit C).
C. To use its best efforts to actively sell or market the Products. This
obligation shall not affect the rights of the SELECT Partner or any
other SELECT Partner under Article 5 of this Agreement.
D. To develop a marketing business plan which shall promote the sales or
use of the Products through regular contact with customers in the
Authorized Area, as specified in Paragraph 5.A. Newbridge shall review
this plan on quarterly basis to ensure compliance.
E. To keep its customers in the Authorized Area advised of new Products,
as SELECT Partner may be advised of from time to time.
<PAGE>
F. To cooperate with Newbridge, and to be supported by Newbridge, in
advertising and sales campaigns for the Products initiated by
Newbridge in the Authorized Area.
G. To provide, at its sole expense, an effective means of demonstrating
to potential and existing customers the capabilities of the Products.
H. To conduct advertising and sales campaigns with respect to the
Products using such kinds of appropriate promotional materials as are
consistent with SELECT Partner's obligation hereunder. SELECT Partner
shall display Products at those trade shows at which it exhibits
telecommunication products.
I. SELECT Partner shall not create any cartons, packaging or labels for
the Products without Newbridge's prior written consent. Newbridge
shall have the continuing right to inspect and review any of SELECT
Partner's advertising and sales material with respect to the Products,
and packaging with respect to the Products, and to disapprove same or
require such modifications as Newbridge deems advisable. In the event
Newbridge requires any changes, SELECT Partner, upon written notice,
shall modify such material and/or packaging to comply with Newbridge's
instructions.
J. To prominently display on all advertisements and sales materials
related to the Products, current Newbridge trademarks and logos,
supplied or approved by Newbridge.
K. To assign an individual who will act as SELECT Partner coordination
manager for Newbridge. This individual will assist Newbridge in the
creation and dissemination of all necessary reports, policies and
procedures in the fulfillment of this Agreement.
L. To extend to customers any warranty given by Newbridge to SELECT
Partner on Products. SELECT Partner itself may not extend additional
Newbridge warranties to customers and agrees to refrain from making
any claim, representation or warranty concerning the Products in
excess of those made by Newbridge.
M. To complete the prerequisites necessary to receive accreditation as an
"Authorized Service Agent for Newbridge Networks Inc." Such
prerequisites are detailed in Newbridge's SELECT Plus Partner
Certification Agreement, which is incorporated herein by reference.
SELECT Partner will be required to complete accreditation in a minimum
of one (1) of the eight (8) product categories listed below within six
(6) months from the effective date of this Agreement. Accreditation in
a particular product category provides Select Partner with the ability
to complete Installation and Maintenance support services for the
Products in that particular category only. Newbridge reserves the
right to terminate this Agreement if such accreditation is not
complete within the six (6) month time frame. The product categories
are as follows:
1. CHBNK - 3624,3630 & 3620
2. Small Mux - 3606, 3612
3. 3600
4. 3645
5. Frame Relay - 3600 FRE, 36120
6. ATM - 36150, 36170
7. NMS - 4602, 46020
8. LAN - ACC Routers
N. To refer customers requiring installation and/or maintenance services
to Newbridge for such services when; (i) SELECT Partner is not
accredited on the Products, and/or (ii) Products are purchased
directly from Newbridge SELECT Partner, at its option, may utilize
Newbridge personnel for installation and maintenance services on all
Products available through Distribution. Installation prices shall be
as set forth in Exhibit A.1.
2
<PAGE>
3. SELECT PARTNER'S REPRESENTATIONS AND WARRANTIES
SELECT Partner represents and warrants that:
A. SELECT Partner is not involved in any litigation which would
materially affect SELECT Partner's performance under this Agreement,
excepting those matters previously disclosed to Newbridge by SELECT
Partner in writing.
B. SELECT Partner shall maintain a high degree of financial integrity and
ethical conduct in its relations with purchasers of the Products.
C. SELECT Partner is in good standing with at least one Distributor.
4. NEWBRIDGE'S OBLIGATIONS
A. Newbridge hereby designates SELECT Partner as a non-exclusive, factory
authorized, provider of the Products.
B. Newbridge reserves the right to add or delete Products. Newbridge
shall have the right to incorporate alternative components as long as
those components are the functional equivalent of or are better than,
components previously used and such alternative components do not
alter form, fit or function of the Product.
C. Newbridge will provide local sales training conducted by the
appropriate Newbridge Sales Representative, to SELECT Partner's sales
representatives, at no charge to the Select Partner, at least once a
year. Such training shall highlight the features, applications and
benefits of the Products and will include reference copies of sales
material.
D. Newbridge will provide sales literature, including product line
brochures, data sheets, application notes and general information
books, to SELECT Partners, at no charge, in such quantities as
Newbridge deems advisable. Additional quantities will be available in
bulk at Newbridge's cost.
E. Newbridge shall provide SELECT Partner, at cost, with Newbridge
promotional materials, including, but not limited to tee-shirts, pens,
folios, mugs, etc. A brochure of all promotional items will be
supplied upon request.
F. Newbridge will provide SELECT Partners with price books and new
Product announcements or enhancements in the form of product
bulletins.
G. Newbridge will regularly distribute comparative information that
highlights the competitive advantages of the Products.
H. Newbridge will publish a quarterly newsletter specifically for SELECT
Partners. Such newsletter will feature application articles,
information on other SELECT Partners, and articles on new products,
markets and opportunities. SELECT Partners shall be encouraged to
contribute to this newsletter. Additionally, SELECT Partners shall
receive a copy of Newbridge's quarterly publication "International
News".
I. Newbridge shall provide sales leads from Newbridge advertising, sales
programs and telemarketing to specific SELECT Partners located in the
area in which a customer is located. The intent is to distribute
individual leads to the SELECT Partner with the best chance of closing
the sale due to specific account familiarities. Newbridge shall be
fair and equitable in its exercise of discretion hereunder.
J. Newbridge will provide SELECT Partners with priority access, on a
no-charge basis, to the Network Design Assistance Center (hereinafter
called "NDAC"). The NDAC will assist with Product configuration
questions, Product order information, and assist with other technical
issues.
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K. Newbridge will maintain the confidentiality of customer information
provided by a SELECT Partner to Newbridge and exercise the same degree
of care in maintaining such confidentiality as Newbridge exercises
with respect to its own information of like importance.
L. Newbridge may provide special courses for SELECT PLUS Partners at
preferred rates.
M. Newbridge shall provide SELECT Partner with (i) priority call back to
the Newbridge National Technical Assistance Center ("NTAC") 24
hours/365 days per year; and (ii) access to the Newbridge Information
Retrieval Service (hereinafter called "NIRS Bulletins Board").
5. TERRITORY
A. Nothing in this Agreement shall be construed as conferring upon SELECT
Partner an exclusive distributorship, dealership, franchise or
territory for marketing the Products. A SELECT Partner may make sales
of the Products in any of the fifty (50) United States, the District
of Columbia and Puerto Rico (the "Authorized Area"), subject to SELECT
Partner's ability to fulfill its obligations under this Agreement.
B. Due to the need to maintain high standards for support of the
Products, Newbridge reserves the right to require SELECT Partner to
provide such information as Newbridge requires to determine SELECT
Partner's ability to adequately support the Products on all sales made
outside of the United States.
C. Equipment shall be delivered F.O.B. Origin for all US orders placed
direct with Newbridge and F.O.B. Point of Embarkation for all
international orders. Shipments to locations outside of the United
States will be accomplished through Newbridge Networks Corporation and
Newbridge reserves the right to select the means of transportation and
routing unless otherwise advised. SELECT Partner shall be responsible
for all shipping charges, import and customs duties and any applicable
taxes which may be imposed by the country of destination.
D. In the event that the Select Partner uncovers a sales opportunity
outside of the Authorized Area, such sales will be handled on a
case-by-case basis. For all sales made outside of the United States,
SELECT Partner will be required to obtain product configuration
approval from the appropriate Newbridge System Engineer prior to
presenting any quotation to a customer. Such approval can be obtained
by submitting a completed "Quote Request Form" to the appropriate
Newbridge Systems Engineer. All direct international sales will
require the completion of an "INTERNATIONAL DIRECT PURCHASE REQUEST"
form (Exhibit D) and approval from the appropriate Newbridge
individuals. Newbridge shall have the right to approve all
international sales and for all such sales, at least one intelligent
node on the customer's network must reside in the United States.
All sales made outside of the Authorized Area will be at prices
set forth in Exhibit B.
6. REFERRAL ACCOUNTS
A. SELECT Partner may refer certain customers directly to Newbridge for
the purchase of Newbridge products not available for sale through
Newbridge's distributors. In all such cases SELECT Partner shall be
entitled to receive a referral fee as outlined in paragraph E below.
All referral accounts will require the completion of a "FINDERS FEE
REQUEST" form (Exhibit E) and approval from the appropriate Newbridge
individuals.
B. SELECT Partner acknowledges that each customer referred to Newbridge
has not previously made contact with Newbridge for the purpose of
purchasing products and that all customers referred to Newbridge must
not be a Newbridge existing customer.
C. SELECT Partner shall be required to transfer complete account control,
including the right for future product(s) sales, to Newbridge in
exchange for payment of the referral fee.
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D. During the term of SELECT Partner's responsibilities hereunder, SELECT
Partner will not sell competitive equipment or represent a competitive
manufacturer into the account where it has received a referral fee
from Newbridge.
E. Newbridge will pay to SELECT Partner a referral fee based on a
percentage of the net revenue received during the first two years
after the account referral date, according to the following schedule:
(For purposes hereof, net revenue shall be the invoiced value of
products shipped by Newbridge to the customer.)
REVENUE FEE
------- ---
XXXXX XXXXX%
XXXXX XXXXX%
XXXXX XXXXX%
F. Newbridge agrees to pay Representative the referral fee no later than
thirty (30) days after Newbridge receive payment from the customer.
7. DEMONSTRATION PRODUCTS / PRICE TERMS
A. Newbridge shall sell reasonable quantities of demonstration Products
to the SELECT Partner at a purchase price equal to Newbridge's then
current list price, less a XXXXXX discount.
B. The SELECT Partner shall order the customer demonstration Products by
issuance of a written purchase order directly to Newbridge. Each
purchase order shall include the quantity of Product, a requested ship
date for each item, the method of shipment and the location to which
the Product should be shipped. Newbridge shall have the exclusive
right to limit the amount of customer demonstration Products which a
SELECT Partner may purchase.
C. Newbridge will use its best efforts to meet the requested ship date in
SELECT Partner's purchase order but will not be liable to the SELECT
Partner or to any other person if it fails to meet the requested ship
date. Orders without requested ship date will be processed for
shipment according to the then current shipment schedule.
D. All prices are F.O.B. Newbridge shipping point. Freight will be
prepaid and billed and shown separately.
8. CO-OPERATIVE ADVERTISING
A. Newbridge shall provide co-operative advertising funds (hereinafter
"Co-op Dollars") to SELECT Partners. These funds shall accrue to such
SELECT Partner based upon the net dollar amount of Product purchased
from the Distributors and may be spent as set forth below.
B. Newbridge shall establish a Co-op Dollars account for each SELECT
Partner. Co-op Dollars shall be earned on an annual basis, the
Newbridge fiscal year, commencing May 1. Each SELECT Partner shall
earn Co-Op Dollars for annual purchases as follows:
VOLUME OF PURCHASES FROM DISTRIBUTORS CO-OP DOLLARS EARNED
------------------------------------- ----------------------
i) Up to XXXXXX per year XXXXX% of annual purchases
ii) Over XXXXX XXXXX% of annual purchases
C. Newbridge will receive quarterly reports from Distributors indicating
the SELECT Partner invoiced dollar volume (net of any discounts).
Newbridge shall provide a Co-Op Dollars report to SELECT Partners on a
quarterly basis.
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D. Newbridge will disburse Co-Op Dollars as follows:
i) On a XXXXX basis (i.e., dollar for dollar with
non-Co-op Dollar funds expended by SELECT Partner) if SELECT Partner
elects tn purchase co-operative advertising including advertisement
creation and placements; direct mail campaigns that include
advertisement creation and mailing costs; and sponsorship of events
and seminars; or
ii) As a credit against charges incurred by SELECT Partner if SELECT
Partner elects to purchase bulk quantities of Product brochures;
installation and training course fees; dial-in bulletin board access;
additional quantities of promotional items with the Newbridge
name/logo; and catalogue production cost assistance if Products are
included.
E. Subject to the provisions of subparagraph D and subparagraph E of this
Article, a SELECT Partner may borrow Co-op Dollars in an amount not
to exceed the greater of $XXXXX or XXXX of the Co-op Dollars which
would have been earned during Newbridge's last fiscal year.
F. All requests for disbursement of Co-op Dollars must be in writing and
shall be subject to Newbridge approval.
G. All Co-op Dollars shall be used within XXXXX of the close of
the Newbridge fiscal year in which they were earned.
9. PRODUCT SPECIFICATION CHANGES
Newbridge has the right to make any changes to any of its Products as it
deems necessary or desirable without prior notice to the SELECT Partner,
except those changes affecting form, fit or function of which Newbridge
shall give SELECT Partner advance, prior written notice.
10. SOFTWARE LICENSE
A. All software products which are a part of this Agreement shall be
subject to Newbridge's "End User License Agreement" (EXHIBIT F) and
any software license shall be granted by Newbridge and/or Newbridge's
suppliers directly to the end user. SELECT Partner is hereby granted a
non-exclusive right to offer Newbridge and/or Newbridge supplied
software, for which a license fee is paid, to end user customers, only
in conjunction with SELECT Partner's sale of the software products
relicensed under this Agreement. SELECT Partner agrees that all such
software shall be treated as the exclusive proprietary property of
Newbridge and/or Newbridge's suppliers, as appropriate. SELECT Partner
shall take those steps as may be necessary to hold this software in
confidence for the benefit of Newbridge or Newbridge's suppliers, as
appropriate, and make the software available solely in conjunction
with the Products for which the software is furnished. The SELECT
Partner shall not provide or make the software available to any person
except to its employees on a "need-to-know" basis and shall issue
adequate instruction to persons as may be necessary to satisfy SELECT
Partner's obligation under this section.
B. SELECT Partner agrees that it will require each customer to execute
Newbridge's standard "End User License Agreement" as a part of any
contract package for all orders which contain Newbridge and/or
Newbridge supplied software. Any transfer of the software products is
limited to the customer's internal use solely on either or both of the
primary NetworkStation and the redundant NetworkStation included with
customer's communications network.
11. INDUSTRIAL SECRETS AND INDUSTRIAL PROPERTY RIGHTS
A. Industrial Secrets. SELECT Partner acknowledges that Newbridge has
developed and uses valuable technical and non-technical information,
patents, trade secrets and the like in the Products purchased under
this Agreement. SELECT Partner warrants that neither it nor any of
its employees will knowingly convert to their own use or to the use of
any other party any industrial secrets, trade secrets, patent,
manufacturing or other process, copyright or the like owned by
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<PAGE>
Newbridge and obtained by SELECT Partner and its personnel by reason
of this Agreement or otherwise, provided such information is
designated in writing or marked as proprietary to Newbridge at time of
disclosure to SELECT Partner.
B. Industrial Property Rights. SELECT Partner recognizes and acknowledges
the great value of the goodwill associated with the name and
trademarks of Newbridge and the identification of the Products
therewith. SELECT Partner will make its best effort to not obscure,
effect or permit the removal or alteration of any patent numbers,
trade names or marks, warning labels, serial numbers, or the like
affixed to any Product or package.
12. PATENT, COPYRIGHT AND TRADE SECRET INFRINGEMENT
A. Newbridge shall indemnify, defend, and otherwise hold SELECT Partner
harmless from all costs, losses, damages or liability, including
reasonable attorney's fees, (excluding any consequential, incidental
and punitive damages) arising from any judgment made against SELECT
Partner, to the extent that such judgment is based on a finding that
the Products furnished by Newbridge under this Agreement infringe any
U.S. patent, copyright or trade secret. Newbridge shall defend any
suit alleging such infringement which is brought against SELECT
Partner or any of its customers, and shall pay all reasonable legal
costs and expenses incurred and satisfy all judgments and decrees
against SELECT Partner, provided that SELECT Partner notifies
Newbridge within ten (10) business days of the date any such claim
becomes known to SELECT Partner and SELECT Partner provides such
assistance and cooperation to Newbridge as is reasonably requested at
Newbridge's expense.
B. In the event SELECT Partner or its customers are enjoined from their
use of Newbridge's Products due to a proceeding based upon any
infringement of any U.S. patent, copyright or trade secret, Newbridge
shall either:
i) promptly render the Product non-infringing and capable of
providing services as intended, or
ii) procure for SELECT Partner the right to continue using the
Product, or
iii) replace the Product with non-infringing goods, or
iv) remove the Product and refund the purchase price and
transportation costs thereof.
C. The foregoing constitutes the entire liability of Newbridge with
respect to infringement of patents, copyrights and trade secrets for
Products purchased pursuant to this Agreement. Such liability does not
include consequential, incidental and punitive damages, including, but
not limited to, loss of profits or damage to business or business
relations.
13. PRODUCT WARRANTY
A. WARRANTY TO SELECT PARTNER Newbridge hereby represents and warrants;
(i) Newbridge has all right, title, ownership interest and/or
marketing rights necessary to provide the Products to Select Partner;
(ii) the Products are new or warranted as new, and free from defects
in material and workmanship; and (iii) that upon payment in full, all
Hardware Products shall be delivered free and clear of liens, claims
or encumbrances of any kind.
B. Select Partner shall have the right to return to Newbridge for credit
or replacement any DOA Product that is returned to Select Partner
within thirty (30) days after the initial delivery date to the End
User. Newbridge shall bear reasonable costs of shipping, via ground
transportation, and risk of loss for shipment of DOA Products to
Newbridge's location and respective replacement product back to Select
Partner or Select Partner's customer. The Select Partner should not
accept returns on Products for Emergency Replacement Service unless
agreed to by Newbridge.
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<PAGE>
C. WARRANTY TO END USERS Newbridge's warranties to End Users of the
Products are only as provided in Exhibit G of this Agreement. Newbridge
makes no warranties to Select Partner beyond these warranties.
Newbridge agrees that Select Partner shall be entitled to pass through
to Resellers and to End Users of the Products the Product warranties
set forth in Exhibit G herein. Select Partner shall have no authority
to alter or extend any of the warranties of Newbridge expressly
contained or referred to in this Agreement without prior approval of
Newbridge.
D. COMPLETE WARRANTY THE WARRANTIES SET FORTH ABOVE ARE COMPLETE AND
ARE IN LIEU OF ALL OTHER WARRANTIES, CONDITIONS OR REPRESENTATIONS,
EXPRESS OR IMPLIED BY STATUTE, USAGE, CUSTOM OF THE TRADE OR
OTHERWISE. NOTWITHSTANDING ANY OTHER OR PRIOR STATEMENT, WRITTEN OR
ORAL, NEWBRIDGE MAKES NO OTHER WARRANTIES REGARDING ITS PRODUCT(S) OR
THE MATERIALS AND SERVICES CONTEMPLATED HEREUNDER. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, NEWBRIDGE EXPRESSLY DISCLAIMS
WARRANTIES OR REPRESENTATIONS OF WORKMANSHIP, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, DURABILITY, THAT A LICENSED PROGRAM WILL
MEET ALL OF CUSTOMER'S NEEDS OR THAT THE OPERATION OF THE LICENSED
SOFTWARE WILL BE ERROR FREE. THESE WARRANTIES ARE INVALID IF
DISTRIBUTOR SELLS THE PRODUCTS OUTSIDE THE TERRITORY.
14. DAMAGES AND LIABILITY
UNDER NO CIRCUMSTANCES WILL NEWBRIDGE BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT, RESULTING, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND
(INCLUDING WITHOUT LIMITATION LOSS OF PROFITS OR DAMAGE TO BUSINESS OR
BUSINESS RELATIONS), HOWEVER CAUSED, ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT OR ANY ORDER FOR EQUIPMENT ARISING HEREUNDER OR THE
PURCHASE OR USE OF EQUIPMENT OR SERVICES FURNISHED BY NEWBRIDGE TO
CUSTOMER. IN NO EVENT WILL NEWBRIDGE'S TOTAL LIABILITY, IN DAMAGES OR
OTHERWISE, EXCEED THE AMOUNTS ACTUALLY RECEIVED BY NEWBRIDGE FOR FURNISHING
THE PARTICULAR SERVICE OR UNIT OF PRODUCT WHICH IS THE SUBJECT OF A CLAIM
OR DISPUTE. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE EQUIPMENT OR SERVICES FURNISHED BY NEWBRIDGE MAY BE
BROUGHT BY CUSTOMER MORE THAN TWO (2) YEARS AFTER THE CAUSE OF ACTION HAS
ACCRUED OR SUCH SHORTER STATUTORY PERIOD AS MAY BE APPLICABLE.
15. DISCLAIMER OF EMPLOYMENT RELATIONSHIP
Neither Newbridge's nor SELECT Partner's officers, employees or agents
shall be deemed officers, direct or indirect employees, or agents of the
other and neither Newbridge nor SELECT Partner shall represent that its
relationship with respect to the other is other than as an independent
contractor. Nothing in this Agreement shall create in either party any
right or authority to incur any obligations on behalf of, or to bind in any
respect, the other party.
16. TERMINATION
A. Either party to this Agreement shall have the right to terminate this
Agreement as of the date either party to this Agreement breaches any
of its representations and warranties or any other material term of
this Agreement.
B. This Agreement may be terminated by Newbridge as follows:
i) SELECT Partner attempts to assign its rights or delegate its
obligations under this Agreement to a third party without the
prior written consent of Newbridge; or
ii) there is a change, directly or indirectly, in the control or
material ownership the SELECT Partner; or
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iii) if the SELECT Partner makes a general assignment for the benefit
of creditors, is not generally paying its debts as they become
due, files a petition in bankruptcy, is adjudicated a bankrupt or
insolvent, files a petition seeking any reorganization,
arrangement, liquidation, or similar relief under any present or
future statute, law or regulation, or files an answer admitting to
or fails to contest the material allegations of a petition filed
against it in any such proceeding, or seeks, consents to or
acquiesces in the appointment of any trustee, receiver, custodian
or liquidator of any material part of its properties.
C. Termination for cause under subparagraphs A and B (i), (ii) and (iii)
of this Article 15 will be effective fifteen (15) days after written
notice is received by either party from the other, unless such breach
shall be remedied within such period to the satisfaction of the party
complaining of such breach.
D. Neither party shall, by reason of the termination of this Agreement,
be liable to the other for compensation, reimbursement or damages on
account of the loss of prospective profits on anticipated sales, or on
account of expenditures, investments, leases or commitments entered
into or made in connection with the business or goodwill of the other.
E. The provisions of paragraph 2.L., 8, 9, 10 and 11 shall survive any
termination of this Agreement.
17. FORCE MAJEURE
Neither Newbridge nor SELECT Partner shall be deemed to be in default of
any provision of this Agreement for any failure in performance resulting
from acts or events beyond its reasonable control, including acts of God,
acts of civil or military authority, civil disturbance, strikes, fires or
other catastrophes.
18. MISCELLANEOUS
A. Governing Law. This Agreement shall be governed by the substantive law
of the Commonwealth of Virginia.
B. Severability. The provisions of this Agreement shall bc deemed
severable. If any provision of this Agreement shall be held
unenforceable by any court of competent jurisdiction, the remaining
provisions shall remain in full force and effect.
C. Merger. All understandings and agreements made between the parties
are merged into this Agreement which fully and completely expresses
the agreement of the parties with respect to the subject matter
hereof.
D. Amendments. This Agreement shall not be amended or modified except in
writing signed by the parties hereto. No course of dealing or usage of
trade by or between the parties shall be deemed to effect any such
amendment or modification.
E. Headings. All headings and captions contained herein are for
convenience and ease of reference only and are not to be considered in
the construction or interpretation of any provision of this Agreement.
F. Notices. Any notice required to be sent or given to SELECT Partner or
Newbridge shall be sent by certified or registered mail, return
receipt requested, addressed as follows:
SELECT Partner: IWL COMMUNICATIONS. INC.
4311 FM 2351
FRIENDSWOOD. TEXAS 77546
Attention: J KEITH JOHNSON
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NEWBRIDGE: Newbridge Networks Inc.
593 Herndon Parkway
Herndon, VA 22070-5421
Attention: Contracts and Administration
G. Waivers. Any consent by any party to, or waiver of, a breach by the
other, whether express or implied, shall not constitute a consent to,
or a waiver of any other, different or subsequent breach.
H. Non-Solicitation. Each party agrees that during the term of the
Agreement it will not solicit, entice, persuade or induce any
individual who currently is, or at any time during the term of this
Agreement shall be, an employee of either party, to terminate or
refrain from renewing such individuals employment.
H. In no event shall SELECT Partner or Newbridge be liable for indirect,
special, incidental or consequential damages arising out of or in
connection with this Agreement, whether in contract, tort (including
negligence), strict liability or otherwise.
I. SELECT Partner shall not assign or transfer any rights or obligations
under this Agreement without the prior written consent of Newbridge.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
NEWBRIDGE NETWORKS INC. IWL COMMUNICATIONS. INC.
-------------------------------
(SELECT PARTNER)
By: /s/ Ralph Jacobi By: /s/ J. Keith Johnson
-------------------------- ---------------------------
for
Name: Lawrence E. Keith Name: J. Keith Johnson
------------------------ --------------------------
Title: Sr. V.P. Sales- Title: Executive Vice President
America's Region -------------------------
-----------------------
Date: 10-11-96 Date: 7/21/96
------------------------ --------------------------
Accepted for Newbridge Networks Inc.
By: /s/ Joseph F. Cassidy, Jr.
---------------------------
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EXHIBIT A
NEWBRIDGE NETWORKS PRODUCTS
16XX MAINSTREET TERMINAL ADAPTERS
26XX MAINSTREET DATA TERMINATION UNITS
35XX MAINSTREET TAP SYSTEM
3600 MAINSTREET BANDWIDTH MANAGER
3606 MAINSTREET LITTLE MUX
3612 MAINSTREET NARROW-BAND MULTIPLEXER
3620 MAINSTREET REMOTE ACCESS CONTROLLER
3624 MAINSTREET INTELLIGENT T-1 CHANNEL BANK
3630 MAINSTREET PRIMARY RATE MULTIPLEXER
4601 MAINSTREET NETWORK MANAGEMENT SOFTWARE
VIVID ATM LAN PRODUCTS
PRODUCTS THAT CAN BE DROP-SHIPPED THROUGH
DISTRIBUTION WITH PRIOR APPROVAL FROM NEWBRIDGE
3645 MAINSTREET HIGH CAPACITY BANDWIDTH MGR
36120 MAINSTREET FRAME RELAY SWITCH
36150 MAINSTREET ATM NET
36170 MAINSTREET ATMNET BACKBONE SWITCH
<PAGE>
EXHIBIT A.1
INSTALLATION SERVICES/PRICES
Newbridge Network Services has identified three distinct Service Zones in the
Continental United States for the purposes of Installation Services. These
are defined as follows:
Zone "A": Any location between 1-100 miles driving distance of a
Newbridge Service Center.
Zone "B": Any location between 101-200 miles driving distance of a
Newbridge Service Center.
Zone "C": Any location in the Continental US. that is more than 200 miles
driving distance from a Newbridge Service Center.
NEWBRIDGE SERVICE CENTER LOCATIONS--NORTH AMERICA
Atlanta, GA Houston, TX Orlando, FL Seattle, WA
Bakersfield, CA Iselin, NJ Philadelphia, PA St. Louis, MO
Boston, MA Long Island, NY Phoenix, AZ Toronto, CAN
Calgary, CAN Los Angeles, CA Pittsburgh, PA Vancouver, CAN
Chicago, IL Miami/ Portland, OR Warwick, RI
Ft. Lauderdale, FL
Cincinnati, OH Minneapolis, MN Raleigh, NC Washington, DC
Cleveland, OH Montreal, CAN Sacramento, CA
Dallas, TX New Haven, CT San Diego, CA
Denver, CO New York, NY San Francisco CA
Herndon, VA Ottawa, CAN Scranton, PA
INSTALLATION AND COMMISSIONING
Installation is the function of unpacking, assembling and mounting the
Newbridge equipment at the Customer location. This includes ground, power and
interconnection cabling to the demarcation points as well as the
implementation of all inter-rack cabling. Commissioning is the set of
programming, testing and cutover activities carried out by Newbridge
personnel on the Customer premises. The standard cutover support allocation
included in Installation and Commissioning is dependent on the type of
equipment being installed, as shown below:
EXPECTED INSTALL TIME AFTER HOURS CUTOVER SUPPORT
Small Node XXXX XXXX
Single Shelf 3600 XXXX XXXX
Dual Shelf 3600 XXXX XXXX
3645; 36150 or XXXX XXXX*
36170 (8- & 16-port)
*This number is average (per Peripheral shelf). The extent of after-hour
cutover support for these products is a function of the size and complexity
of the node configuration.
Services offered, as shown above, under the standard Installation and
Commissioning include on-site after-hour cutover support of Customer voice
and data circuits provided that function can be performed on the same day as
the installation of the equipment. Any additional time or support required on
a day other than the date of installation requires Extended Cutover Support
(Part Number 91-0008-01).
Newbridge will only install and commission equipment that has previously been
staged (SIAT).
<PAGE>
All installation work performed by Newbridge Networks Inc. is warranted to be
free from workmanship defects in accordance with Newbridge installation
specifications for a period of sixty (60) days. This warranty requires that
the node(s) be accessible via a dial-up modem.
Pricing for Installation and Commissioning is based on a percentage of the
equipment list price, and minimum per site charges apply, as shown below.
Standard installations are performed between the hours of 8 a.m. and 5 p.m.
(local time), Monday through Friday. Installations to be performed outside of
those times will be billed at one and a half times the standard installation
rate. Installations to be performed on Newbridge holidays will be
accommodated on a best effort basis and will he billed at twice the standard
installation rate.
INSTALLATION RATES FOR NETWORKS
ZONE PRICE MINIMUM MINIMUM
ADD ON NEW INSTALL
A XXX XXX XXXX
B XXX XXX XXXX
C XXX XXX XXXX
SPECIAL INSTALLATION PRICING CONSIDERATIONS
Special Pricing considerations are applicable when quoting 4602 Delegate
Workstations, 3645 Nodal equipment, and the 8-port and 16-port versions of the
36150 and 36170. Prices are as follow:
4602 Delegate Station(s) Flat Rate Installation
- -----------------------------------------------
ZONE PRICE
A XXX
B XXX
C XXX
3645: 36150/70 (8- & 16-Port) Installation
- ------------------------------------------
ZONE PRICE
A XXX
B XXX
C XXX
NOTES
(1) SELECT PARTNERS ARE ENTITLED TO RECEIVE A XXXXXXX DISCOUNT OFF THE ABOVE
INSTALLATION RATES WHEN THE SELECT PARTNER CONTRACTS DIRECTLY WITH NEWBRIDGE
FOR SUCH INSTALLATION SERVICES.
(2) NNINS5100, Newbridge Networks Incorporated Installation Policy, details
the tasks to be performed by both Newbridge and the Customer under the
installation agreement.
(3) A minimum two (2)-week lead time from Network Services' receipt of the
Project Information Package (PIP) to the requested installation date is
MANDATORY for Domestic nodal installations. A one (1) week lead time is
required for card additions or reconfigurations to an existing node.
(4) A minimum three (3) week lead time from Network Services' receipt of
Project Information Package (PIP) to the requested installation date is
MANDATORY for all International installations.
SPECIAL NOTE: A CUSTOMER MAY ACCELERATE THE INSTALLATION SCHEDULE OF A
DOMESTIC NODE BY PURCHASING EXPEDITED INSTALLATION SERVICES (PART NUMBER
91-5106-01). NODES TO BE INSTALLED OUTSIDE OF THE CONTINENTAL UNITED STATES
OR CANADA MUST ADHERE TO THE THREE (3) WEEK LEAD TIME.
<PAGE>
EXPEDITED INSTALLATION SERVICES
This offering is a premium service performed in conjunction with standard
Installation and Commissioning that offers priority treatment for domestic
installations. Under this service, an installation is placed in a priority
status and the minimum mandatory lead time from PIP receipt to installation
date is decreased from two (2) weeks to four (4) working days.
Upon receipt of the PIP, IWR and Purchase Order, the request will be
immediately assigned to both a Project Engineer and Installation Coordinator
for priority processing.
Pricing for this service is a flat rate fee per node in addition to the
standard Installation and Commissioning charges:
Small Node XXX
Large Node (minus 3645) XXX
3645;36150 or 36170 (8- & 16-port) XXX
SPECIAL NOTE: THIS SERVICE DOES NOT IMPLY ANY GUARANTEE OF A FOUR (4) DAY
RESPONSE BUT RATHER A PRIORITY PLACEMENT IN THE WORK QUEUE AND A BEST EFFORT BY
NETWORK SERVICES TO COMPLETE THE INSTALLATION IN A MINIMAL AMOUNT OF TIME.
EXTERNAL FACTORS AFFECTING EXPEDITED INSTALLATIONS INCLUDE THE ACCURACY AND
COMPLETENESS OF THE PIP, IWR, AND CUSTOMER PURCHASE ORDER, AS WELL AS SITE
READINESS, LINK READINESS, AND EQUIPMENT AVAILABILITY. EXPEDITED INSTALLATIONS
ARE ONLY AVAILABLE FOR DOMESTIC NODE INSTALLATIONS.
INSTALLATION RATE STRUCTURE WHEN NEWBRIDGE CONTRACTS SELECT
PARTNER FOR SERVICES AND RECOMMENDED RATE STRUCTURE
FOR INTER-SELECT PARTNER INSTALLATIONS.
The pricing outlined below represents the price a SELECT Partner will receive
from Newbridge when Newbridge contracts with a SELECT Partner for
installation services. The pricing also represents Newbridge's recommendation
for inter-Select Partner installation charges. Pricing for Installation is
based on a percentage of the equipment list price, and minimum per site
charges apply, as shown below. Standard installations are performed between
the hours of 8 a.m. and 5 p.m. (local time), Monday through Friday.
Installations performed outside of these times will be paid at one and a half
times the standard installation rate. Installations performed on SELECT
Partner holidays will be paid at twice the standard installation rate.
A. Sub Contracted rates for NEW INSTALLATIONS shall be reimbursed as follows:
SMALL MUX EQUIPMENT LARGE MUX EQUIPMENT
(3606,3612,3624,3620,3630) (3600,3645)
RATE SITE MINIMUM RACK & STACK SITE MINIMUM
Zone A XXX XXX XXX XXX
Zone B XXX XXX XXX XXX
Zone C XXX XXX XXX XXX
B. Sub Contracted rates for ADD-ON INSTALLATIONS shall be reimbursed as
follows:
SMALL MUX EQUIPMENT LARGE MUX EQUIPMENT
(3606,3612,3624,3620,3630) (3600,3645)
RATE SITE MINIMUM RACK & STACK SITE MINIMUM
Zone A XXX XXX XXX XXX
Zone B XXX XXX XXX XXX
Zone C XXX XXX XXX XXX
NOTE: All installs & upgrades shall be performed at the above Flat
Rates based on equipment list price, inclusive of all expenses
incurred.
<PAGE>
EXHIBIT B
PRICING/DISCOUNT SCHEDULE FOR PURCHASES MADE DIRECTLY
FROM NEWBRIDGE AND FOR SALES MADE OUTSIDE OF THE UNITED STATES
1. NEWBRIDGE DIRECT PRODUCTS PRICING
The discount to the SELECT Partner for products purchased directly from
Newbridge shall be XXX% from Newbridge's US list price. Workstation
equipment, non-Newbridge manufactured equipment, maintenance and training
are not subject to a discount.
2. NEWBRIDGE PRODUCT PRICING FOR SALES MADE OUTSIDE OF THE UNITED STATES.
Prices for sales made by the SELECT Partner to customers located outside of
the United States will be based upon the Newbridge International price list
which governs the location where the Products will be installed, at
discounts shown below.
International Price list Discount
Region 1 Products to be installed in the United States, XXX%
Canada and South America. (NSA Region)
Region 2 Products to be installed in Europe, the XXX%
Middle East, and Africa. (EMEA Region)
Region 3 Products to be installed in Asia, Pacific XXX%
Region (APR Region)
<PAGE>
EXHIBIT C
DIRECT PURCHASE REQUEST FORM
<PAGE>
NEWBRIDGE Select Partner
- --------------------------------------------------------------------------------
Direct Purchase Request
- --------------------------------------------------------------------------------
SELECT PARTNER Information
Name:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
SELECT Acct. Mgr. Phone #:
-------------------------- ------------------------
MNI Acct. Mgr. Date:
-------------------------- ------------------------
- --------------------------------------------------------------------------------
END USER Information
Company Name:
------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Contacts: Phone #:
------------------------------------ ------------------------
- --------------------------------------------------------------------------------
PROJECT Information
Products to be purchased from NNI:
- ------------------------- ------------------------- -------------------------
Estimated total dollar value of project:
--------------------------------------
- --------------------------------------------------------------------------------
APPROVALS
Director, Reseller Sales: Date:
------------------------------------ ------------
Asst. Vice President/
Area Director: Date:
---------------------------------------------- ------------
Network Services: Date:
-------------------------------------------- ------------
Credit Approval: Date:
-------------------------------------------- ------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT D
INTERNATIONAL DIRECT PURCHASE REQUEST FORM
<PAGE>
NEWBRIDGE Select Partner
- --------------------------------------------------------------------------------
International Direct Purchase Request
- --------------------------------------------------------------------------------
SELECT PARTNER Information
Name:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
SELECT Acct. Mgr. Phone #:
-------------------------- ------------------------
NNI Acct. Mgr. Date:
-------------------------- ------------------------
- --------------------------------------------------------------------------------
END USER Information
Company Name:
------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Contacts: Phone #:
------------------------------------ ------------------------
- --------------------------------------------------------------------------------
PROJECT Information
Products to be purchased from NNI:
-------------- --------------- ---------------
Countries that product will be installed:
--------------------------------------
Estimated total dollar value of project:
--------------------------------------
- --------------------------------------------------------------------------------
APPROVALS
Director, Reseller Sales: Date:
------------------------------------ ------------
Asst. Vice President/
Area Director: Date:
---------------------------------------------- ------------
Network Services: Date:
-------------------------------------------- ------------
Credit Approval: Date:
-------------------------------------------- ------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT E
FINDER'S FEE REQUEST FORM
<PAGE>
NEWBRIDGE Select Partner
- --------------------------------------------------------------------------------
Finder's Fee Request
- --------------------------------------------------------------------------------
SELECT PARTNER Information
Name:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
SELECT Acct. Mgr. Phone #:
-------------------------- ------------------------
NNI Acct. Mgr.
Date:
-------------------------- ------------------------
- --------------------------------------------------------------------------------
END USER Information
Company Name:
------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Contacts: Phone #:
------------------------------------ ------------------------
- --------------------------------------------------------------------------------
PROJECT Information
Description of Opportunity:
-------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Products
------------------------------------------------------------------------
Estimated total dollar value of project:
--------------------------------------
- --------------------------------------------------------------------------------
APPROVALS
Director, Reseller Sales: Date:
------------------------------------ ------------
Vice President: Date:
---------------------------------------------- ------------
Contracts: Date:
-------------------------------------------- ------------
- --------------------------------------------------------------------------------
\<PAGE>
SELECT PARTNER AGREEMENT
EXHIBIT F
END USER LICENSE AGREEMENT
<PAGE>
END USER LICENSE AGREEMENT
THIS AGREEMENT is made this ______ day of_________________, 19____, between
NEWBRIDGE NETWORKS INC., a Delaware corporation with principal offices
located at 593 Herndon Parkway, Herndon, VA 22070-5241 ("Newbridge") and
_____________________________, having principal offices located at
_______________("Customer").
1. LICENSE
1.1 All software provided to Customer shall be licensed subject to the terms
and conditions of this Agreement and, as applicable, the terms set forth in
the third party "shrink-wrapped" license packed with the software. Newbridge
grants to Customer and Customer accepts a non-exclusive, non-transferable
license to use any software and related documentation provided by Newbridge
pursuant to this Agreement ("Licensed Software") for Customer's own internal
use, solely in conjunction with hardware supplied or approved by Newbridge.
In case of equipment failure, Customer may use the Licensed Software on a
back-up system, but only for such limited time as is reasonably required to
rectify the failure.
1.2 Customer acknowledges that Newbridge may have encoded within the Licensed
Software an "application key", establishing the usage and functionality
(e.g., the number of equivalent nodes and workstations or other features) of
the software as it has been licensed to the Customer. The usage or
functionality of such Licensed Software may be expanded only upon payment to
Newbridge of an applicable upgrade fee. The above referenced application key
shall be conveyed to Customer upon installation of the Licensed Software or
upgrade.
2. PROTECTION AND SECURITY OF LICENSED SOFTWARE
2.1 Customer acknowledges and agrees that the Licensed Software contains
proprietary and confidential information of Newbridge and its third party
suppliers and agrees to keep such information confidential. Customer agrees
not to allow access to the Licensed Software except by its employees having a
need for such access, in keeping with it's intended use as set forth herein.
Such employees shall have been advised of the confidential and proprietary
nature of information contained in the Licensed Software and shall have
agreed to protect same.
2.2 All right, title and interest in and to the Licensed Software, other than
that expressly granted to Customer herein, shall remain vested in Newbridge
or its third party suppliers. Customer shall not, and shall not permit others
to: copy, translate, modify, create derivative works from, reverse engineer,
decompile, encumber or otherwise use the Licensed Software, except as is
specifically authorized under this Agreement. All appropriate copyright and
other proprietary notices and legends shall be retained on all Licensed
Software supplied by Newbridge, and Customer shall maintain and reproduce
such notices on any full or partial copies made.
3. TERM
3.1 The license shall become effective upon delivery of the Licensed Software
to Customer.
3.2 Newbridge may terminate this Agreement and/or any license issued
hereunder: (a) upon written notice to Customer if any amount payable to
Newbridge is not paid within thirty (30) days of the date on which payment is
due; (b) if Customer becomes bankrupt, makes an assignment for the benefit of
its creditors, or if its assets vest or become subject to the rights of any
trustee, receiver or other administrator; (c) if bankruptcy, reorganization
or insolvency proceedings are instituted against Customer and not dismissed
within 15 days; or (d) if Customer breaches a material provision of this
Agreement and such breach cannot be rectified or is not rectified within 15
days of receipt of written notice of the breach from Newbridge.
3.3 Upon termination of any license, Customer shall return or destroy all
copies of the respective Licensed Software. All obligations of Customer
arising prior to termination, and those obligations relating to
confidentiality and non-use, shall survive termination of this Agreement or
of the license.
<PAGE>
4. SUPPORT AND UPGRADES
Customer shall receive software support and upgrades for the Licensed
Software only to the extent provided for in the applicable Newbridge software
support program then currently in effect, and upon payment of any applicable
fees.
5. CHARGES
Upon shipment of the Licensed Software, Newbridge will invoice Customer for
all fees, and any taxes, duties and other charges. Customer will be invoiced
for any increased usage and functionality upon issuance by Newbridge of a new
software application key. All amounts shall be due and payable within thirty
(30) days of receipt of invoice. Interest may, at Newbridge's discretion, be
charged on the balance of any overdue amount at a level not to exceed 1 1/2%
per month (19.6% per annum) or highest rate allowed by law.
6. INDEMNIFICATION
Newbridge shall defend and indemnify Customer in any action to the extent
that such action is based upon a claim that the Licensed Software furnished
by Newbridge infringes any patent, copyright, trade secret or other
intellectual property right, provided that Customer: notifies Newbridge
within ten (10) days of its discovery of the existence or imminence of such
claim, gives Newbridge sole control of the litigation or settlement of the
claim, and provides all such assistance as Newbridge may reasonably require.
Notwithstanding the foregoing, Newbridge shall have no liability if the claim
results from any modification or unauthorized use of the Licensed Software by
Customer or use of the Licensed Software in combination with any software or
equipment not supplied or expressly approved by Newbridge, in which event
Customer shall defend and indemnify Newbridge against such claim.
7. WARRANTIES
7.1 Newbridge warrants, for a period of 90 days from the date of shipment,
that the Licensed Software, as originally delivered to Customer, will operate
substantially in accordance with the functional description set out in the
user manual supplied with the Licensed Software, when the Licensed Software
is used in accordance with the user manual. Newbridge's sole liability and
Customer's sole remedy for a breach of this warranty shall be Newbridge's
good faith effort to rectify the nonconformity or, if after repeated efforts
Newbridge is unable to rectify the non-conformity, Newbridge shall accept
return of the Licensed Software and shall refund to Customer all amounts paid
in respect thereof. This warranty is available only once in respect of any
Licensed Software, and is not renewed by the payment of fees for additional
equivalent nodes or other increased use.
7.2 NEWBRIDGE EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OR REPRESENTATIONS OF
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DURABILITY,
OR THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE ERROR FREE.
7.3 Customer acknowledges and agrees that the Licensed Software supplied
under this contract are intended for standard commercial uses and are not
specifically designed, manufactured or intended for use or resale in critical
applications or hazardous environments requiring fail-safe performance and in
which the failure of Licensed Software could lead directly to death, personal
injury, or severe physical or environmental damage (including, without
limitation, the operation or on-line control of nuclear facilities, aircraft
navigation or communication systems, air traffic control, direct life support
machines, or weapons systems). Such undertakings are considered "High Risk
Activities". Suitability of Licensed Software for use in one or more High
Risk Activities would require additional appropriate development and design
engineering by Newbridge including but not limited to the addition of
appropriate redundancy and/or contingency procedures. Newbridge and its
suppliers explicitly disclaim any express or implied warranty of fitness for
High Risk Activities and customer hereby agrees to release and hold Newbridge
harmless from liability resulting out of or in connection with implementation
of these Licensed Software in High Risk Activities.
<PAGE>
8. LIMITATION OF LIABILITY
IN NO EVENT SHALL THE TOTAL COLLECTIVE LIABILITY OF NEWBRIDGE, ITS EMPLOYEES,
DIRECTORS, OFFICERS OR AGENTS FOR ANY CLAIM, REGARDLESS OF VALUE OR NATURE,
EXCEED THE AMOUNT PAID PURSUANT TO THIS AGREEMENT FOR THE LICENSED SOFTWARE
THAT IS THE SUBJECT MATTER OF THE CLAIM. IN NO EVENT SHALL THE TOTAL
COLLECTIVE LIABILITY OF NEWBRIDGE, ITS EMPLOYEES, DIRECTORS, OFFICERS OR
AGENTS FOR ALL CLAIMS EXCEED THE TOTAL AMOUNT PAID BY CUSTOMER TO NEWBRIDGE
HEREUNDER. WITH THE EXCEPTION OF DAMAGES FOR THE MISUSE OR MISAPPROPRIATION
OF SOFTWARE, PROPRIETARY PROPERTY OR CONFIDENTIAL INFORMATION, NO PARTY SHALL
BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER OR NOT
SUCH DAMAGES ARE FORESEEABLE, AND/OR THE PARTY HAD BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. GENERAL
9.1 Under no circumstances shall either party be liable to the other for any
failure to perform its obligations (other than the payment of any monies
owing) where such failure results from causes beyond that party's reasonable
control.
9.2 This Agreement constitutes the entire agreement between Newbridge and
Customer with respect to the subject matter referenced and supersedes all
prior oral and written communications. No alteration or amendment to this
Agreement shall be valid unless the same shall be in writing and signed by
authorized representatives of both parties.
9.3 If any provision of this Agreement is held to be invalid, illegal or
unenforceable, it shall be deemed severed and the remaining provisions shall
continue in full force and effect.
9.4 The Licensed Software may contain freeware or shareware obtained by
Newbridge from one or more third party source(s). No license fee has been
paid by Newbridge for the inclusion of any such freeware or shareware, and no
license fee is charged to Customer for its use. CUSTOMER ACKNOWLEDGES AND
AGREES THAT THE THIRD PARTY SOURCE(S) PROVIDE(S) NO WARRANTIES AND SHALL HAVE
NO LIABILITY WHATSOEVER IN RESPECT OF CUSTOMER'S POSSESSION AND/OR USE OF THE
FREEWARE OR SHAREWARE.
9.5 Newbridge shall have the right, at its own expense and upon reasonable
written notice to Customer, to periodically inspect Customer's premises and
such documents as it may reasonably require, for the exclusive purpose of
verifying Customer's compliance with its obligations under this Agreement.
9.6 Any notice provided hereunder shall be sent to the party's respective
address listed above, or to any other such address as may be specified from
time to time. Notices shall be deemed to have been received five days after
deposit with a post office when sent by registered or certified mail, postage
prepaid and receipt requested.
9.7 If the Licensed Software is being acquired by or on behalf of any unit or
agency of the United States Government, the following provision shall apply:
If the Licensed Software is supplied to the Department of Defense, it shall
be classified as "Commercial Computer Software" and the United States
Government is acquiring only the rights specified in this License Agreement
as defined in DFARS 227.7202-1(a) and 227.7203-3(a). If the Licensed Software
is supplied to any other unit or agency of the United States Government,
rights will be defined in Clause 52.227-19(c)(2) of the FAR, or if acquired
by NASA, Clause 18-52.227-86(d) of the NASA Supplement to the FAR.
9.8 Customer shall comply with all export regulations pertaining to the
Licensed Software in effect from time to time. Without limiting the
generality of the foregoing, Customer expressly warrants that it will not
directly or indirectly export, re-export, or transship the Licensed Software
in violation of any export laws, rules or regulations of Canada, the United
States or the United Kingdom.
<PAGE>
9.9 No term or provision of this Agreement shall be deemed waived and no
breach excused unless such waiver or consent is in writing and signed by the
party claimed to have provided such waiver or consent. No waiver by either
party of any right, failure to perform or of any breach by the other party
hereunder, shall be deemed to be a waiver of any other right hereunder or of
any other breach or failure by such other party, whether of a similar nature
or otherwise.
9.10 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia. The application of the United
Nations Convention on Contracts for the International Sale of Goods is hereby
expressly excluded.
IN WITNESS WHEREOF, the undersigned certify their authority to bind the
respective parties hereto and have executed this Agreement.
NEWBRIDGE NETWORKS INC.:
By: By:
------------------------------ ------------------------------
- --------------------------------- ----------------------------------
Name Name
- --------------------------------- ----------------------------------
Title Title
<PAGE>
EXHIBIT G
END USER WARRANTY
HARDWARE PRODUCT WARRANTY
A. Newbridge warrants the following with respect to the Hardware Product:
(1) that the Hardware Product is free from defects in material and
workmanship;
(2) that upon payment in full all Hardware Product shall be delivered free
and clear of liens, claims or encumbrances of any kind.
B. The above warranties shall extend to the original retail purchaser (or
commercial lessee) of 3624 and 3630 series Equipment for a period of sixty
(60) months from the date of shipment; the above warranties shall extend to
the original retail purchaser (or commercial lessee) of all other Equipment
for a period of fourteen (14) months from the date of shipment.
C. With respect to products sold but not manufactured by Newbridge, Newbridge
will assign to Customer all warranties allowed by the manufacturer.
D. If Newbridge installs the Hardware Product, Newbridge will warrant the
installation against defects in material and workmanship for a period of
sixty (60) day from the date of installation and provide all parts and
on-site labor (including transportation costs of Newbridge's technician(s))
necessary to restore the Hardware Product to proper operating condition at
no charge to Customer. The warranty period for repair parts and labor and
for replaced Equipment shall be the remainder of the warranty for the
repaired or replaced item or ninety (90) days, whichever is greater.
E. Except as specifically provided under section D above, Newbridge's
liability under warranty shall be limited to either repair or replacement
of the defective Product in accordance with Article 9 below. Newbridge
shall incur no obligation under this warranty if (i) the allegedly
defective Product is returned to Newbridge more than thirty (30) days after
the expiration of the applicable warranty period, or if (ii) Newbridge's
verifiable tests disclose that the alleged defect is not due to defects in
material or workmanship.
LIMITED SOFTWARE WARRANTIES
Newbridge warrants for a period of 90 days from the date of shipment that the
Licensed Software as originally shipped to Customer, when used in accordance
with the user manual supplied with the Licensed Software, will operate
substantially in accordance with applicable functional descriptions set forth in
such manual. Newbridge's sole liability and Customer's sole remedy pursuant to
this warranty shall be Newbridge's good faith efforts to rectify the
nonconformity or, if after repeated efforts Newbridge is unable to rectify the
non-conformity, Newbridge shall accept return of the Licensed Software and shall
refund to Customer all amounts paid to Newbridge in respect thereof. This
warranty is available only once in respect of any Licensed Software, and is not
renewed by the payment of fees for additional equivalent nodes or other enhanced
use.
SERVICE AND MAINTENANCE WARRANTY
The services provided under this agreement shall be performed in a workmanlike
manner, using qualified maintenance technicians, familiar with the equipment and
its operation and, upon timely payment in full, no liens or encumbrances shall
accrue from the performance of the services provided hereunder. In the event
that, within ninety (90) days from the provision of any service hereunder, the
maintenance material or services provided are found not to conform to any
Newbridge specification, Newbridge will correct or replace the defective
maintenance material or service provided hereunder at no charge to the Customer.
<PAGE>
WARRANTY LIMITATIONS AND EXCLUSIVITY
THE WARRANTIES SET FORTH ABOVE ARE COMPLETE AND ARE IN LIEU OF ALL OTHER
WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED BY STATUTE,
USAGE, CUSTOM OF THE TRADE OR OTHERWISE. NOTWITHSTANDING ANY OTHER OR PRIOR
STATEMENT, WRITTEN OR ORAL, NEWBRIDGE MAKES NO OTHER WARRANTIES REGARDING ITS
PRODUCT(S) OR THE MATERIALS AND SERVICES CONTEMPLATED HEREUNDER. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, NEWBRIDGE EXPRESSLY DISCLAIMS
WARRANTIES OR REPRESENTATIONS OF WORKMANSHIP, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, DURABILITY, THAT A LICENSED PROGRAM WILL MEET ALL OF
CUSTOMER'S NEEDS OR THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE ERROR
FREE.
NO HIGH RISK USE
Customer acknowledges and agrees that the Products supplied under this
contract are intended for standard commercial uses and are not specifically
designed, manufactured or intended for use or resale in critical applications
or hazardous environments, requiring fail-safe performance and in which the
failure of Products could lead directly to death, personal injury, or severe
physical or environmental damage (including, without limitation, the
operation or on-line control of nuclear facilities, aircraft navigation or
communication systems, air traffic control, direct life support machines, or
weapons systems). Such undertakings are considered "High Risk Activities".
Suitability of Products for use in one or more High Risk Activities would
require additional appropriate development and design engineering by
Newbridge including but not limited to the addition of appropriate redundancy
and/or contingency procedures. Newbridge and its suppliers explicitly
disclaim any express or implied warranty of fitness for High Risk Activities
and customer hereby agrees to release and hold Newbridge harmless from
liability resulting out of or in connection with implementation of these
Products in High Risk Activities.
REPAIR AND RETURN PROCEDURES
If Customer has entered into a mutually executed agreement with Newbridge,
maintenance services, procedures and costs shall be as specified in that
Agreement. To the extent not covered by such an agreement, Newbridge will
process requests for the repair of Product according to the following policy:
A. No Product shall be returned without prior Newbridge authorization.
Newbridge's Service Representatives will be provided all necessary
information from Customer for processing the return and issuing a Return
Authorization (RA) number.
B. Damaged, inoperative or malfunctioning Equipment must be returned by
Customer in static protective material, securely packaged to prevent damage
in transit with the RA Number written on the outside of the package, and
shipped prepaid to:
Newbridge Networks Inc.
810 Commerce Park Dr.
Ogdensburg NY 13669
Attn: Repair Services
Phone: (315) 393-9981
C. Newbridge will either repair or, at its option, replace defective Product
under warranty within fifteen (15) working days of receipt. Newbridge will
return repaired Equipment via surface freight. The cost of expedited
freight, if provided, shall be at Customer's expense. The Warranty for
repaired or replaced Products shall be the remainder of the original
warranty period of ninety (90) days from the date of repair or replacement,
whichever is greater.
D. Product found to be operable after testing (e.g. no trouble found),
according to Newbridge's current manufacturing standards, shall be subject
to Newbridge's then-current handling charge.
<PAGE>
E. Repairable out-of-warranty Product will be repaired at Newbridge's
then-current repair charges within fifteen (15) working days of receipt
of the Product and Customer's applicable purchase order or other written
authorization to repair. The Warranty for out-of-warranty serviced Products
shall be ninety (90) days from the date of service.
F. When used and handled in accordance with the manufacturer's instructions
the Hardware Product (including any laser device) is safe in normal use and
transportation. Newbridge is available to answer inquiries regarding the
proper use, recycling or disposal of any product or component.
<PAGE>
LEASE AGREEMENT
[LOGO] #
--------------
Date 11/8/96
-----------
Lessee: Billing Address (if different):
Name IWL Communications, Inc. Name
Address 4311 FM Rd 2351 Address
(Include County Friendswood, TX 77546 (Include County
& Zip Code) & Zip Code)
Attn: Igatus Leonards Attn:
Phone #: (713) 482-0289 Phone #:
Fax #: (713) 929-1090 Fax #:
TERMS AND CONDITIONS - ADDITIONAL TERMS ON BACK
1. LEASE. CLG, Inc. ("Lessor") hereby agrees to lease to Lessee, and Lessee
agrees to lease from Lessor the Equipment and all other items described on any
attached Supplement(s) or Certificate(s) of Delivery and Acceptance document
(the "Equipment"), under the terms and conditions set forth in this Lease
Agreement. Lessor shall designate a unique Transaction Number ("TA #") for each
Supplement and its attached Certificate(s) of Delivery and Acceptance, executed
under this Lease Agreement herein (each "Lease"). Lessor, at Lessor's sole
discretion, may elect the execution of Supplement for lease after the
execution of its Certificate(s) of Delivery and Acceptance for same lease
attached to Lease Agreement, under terms and conditions set forth hereto.
2. WARRANTIES. LESSOR HAS NOT MADE AND SPECIFICALLY DECLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE QUALITY OR CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor
will not be liable for any loss, cost or damage to Lessee or others arising from
defects, negligence, delays, failure of delivery, interference with any
patent, trademark, copyright or other intellectual property right or
nonperformance of the Equipment.
Lessee warrants to Lessor that; (a) the Lessee is in good standing under
applicable State law; (b) the person(s) executing this Lease Agreement and any
resulting Supplement(s) or Certificate(s) of Delivery and Acceptance document
on behalf of the Lessee shall be an authorized representative empowered to bind
the Lessee. The Lessee shall provide executed Certificate(s) of Incumbency
evidencing authorization if so requested by Lessor and; (c) this Lease
Agreement does not violate any other agreement(s) binding the Lessee.
3. TERM AND RENT. The Equipment will commence for lease rental on the date(s)
designated by Lessor (the "Acceptance Date") and in the amount(s) as set forth
in the Lease Certificate(s) of Delivery and Acceptance attached hereto and the
lease term will commence on the first day of the following month after the last
acceptance date of the lease. Upon the lease term commencement the lease will
continue throughout the set forth minimum lease term and Lessee will have a
minimum obligation for rental payments as set forth hereto from lease rental
commencement throughout the minimum lease term. Lessee agrees to lease finance
all upgrades, additions and all replacement equipment of the Equipment with
Lessor, at Lessor's sole discretion, or at a mutually agreed upon rate. Lessee
will pay all rental payments, in advance, on the date(s) specified by Lessor in
a notice(s) to Lessee. Any attached lease as set forth herein is a noncancelable
lease and cannot be cancelled under any condition or circumstance by Lessee
during the minimum term hereof. All leases shall be automatically renewed for
the sum as set forth hereto and under the terms and conditions as set forth
herein for one (1) year at the expiration of the minimum term and at the
expiration of any renewal term thereafter, unless Lessor or Lessee shall notify
the other of its intent not to renew the lease which notice shall be given in
writing at least one hundred eighty (180) days prior to the expiration of the
minimum term or the renewal term.
4. PURCHASE ORDERS AND EQUIPMENT ACCEPTANCE. Lessee agrees that; (a) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, its
supplies, service(s) or software; (b) Lessee has selected all of the Equipment,
its supplies, service(s), software and all other items; (c) Lessee is
responsible for all shipping costs and Equipment installation and deinstallation
charges; (d) Lessor is purchasing the Equipment solely in connection with this
lease and; (e) Lessee has received a copy of and unconditionally approved the
purchase orders/contracts and all services for the Equipment. Lessor hereby
notifies Lessee that Lessee may have rights under such purchase orders/contracts
and all services and advises Lessee to contact such suppliers for a description
of any such rights. Lessor hereby assigns to Lessee the benefit of any
assignable manufacturer's or suppliers warranties.
LESSEE AGREES THAT AS OF THE ACCEPTANCE DATE AS SET FORTH BY LESSOR; (A) LESSEE
HAS RECEIVED AND INSPECTED THE EQUIPMENT; (B) THE EQUIPMENT IS IN GOOD WORKING
ORDER AND COMPLIES WITH THE PURCHASE ORDERS/CONTRACTS AND ALL SERVICES; (C)
LESSEE IRREVOCABLY ACCEPTS THE EQUIPMENT FOR PURPOSES OF THIS LEASE AGREEMENT
"AS-IS, WHERE-IS, WITH ALL FAULTS" AND; (D) LESSEE UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT.
LESSOR: CLG, INC. LESSEE: IWL COMMUNICATIONS, INC.
3001 SPRING FOREST ROAD
RALEIGH, NC 27604
PHONE NO: (919) 872-7920
FAX NO: (919) 876-1652
By: /s/ EDWIN J. LEE 2/9/97 By: /s/ RICHARD H. ROBERSON 11/8/96
------------------------------ -----------------------------------
Authorized Signature Date Authorized Signature Date
EDWIN J. LEE RICHARD H. ROBERSON
- --------------------------------- --------------------------------------
Name Name
PRESIDENT AND CHIEF OPERATING
OFFICER CFO
- --------------------------------- --------------------------------------
Title Title
THIS IS COUNTERPART NO. 2 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER
UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY
BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
- -----------------------------------------------------------------------------
REGARDLESS OF ANY PRIOR, PRESENT OR FUTURE ORAL AGREEMENT OR COURSE OF
DEALING, LESSEE AGREES THAT NO TERM OR CONDITION OF THIS LEASE AGREEMENT MAY
BE AMENDED, MODIFIED, WAIVED, DISCHARGED, RESCINDED OR TERMINATED EXCEPT BY A
WRITTEN DOCUMENT SIGNED BY LESSOR AND LESSEE, that Lessee has authorized
Lessor to fill in the Acceptance Date and the serial numbers of any
Equipment, LEASE IS VALID UPON AUTHORIZED SIGNATURE OF A CLG,INC. OFFICER.
By: /s/ EDWIN J. LEE
President and Chief Operating Officer
--------------------------------------------
Authorized Signature/CLG, Inc.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PERSONAL GUARANTY
(Invalid as Corporate Guaranty)
To induce Lessor to enter into the within lease, the undersigned, jointly and
severally, unconditionally guarantees to Lessor the prompt payment when due of
all of Lessee's obligations to Lessor under this Lease Agreement. This is an
absolute and unconditional guarantee of all payments due under this Lease
Agreement and not of collection. Lessor shall not be required to proceed against
Lessee or the Equipment or enforce any other remedy before proceeding against
the undersigned. The undersigned agrees to pay all attorney's fees and all other
expenses incurred by Lessor by reason of default by the Lessee or the
undersigned. The undersigned waives notice of acceptance hereof and of all other
notices, legal action(s) or demands of any kind of which the undersigned may be
entitled. The undersigned consents to all terms and conditions set forth in
Lease Agreement, attached Supplement(s), Certificate(s) of Delivery and
Acceptance or any other attached document(s), any lease extensions or
modification(s) granted to Lessee and the release and/or compromise of any
obligations of Lessee or any other obligors hereunder. This guaranty shall
bind the heirs, administrators, representatives, successors and assigns of
the undersigned and may be enforced by or for the benefit of any assignee, or
successor of Lessor as specified; SECTION 14. The undersigned consents to
jurisdiction, as specified; SECTION 21, of any Federal or State Court,
located in the Eastern District, North Carolina, with respect to any legal
action commenced hereunder. All disputes will be settled in the courts of the
Eastern District, North Carolina. The undersigned expressly waives any right
to a trial by jury. As used in the Lease Agreement, the term "Lessee" also
includes any guarantor of all Lessee's obligations hereunder. IN THE EVENT
ORIGINAL EQUIPMENT COST OF CUMULATIVE LEASES HERETO EXCEEDS TWO HUNDRED
THOUSAND ($200,000) DOLLARS, GUARANTOR AGREES TO EXECUTE ATTACHMENT PG ("PG")
OF THIS LEASE AGREEMENT provided by and to the satisfaction of Lessor.
Execution of PG voids, in whole, PERSONAL GUARANTY herein.
- --------------------------------- --------------------------------------
Guarantor Signature Date Guarantor Signature Date
(No Title) (No Title)
- --------------------------------- --------------------------------------
Guarantor Name Guarantor Name
(CORPORATE GUARANTY - SEE ATTACHMENT CG)
- -----------------------------------------------------------------------------
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
5. ADVANCE PAYMENT. Any Advance Payments set forth in Certificate(s) of
Delivery and Acceptance shall be held as security for the performance of the
lease contained hereto. Lessor may apply Advance Payment to cure any default
under this Lease Agreement.
6. UNCONDITIONAL LEASE. Lessee's obligation to pay all rent and other
amounts under this Lease Agreement is ABSOLUTE AND UNCONDITIONAL UNDER ALL
CIRCUMSTANCES WHATSOEVER and shall not be affected by any defect in
condition, design, or operation of the Equipment, any lack of maintenance or
service for any Equipment, its supplies or software, or any setoff,
counterclaim, defense or reduction which Lessee may have against Lessor or
any other party.
7. OWNERSHIP OF EQUIPMENT. Lessor shall at all times retain title to the
Equipment. Lessee will defend Lessor's title to the Equipment and will keep
it free and clear of any and all claims, liens and encumbrances. Lessee will
obtain and maintain all required, customary or appropriate licenses, titles,
registrations and permits reflecting Lessor as owner.
8. CARE, USE AND LOCATION. During the entire term of lease and at Lessee's
sole expense, Lessee shall keep and maintain the Equipment by the original
manufacturer or shall keep and maintain the Equipment, per original
manufacturer's maintenance specifications by a maintenance concern approved by
the original manufacturer, in like new operating condition, repair, and
appearance. Lessee shall use the Equipment in the regular course of its
business, and shall comply with all laws and regulations relating to the
Equipment. Lessee will not modify the Equipment unless in accordance with a
recommendation by the manufacturer, without the prior written approval of
Lessor. All alterations, additions and replacements become the property of
Lessor. The Equipment shall always be deemed personal property of the Lessor.
Lessee shall keep the Equipment at the location shown hereto and shall not
remove the Equipment under any condition or circumstance without Lessor's
written approval. Lessor, assignee or representative of Lessor shall have the
right to enter Lessee's premises at reasonable times to inspect the Equipment.
9. TAXES. Lessee will pay all excise taxes, sales and use taxes, personal
property taxes and all other taxes and charges which may be imposed by any
governmental entity during the term of any lease under this Lease Agreement
arising from the acquisition, use, ownership or leasing of the Equipment whether
due before or after termination of any lease under Lease Agreement. Lessor shall
file personal property tax returns with respect to the Equipment, Lessee shall
pay to Lessor, in advance and at the time(s) required by Lessor, the taxes which
Lessor anticipates will be due during the year.
10. INSURANCE. Lessee shall provide and maintain from insurance companies
satisfactory to Lessor (a) property damage insurance against loss, fire,
theft, damage or destruction of the Equipment in an amount not less than the
full replacement value of the Equipment, with loss payable to Lessor and (b)
comprehensive general all-risk liability insurance including without
limitation, product liability coverage, insuring Lessor and Lessee, with a
severability of interest endorsement or its equivalent, against any and all
loss of liability for all damages, either to persons or property, or
otherwise, which might result, or happen in connection with the condition,
use or operation of the Equipment, with such limits as are satisfactory to
Lessor. Each policy shall expressly provide that said insurance as to Lessor
and Lessor's assigns shall not be invalidated by any act, omission or neglect
of Lessee and cannot be cancelled or modified without 60 days prior written
notice to Lessor. As to each policy, Lessee shall immediately furnish to
Lessor a certificate of insurance from the insurer, which certificate shall
evidence the insurance coverage required by this SECTION 10 ("Valid
Evidence"). Lessor shall have no obligation to ascertain the existence of or
provide any insurance coverage for the Equipment or for Lessee's benefit. The
insurance proceeds shall be the sole property of Lessor, and shall be used by
Lessor for the repair or replacement of the Equipment, or if Lessee is in
default under the terms of the Lease Agreement toward any payment of Lessee's
obligations to Lessor. In the event Lessee fails to procure the insurance
required above prior to the commencement of this Lease or if Lessee fails to
provide valid evidence, or in the event Lessee fails to maintain the required
insurance after the commencement date of this Lease, Lessor may, but will not
be required to, and without notice to Lessee, purchase such insurance and add
the cost, including customary charges or fees associated with the placement,
maintenance or service of such insurance (collectively "Insurance Charge"),
to the next monthly rental payment to become due hereunder. Lessor may
terminate or allow to lapse any coverage obtained by Lessor without having
any liability to Lessee. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make a claim for, receive payment of, and execute and
endorse all documents, checks or drafts for loss, theft, damage or
destruction to the Equipment under any property insurance.
11. INDEMNITY. Lessee will indemnify and defend Lessor, its affiliates,
their officers, agents and employees, assigns, successors, heirs and personal
representatives of Lessor against all loss, liability and expense, including,
without limitation, all attorney's fees (including costs of a successful
defense) from claims for negligence, tort, strict liability, bodily injury,
including death or property damage or for any alleged violation of rights of
others, including contract, patent, trademark, copyright or intellectual
property rights or for any alleged violation of any law, ordinance, rule,
regulation, decree, or otherwise arising from or in any way related to the
Equipment, supplies, software, Lease Agreement, lease or otherwise, including,
without limitation, the ownership, operation, manufacturing, maintenance or
services of the Equipment. This provision shall survive expiration, assignment
or termination of any lease under Lease Agreement.
12. LOSS OR DAMAGE. Lessee shall bear all the risks of loss of and damage
to the Equipment from any cause and the occurrence of such loss or damage shall
not relieve Lessee of any obligation hereunder. In the event of such loss or
damage, Lessee shall immediately notify the Lessor in writing and, at the
election of Lessor, shall; (a) place the same in like new condition and
working order, certified for original manufacturer's maintenance and deliver
to Lessor written confirmation or; (b) replace the same with like equipment
in like new condition and working order, certified for original
manufacturer's maintenance, free and clear of encumbrances and deliver to
Lessor written confirmation, a bill of sale and serial number(s) conveying
the replacement equipment to Lessor.
13. FEES, COLLECTION EXPENSES AND LATE CHARGES. Lessee shall also pay to
Lessor with the first rental payment an administration fee of one hundred
dollars ($100.00). If any amount payable herein is not paid when due, Lessor
may elect for the Lessee to pay any or all amounts hereunder with respect to
each overdue payment on demand; (a) any collection agency fees and expenses
plus; (b) a late payment service fee equal to the greater of fifteen dollars
($15.00) or ten percent (10%) of the late payment (but not to exceed $50.00),
which is a reasonable approximation of the internal costs that Lessor will
incur as a result of Lessee's delay in payment plus; (c) interest at a
minimum of eighteen percent (18%) per annum (but not to exceed the highest
rate permitted by law) ("Late Charge Rate") on such overdue payment for the
period for which it is overdue. If Lessee fails to make any payment of any
lease under this Lease Agreement or perform any of its other agreements in
this Lease Agreement (including, without limitation, its agreement to provide
insurance coverage and valid evidence as stated herein), Lessor may make such
payment or perform such agreement and the amount of such payment and the
expense of Lessor shall be additional rent, payable by Lessee on demand.
Lessee shall pay to Lessor a fee of one hundred dollars ($100.00) for each
check returned to Lessor unpaid in addition to any other fee provided for
herein for a delinquent payment.
14. ASSIGNMENT. LESSEE SHALL NOT, DIRECTLY OR INDIRECTLY; (A) ASSIGN, SELL
OR OTHERWISE DISPOSE OF ANY LEASE UNDER LEASE AGREEMENT OR ANY INTEREST THEREIN
OR THE EQUIPMENT OR ANY PART THEREOF OR; (B) SUBLEASE, CREATE, GRANT, ASSUME OR
ALLOW TO EXIST ANY LIEN OR OTHER CLAIM TO THE EQUIPMENT OR ANY PART HEREOF.
Lessor, any assignee or representative of Lessor, may sell or grant a security
interest in all or any part of Lessor's rights, obligations, title or interest
in the Equipment and any lease under Lease Agreement or any amount payable under
this Lease Agreement or the Lease Agreement to any entity (a "Transferee") and
in such event the transferee shall have all of the rights, powers and remedies
of Lessor hereunder. Lessee shall execute all documentation deemed necessary by
Lessor, any assignee or transferee of Lessor for said assignment. Lessee agrees
that after written notice by Lessor of any such assignment, Lessee shall pay all
rent payable by Lessee hereunder to such assignee or transferee, and agrees to
make all such payments of rent to such assignee or transferee whether or not any
lease under Lease Agreement or the Lease Agreement is terminated by operation of
law, any act of the parties or otherwise. Lessee will not (a) assert against any
such assignee or transferee, any claims by way of abatement, defense, setoff,
counterclaim, recoupment or otherwise which Lessee may have, (b) look to such
assignee or transferee to perform any of Lessor's obligations hereunder or (c)
terminate or attempt to terminate any lease under Lease Agreement on account
of any default by Lessor. Lessee acknowledges that any such transfer transaction
will not materially increase or change its obligations, burdens, duties or risks
under this Lease Agreement. This Lease Agreement and its leases shall inure to
the benefit of and be binding upon the successors and assigns of the
respective parties hereto and the heirs, executors and administrators of the
Lessee, if an individual, always providing that nothing in this paragraph
contained shall impair any of the provisions hereinbefore set forth
inhibiting assignment without written approval of Lessor.
15. DEFAULT. Any of the following events or conditions shall constitute an
event of default hereunder; (a) Lessee fails to pay any rental or any other
payment hereunder when due; (b) Lessee fails to perform any covenant, in part
or whole, herein; (c) Lessee becomes insolvent or makes an assignment for the
benefit of creditors or ceases doing business as a going concern; (d) a
receiver, trustee, conservator, or liquidator of Lessee is appointed with or
without the application or approval of Lessee; (e) the filing by or against
Lessee of a petition under the Bankruptcy Code of any Amendment thereto; or
under any other insolvency law or laws providing for, but not limited to, the
relief of Debtors or; (f) any representation or statement made or furnished to
Lessor by or on behalf of Lessee which could prove to have been false,
misleading or have a material effect on Lessee in any respect when made or
furnished; (g) liquidate, dissolve or suspend business; (h) sell, transfer or
otherwise dispose of all or a majority of its assets, except that Lessee may
sell its inventory in the ordinary course of its business; (i) enter into any
merger, consolidation or similar reorganization unless it is the surviving
corporation; (j) transfer all or any substantial part of its operations or
assets outside of the United States of America; or (k) without 30 days
advance written notice to Lessor, change its name or chief place of business.
Lessee shall at all times maintain a tangible net worth which is no less than
the greater of 49% of its tangible net worth as of the date of the Lease
Agreement or 49% of its highest tangible net worth thereafter. As used in this
SECTION 15, the term "Lessee" also includes any guarantor of all of Lessee's
obligations hereunder.
16. REMEDIES. If any event of default exists, Lessor, at Lessor's sole
discretion, may, at any time, do one or more of the following in any order and
Lessee shall perform its obligations imposed immediately thereby; (a) Lessor may
require Lessee to return any or all Equipment executed under this Lease
Agreement within a minimum of ten (10) days; (b) Lessor or its agent may
repossess any or all Equipment wherever found; (c) Lessor may sell any or all
Equipment at public or private sale, with or without advertisement or
publication, may re-lease or otherwise dispose of it or may use, hold or keep
it; (d) Lessor may require Lessee to pay to Lessor on a date specified by
Lessor, with respect to any or all Equipment (i) all accrued and unpaid rent,
late charges and other amounts due under this Lease Agreement on or before such
date specified by Lessor plus (ii) the present value, discounted in advance at
two percent (2%) per annum, of the remaining rents through the end of the lease
term and all other amounts payable under this Lease Agreement plus (iii) the
anticipated market value of the Equipment as determined by Lessor ("Stipulated
Loss Value") as liquidated damages for loss of the bargain and not as a penalty
plus (iv) interest at the Late Charge Rate on the total of the foregoing; (e)
Lessee shall immediately pay all costs, expenses, damages and loss of reasonable
profits incurred by Lessor because of the event of default or its actions under
this section, including, without limitation, any collection agency and
attorney's fees and expenses and; (f) Lessor may terminate this Lease Agreement
and all its leases, may sue to enforce Lessee's performance of its obligation
under this Lease Agreement and may exercise any other right or remedy then
available to Lessor at law or in equity. Lessor is not required to take any
legal process or give Lessee any notice before exercising any of the above
remedies. Lessee expressly waives all rights to Lessor notice prior to
exercising such remedies and pursue any and all legal action(s) against Lessor.
None of the above remedies is exclusive, but each is cumulative and in addition
to any other remedy available to Lessor. Lessor's exercise of one or more
remedies shall not preclude its exercise of any other remedy at any time. No
delay or failure on the part of Lessor to exercise any right hereunder shall
operate as a waiver thereof nor as an acquiescence in any default, nor shall
any single or partial exercise of any right preclude any other exercise
thereof or the exercise of any other right at any future and all Lessor's
rights and remedies contained herein shall survive the termination of Lease
Agreement and any attached lease(s) hereto. Lessor shall not be required to
sell, re-lease or otherwise dispose of any Equipment prior to Lessor
enforcing any of the remedies described above. Lessor may sell or re-lease
the Equipment in any manner it chooses, free and clear of any claims or
rights of Lessee and without any duty to account to Lessee with respect
thereto except, at Lessor's sole discretion, as provided below. If Lessor
actually sells or re-leases the Equipment, Lessor, at its sole discretion,
may elect to credit the net proceeds of any sale of the Equipment, or the net
present value (discounted at the rate of eighteen percent (18%) per annum) of
the rents payable under any new lease of the Equipment, against and up to
(but not exceeding) the Stipulated Loss Value of the Equipment and any other
amounts Lessee owes Lessor, or may elect to reimburse Lessee for and up to
(but not exceeding) such amount after deducting the costs, expenses and
reasonable profits described in above "(e)." Lessor may credit excess net
proceeds against any short fall (residual position) in the lease (future
valued at eighteen percent (18%) from the lease commencement date) before
stated election of any reimbursement(s) to Lessee. If Lessor elects in
writing to sell or re-lease any Equipment, it may similarly elect to credit
or reimburse Lessee for Lessor's reasonable estimate of such Equipment's
market value.
17. RETURN OF EQUIPMENT. Upon lease term expiration, at Lessee's sole expense,
Lessee shall; (a) immediately return the Equipment to Lessor, in like new
condition, including, without limitation, certified for maintenance by the
original manufacturer, all owner's manuals and Equipment cables, to a location
designated by Lessor; (b) bear all expenses incurred by Lessor to bring the
Equipment to such like new condition, as set forth and Lessee agrees to
immediately pay Lessor for such expenses incurred upon written notice by Lessor;
(c) agree that all shortfall positions (residual position) taken in soft costs
and the lease by Lessor, including, without limitation, (i) system software,
(ii) application software, (iii) installation, (iv) maintenance and (v) fees,
shall be immediately paid by Lessee, future valued at eighteen percent (18%)
from lease rental commencement until termination of the lease, upon written
notice by Lessor, and; (d) agree to lease finance any lease term extensions,
and all replacement equipment with Lessor, at Lessor's sole discretion, or at
a mutually agreed upon rate; (e) purchase Equipment. In the event Lessee elects
to purchase Equipment, Lessor will provide a market value of the Equipment for
Lessee's option to purchase in its entirety as owner. Should Lessee not return
or purchase the Equipment, Lessee shall continue to pay rent to Lessor as
specified; SECTION 3.
18. UCC FILINGS AND FINANCIAL STATEMENTS. Lessor and Lessee agree that a
reproduction of this Lease Agreement and its attaches may be filed as a
financing statement and shall be sufficient as a financing statement under the
Uniform Commercial Code. Lessee hereby ratifies all action of the Lessor in
executing and filing financing statements prior to the execution of this Lease
Agreement. Lessee shall execute or obtain or deliver to Lessor, upon Lessor's
request, such other documents as Lessor deems necessary or advisable for the
protection or perfection of this Lease Agreement and its attaches and Lessor's
rights hereunder and shall pay all costs incident thereto. Lessee authorizes
Lessor to insert in this Lease Agreement and its attaches, in any filings, the
serial number(s) of all the leased Equipment, and irrevocably appoints Lessor as
Lessee's attorney-in-fact to sign any such filings. Lessee shall make available
to the Lessor all financial statements and tax returns upon request. At a
minimum, Lessee agrees to provide Lessor such statements during any lease term
attached hereto.
19. ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL, COMPLETE, AND
ENTIRE AGREEMENT BETWEEN THE PARTIES. THERE ARE NO ORAL OR WRITTEN AGREEMENTS
OR UNDERSTANDINGS AFFECTING THIS LEASE AGREEMENT, THE LEASE OR EQUIPMENT. No
manufacturer, vendor or supplier or software manufacturer, vendor or supplier
is the agent of Lessor. Any representation, warranty or agreement made by a
manufacturer, vendor or supplier or software manufacturer, vendor or supplier or
their employees, sales representatives or agents shall not be binding on Lessor.
Lessee shall look solely to manufacturer, vendor or supplier or software
manufacturer, vendor or supplier for all claims arising under its performance;
that Lessor makes no expressed or implied warranties or representations
whatsoever, including warranties of merchantability or fitness for a particular
purpose, concerning said performance or the obligations thereunder, and that
Lessee shall continue to pay Lessor all monthly rental charges and perform all
other obligations of Lessee under this Lease Agreement without asserting any
setoff, counterclaims, or other defense for any reason whatsoever, including
without limitation, the failure of manufacturer, vendor or supplier or software
manufacturer, vendor or supplier to perform its obligations; and Lessee shall
not attempt to terminate this Lease Agreement or its leases under any condition
or circumstance for a default or non performance by manufacturer, vendor or
supplier or software manufacturer, vendor or supplier.
20. MISCELLANEOUS. In the event any provision, in part or whole, hereof shall
be invalid or unenforceable, the remaining provision(s), in part or whole,
hereof shall remain and survive in full force and effect. The provisions of this
Lease Agreement shall be binding upon and shall inure to the benefit of the
permitted assigns, transfers, successors, heirs and personal representatives of
Lessor and Lessee. Lessor shall not be liable to Lessee for any direct,
indirect, consequential, special or other damages for any reason whatsoever. If
this Lease Agreement or any lease hereunder is signed by more than one Lessee,
each of such Lessees shall be jointly and severally liable for payment and
performance of all of the Lessee's obligations under this Lease Agreement. In
the event(s) unauthorized party(s) execute signature authority or represents as
the Lessee in action, commitment, deed or otherwise such event(s) shall be
deemed unconditionally binding as being authorized by Lessee and Lessee herein
as set forth; SECTION 2 shall be liable and such event(s) shall be enforceable
by Lessor, at Lessor's sole discretion, under the terms of this Lease Agreement
and attaches hereto unless otherwise specified by Lessor in writing.
21. JURISDICTION. This Lease Agreement shall be binding when accepted in
writing by the Lessor in the State of North Carolina and shall be deemed to
have been made in the Eastern District, North Carolina. The interpretation,
construction and validity of this Lease Agreement shall be governed by the
laws of the State of North Carolina, where Lessor has its principal place of
business, where the lease is accepted and executed by Lessor, and where
payments are to be made by Lessee unless otherwise specified by Lessor.
Lessee hereby voluntarily consents to the jurisdiction of any Federal or
State Court, located in the Eastern District, North Carolina with respect to
any legal action commenced hereunder. Lessee expressly waives any right to a
trial by jury.
22. STATEMENT OF PURPOSE. Lessee hereby warrants and represents that all
leased Equipment under this Lease Agreement will be used for business
purposes and not for personal, family or household purposes and Lessee
acknowledges that Lessor has relied upon this representation entering into
this Lease Agreement.
<PAGE>
Page 1 of 1
[LOGO] SUPPLEMENT
#1
Lease Agreement # _______________ Dated: 11/8/96
T.A. #5400110
----------
Equipment Model Equipment
Qty. Type Number Description
--- --------- ------ -----------
LOCATION - 4311 FM ROAD 2351, FRIENDSWOOD, TX 77546
1 TELESTAR BASE UNIT
4 T1 LINE CARDS
1 ISDN CARD
4 STANDARD I/O MODULES
4 LC SW LICENSE FEE
2 MFDSP CARD
2 VRAS SIMM MODULE
4 C31 MODULE
1 ISDN S/W FEATURE
1 REDUNDANT PC VERSION
2 CRAFT WORKSTATIONS
THIS IS COUNTERPART NO. 2 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER
UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY
BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<TABLE>
<S> <C>
LESSOR: CLG, Inc. LESSEE: IWL Communications, Inc.
By: /s/ EDWIN J. LEE By: /s/ RICHARD H. ROBERSON
--------------------------------------- -----------------------------------
Name: Edwin J. Lee Name: Richard H. Roberson
--------------------------------------- -----------------------------------
Title: President and Chief Operating Officer Title: CFO
--------------------------------------- -----------------------------------
Date: 2/9/97 Date: 11/8/96
--------------------------------------- ------------------------------------
</TABLE>
<PAGE>
Page 1 of 1
[LOGO] CERTIFICATE OF DELIVERY AND ACCEPTANCE
#1
Lease Agreement #____________________
T.A. #5400110
---------- Supplement #1
Equipment Model Equipment Serial
Qty. Type Number Description Number
--- --------- ------ ----------- ------
LOCATION - 4311 FM ROAD 2351, FRIENDSWOOD, TX 77546
1 TELESTAR BASE UNIT
4 T1 LINE CARDS
1 ISDN CARD
4 STANDARD I/O MODULES
4 LC SW LICENSE FEE
2 MFDSP CARD
2 VRAS SIMM MODULE
4 C31 MODULE
1 ISDN S/W FEATURE
1 REDUNDANT PC VERSION
2 CRAFT WORKSTATIONS
THIS IS COUNTERPART NO. 2 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER
UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY
BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
Lease Term: 60 Months Stipulated Loss Value: $620,270.22
Total Monthly Rental: $11,446.81 + Tax Acceptance Date 12/15/96
(Specified by Lessor)
Security Deposit Equal To: $22,893.61 LESSOR Initials: EJL
-------------
This equipment and items listed above (the "Equipment") have been delivered,
inspected, found satisfactory and are accepted by Lessee for all purposes as
stated in the terms and conditions set forth in Lease Agreement #__________,
Dated 11/8/96, with the lease commencing for this attachment on the
acceptance date as specified by Lessor. The lease term commencement will be
the first day of the following month after the last acceptance date for all
rental Equipment on the above Supplement Number.
Upon execution by Lessee, the Equipment listed above will be included in the
above stated Lease Agreement and all terms and conditions of Lease Agreement
shall apply. The Lessee is committed to the above payment from the lease
rental commencement throughout the above stated lease term.
<TABLE>
<S> <C>
LESSOR: CLG, Inc. LESSEE: IWL Communications, Inc.
By: /s/ EDWIN J. LEE By: /s/ RICHARD H. ROBERSON
--------------------------------------- -----------------------------------
Name: Edwin J. Lee Name: Richard H. Roberson
--------------------------------------- -----------------------------------
Title: President and Chief Operating Officer Title: CFO
--------------------------------------- -----------------------------------
Date: 2/9/97 Date: 11/8/96
--------------------------------------- ------------------------------------
</TABLE>
<PAGE>
Page 1 of 1
[LOGO] SUPPLEMENT
#2
Lease Agreement # _______________ Dated: 11/8/96
T.A. #5400111
----------
Equipment Model Equipment
Qty. Type Number Description
--- --------- ------ -----------
LOCATION - 4311 FM ROAD 2351, FRIENDSWOOD, TX 77546
1 SUPPORT AND MAINTENANCE FOR NEXUS AND TELESTAR BASE UNIT
THIS IS COUNTERPART NO. 2 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER
UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY
BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<TABLE>
<S> <C>
LESSOR: CLG, Inc. LESSEE: IWL Communications, Inc.
By: /s/ EDWIN J. LEE By: /s/ RICHARD H. ROBERSON
--------------------------------------- -----------------------------------
Name: Edwin J. Lee Name: Richard H. Roberson
--------------------------------------- -----------------------------------
Title: President and Chief Operating Officer Title: CFO
--------------------------------------- -----------------------------------
Date: 2/9/97 Date: 11/8/96
--------------------------------------- ------------------------------------
</TABLE>
<PAGE>
Page 1 of 1
[LOGO] CERTIFICATE OF DELIVERY AND ACCEPTANCE
#1
Lease Agreement #____________________
T.A. #5400111
---------- Supplement #2
Equipment Model Equipment Serial
Qty. Type Number Description Number
--- --------- ------ ----------- ------
LOCATION - 4311 FM ROAD 2351, FRIENDSWOOD, TX 77546
1 SUPPORT AND MAINTENANCE FOR NEXUS AND TELESTAR BASE UNIT
THIS IS COUNTERPART NO. 2 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER
UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY
BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
Lease Term: 24 Months Stipulated Loss Value: $56,435.50
Total Monthly Rental: $2,294.21 + Tax Acceptance Date 12/15/96
(Specified by Lessor)
Security Deposit Equal To: $4,588.42 LESSOR Initials: EJL
-------------
This equipment and items listed above (the "Equipment") have been delivered,
inspected, found satisfactory and are accepted by Lessee for all purposes as
stated in the terms and conditions set forth in Lease Agreement #__________,
Dated 11/8/96, with the lease commencing for this attachment on the
acceptance date as specified by Lessor. The lease term commencement will be
the first day of the following month after the last acceptance date for all
rental Equipment on the above stated Supplement Number.
Upon execution by Lessee, the Equipment listed above will be included in the
above stated Lease Agreement and all terms and conditions of Lease Agreement
shall apply. The Lessee is committed to the above payment from the lease
rental commencement throughout the above stated lease term.
<TABLE>
<S> <C>
LESSOR: CLG, Inc. LESSEE: IWL Communications, Inc.
By: /s/ EDWIN J. LEE By: /s/ RICHARD H. ROBERSON
--------------------------------------- -----------------------------------
Name: Edwin J. Lee Name: Richard H. Roberson
--------------------------------------- -----------------------------------
Title: President and Chief Operating Officer Title: CFO
--------------------------------------- -----------------------------------
Date: 2/9/97 Date: 11/8/96
--------------------------------------- ------------------------------------
</TABLE>
<PAGE>
PROMISSORY NOTE
FIRST BANK AND TRUST
$1,350,000.00 Cleveland, Texas September 20, 1996
For value received after date, without grace except as herein provided, in
the manner, on the date, and in the amounts herein stipulated, the undersigned,
IWL COMMUNICATIONS, INC., as principal (herein called "Maker", whether one or
more), promises to pay to the order of FIRST BANK AND TRUST, its successors and
assigns, in the City of Cleveland, Liberty County, Texas, the sum of ONE MILLION
THREE HUNDRED FIFTY THOUSAND AND NO/100 ($1,350,000.00) DOLLARS, or so much
thereof as is advanced from time to time and remains outstanding, in legal and
lawful money of the United States of America, which shall be legal tender, in
payment of all debts and dues, public and private, at the time of payment, and
to pay interest thereon, from the date hereof until maturity at the rate of nine
per cent (9%) per annum; the interest payable monthly.
This note is due and payable as follows, to-wit:
Interest accruing and to accrue on this note will be due and payable monthly
on the 28th day of October and November, 1996, and thereafter this note will
be due and payable in installments of principal in the amount of TWENTY-TWO
THOUSAND FIVE HUNDRED AND NO/100 ($22,500.00) DOLLARS, each plus accrued but
unpaid interest on the 28th day of each month beginning the 28th day of
December, 1996, and continuing on the same date in each subsequent month
thereafter until the 28th day of November, 2001, at which time the entire
balance of this note, both principal and accrued but unpaid itnerest will
at once mature and become finally due and payable. All regular installments
are to be applied first to accrued but unpaid interest and the balance, if
any, toward the payment of principal.
It is also agreed that all past due principal and accrued interest shall
bear interest from the date it is due until paid at the maximum lawful rate of
interest permitted to be charged by the holder of this Note to Maker under the
laws of the State of Texas or the United States of America (whichever is higher)
and further limited by the provisions of this Note hereinafter set forth, which
provisions control the calculation of interest to be charged on the loan
evidenced by this Note (hereinafter called the "Maximum Rate"); provided,
however, nothing herein or in any instrument, document or other writing now or
hereafter securing this Note shall entitle the holder of this Note to contract
for, charge or receive interest hereon in excess of the Maximum Rate. ln the
event this Note is prepaid in full or in the event the maturity of this Note is
accelerated prior to the end of the full stated term hereof, and the interest
contracted for, charged, or received for the actual period of the existence of
this Note prior to such prepayment or acceleration exceeds the Maximum Rate, the
then holder of this Note shall credit the amount of such excess against the
amounts lawfully owing under this Note or under any instrument, document or
other writing securing this Note as of the date of such prepayment or
acceleration, in any order, preference or manner as the holder hereof may elect,
until all such sums owing to the holder hereof are fully and finally paid, and
the balance, if any, shall be refunded to the party or parties entitled thereto.
It is, however, expressly provided and stipulated that, notwithstanding any
other provision of this Note, in no event shall the aggregate of (i) the
aggregate interest which has accrued on this Note from the date hereof through
the date of such calculation, and (ii) the aggregate of any other amounts
accrued, contracted for, charged or paid which, under applicable laws, are
deemed to constitute interest upon the loan evidenced hereby from the date
hereof through the date of such calculation, ever exceed the Maximum Rate on the
principal balance of the loan evidenced by this Note from time to time remaining
unpaid. In this connection, it is expressly stipulated and agreed that it is the
intent of the holder of this Note and the Maker in the execution and delivery of
this Note to contract in strict compliance with the state and federal usury laws
from time to time in effect. In furtherance thereof, none of the terms of this
Note or the security instruments hereinafter described shall ever be construed
to create a contract to pay for, charge, or receive for the use, forbearance or
detention of money or interest at a rate in excess of the Maximum Rate. The
Maker or any guarantors, endorsers or other parties now or hereafter becoming
liable for the Maximum Rate agree that provisions of this paragraph shall
control over all other provisions of this Note or the security instruments which
may be in apparent conflict therewith.
SIGNED FOR IDENTIFICATION:
IWL COMMUNICATIONS, INC.
BY: /s/ IGNATIUS LEONARDS
-----------------------------------
Ignatius Leonards
<PAGE>
Specifically and without limiting the generality of the foregoing, it is
expressly provided that:
(i) If under any circumstances the aggregate amounts paid, charged, or
contracted for on this Note prior to and incident to final payment
hereof include amounts which by law are deemed interest and which
would exceed the Maximum Rate, the Maker stipulates that such payment
and collection will have been and will be deemed to have been the
result of mathematical error on the part of both Maker and the holder
of this Note, and the party receiving such excess payments shall
promptly refund the amount of such excess (to the extent only of such
interest payments above the maximum amount which could lawfully have
been collected and retained) upon discovery of such error by the party
receiving such payment or notice thereof from the party making such
payment; and
(ii) All sums paid, charged, or agreed to be paid to the holder hereof for
the use, forbearance or detention of the indebtedness evidenced hereby
shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of this Note.
The principal of this Note may be prepaid in whole or in part at any time
prior to maturity provided there shall simultaneously be paid to the holder of
this Note, all interest then accrued but unpaid hereon. All prepayments shall be
applied first to accrued and unpaid interest and the balance, if any, toward
principal in inverse order of maturity.
It is agreed that time is of the essence of this agreement, and to the
extent permitted by law, that in the event of default in the payment of any
installment of principal or interest when due for any reason, or in the event
there is or occurs any event of default under any of the terms, covenants or
provisions set forth in this Note or in any instrument, document or other
writing now or hereafter securing this Note, or in the event any maker,
endorser, surety or guarantor hereof becomes insolvent or commits an act of
bankruptcy or makes an assignment for the benefit of creditors or authorizes the
filing of or files a voluntary petition in bankruptcy or takes advantage of or
seeks any other relief under any bankruptcy, reorganization, rehabilitation,
debtor's relief or insolvency law now or hereafter existing, or in the event an
Order for Relief is instituted by or on behalf of any maker, endorser, surety or
guarantor hereof, or in the event a receiver or custodian of any property of any
maker, endorser, surety or guarantor hereof if appointed, or in the event that
any writ of garnishment, writ of sequestration, writ of attachment or other
legal process in any manner applicable to or concerning any property securing
this indebtedness of (or debt by the holder hereof to) any maker, endorser,
surety or guarantor hereof is applied for or issued, or in the event of the
occurrence or non-occurrence of any event whatsoever which would permit the
holder of this Note to accelerate the maturity hereof hereunder or under any
instrument, document or other writing now or hereafter securing or pertaining to
this Note, then in any such event, the owner and holder of this Note at its
option may declare the principal balance of this Note plus all accrued but
unpaid interest immediately due and payable, without notice of intention to
accelerate maturity or other notice, except for such notices as are applicable
and any other notices, if any, required by law, and failure to exercise said
option at any time shall not constitute a waiver of the right to exercise said
option at any other time.
If this Note is collected by suit, through probate or bankruptcy court, or
by any other judicial proceedings, or if this Note is not paid at maturity,
howsoever such maturity may be brought about, and is placed in the hands of an
attorney for collection, then the Maker promises to pay, reasonable attorney's
fees in addition to all other amounts owing hereunder, at the time this Note is
placed in the hands of such attorney, which additional sum, to the extent
permitted by law, is agreed by Maker to be a reasonable additional liquidated
sum and which shall be immediately due and payable without notice of such event
and which shall be added to the principal of this Note and shall bear interest
at the Maximum Rate.
To the extent permitted by law, the outstanding principal balance of this
Note plus all accrued but unpaid interest hereon shall become immediately due
and payable, at the option of the holder hereof, without presentment or demand
or any notice, except for such notices as are applicable and any other notices,
if any, required by law, to any maker, endorser, surety, guarantor or any other
person obligated hereon, whether primarily or secondarily, upon default under
the terms hereof or of any other of the above mentioned security agreements,
collateral
SIGNED FOR IDENTIFICATION:
IWL COMMUNICATIONS, INC.
BY: /s/ IGNATIUS LEONARDS
-----------------------------------
Ignatius Leonards
-2-
<PAGE>
LOAN AND SECURITY AGREEMENT
between
Name: IWL COMMUNICATIONS, INCORPORATED ("DEBTOR")
Address: 4311 FM 2351
P. O. Box 1324
Friendswood, Texas 77546
Chief Executive Office (if more than one place of business):
4311 FM 2351
P. O. Box 1324
Friendswood, Texas 77546
and
MARINE MIDLAND BUSINESS LOANS, INC. ("SECURED PARTY")
Address: 12655 North Central Expressway
Suite 300
Dallas, Texas 75243-1717
Dated: December 20, 1995
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Certain Specific Terms. . . . . . . . . . . . . . . . . . . . . .1
1.2 Singulars and Plurals . . . . . . . . . . . . . . . . . . . . . .9
1.3 U.C.C. Definitions. . . . . . . . . . . . . . . . . . . . . . . .9
1.4 Section References. . . . . . . . . . . . . . . . . . . . . . . .9
2. ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.1 Requests for an Advance under the Revolving Credit. . . . . . . .9
2.2 Proceeds of an Advance. . . . . . . . . . . . . . . . . . . . . 10
2.3 Establishment of Reserves . . . . . . . . . . . . . . . . . . . 10
2.4 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Requests for an Advance under the Term Loan . . . . . . . . . . 10
2.6 Requests for an Advance under the CAPEX Loan. . . . . . . . . . 11
3. COLLATERAL AND INDEBTEDNESS SECURED. . . . . . . . . . . . . . . . . . 11
3.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Other Collateral. . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Indebtedness Secured. . . . . . . . . . . . . . . . . . . . . . 12
3.4 Cross Collateralization and Cross Default . . . . . . . . . . . 12
4. CONDITIONS TO ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Transaction Documents . . . . . . . . . . . . . . . . . . . . . 13
4.5 Third Party Action. . . . . . . . . . . . . . . . . . . . . . . 13
4.6 Assignment of Representations, Warranties,
and Indemnities . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Specific Additional Documentation . . . . . . . . . . . . . . . 14
4.9 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 14
5.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Corporate Capacity. . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Validity of Receivables . . . . . . . . . . . . . . . . . . . . 14
5.4 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
<PAGE>
5.5 Title to Collateral . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Place of Business . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 17
5.14 Validity of Transaction Documents . . . . . . . . . . . . . . . 17
5.15 No Consent or Filing. . . . . . . . . . . . . . . . . . . . . . 18
5.16 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Trademarks and Patents. . . . . . . . . . . . . . . . . . . . . 18
5.18 Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . 18
5.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.20 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 19
5.21 Licenses, Permits, Etc. . . . . . . . . . . . . . . . . . . . . 19
5.22 Margin Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.23 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.24 Labor Contracts . . . . . . . . . . . . . . . . . . . . . . . . 19
5.25 Consolidated Subsidiaries . . . . . . . . . . . . . . . . . . . 19
5.26 Accuracy of Representations . . . . . . . . . . . . . . . . . . 19
5.27 Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . 19
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY . . . . . . . . . . 20
6.1 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Invoices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Chattel Paper . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. COLLECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Delivery of Proceeds to Secured Party . . . . . . . . . . . . . 20
7.2 Application of Proceeds . . . . . . . . . . . . . . . . . . . . 20
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND
COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Promise to Pay Principal under the Revolving Credit . . . . . . 21
8.1A Promise to Pay Principal under the Term Loan. . . . . . . . . . 21
8.1B Promise to Pay Principal under the CAPEX Loan . . . . . . . . . 21
8.2 Promise to Pay Interest . . . . . . . . . . . . . . . . . . . . 21
8.3 Promise to Pay Fees . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Promise to Pay Costs and Expenses . . . . . . . . . . . . . . . 23
8.5 Method of Payment of Principal, Interest, Fees, and
ii
<PAGE>
Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . 24
8.6 Computation of Daily Outstanding Balance. . . . . . . . . . . . 25
8.7 Account Stated. . . . . . . . . . . . . . . . . . . . . . . . . 25
8.8 Maximum Legal Rate of Interest. . . . . . . . . . . . . . . . . 25
8.9 Adjustments Based on the Maximum Legal
Rate of Interest. . . . . . . . . . . . . . . . . . . . . . . . 26
8.10 Incorporation by Reference of Maximum Legal
Rate of Interest Provisions . . . . . . . . . . . . . . . . . . 26
8.11 Subsequent Change of Maximum Legal Rate of Interest . . . . . . 26
9. PROCEDURES AFTER SCHEDULING RECEIVABLES. . . . . . . . . . . . . . . . 27
9.1 Returned Merchandise. . . . . . . . . . . . . . . . . . . . . . 27
9.2 Credits and Extensions. . . . . . . . . . . . . . . . . . . . . 27
9.3 Returned Instruments. . . . . . . . . . . . . . . . . . . . . . 27
9.4 Debit Memoranda . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . 28
10. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 29
10.2 Government and Other Special Receivables. . . . . . . . . . . . 29
10.3 Terms of Sale . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.4 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 29
10.5 Inventory in Possession of Third Parties. . . . . . . . . . . . 29
10.6 Examinations. . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 Verification of Collateral. . . . . . . . . . . . . . . . . . . 30
10.8 Responsible Parties . . . . . . . . . . . . . . . . . . . . . . 30
10.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.12 Good Standing; Business . . . . . . . . . . . . . . . . . . . . 31
10.13 Consolidated Tangible Net Worth; Debt to
Tangible Net Worth Ratio; Net Profit After
Taxes; Debt Service Coverage Ratio; Etc . . . . . . . . . . . . 31
10.14 Pension Reports . . . . . . . . . . . . . . . . . . . . . . . . 31
10.15 Notice of Non-Compliance. . . . . . . . . . . . . . . . . . . . 31
10.16 Compliance with Environmental Laws. . . . . . . . . . . . . . . 32
10.17 Defend Collateral . . . . . . . . . . . . . . . . . . . . . . . 32
10.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 32
10.19 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 32
10.20 MaIntenance of Property . . . . . . . . . . . . . . . . . . . . 32
10.21 Licenses, Permits, Etc. . . . . . . . . . . . . . . . . . . . . 33
10.22 Trademarks and Patents. . . . . . . . . . . . . . . . . . . . . 33
10.23 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.24 Maintenance of Ownership. . . . . . . . . . . . . . . . . . . . 33
iii
<PAGE>
10.25 Activities of Consolidated Subsidiaries . . . . . . . . . . . . 33
10.26 Guarantor Financial Statements. . . . . . . . . . . . . . . . . 33
11. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.1 Location of Inventory, Equipment,
and Business Records. . . . . . . . . . . . . . . . . . . . . . 33
11.2 Borrowed Money. . . . . . . . . . . . . . . . . . . . . . . . . 33
11.3 Security Interest and Other Encumbrances. . . . . . . . . . . . 33
11.4 Storing the Collateral. . . . . . . . . . . . . . . . . . . . . 34
11.5 Use of Collateral . . . . . . . . . . . . . . . . . . . . . . . 34
11.6 Mergers, Consolidations, or Sales . . . . . . . . . . . . . . . 33
11.7 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.8 Dividends or Distributions. . . . . . . . . . . . . . . . . . . 34
11.9 Investments and Advances. . . . . . . . . . . . . . . . . . . . 34
11.10 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.11 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.12 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . 34
11.13 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.14 Name Change . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.15 Disposition of Collateral . . . . . . . . . . . . . . . . . . . 35
11.16 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . 35
12. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 35
12.2 Effects of an Event of Default. . . . . . . . . . . . . . . . . 38
13. SECURED PARTY'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . 38
13.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13.2 Notification of Account Debtors . . . . . . . . . . . . . . . . 38
13.3 Possession of Collateral. . . . . . . . . . . . . . . . . . . . 39
13.4 Collection of Receivables . . . . . . . . . . . . . . . . . . . 39
13.5 Endorsement of Checks; Debtor's Mail. . . . . . . . . . . . . . 39
13.6 License to Use Patents, Trademarks, and Tradenames. . . . . . . 39
14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
14.1 Perfecting the Security Interest;
Protecting the Collateral . . . . . . . . . . . . . . . . . . . 39
14.2 Performance of Debtor's Duties. . . . . . . . . . . . . . . . . 40
14.3 Notice of Sale. . . . . . . . . . . . . . . . . . . . . . . . . 40
14.4 Waiver by Secured Party . . . . . . . . . . . . . . . . . . . . 40
14.5 Waiver by Debtor. . . . . . . . . . . . . . . . . . . . . . . . 40
14.6 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iv
<PAGE>
14.8 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 41
14.9 Modification. . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.11 Generally Accepted Accounting Principles. . . . . . . . . . . . 41
14.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 41
14.13 Termination; Prepayment Premium . . . . . . . . . . . . . . . . 42
14.14 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 43
14.15 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.16 Cumulative Security Interest, Etc . . . . . . . . . . . . . . . 43
14.17 Secured Party's Duties. . . . . . . . . . . . . . . . . . . . . 44
14.18 Notices Generally . . . . . . . . . . . . . . . . . . . . . . . 44
14.19 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.20 Inconsistent Provisions . . . . . . . . . . . . . . . . . . . . 44
14.21 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 44
14.22 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . 44
14.23 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . 45
14.24 Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . 45
14.25 Waiver of Consumer Rights . . . . . . . . . . . . . . . . . . . 45
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Exhibit A - Financial Statement Certification and Compliance Certificate
Exhibit B - Liens and Borrowings
Exhibit C - Litigation
Schedule
v
<PAGE>
Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1. CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) ACCOUNT DEBTOR means the person, firm, or entity obligated to pay
a Receivable.
(b) ADVANCE means a loan made to Debtor by Secured Party, pursuant to
this Agreement, including specifically, but without limitation, all
Advances under the Revolving Credit, the Term Loan and the CAPEX Loan.
(c) BORROWING CAPACITY means, at the time of computation, the amount
specified in ITEM 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday, or other
day on which banks are authorized or required to close under the laws of
New York or the State; provided, that for purposes of ITEM 21 of the
Schedule and of calculations made with reference thereto, a Business Day
shall be deemed to be the equivalent of 1.4 calendar days.
(e) CAPEX LOAN means a multiple-advance term loan from Secured Party
to Debtor as more fully described in Section 2.6.
(f) CAPEX LOAN BORROWING CAPACITY means, at the time of computation,
the amount specified in ITEM 1B of the Schedule.
(g) COLLATERAL means collectively all of the property of Debtor or
any Third Party subject to the Security Interest and described in Sections
3.1 and 3.2.
(h) CONSOLIDATED DEBTOR means Debtor and all Consolidated
Subsidiaries.
(i) CONSOLIDATED SUBSIDIARY means any corporation of which at least
51% of the voting stock is owned by Debtor directly, or indirectly, through
one or more Consolidated Subsidiaries. If Debtor has no Consolidated
Subsidiaries, the provisions of this Agreement relating to Consolidated
Subsidiaries shall be inapplicable without affecting the applicability of
such provisions to Debtor alone.
(j) CREDIT means any discount, allowance, credit, rebate, or
adjustment granted by Debtor with respect to a Receivable, other than a
cash discount described in ITEM 3 of the Schedule.
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(k) DEBTOR means the person or entity defined on the cover page to
this Agreement.
(l) DEFAULT INTEREST means the interest payable pursuant to Section
8.2(d).
(m) DISPOSAL means the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing,
burning, thermal destruction, or placing of any substance so that it or any
of its constituents may enter the environment.
(n) ELIGIBLE EQUIPMENT means all Equipment of Debtor in which Secured
Party has a first priority perfected security interest, reduced by (i) any
Equipment of Debtor as to which any representation or warranty contained in
Section 5.5 or 5.7 is not, or does not continue to be, true and accurate;
(ii) any Equipment which Debtor acquired with any advance made under the
CAPEX Loan; and (iii) any Equipment of Debtor which is otherwise
unacceptable to Secured Party, at its option.
(o) ELIGIBLE INVENTORY means all Inventory of Debtor consisting of raw
materials and finished goods (and excluding work-in-process), in which
Secured Party has a first priority perfected security interest reduced by
(i) any Inventory as to which any representation or warranty contained in
Section 5.4 or 5.5 is not, or does not continue to be, true and accurate;
(ii) any Rental Inventory; and (iii) any Inventory which is otherwise
unacceptable to Secured Party, at its option.
(p) ELIGIBLE RENTAL INVENTORY means all Rental Inventory of Debtor in
which Secured Party has a first priority perfected security interest,
reduced by (i) any Rental Inventory as to which any representation or
warranty contained in Section 5.4 or 5.5 is not, or does not continue to
be, true and accurate; (ii) any Rental Inventory which is leased to Account
Debtors for a period exceeding ninety (90) days; and (iii) any Rental
Inventory which is otherwise unacceptable to Secured Party, at its option.
(q) ENVIRONMENT means any water including, but not limited to,
surface water and ground water or water vapor; any land including land
surface or subsurface; stream sediments; air; fish, wildlife, plants; and
all other natural resources or environmental media.
(r) ENVIRONMENTAL LAWS means all federal, state, and local
environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances, regulations, codes, and rules
relating to the protection of the Environment and/or governing the use,
storage, treatment, generation, transportation, processing, handling,
production, or disposal of Hazardous Substances and the policies,
guidelines, procedures, interpretations, decisions, orders, and directives
of federal, state, and local governmental agencies and authorities with
respect thereto.
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(s) ENVIRONMENTAL PERMITS means all licenses, permits, approvals,
authorizations, consents, or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use, and/or
operation of any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production, or
disposal of Hazardous Substances.
(t) ENVIRONMENTAL QUESTIONNAIRE means a questionnaire and all
attachments thereto concerning (i) activities and conditions affecting the
Environment at any property of Debtor or any Consolidated Subsidiary or
(ii) the enforcement or possible enforcement of any Environmental Law
against Debtor or any Consolidated Subsidiary.
(u) ENVIRONMENTAL REPORT means a written report prepared for Secured
Party by an environmental consulting or environmental engineering firm.
(v) EQUIPMENT means equipment, as defined in the Uniform Commercial
Code as in effect in the State as of the date of this Agreement.
(w) ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(x) EVENT OF DEFAULT means an Event of Default or Events of Default
as defined in Section 12.1.
(y) EXTENSION means the granting to an Account Debtor of additional
time within which such Account Debtor is required to pay a Receivable.
(z) FEDERAL BANKRUPTCY CODE means Title 11 of the United States Code,
entitled "Bankruptcy," as amended, or any successor federal bankruptcy law.
(aa) GENERAL INTANGIBLES means general intangibles, as defined in the
Uniform Commercial Code as in effect in the State as of the date of this
Agreement, and in any event shall include, without limitation, patents,
trademarks, tradenames, service marks, copyrights, trade secrets, customer
lists, computer programs, and computer records, and all applications for,
rights and business goodwill associated with, license and royalty
agreements with respect to, and causes of action for the infringement of;
any of the foregoing.
(bb) HAZARDOUS SUBSTANCES means, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances, and
any other material defined as a hazardous substance in Section 101(14) of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601(14).
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(cc) INDEBTEDNESS means the indebtedness secured by the Security
Interest and described in Section 3.3.
(dd) INELIGIBLE RECEIVABLES means the following described Receivables
and any other Receivables which, at the option of Secured Party, are not
satisfactory for credit or any other reason. Debtor acknowledges that the
following description of specific types of Ineligible Receivables does not
limit Secured Party's option to deem other Receivables to be Ineligible
Receivables.
(i) Any Receivable which has remained unpaid for more than the
number of days specified in ITEM 4 of the Schedule.
(ii) Any Receivable with respect to which a representation or
warranty contained in Sections 5.3, 5.5, or 5.6 is not, or does not
continue to be, true and accurate, including, without limitation, any
Receivable subject to a set-off.
(iii) Any Receivable with respect to all or part of which a
check, promissory note, draw, trade acceptance, or other instrument for
the payment of money has been received, presented for payment, and
returned uncollected for any reason.
(iv) Any Receivable with respect to which Debtor has extended the
time for payment without the consent of Secured Party, except as
provided in Section 9.2(a).
(v) Any Receivable as to which any one or more of the following
events occurs: a Responsible Party shall die or be judicially declared
incompetent; a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt, or other
relief under the bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign jurisdiction,
now or hereafter in effect, shall be filed by or against a Responsible
Party; a Responsible Party shall make any general assignment for the
benefit of creditors; a receiver or trustee, including, without
limitation, a "custodian," as defined in the Federal Bankruptcy Code,
shall be appointed for a Responsible Party or for any of the assets of
a Responsible Party; any other type of insolvency proceeding with
respect to a Responsible Party (under the bankruptcy laws of the
United States or otherwise) or any formal or informal proceeding for
the dissolution or liquidation of, settlement of claims against, or
winding up of affairs of, a Responsible Party shall be instituted; all
or any material part of the assets of a Responsible Party shall be
sold, assigned, or transferred; a Responsible Party shall fail to pay
its debts as they become due; or a Responsible Party shall cease doing
business as a going concern.
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(vi) All Receivables owed by an Account Debtor owing Receivables
classified as ineligible under any criterion set forth in any of
Sections 1.1 (dd)(i) through 1.1 (dd)(v) or in Section 1.1 (dd)(ix),
if the outstanding dollar amount of such Ineligible Receivables
constitutes a percentage of the aggregate outstanding dollar amount of
all Receivables owed by such Account Debtor equal to or greater than
the percentage specified in ITEM 5 of the Schedule.
(vii) All Receivables owed by an Account Debtor which does
not maintain its chief executive office in the United States or which
is not organized under the laws of the United States or any state,
unless otherwise specified in ITEM 6 of the Schedule.
(viii) All Receivables owed by an Account Debtor if Debtor or
any person who, or entity which, directly or indirectly controls
Debtor, either owns in whole or material part, or directly or
indirectly controls, such Account Debtor.
(ix) Any Receivable as to which the perfection, enforceability,
or validity of Secured Party's Security Interest in such Receivable,
or Secured Party's right or ability to obtain direct payment to
Secured Party of the Proceeds of such Receivable, is governed by any
federal or state statutory requirements other than those of the
Uniform Commercial Code, including, without limitation, any Receivable
subject to the Federal Assignment of Claims Act of 1940, as amended.
(x) Any Receivable arising from a consignment or other
arrangement, pursuant to which the subject Inventory is returnable if
not sold or otherwise disposed of by the Account Debtor; any
Receivable constituting a partial billing under terms providing for
payment only after full shipment or performance; any Receivable
arising from a bill and hold sale or in connection with any prebilling
where the Inventory or services have not been delivered, performed, or
accepted by the Account Debtor; and any Receivable as to which the
Account Debtor contends the balance reported by Debtor is incorrect or
not owing.
(xi) Any Receivable which is unenforceable against the Account
Debtor for any reason.
(xii) Any Receivable which is an Instrument, Document, or Chattel
Paper or which is evidenced by a note, draft, trade acceptance, or
other instrument for the payment of money where such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other
instrument has not been endorsed and delivered by Debtor to Secured
Party.
(xiii) Any Receivable or Receivables owed by an Account Debtor
which exceeds any credit limit established by Secured Party for such
Account Debtor; provided, that such Receivable or Receivables shall be
ineligible only to the extent of such excess.
LOAN AGREEMENT - PAGE 5
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(xiv) Any Receivable which arises from retention and/or
progress billing pursuant to a contract for the sale of a group of
Debtor's products forming a communication system.
(ee) INTERNAL REVENUE CODE means the Internal Revenue Code of 1986, as
amended from time to time.
(ff) INVENTORY means inventory, as defined in the Uniform Commercial
Code as in effect in the State as of the date of this Agreement, and in any
event shall include returned or repossessed Goods.
(gg) INVENTORY BORROWING BASE means, at the time of computation, an
amount up to the percentages specified in ITEM 2 of the Schedule of the
dollar value of Eligible Inventory, such dollar value to be calculated at
the lower of actual cost or market value and accounted for in the manner
specified in ITEM 7 of the Schedule, less the amount of any reserves
established by Secured Party in accordance with Section 2.3.
(hh) INVOICE means any document or documents used, or to be used, to
evidence a Receivable.
(ii) LETTER OF CREDIT means any financial accommodation extended,
obtained or guaranteed by Secured Party or any affiliate of Secured Party
to or for the benefit of Debtor in connection with which any bank or other
financial institution, as issuer, issues a stand-by letter of credit, as
defined in the Uniform Commercial Code, by which terms the issuer becomes
obligated to honor drafts or demands for payment made by any beneficiary
designated under said stand-by letter of credit.
(jj) MARINE PAYMENT ACCOUNT means the special bank account owned by
Secured Party to which Proceeds of Collateral, including, without
limitation, payments on Receivables and other payments from sales or leases
of Inventory, are credited. There is a Marine Payment Account as indicated
in ITEM 8 of the Schedule.
(kk) MAXIMUM CREDIT means Two Million Five Hundred Thousand Dollars
($2,500,000.00).
(ll) MAXIMUM LEGAL RATE means the maximum rate of non-usurious
interest allowed from time to time by applicable state or federal law as
now or hereafter in effect.
(mm) PENSION EVENT means, with respect to any Pension Plan, the
occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code; (ii) any Reportable
Event; (iii) any complete or partial withdrawal, or proposed complete or
partial withdrawal, of Debtor or any Consolidated Subsidiary from such
Pension Plan; (iv) any complete or partial termination, or proposed
LOAN AGREEMENT - PAGE 6
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complete or partial termination, of such Pension Plan; or (v) any
accumulated funding deficiency (whether or not waived), as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code.
(nn) PENSION PLAN means any pension plan, as defined in Section 3(2)
of ERISA, which is a multi-employer plan or a single employer plan, as
defined in Section 4001 of ERISA, and subject to Title IV of ERISA and
which is (i) a plan maintained by Debtor or any Consolidated Subsidiary for
employees or former employees of Debtor or of any Consolidated Subsidiary;
(ii) a plan to which Debtor or any Consolidated Subsidiary contributes or
is required to contribute; (iii) a plan to which Debtor or any Consolidated
Subsidiary was required to make contributions at any time during the five
(5) calendar years preceding the date of this Agreement; or (iv) any other
plan with respect to which Debtor or any Consolidated Subsidiary has
incurred or may incur liability, including, without limitation, contingent
liability, under Title IV of ERISA either to such plan or to the Pension
Benefit Guaranty Corporation. For purposes of this definition, and for
purposes of Sections 1.1(ii), 5.12, and 12.1(i), Debtor shall include any
trade or business (whether or not incorporated) which, together with Debtor
or any Consolidated Subsidiary, is deemed to be a "single employer" within
the meaning of Section 4001(b)(1) of ERISA.
(oo) PRIME RATE means the rate of interest publicly announced by
Marine Midland Bank from time to time as its prime rate and is a base rate
for calculating interest on certain loans. The rate announced by Marine
Midland Bank as its prime rate may or may not be the most favorable rate
charged by Marine Midland Bank to its customers.
(pp) RECEIVABLE means the right to payment for Goods sold or leased or
services rendered by Debtor, whether or not earned by performance, and may,
without limitation, in whole or in part be in the form of an Account,
Chattel Paper, Document, or Instrument.
(qq) RECEIVABLES BORROWING BASE means, at the time of its computation,
the aggregate amount of the outstanding Receivables in which Secured Party
has a first priority perfected security interest (adjusted with respect to
Credits and returned merchandise as provided in Article 9 hereof) less the
amount of Ineligible Receivables and any reserves established by Secured
Party in accordance with Section 2.3.
(rr) RELEASE means "release," as defined in Section 101(22) of the
Comprehensive, Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601(22), and the regulations promulgated
thereunder.
(ss) RENTAL INVENTORY means any of Debtor's Inventory which is leased
to an Account Debtor pursuant to a rental agreement by and between Debtor
and the Account Debtor.
(tt) REPORTABLE EVENT means any event with regard to a Pension Plan
described in Section 4043(b) of ERISA or in regulations issued thereunder.
LOAN AGREEMENT - PAGE 7
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(uu) RESPONSIBLE PARTY means an Account Debtor, a general partner of
an Account Debtor, or any party otherwise in any way directly or indirectly
liable for the payment of a Receivable.
(vv) REVOLVING CREDIT means a revolving credit facility under which
Secured Party may make Advances to Debtor, pursuant to this Agreement, up
to, but not in excess of; the Borrowing Capacity, as more fully described
in Section 2.1.
(ww) SCHEDULE means the schedule executed in connection with, and
which is a part of, this Agreement.
(xx) SECURED PARTY means the person or entity defined on the cover
page of this Agreement and any successors or assigns of Secured Party.
(yy) SECURITY INTEREST means the security interest granted to Secured
Party by Debtor as described in Section 3.1.
(zz) SOLVENT means, with respect to any person or entity on a
particular determination date, that on such date (i) the fair value of the
property of such person or entity is greater than the total amount of debts
and other liabilities, including, without limitation, contingent and
unliquidated liabilities, of such person or entity; (ii) the present fair
salable value of the assets of such person or entity is greater than the
amount that will be required to pay the probable liability of such person
or entity on its existing debts and other liabilities as they become
absolute and matured; (iii) such person or entity is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations,
and other commitments as they mature in the normal course of business; (iv)
such person or entity does not intend to, and does not believe that it
will, incur debts or other liabilities beyond such person's or entity's
ability to pay as such debts and other liabilities mature or become due;
and (v) such person or entity is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such person's or entity's property would constitute unreasonably
small capital.
(aaa) STATE means the State of the United States specified in ITEM
32 of the Schedule.
(bbb) TERM LOAN means a single-Advance term loan from Secured Party to
Debtor, as more fully described in Section 2.5.
(ccc) TERM LOAN BORROWING CAPACITY means, at the time of
computation, the amount specified in ITEM 1A of the Schedule.
(ccc) THIRD PARTY means any person or entity (including
specifically, but without limitation, Ignatius W. Leonards and Spacelink
Systems, Inc., as guarantors) who has executed and delivered, or who in the
future may execute and deliver, to Secured Party
LOAN AGREEMENT - PAGE 8
<PAGE>
any agreement, instrument, or document, pursuant to which such person or
entity has guaranteed to Secured Party the payment of the Indebtedness or
has granted Secured Party a security interest in or lien on some or all
of such person's or entity's real or personal property to secure the
payment of the Indebtedness.
(ddd) TRANSACTION DOCUMENTS means this Agreement and all documents,
including, without limitation, collateral documents, letter of credit
agreements, notes, acceptance credit agreements, security agreements,
pledges, guaranties, mortgages, title insurance, assignments, and
subordination agreements required to be executed by Debtor, any Third
Party, or any Responsible Party pursuant hereto or in connection herewith.
1.2. SINGULARS AND PLURALS. Unless the context otherwise requires, words in
the singular number include the plural, and in the plural include the singular.
1.3. U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meanings set forth
in the Uniform Commercial Code as in effect in the State as of the date of this
Agreement.
1.4. SECTION REFERENCES. Unless otherwise specified, article, section,
subsection, and schedule references are to this Agreement.
2. ADVANCES.
2.1. REQUESTS FOR AN ADVANCE UNDER THE REVOLVING CREDIT.
(a) Written Requests. From time to time, Debtor may make a written
request for an Advance under the Revolving Credit, so long as the sum of
the aggregate principal balance of outstanding Advances under the Revolving
Credit and the requested Advance does not exceed the Borrowing Capacity as
then computed; and Secured Party shall make such requested Advance,
provided that (i) the Borrowing Capacity would not be so exceeded; (ii)
there has not occurred an Event of Default or an event which, with notice
or lapse of time or both, would constitute an Event of Default; (iii) all
representations and warranties contained in this Agreement and in the other
Transaction Documents are true and correct on the date such requested
Advance is made as though made on and as of such date; and (iv) all of the
conditions in Article 4 have been satisfied. Notwithstanding any other
provision of this Agreement, Secured Party may from time to time reduce the
percentages applicable to the Receivables Borrowing Base and the Inventory
Borrowing Base as they relate to amounts of the Borrowing Capacity if
Secured Party determines, at its option, that there has been a material
change in circumstances related to any or all Receivables or Inventory from
those circumstances in existence on or prior to the date of this Agreement
or in the financial or other condition of Debtor.
(b) Oral Requests. Secured Party may make an Advance under the
Revolving Credit to Debtor upon Debtor's oral request, subject to the same
conditions applicable to a written request set forth in subparagraph (a)
above. Each oral request for an Advance shall
LOAN AGREEMENT - PAGE 9
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be conclusively presumed to be made by a person authorized by Debtor to
do so, and the making of the Advance to Debtor as hereinafter provided
shall conclusively establish Debtor's obligation to repay the Advance.
2.2. PROCEEDS OF AN ADVANCE. Advances shall be made in the manner agreed by
Debtor and Secured Party in writing or, absent any such agreement, as determined
by Secured Party.
2.3. ESTABLISHMENT OF RESERVES. Secured Party may, at any time and from
time to time, at its option, establish reserves against the Receivables or the
Inventory of Debtor. The amount of such reserves shall be subtracted from the
Receivables Borrowing Base or Inventory Borrowing Base, as applicable, when
calculating the amount of the Borrowing Capacity.
2.4 LETTERS OF CREDIT. At the request of Debtor, and upon execution of
Letter of Credit documentation satisfactory to either Marine Midland Bank or
the Hongkong Shanghai Banking Corporation, Secured Party, within the limits
of the Borrowing Capacity as then computed, shall guaranty Letters of Credit
issued from time to time by either Marine Midland Bank or the Hongkong
Shanghai Banking Corporation for the account of Debtor in an amount not
exceeding in the aggregate at any one time outstanding the amount set forth
in ITEM 9 of the Schedule. The Letters of Credit shall be on terms mutually
acceptable to Secured Party and Debtor and no Letters of Credit shall have an
expiration date later than the termination date of this Agreement. An Advance
in an amount equal to any amount paid by Secured Party on such guaranty shall
be deemed made to Debtor, without request thereof, immediately upon any
payment by Secured Party on such guaranty. In connection with the issuance of
any guaranty of Letters of Credit, Debtor shall pay to Secured Party the fees
set forth in ITEM 20 of the Schedule and to the issuer of the Letters of
Credit all fees charged by the issuer. Letters of Credit shall be issued
solely for purposes of (1) providing credit support to Debtor's insurance
carriers and to Debtor's trade vendors and suppliers, (2) issuance of bid
bonds, and (3) issuance of performance bonds.
2.5. REQUEST FOR AN ADVANCE UNDER THE TERM LOAN. Debtor may make one
written request for an Advance under the Term Loan on the date of this
Agreement, so long as the requested Advance does not exceed the Term Loan
Borrowing Capacity as then computed; and Secured Party shall make such requested
Advance, provided that (i) the Term Loan Borrowing Capacity would not be so
exceeded; (ii) there has not occurred an Event of Default or an event which,
with notice or lapse of time or both, would constitute an Event of Default;
(iii) all representations and warranties contained in this Agreement and in the
other Transaction Documents are true and correct on the date such requested
Advance is made as though made on and as of such date; and (iv) all of the
conditions in Article 4 have been satisfied.
2.6 REQUESTS FOR AN ADVANCE UNDER THE CAPEX LOAN. From the date of this
Agreement and until the first anniversary of the date of this Agreement, Debtor
may make, in the aggregate, up to four (4) written requests for an Advance under
the CAPEX Loan, so long as the sum of the aggregate principal balance of
Advances made by Secured Party under the CAPEX Loan and the requested Advance
does not exceed the CAPEX Loan Borrowing Capacity as then computed; and Secured
Party shall make such requested Advance, provided that (i) the CAPEX
LOAN AGREEMENT - PAGE 10
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Loan Borrowing Capacity would not be so exceeded; (ii) there has not occurred
an Event of Default or an event which, with notice or lapse of time or both,
would constitute an Event of Default; (iii) all representations and
warranties contained in this Agreement and in the other Transaction Documents
are true and correct on the date such requested Advance is made as though
made on and as of such date; and (iv) all of the conditions in Article 4 have
been satisfied.
3. COLLATERAL AND INDEBTEDNESS SECURED.
3.1. SECURITY INTEREST. Debtor hereby grants to Secured Party a security
interest in and a lien on, the following property of Debtor wherever located
and whether now owned or hereafter acquired:
(a) All Accounts, Inventory, General Intangibles, Chattel Paper,
Documents, and Instruments, whether or not specifically assigned to Secured
Party, including, without limitation, all Receivables, and all Equipment,
whether or not affixed to realty, and Fixtures;
(b) All guaranties, collateral, liens on, or security interests in,
real or personal property, leases, letters of credit, and other rights,
agreements, and property securing or relating to payment of Receivables;
(c) All books, records, ledger cards, data processing records,
computer software, and other property at any time evidencing or relating to
Collateral;
(d) All monies, securities, and other property now or hereafter held,
or received by, or in transit to, Secured Party from or for Debtor, and all
of Debtor's deposit accounts, credits, and balances with Secured Party
existing at any time;
(e) All parts, accessories, attachments, special tools, additions,
replacements, substitutions, and accessions to or for all of the foregoing;
and
(f) All Proceeds and products of all of the foregoing in any form,
including, without limitation, amounts payable under any policies of
insurance insuring the foregoing against loss or damage, and all increases
and profits received from all of the foregoing.
3.2. OTHER COLLATERAL. Nothing contained in this Agreement shall limit the
rights of Secured Party in and to any other Collateral securing the Indebtedness
which may have been, or may hereafter be, granted to Secured Party by Debtor or
any Third Party, pursuant to any other agreement.
3.3. INDEBTEDNESS SECURED. The Security Interest secures payment of any and
all indebtedness, and performance of all obligations and agreements, of Debtor
to Secured Party, whether now existing or hereafter incurred or arising, of
every kind and character, primary or secondary, direct or indirect, absolute or
contingent, sole, joint or several, similar or dissimilar, or related or
unrelated, and whether such indebtedness is from time to time reduced and
thereafter
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increased, or entirely extinguished and thereafter reincurred, including,
without limitation: (a) all Advances; (b) all interest which accrues on any
such indebtedness, until payment of such indebtedness in full, including,
without limitation, all interest provided for under this Agreement; (c) all
other monies payable by Debtor, and all obligations and agreements of Debtor
to Secured Party, pursuant to the Transaction Documents; (d) all debts owed,
or to be owed, by Debtor to others which Secured Party has obtained, or may
obtain, by assignment or otherwise; (e) all monies payable by any Third
Party, and all obligations and agreements of any Third Party to Secured
Party, pursuant to any of the Transaction Documents; and (f) all monies due,
and to become due, pursuant to Section 8.3.
3.4 CROSS COLLATERALIZATION AND CROSS DEFAULT. Without limiting the
foregoing, Debtor specifically agrees that all Collateral for the Revolving
Credit shall also be Collateral for the Term Loan and the CAPEX Loan, that all
Collateral for the Term Loan shall also be Collateral for the Revolving Credit
and the CAPEX Loan, and that all Collateral for the CAPEX Loan shall also be
Collateral for the Revolving Credit and the Term Loan. Further, Debtor
specifically agrees that an Event of Default under the Revolving Credit shall
also be an Event of Default under the Term Loan and the CAPEX Loan, that an
Event of Default under the Term Loan shall also be an Event of Default under the
Revolving Credit and the CAPEX Loan, and that an Event of Default under the
CAPEX Loan shall also be an Event of Default under the Revolving Credit and the
Term Loan.
4. CONDITIONS TO ADVANCES. Notwithstanding any other provision of this
Agreement or any of the other Transaction Documents, and without affecting in
any manner the rights of Secured Party under any other provision of this
Agreement, Secured Party shall not be obligated to make Advances unless and
until the following conditions have been, and continue to be, satisfied:
4.1. CORPORATE ACTION. Debtor shall have taken all necessary and
appropriate corporate action, and the Board of Directors of Debtor shall have
adopted resolutions authorizing, and the shareholders of Debtor (to the extent
required under Debtor's organizational documents or applicable law) shall have
consented to, this Agreement, and the borrowings hereunder, the execution and
delivery of the Transaction Documents and the taking of all action required of
Debtor by the Transaction Documents; and Debtor shall have furnished to Secured
Party certified copies of such corporate resolutions and such other corporate
documents as Secured Party shall reasonably request
4.2. CORPORATE DOCUMENTS. There shall have been furnished to Secured Party
(a) copies of the articles or certificate of incorporation and by-laws of Debtor
and each Consolidated Subsidiary, certified by its Secretary as of the date of
this Agreement; (b) a certificate of Debtor's and each Consolidated Subsidiary's
good standing or equivalent certificate duly issued of recent date by the
Secretary of State of the state specified in ITEM 10 of the Schedule, and
certificates of authority to do business in each state in which Debtor is
licensed or qualified to do business; (c) a certificate of incumbency specifying
the officers of Debtor, together with their specimen signatures; and (d) such
other and further documents as Secured Party may reasonably request, including,
without limitation, tax status reports covering payment of franchise taxes and
other taxes.
LOAN AGREEMENT - PAGE 12
<PAGE>
4.3. OPINIONS. Independent counsel for Debtor shall have furnished to
Secured Party their favorable opinion, in form and content satisfactory to
Secured Party and its counsel, dated the date of this Agreement, as to the
matters referred to in Sections 5.1, 5.2, 5.11, 5.12, 5.14, 5.15, 5.16, 5.20,
5.21, and 5.27, and such other matters as are requested by Secured Party. If
this Agreement is being executed and delivered in connection with the
acquisition of stock or assets by Debtor, Debtor shall also have caused the
seller of such stock or assets to furnish to Secured Party an opinion of
counsel for such seller or a letter authorizing Secured Party to rely on such
an opinion, in form and content satisfactory to Secured Party and its
counsel, dated the date of this Agreement.
4.4. TRANSACTION DOCUMENTS. Debtor shall have delivered to Secured Party
all the Transaction Documents, in form and content satisfactory to Secured
Party and its counsel.
4.5. THIRD PARTY ACTION. Each Third Party shall have (i) taken all
necessary and appropriate corporate and shareholder action, and the Board of
Directors of the Third Party shall have adopted resolutions authorizing the
execution and delivery of the guaranty of such Third Party and the taking of
all action called for thereby; and (ii) furnished to Secured Party certified
copies of evidence of such corporate and shareholder action and such other
corporate documents as Secured Party shall reasonably request.
4.6. ASSIGNMENT OF REPRESENTATIONS, WARRANTIES, AND INDEMNITIES. If this
Agreement is being executed in conjunction with the acquisition of stock or
assets by Debtor, pursuant to an acquisition agreement, Debtor shall execute
and deliver to Secured Party as continuing collateral security for the
payment of the Indebtedness an assignment, in form and content satisfactory
to Secured Party, of any and all representations, warranties, and indemnities
made by the seller of such stock or assets to Debtor, and such assignment
shall be duly consented to by such seller.
4.7. GUARANTIES.
(a) Ignatius W. Leonards shall have executed and delivered to Secured
Party his limited, continuing guaranty, covering all indebtedness of Debtor
to Secured Party, however incurred and whenever arising, containing a
waiver of subrogation and similar rights; and
(b) Spacelink Systems, Inc. shall have executed and delivered to
Secured Party its unlimited, continuing guaranty, covering all indebtedness
of Debtor to Secured Party, however incurred and whenever arising,
containing a waiver of subrogation and similar rights.
4.8. SPECIFIC ADDITIONAL DOCUMENTATION. Debtor shall have delivered to
Secured Party documentation satisfactory to Secured Party evidencing the
following:
(a) an acceptable appraisal of machinery and equipment of the Debtor;
and
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<PAGE>
(b) Landlord's waivers in form and substance acceptable to Secured
Party from the owners of the property where Debtor's Equipment and
Inventory are located.
4.9. OTHER MATTERS. All matters incidental to the execution and delivery
of the Transaction Documents, and all action required by the Transaction
Documents, shall be satisfactory to Secured Party and to its counsel.
5. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement, and make Advances to Debtor from time to time as herein
provided, Debtor represents and warrants and, so long as any Indebtedness
remains unpaid or this Agreement remains in effect, shall be deemed
continuously to represent and warrant as follows:
5.1. CORPORATE EXISTENCE. Debtor and each Consolidated Subsidiary is duly
organized and existing and in good standing under the laws of the state
specified in ITEM 10 of the Schedule and is duly licensed or qualified to do
business and in good standing in every state in which the nature of its
business or ownership of its property requires such licensing or
qualification.
5.2. CORPORATE CAPACITY. The execution, delivery, and performance of the
Transaction Documents are within Debtor's corporate powers, have been duly
authorized by all necessary and appropriate corporate and shareholder action,
and are not in contravention of any law or the terms of Debtor's articles or
certificate of incorporation or by-laws or any amendment thereto, or of any
indenture, agreement, undertaking, or other document to which Debtor is a
party or by which Debtor or any of Debtor's property is bound or affected.
5.3. VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed and
bona fide indebtedness owing to Debtor by the Account Debtor obligated
thereon; (b) there are no defenses, set-offs, or counterclaims against any
Receivable; (c) no payment has been received on any Receivable, and no
Receivable is subject to any Credit or Extension or agreements therefor
unless written notice specifying such payment, Credit, Extension, or
agreement has been delivered to Secured Party; (d) each copy of each Invoice
is a true and genuine copy of the original Invoice sent to the Account Debtor
named therein and accurately evidences the transaction from which the
underlying Receivable arose, and the date payment is due as stated on each
such Invoice or computed based on the information set forth on each such
Invoice is correct; (e) all Chattel Paper, and all promissory notes, drafts,
trade acceptances, and other instruments for the payment of money relating to
or evidencing each Receivable, and each endorsement thereon, are true and
genuine and in all respects what they purport to be, and are the valid and
binding obligation of all parties thereto, and the date or dates stated on
all such items as the date on which payment in whole or in part is due is
correct;(f) all Inventory described in each Invoice has been delivered to the
Account Debtor named in such Invoice or placed for such delivery in the
possession of a carrier not owned or controlled directly or indirectly by
Debtor; (g) all evidence of the delivery or shipment of Inventory is true and
genuine; (h) all services to be performed by Debtor in connection with each
Receivable have been performed by Debtor; and (i) all evidence of the
performance of such services by Debtor is true and genuine.
LOAN AGREEMENT-PAGE 14
<PAGE>
5.4. INVENTORY. (a) All representations made by Debtor to Secured Party,
and all documents and schedules given by Debtor to Secured Party, relating to
the description, quantity, quality, condition, and valuation of the Inventory
are true and correct; (b) Debtor has not received any Inventory on
consignment or approval unless Debtor (i) has delivered written notice to
Secured Party describing any Inventory which Debtor has received on
consignment or approval, (ii) has marked such Inventory on consignment or
approval or has segregated it from all other Inventory, and (iii) has
appropriately marked its records to reflect the existence of such Inventory
on consignment or approval; (c) Inventory, other than Rental Inventory, is
located only at the address or addresses of Debtor set forth at the beginning
of this Agreement, the locations specified in ITEM 11 of the Schedule, or
such other place or places as approved by Secured Party in writing; (d) all
Inventory is insured as required by Section 10.11, pursuant to policies in
full compliance with the requirements of such Section; and (e) all Inventory
has been produced by Debtor in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations, and orders
promulgated thereunder.
5.5. TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral free
of all security interests, liens, and other encumbrances except the Security
Interest and except as described in ITEM 12 of the Schedule; (b) Debtor has
the unconditional authority to grant the Security Interest to Secured Party;
and (c) assuming that all necessary Uniform Commercial Code filings have been
made, Secured Party has an enforceable first lien on all Collateral,
subordinate only to those security interests, liens, or encumbrances
described as having priority over the Security Interest in ITEM 12 of the
Schedule.
5.6. NOTES RECEIVABLE. No Receivable is an Instrument, Document, or
Chattel Paper or is evidenced by any note, draft trade acceptance, or other
instrument for the payment of money, except such Instrument, Document,
Chattel Paper, note, draft, trade acceptance, or other instrument as has been
endorsed and delivered by Debtor to Secured Party.
5.7 EQUIPMENT. Equipment is located, and Equipment which is a Fixture is
affixed to real property, only at the address or addresses of Debtor set
forth at the beginning of this Agreement, the locations specified in ITEM 11 of
the Schedule, or such other place or places as approved by Secured Party in
writing. Such real property is owned by Debtor or by the persons or persons
named in ITEM 11 of the Schedule and is encumbered only by the mortgage or
mortgages listed in ITEM 11 of the Schedule.
5.8. PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured Party
in ITEM 11 or ITEM 13 of the Schedule, Debtor is engaged in business
operations which are in whole, or in part, carried on at the address or
addresses specified at the beginning of this Agreement and at no other
address or addresses; (b) if Debtor has more than one place of business, its
chief executive office is at the address specified as such at the beginning
of this Agreement; and (c) Debtor's records concerning the Collateral are
kept at the address or addresses specified at the beginning of this Agreement
or in ITEM 13 of the Schedule.
5.9. FINANCIAL CONDITION. Debtor has furnished to Secured Party Debtor's
most current financial statements, which statements represent correctly and
fairly the results of the
LOAN AGREEMENT-PAGE 15
<PAGE>
operations and transactions of Debtor and the Consolidated Subsidiaries as of
the dates, and for the period referred to, and have been prepared in
accordance with generally accepted accounting principles consistently applied
during each interval involved and from interval to interval. Since the date
of such financial statements, there have not been any materially adverse
changes in the financial condition reflected in such financial statements,
except as disclosed in writing by Debtor to Secured Party.
5.10. TAXES. Except as set forth on EXHIBIT C attached hereto, (a)
all federal and other tax returns required to be filed by Debtor and each
Consolidated Subsidiary have been filed, and all taxes required by such
returns have been paid; and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice from the Internal Revenue Service or any
other taxing authority proposing additional taxes.
5.11. LITIGATION. Except as set forth on EXHIBIT D attached hereto,
there are no actions, suits, proceedings, or investigations pending or, to
the knowledge of Debtor, threatened against Debtor or any Consolidated
Subsidiary or any basis therefor which, if adversely determined, would, in
any case or in the aggregate, materially adversely affect the property,
assets, financial condition, or business of Debtor or any Consolidated
Subsidiary or materially impair the right or ability of Debtor or any
Consolidated Subsidiary to carry on its operations substantially as conducted
on the date of this Agreement
5.12. ERISA MATTERS. (a) No Pension Plan has been terminated, or
partially terminated, or is insolvent, or in reorganization, nor have any
proceedings been instituted to terminate or reorganize any Pension Plan; (b)
neither Debtor nor any Consolidated Subsidiary has withdrawn from any Pension
Plan in a complete or partial withdrawal, nor has a condition occurred which,
if continued, would result in a complete or partial withdrawal; (c) neither
Debtor nor any Consolidated Subsidiary has incurred any withdrawal liability,
including, without limitation, contingent withdrawal liability, to any
Pension Plan, pursuant to Title IV of ERISA; (d) neither Debtor nor any
Consolidated Subsidiary has incurred any liability to the Pension Benefit
Guaranty Corporation other than for required insurance premiums which have
been paid when due; (e) no Reportable Event has occurred; (f) no Pension Plan
or other "employee pension benefit plan," as defined in Section 3(2) of
ERISA, to which Debtor or any Consolidated Subsidiary is a party has an
"accumulated funding deficiency" (whether or not waived), as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code; (g) the
present value of all benefits vested under any Pension Plan does not exceed
the value of the assets of such Pension Plan allocable to such vested
benefits; (h) each Pension Plan and each other "employee benefit plan," as
defined in Section 3(3) of ERISA, to which Debtor or any Consolidated
Subsidiary is a party is in substantial compliance with ERISA, and no such
plan or any administrator, trustee, or fiduciary thereof has engaged in a
prohibited transaction described in Section 406 of ERISA or in Section 4975
of the Internal Revenue Code; (i) each Pension Plan and each other "employee
benefit plan," as defined in Section 3(2) of ERISA, to which Debtor or any
Consolidated Subsidiary is a party has received a favorable determination by
the Internal Revenue Service with respect to qualification under Section
401(a) of the Internal Revenue Code; and (j) neither Debtor nor any
Consolidated Subsidiary has incurred any liability to a trustee or trust
established pursuant to Section 4049 of ERISA or to a trustee appointed
pursuant to Section 4042(b) or (c) of ERISA.
LOAN AGREEMENT-PAGE 16
<PAGE>
5.13. ENVIRONMENTAL MATTERS.
(a) Any Environmental Questionnaire previously provided to Secured
Party was and is accurate and complete and does not omit any material fact
the omission of which would make the information contained therein
materially misleading.
(b) No above ground or underground storage tanks containing Hazardous
Substances are, or have been located on, any property owned, leased, or
operated by Debtor or any Consolidated Subsidiary.
(c) No property owned, leased, or operated by Debtor or any
Consolidated Subsidiary is, or has been, used for the Disposal of any
Hazardous Substance or for the treatment, storage, or Disposal of Hazardous
Substances.
(d) No Release of a Hazardous Substance has occurred, or is
threatened on, at, from, or near any property owned, leased, or operated by
Debtor or any Consolidated Subsidiary.
(e) Neither Debtor nor any Consolidated Subsidiary is subject to any
existing, pending, or threatened suit, claim, notice of violation, or
request for information under any Environmental Law nor has Debtor or any
Consolidated Subsidiary provided any notice or information under any
Environmental Law.
(f) Debtor and each Consolidated Subsidiary are in compliance with,
and have obtained all Environmental Permits required by, all Environmental
Laws.
5.14. VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid, and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy and insolvency laws and laws affecting
creditors' rights generally.
5.15. NO CONSENT OR FILING. No consent, license, approval, or
authorization of, or registration, declaration, or filing with, any court,
governmental body or authority, or other person or entity is required in
connection with the valid execution, delivery, or performance of the
Transaction Documents or for the conduct of Debtor's business as now
conducted, other than filings and recordings to perfect security interests in
or liens on the Collateral in connection with the Transaction Documents.
5.16. NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary
is in violation of any term of its articles, or certificate of incorporation,
or by-laws, or of any mortgage, borrowing agreement, or other instrument or
agreement pertaining to indebtedness for borrowed money. Neither Debtor nor
any Consolidated Subsidiary is in violation of any term of any other
indenture, instrument, or agreement to which it is a party or by which it or
its property may be bound,
LOAN AGREEMENT-PAGE 17
<PAGE>
resulting, or which might reasonably be expected to result, in a material and
adverse effect upon its business or assets. Neither Debtor nor any
Consolidated Subsidiary is in violation of any order, writ, judgment,
injunction, or decree of any court of competent jurisdiction or of any
statute, rule, or regulation of any governmental authority. The execution
and delivery of the Transaction Documents and the performance of all of the
same are, and will be, in compliance with the foregoing and will not result
in any violation thereof, or result in the creation of any mortgage, lien,
security interest, charge, or encumbrance upon, any properties or assets
except in favor of Secured Party. There exists no fact or circumstance
(whether or not disclosed in the Transaction Documents) which materially
adversely affects, or in the future (so far as Debtor can now foresee) may
materially adversely affect, the condition, business, or operations of Debtor
or any Consolidated Subsidiary.
5.17. TRADEMARKS AND PATENTS. Debtor and each Consolidated
Subsidiary possess all trademarks, trademark rights, patents, patents rights,
tradenames, tradename rights, and copyrights that are required to conduct
their business as now conducted without conflict with the rights or claimed
rights of others. A list of the foregoing is set forth in ITEM 14 of the
Schedule.
5.18. CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any Consolidated
Subsidiary which are not disclosed by the financial statements described in
Section 5.9 or ITEM 27 of the Schedule.
5.19. SOLVENCY. Debtor individually is, and Debtor and the
Consolidated Subsidiaries taken as a whole are, and during the term of this
Agreement, Debtor individually, and Debtor and the Consolidated Subsidiaries
taken as a whole, will be, at all times, Solvent, both before and after
giving effect to the transactions contemplated by the Transaction Documents
and any acquisition of stock or assets occurring in conjunction with or
related to the Transaction Documents.
5.20. COMPLIANCE WITH LAWS. Debtor is in compliance with all
applicable laws, rules, regulations, and other legal requirements with
respect to its business and the use, maintenance, and operations of the real
and personal property owned or leased by it in the conduct of its business.
5.21. LICENSES, PERMITS, ETC. Each franchise, grant, approval,
authorization, license, permit, easement, consent, certificate, and order of
and registration, declaration, and filing with, any court, governmental body
or authority, or other person or entity required for or in connection with
the conduct of Debtor's and each Consolidated Subsidiary's business as now
conducted is in full force and effect.
5.22. MARGIN STOCK. Neither Debtor's execution and delivery of any of
the Transaction Documents nor the borrowing by Debtor of any sums pursuant
thereto violates Section 7 of the Securities Exchange Act of 1934, as
amended, or any rule or regulation thereunder, and Debtor neither owns, nor
intends to purchase or carry, any "margin stock" except as set forth in ITEM
15 of the Schedule.
LOAN AGREEMENT-PAGE 18
<PAGE>
5.23. COMMISSIONS. No brokerage commission, finders fee, or
investment banking fees are payable by Debtor to any person or entity (except
Jack Bourgault of J.W. Bourgault & Associates) in connection with the
Transaction Documents or the transactions contemplated thereby.
5.24. LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary
is a party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in ITEM 16 of
the Schedule.
5.25. CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated
Subsidiaries other than those listed in ITEM 34 of the Schedule, and the
percentage ownership of Debtor in each such Consolidated Subsidiary is
specified in such ITEM 34.
5.26. ACCURACY OF REPRESENTATIONS. No representation, warranty, or
statement by Debtor or any Third Party contained herein, or in any
certificate, financial statement, or other document furnished by Debtor or
any Third Party pursuant hereto, or in connection herewith, fails to contain
any statement of material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it is made.
There is no fact which Debtor knows, or should know, and has not disclosed to
Secured Party which does, or may materially or adversely, affect Debtor, any
Consolidated Subsidiary, or any Third Party, or any of their respective
operations.
5.27. AUTHORIZED SHARES. Debtor's total authorized common shares, the
par value of such shares, and the number of such shares issued and
outstanding, are set forth in ITEM 27 of the Schedule. All of such shares are
of one class and have been validly issued in full compliance with all
applicable federal and state laws, and are fully paid and non-assessable. No
other shares of the Debtor of any class or type are authorized or outstanding.
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
6.1. DOCUMENTS. Debtor shall deliver to Secured Party, all documents
specified in ITEM 18 of the Schedule, as frequently as indicated therein or
at such other times as Secured Party may request, and all other documents and
information reasonably requested by Secured Party, all in form, content and
detail satisfactory to Secured Party. The documents and schedules to be
provided under this Section 6.1 are solely for the convenience of Secured
Party in administering this Agreement and maintaining records of the
Collateral. Debtor's failure to provide Secured Party with any such schedule
shall not affect the Security Interest
6.2. INVOICES. Debtor shall cause all of its Invoices, including the
copies thereof, to be printed and to bear consecutive numbers and shall
prepare and issue its Invoices in such consecutive numerical order. If
requested by Secured Party, all copies of Invoices not previously delivered
to Secured Party shall be delivered to Secured Party with each schedule of
Receivables. Copies of all Invoices which are voided or canceled or which,
for any other reason, do not evidence a Receivable shall be included in such
delivery. If any Invoice or copy thereof is lost, destroyed, or
LOAN AGREEMENT-PAGE 19
<PAGE>
otherwise unavailable, Debtor shall account in writing, in form satisfactory
to Secured Party, for such missing Invoice.
6.3. CHATTEL PAPER. The original of each item of Chattel Paper
evidencing a Receivable shall be delivered to Secured Party with the schedule
listing the Receivable which it evidences, together with an assignment in
form and content satisfactory to Secured Party of such Chattel Paper by
Debtor to the Secured Party.
7. COLLECTIONS.
7.1. DELIVERY OF PROCEEDS TO SECURED PARTY. Unless Secured Party
notifies Debtor that it specifically dispenses with one or more of the
following requirements, any Proceeds of Collateral received by Debtor,
including, without limitation, payments on Receivables and other payments
from sales or leases of Inventory, shall be held by Debtor in trust for
Secured Party in the same medium in which received, shall not be commingled
with any assets of Debtor, and shall be delivered immediately to Secured
Party. So long as Secured Party elects to keep the Marine Payment Account in
existence, Debtor shall deposit Proceeds of Collateral into the Marine
Payment Account and shall, on the day of each such deposit, forward to
Secured Party a copy of the deposit receipt of the depository bank indicating
that such deposit has been made.
7.2. APPLICATION OF PROCEEDS. Upon receipt of Proceeds of Collateral,
Secured Party, in its sole discretion, may apply such Proceeds directly to
the Indebtedness in the manner provided in Section 8.5. Checks drawn on the
Marine Payment Account, and all or any part of the balance of the Marine
Payment Account, may be applied from time to time to the Indebtedness in the
manner provided in Section 8.5.
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
8.1. PROMISE TO PAY PRINCIPAL UNDER THE REVOLVING CREDIT. Debtor promises
to pay to Secured Party the principal of Advances under the Revolving Credit
as follows:
(a) Borrowing Capacity Exceeded. Whenever the outstanding principal
balance of Advances under the Revolving Credit exceeds the Borrowing
Capacity, Debtor shall immediately pay to Secured Party the excess of the
outstanding principal balance of Advances under the Revolving Credit over
the Borrowing Capacity.
(b) Payment in Full on Termination or Acceleration. Forthwith upon
termination of this Agreement, pursuant to Section 14.13, or acceleration
of the time for payment of the Indebtedness, pursuant to Section 12.2,
Debtor shall pay to Secured Party the entire outstanding principal balance
of Advances under the Revolving Credit.
8.1A. PROMISE TO PAY PRINCIPAL UNDER THE TERM LOAN. Debtor promises
to pay to Secured Party the principal of the Advance under the Term Loan as
follows:
LOAN AGREEMENT-PAGE 20
<PAGE>
(a) Term Loan Note. Debtor shall pay to Secured Party the
outstanding principal balance of the Advance under the Term Loan in
accordance with the face and tenor of that certain Term Loan Note executed
by Debtor, payable to Secured Party.
(b) Payment in Full on Termination or Acceleration. Forthwith upon
termination of this Agreement, pursuant to Section 14.13, or acceleration
of the time for payment of the Indebtedness, pursuant to Section 12.2,
Debtor shall pay to Secured Party the entire outstanding principal balance
of the Advance under the Term Loan.
8.1B. PROMISE TO PAY PRINCIPAL UNDER THE CAPEX LOAN. Debtor
promises to pay to Secured Party the principal of Advances under the CAPEX
Loan as follows:
(a) CAPEX Term Note. Debtor shall pay to Secured Party the
outstanding principal balance of the Advances under the CAPEX Loan in
accordance with the face and tenor of that certain CAPEX Term Note executed
by Debtor, payable to Secured Party.
(b) Payment in Full on Termination or Acceleration. Forthwith upon
termination of this Agreement, pursuant to Section 14.13, or acceleration
of the time for payment of the Indebtedness, pursuant to Section 12.2,
Debtor shall pay to Secured Party the entire outstanding principal balance
of the Advances under the CAPEX Loan.
8.2 PROMISE TO PAY INTEREST.
(a) Debtor promises to pay to Secured Party interest on the principal
of Advances under the Revolving Credit from time to time unpaid at the
fluctuating per annum rate specified in ITEM 19 of the Schedule.
(b) Debtor promises to pay to Secured Party interest on the principal
of the Advance under the Term Loan from time to time unpaid at the
fluctuating per annum rate specified in ITEM 19A of the Schedule.
(c) Debtor promises to pay to Secured Party interest on the principal
of Advances under the CAPEX Loan from time to time unpaid at the
fluctuating per annum rate specified in ITEM 19B of the Schedule.
(d) From and after the occurrence of an Event of Default, and for so
long as such Event of Default shall continue, Debtor, as additional
compensation to Secured Party for its increased credit risk and not as a
penalty, promises to pay interest on (i) the principal of Advances, whether
or not past due; (ii) interest which is past due under this Section 8.2;
and (iii) any amount due Secured Party under the Transaction Documents
which is past due, at the fluctuating per annum rate specified in ITEM 19C
of the Schedule.
(e) Interest, other than Default Interest, shall be paid (i) on the
first day of each month in arrears, (ii) on termination of this Agreement,
pursuant to Section 14.13, (iii) on
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acceleration of the time for payment of the Indebtedness, pursuant to
Section 12.2, and (iv) on the date the Indebtedness is paid in full. Default
Interest will be payable on demand.
(f) Any change in the interest rate resulting from a change in the
Prime Rate shall take effect simultaneously with such change in the Prime
Rate. Interest shall be computed on the daily unpaid principal balance of
Advances. Interest prior to the occurrence of an Event of Default shall be
calculated for each calendar day at 1/360th of the applicable per annum
rate, which will result in an effective per annum rate higher than that
specified in ITEMS 19, 19A and 19B of the Schedule, unless such calculation
would exceed the Maximum Legal Rate, in which event interest shall be
calculated for each calendar day at 1/365th or 1/366th, as the case may be,
of the applicable per annum rate. Interest subsequent to the occurrence
of; and during the continuance of; an Event of Default shall be calculated
for each calendar day at 1/365th or 1/366th, as the case may be, of the
applicable per annum rate. In no event shall the rate of interest exceed
the Maximum Legal Rate. If Debtor pays to Secured Party interest in excess
of the Maximum Legal Rate, such excess shall be applied in reduction of the
principal of Advances made pursuant to this Agreement, and any remaining
excess interest, after application thereof to the principal of Advances,
shall be refunded to Debtor.
8.3. PROMISE TO PAY FEES. Debtor promises to pay to Secured Party any
fees specified in ITEM 20 of the Schedule on the applicable due dates also
specified in ITEM 20 of the Schedule.
8.4. PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party, on demand, all costs and
expenses as provided in this Agreement, and all costs and expenses incurred
by Secured Party from time to time in connection with this Agreement,
including, without limitation, those incurred in: (i) preparing,
negotiating, amending, waiving, or granting consent with respect to the
terms of any or all of the Transaction Documents; (ii) enforcing the
Transaction Documents; (iii) performing, pursuant to Section 14.2, Debtor's
duties under the Transaction Documents upon Debtor's failure to perform
them; (iv) filing financing statements, assignments, or other documents
relating to the Collateral (e.g., filing fees, recording taxes, and
documentary stamp taxes); (v) maintaining the Marine Payment Account; (vi)
administering the Transaction Documents, but not ordinary general and
administrative expenses; (vii) compromising, pursuing, or defending any
controversy, action, or proceeding resulting, directly or indirectly, from
Secured Party's relationship with Debtor, regardless of whether Debtor is a
party to such controversy, action, or proceeding and of whether the
controversy, action, or proceeding occurs before or after the Indebtedness
has been paid in full; (viii) realizing upon or protecting any Collateral;
(ix) enforcing or collecting any Indebtedness or guaranty thereof; (x)
employing collection agencies or other agents to collect any or all of the
Receivables; (xi) examining Debtor's books and records or inspecting the
Collateral where such examinations or inspections must be conducted, at
Secured Party's option, more frequently than is customary, including,
without limitation, the reasonable costs of examinations and inspections
conducted by third parties, provided
LOAN AGREEMENT-PAGE 22
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that nothing herein shall limit Secured Party's right to audit, examination,
inspection, or other fees otherwise payable under Section 8.3; and (xii)
obtaining independent appraisals from time to time as deemed necessary or
appropriate by Secured Party.
(b) Without limiting Section 8.4(a), Debtor also agrees to pay to
Secured Party, on demand, the actual fees and disbursements incurred by
Secured Party for attorneys retained by Secured Party for advice, suit,
appeal, or insolvency or other proceedings under the Federal Bankruptcy
Code or otherwise, or in connection with any purpose specified in Section
8.4(a).
(c) If after the date hereof, Secured Party determines that (i) the
adoption of any applicable law, rule, or regulation regarding capital
requirements for banks or bank holding companies or the subsidiaries
thereof, (ii) any change in the interpretation or administration of any
such law, rule, or regulation by any governmental authority, central bank,
or comparable agency charged with the interpretation or administration
thereof; or (iii) compliance by Secured Party or its holding company with
any request or directive of any such governmental authority, central bank
or comparable agency regarding capital adequacy (whether or not having the
force of law), has the effect of reducing the return on Secured Party's
capital to a level below that which Secured Party could have achieved
(taking into consideration Secured Party's and its holding company's
policies with respect to capital adequacy immediately before such adoption,
change, or compliance and assuming that Secured Party's capital was fully
utilized prior to such adoption, change, or compliance) but for such
adoption, change, or compliance as a consequence of Secured Party's
commitment to make Advances pursuant hereto by any amount deemed by Secured
Party to be material:
(x) Secured Party shall promptly, after Secured Party's
determination of such occurrence, give notice thereof to Debtor; and
(y) Debtor shall pay to Secured Party as an additional fee from
time to time, on demand, such amount as Secured Party certifies to be
the amount that will compensate Secured Party for such reduction. A
certificate of Secured Party claiming entitlement to compensation as
set forth above will be conclusive in the absence of manifest error.
Such certificate will set forth the nature of the occurrence giving
rise to such compensation, the additional amount or amounts to be
paid to Secured Party, and the method by which such amounts were
determined. In determining such amount, Secured Party may use any
reasonable averaging and attribution method.
8.5. METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS
AND EXPENSES. Without limiting Debtor's obligation, pursuant to
Sections 8.1, 8.2, 8.3, and 8.4 to pay the principal of Advances,
interest, fees, and costs and expenses, the following provisions
shall apply to the payment thereof:
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(a) Payment of Principal. Debtor authorizes Secured Party to apply
any Proceeds of Collateral, including, without limitation, payments on
Receivables, other payments from sales or leases of Inventory, and any
funds in the Marine Payment Account, to the unpaid principal of Advances.
(b) Payment of Interest, Fees, and Costs and Expenses. If any accrued
interest, fees, or costs and expenses have not been paid when due, Debtor
authorizes Secured Party, at its option, to (provided, however, Secured
Party shall have no obligation to):
(i) make an Advance to pay for such items; or
(ii) apply Proceeds of Collateral, including, without limitation,
payments on Receivables, other payments from sales or leases of
Inventory, and any funds in the Marine Payment Account, to the payment
of such items.
(c) Notwithstanding any other provision of this Agreement, Secured
Party, at its option, shall determine the manner and amount of application
of payments and credits, if any, to be made on all or any part of any
component or components of the Indebtedness, whether principal, interest,
fees, costs and expenses, or otherwise.
8.6. COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances
under Sections 2.1(a) and (b), Section 2.5 and Section 2.6, Advances
shall be deemed to be paid on the date that checks drawn on, or other
funds received from, the Marine Payment Account are applied by
Secured Party to Advances, and on the date any other payments on
Receivables, or other payments from sales or leases of Inventory to
be so applied, have been processed for collection by Secured Party;
provided, however, for the purpose of calculating interest payable by
Debtor, funds from the Marine Payment Account, payments on
Receivables, other payments from sales or leases of Inventory, and
any other payments, shall be deemed to be applied to Advances the
number of days specified in ITEM 21 of the Schedule after the
application of such funds from the Marine Payment Account or receipt
of such payments by Secured Party, and the amount of interest payable
will be adjusted by Secured Party from time to time accordingly.
Notwithstanding any other provision of this Agreement, if any item
presented for collection by Secured Party is not honored, Secured
Party may reverse any provisional credit which has been given for the
item and make appropriate adjustments to the amount of interest and
principal due.
8.7. ACCOUNT STATED. Debtor agrees that each monthly or other
statement of account mailed or delivered by Secured Party to Debtor
pertaining to the outstanding balance of Advances, the amount of
interest due thereon, fees, and costs and expenses shall be final,
conclusive, and binding on Debtor and shall constitute an "account
stated" with respect to the matters contained therein unless, within
thirty (30) calendar days from when such statement is mailed or, if
not mailed, delivered to Debtor, Debtor shall deliver to Secured
Party written notice of any objections which it may have as to such
statement of account, and in such event, only the items to which
objection is expressly made in such notice shall be considered to be
disputed by Debtor.
LOAN AGREEMENT-PAGE 24
<PAGE>
8.8. MAXIMUM LEGAL RATE OF INTEREST. No agreements, conditions,
provisions or stipulations contained in this Agreement or in any other
agreement between Debtor and Secured Party, or the occurrence of an Event of
Default hereunder, or the exercise by Secured Party of the right to
accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Agreement or any other
agreement between Debtor and Secured Party, or the arising of any contingency
whatsoever, shall entitle Secured Party to collect, in any event, interest
exceeding the Maximum Legal Rate; and in no event shall Debtor be obligated
to pay interest exceeding such Maximum Legal Rate, and all agreements,
conditions or stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate, or compel Debtor to pay a rate of
interest exceeding the Maximum Legal Rate shall be without binding force or
effect, at law or in equity, to the extent only of the excess of interest
over such Maximum Legal Rate. In the event any interest is charged in excess
of the Maximum Legal Rate (herein referred to as the "Excess"), Debtor
acknowledges and stipulates that any such charge shall be the result of an
accidental and bona fide error, and such Excess shall be, first, applied to
reduce the principal of any Indebtedness due, and, second, returned to
Debtor, it being the intention of the parties hereto not to enter at any time
into a usurious or otherwise illegal relationship. The parties hereto
recognize that with fluctuations in the Prime Rate such an unintentional
result could inadvertently occur. By the execution of this Agreement, Debtor
covenants that (a) the credit or return of any Excess shall constitute the
acceptance by Debtor of such Excess, and (b) Debtor shall not seek or pursue
any other remedy, legal or equitable against Secured Party based, in whole or
in part, upon the charging or receiving of any interest in excess of the
Maximum Legal Rate. For the purpose of determining whether or not any Excess
has been contracted for, charged, or received by Secured Party, all interest
at any time contracted for, charged, or received by Secured Party in
connection with the Indebtedness shall be amortized, prorated, allocated and
spread in equal parts during the entire term of this Agreement.
8.9. ADJUSTMENTS BASED ON THE MAXIMUM LEGAL RATE OF INTEREST.
Notwithstanding the provisions of Section 8.8 of this Agreement to the
contrary, (a) if at any time the amount of interest computed on the basis of
any of the fluctuating per annum rates specified in ITEMS 19, 19A, 19B, or
19C of the Schedule (the "ANNUAL RATES") would exceed the amount of such
interest computed upon the basis of the Maximum Legal Rate, the interest
payable under this Agreement shall be computed upon the basis of the Maximum
Legal Rate, but any subsequent reduction in the Annual Rates shall not reduce
such interest thereafter payable hereunder below the amount computed on the
basis of the Maximum Legal Rate until the aggregate amount of such interest
accrued and payable under this Agreement equals the total amount of interest
which would have accrued if such interest had been at all times computed
solely on the basis of the Annual Rates; and (b) unless preempted by federal
law, the Annual Rates from time to time in effect hereunder may not exceed
the "Indicated Ceiling Rate" from time to time in effect under Chapter 15 of
the Texas Credit Code (Vernon's Texas Civil Statutes), Section (c), Article
5069-1.04, as amended.
8.10. INCORPORATION BY REFERENCE OF MAXIMUM LEGAL RATE OF INTEREST
PROVISIONS. The provisions of Section 8.8 of this Agreement shall be deemed to
be incorporated into every document or communication relating to the
Indebtedness which sets forth or prescribes any account, right, or claim or
alleged account, right, or claim of Secured Party with
LOAN AGREEMENT - PAGE 25
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respect to Debtor (or any other obligor in respect of the Indebtedness),
whether or not any provision of Section 8.8 of this Agreement is referred to
therein. All such documents and communications and all figures set forth
therein shall for the sole purpose of computing the extent of the
Indebtedness asserted by Secured Party thereunder, be automatically
recomputed by Debtor and Secured Party or any other obligor, and by any court
considering the same, to give effect to the adjustments or credits required
by Section 8.8 of this Agreement.
8.11. SUBSEQUENT CHANGE OF MAXIMUM LEGAL RATE OF INTEREST. If the
applicable state or federal law is amended in the future to allow a greater rate
of interest to be charged under this Agreement than is presently allowed by
applicable state or federal law, then the limitation of interest hereunder shall
be increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to Secured
Party by reason thereof shall be payable upon demand.
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.
9.1. RETURNED MERCHANDISE. Debtor shall notify Secured Party immediately of
the return, rejection, repossession, stoppage in transit, loss, damage, or
destruction of any Inventory. In addition to making appropriate adjustments to
the Receivables Borrowing Base and the Inventory Borrowing Base to reflect the
return of such Inventory, Secured Party may, in its sole discretion, request
Debtor to pay to Secured Party an amount equal to the consideration to have been
paid for such Inventory by the Account Debtor, such payment to be applied
directly to unpaid Advances.
9.2. CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant such Credits
and such Extensions as are ordinary in the usual course of Debtor's
business without the prior consent of Secured Party; provided, however,
that any such Extension shall not extend the time for payment beyond thirty
(30) days after the original due date as shown on the Invoice evidencing
the related Receivable, or as computed based on the information set forth
on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall make a full
accounting of each grant of a Credit or an Extension, including a brief
description of the reasons therefor and a copy of all credit memoranda.
Such accountings shall be in form satisfactory to Secured Party and shall
be delivered to Secured Party daily or at such other intervals as may be
specified in ITEM 18 of the Schedule. All credit memoranda issued by Debtor
shall be numbered consecutively and copies of the same, when delivered to
Secured Party, shall be in numerical order and accounted for in the same
manner as provided in Section 6.2 with respect to Invoices.
(c) Adjustment to Receivables Borrowing Base. The Receivables
Borrowing Base will be reduced by the amount of all Credits reflected in an
accounting required by
LOAN AGREEMENT - PAGE 26
<PAGE>
Section 9.2(b) and may, in the sole discretion of Secured Party, be
reduced by the full amount of any Receivables for which Extensions
were granted.
9.3. RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned uncollected
for any reason, Secured Party may, in its sole discretion, again forward the
same for collection or return the same to Debtor. Upon receipt of a returned
check or instrument by Debtor, Debtor shall immediately make the necessary
entries on its books and records to reinstate the Receivable as outstanding
and unpaid and immediately notify Secured Party of such entries. Pursuant to
Section 1.1 (cc)(iii), the Receivable with respect to which such check or
instrument was received shall thereupon become an Ineligible Receivable.
9.4. DEBIT MEMORANDA.
(a) Unless Secured Party otherwise notifies Debtor in writing, Debtor
shall deliver at least monthly to Secured Party, together with the
Borrowing Base Report provided for in ITEM 18 of the Schedule, copies of
all debit memoranda issued by Debtor.
(b) All debit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manner as
provided in Section 6.2 with respect to Invoices.
9.5. NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Receivable without the prior written consent of
Secured Party. If Secured Party, at its option, consents to the acceptance of
any such note or instrument, the same shall be considered as evidence of the
Receivable giving rise to such note or instrument, shall be subject to the
Security Interest, and shall not constitute payment of such Receivable, and
Debtor shall forthwith endorse such note or instrument to the order of
Secured Party and deliver the same to Secured Party. Upon collection, the
proceeds of such note or instrument may be applied directly to unpaid
Advances, interest, and costs and expenses as provided in Section 8.5.
10. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid, or this Agreement remains in effect, Debtor shall comply with the
covenants contained in ITEM 22 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
10.1. FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:
(a) Within ninety (90) days after the end of each fiscal year,
consolidated and consolidating financial statements of Debtor and each
Consolidated Subsidiary as of the end of such year, fairly presenting
Debtor's and each Consolidated Subsidiary's financial position, which
statements shall consist of a balance sheet and related statements of
income, retained earnings, and cash flow covering the period of Debtor's
immediately preceding fiscal year, and which shall be reviewed by
independent certified public accountants satisfactory to Secured Party.
LOAN AGREEMENT - PAGE 27
<PAGE>
(b) Within thirty (30) days after the end of each month, consolidated
and consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of such month, fairly presenting Debtor's and such
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet and related statements of income, retained
earnings, and cash flow covering the period from the end of the immediately
preceding fiscal year to the end of such month, all in such detail as
Secured Party may request and signed and certified to be correct by the
president or chief financial officer of Debtor or other financial officer
satisfactory to Secured Party in the form of EXHIBIT A attached hereto and
made a part hereof.
(c) Within thirty (30) days after the end of each month, a compliance
certificate executed by the president or chief financial officer of Debtor
or other financial officer satisfactory to Secured Party in the form of
EXHIBIT A attached hereto and made a part hereof.
(d) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Debtor sends to its
shareholders, and copies of any and all periodic and special reports and
registration statements which Debtor files with the Securities and Exchange
Commission.
(e) Before the end of the first quarter of each fiscal year, a
business plan for that fiscal year.
(f) Such additional information as Secured Party may from time to
time reasonably request regarding the financial and business affairs of
Debtor or any Consolidated Subsidiary.
10.2. GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to which
the perfection, enforceability, or validity of Secured Party's Security Interest
in such Receivable, or Secured Party's right or ability to obtain direct payment
to Secured Party of the Proceeds of such Receivable, is governed by any federal
or state statutory requirements other than those of the Uniform Commercial Code,
including, without limitation, any Receivable subject to the Federal Assignment
of Claims Act of 1940, as amended.
10.3. TERMS OF SALE. The terms on which sales or leases giving rise to
Receivables are made shall be as specified in ITEMS 3 and 23 of the Schedule.
10.4. BOOKS AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the Collateral,
in form satisfactory to Secured Party, and including, without limitation,
records of all payments received and all Credits and Extensions granted with
respect to the Receivables, of the return, rejection, repossession, stoppage in
transit, loss, damage, or destruction of any Inventory, and of all other
dealings affecting the Collateral. Debtor shall deliver such books and records
to Secured Party or its representative on
LOAN AGREEMENT - PAGE 28
<PAGE>
request. At Secured Party's request, Debtor shall mark all or any records to
indicate the Security Interest Debtor shall further indicate the Security
Interest on all financial statements issued by it or shall cause the Security
Interest to be so indicated by its accountants. The Marine Payment Account,
if any, is not an asset of Debtor and shall not be shown as an asset of
Debtor in such books and records or in such financial statements.
10.5. INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory
remains in the hands or control of any of Debtor's agents, finishers,
contractors, or processors, or any other third party, Debtor, if requested by
Secured Party, shall notify such party of Secured Party's Security Interest in
the Inventory and shall instruct such party to hold such Inventory for the
account of Secured Party and subject to the instructions of Secured Party.
10.6. EXAMINATIONS. Debtor shall at all reasonable times and from time
to time permit Secured Party or its agents to inspect the Collateral and to
examine and make extracts from, or copies of, any of Debtor's books, ledgers,
reports, correspondence, and other records.
10.7. VERIFICATION OF COLLATERAL. Secured Party shall have the right to
verify all or any Collateral in any manner and through any medium, Secured Party
may consider appropriate and Debtor agrees to furnish all assistance and
information and perform any acts which Secured Party may require in connection
therewith.
10.8. RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1 (dd)(v) with respect to any
Responsible Party promptly after receiving notice thereof.
10.9. TAXES. Debtor shall promptly pay and discharge all of its taxes,
assessments, and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payment of such taxes,
assessments, and other governmental charges, make all required withholding and
other tax deposits, and, upon request, provide Secured Party with receipts or
other proof that such taxes, assessments, and other governmental charges have
been paid in a timely fashion; provided, however, that nothing contained herein
shall require the payment of any tax, assessment, or other governmental charge
so long as its validity is being contested in good faith, and by appropriate
proceedings diligently conducted, and adequate reserves for the payment thereof
have been established.
10.10. LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing of any
litigation, proceeding, or counterclaim against, or of any investigation
of, Debtor or any Consolidated Subsidiary if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation may materially and
adversely affect the finances or operations of Debtor or any Consolidated
Subsidiary or title to, or the value of, any Collateral; or (ii) such
litigation, proceeding, counterclaim, or investigation questions the
validity of any Transaction Document or any action taken, or to be taken,
pursuant to any Transaction Document.
LOAN AGREEMENT - PAGE 29
<PAGE>
(b) Debtor shall furnish to Secured Party such information regarding
any such litigation, proceeding, counterclaim, or investigation as Secured
Party shall request.
10.11. INSURANCE.
(a) Debtor shall at all times carry and maintain in full force and
effect such insurance as Secured Party may from time to time require, in
coverage, form, and amount, and issued by insurers, satisfactory to Secured
Party, including, without limitation: workers' compensation or similar
insurance; public liability insurance; business interruption insurance; and
insurance against such other risks as are usually insured against by
business entities of established reputation engaged in the same or similar
businesses as Debtor and similarly situated.
(b) Debtor shall deliver to Secured Party the policies of insurance
required by Secured Party, with appropriate endorsements designating
Secured Party as an additional insured and loss payee as requested by
Secured Party. Each policy of insurance shall provide that if such policy
is canceled for any reason whatsoever, if any substantial change is made in
the coverage which affects Secured Party, or if such policy is allowed to
lapse for nonpayment of premium, such cancellation, change, or lapse shall
not be effective as to Secured Party until thirty (30) days after receipt
by Secured Party of written notice thereof from the insurer issuing such
policy.
(c) Debtor hereby appoints Secured Party as its attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of
Debtor, Secured Party, or otherwise, from time to time in Secured Party's
discretion, to take any actions and to execute any instruments which
Secured Party may deem necessary or desirable to obtain, adjust, make
claims under, and otherwise deal with insurance required pursuant hereto
and to receive, endorse, and collect any drafts or other instruments
delivered in connection therewith.
10.12. GOOD STANDING; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its corporate
existence and its right to conduct business in all states in which the
nature of its business or ownership of its property requires such
qualification.
(b) Debtor shall engage only in the business conducted by it on the
date of this Agreement.
10.13. TANGIBLE NET WORTH; DEBT TO TANGIBLE NET WORTH RATIO; NET PROFIT
AFTER TAXES; DEBT SERVICE COVERAGE RATIO; ETC. Debtor shall maintain a minimum
tangible net worth, a debt to tangible net worth ratio, minimum net profit after
taxes, a debt service coverage ratio and other financial covenants as specified
in ITEM 24 of the Schedule.
LOAN AGREEMENT - PAGE 30
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10.14. PENSION REPORTS. Upon the occurrence of any Pension Event, Debtor
shall furnish to Secured Party, as soon as possible and, in any event, within
thirty (30) days after Debtor knows, or has reason to know, of such occurrence,
the statement of the president or chief financial officer of Debtor setting
forth the details of such Pension Event and the action which Debtor proposes to
take with respect thereto.
10.15. NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any provision
of any Transaction Document immediately upon learning of such noncompliance, or
if any representation or warranty contained in any Transaction Document is no
longer true.
10.16. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall comply with all Environmental Laws.
(b) Debtor shall not suffer, cause, or permit the Disposal of
Hazardous Substances at any property owned, leased, or operated by it or
any Consolidated Subsidiary.
(c) Debtor shall promptly notify Secured Party in the event of the
Disposal of any Hazardous Substance at any property owned, leased, or
operated by Debtor or any Consolidated Subsidiary, or in the event of any
Release, or threatened Release, of a Hazardous Substance, from any such
property.
(d) Debtor shall, at Secured Party's request, provide, at Debtor's
expense, updated Environmental Questionnaires and/or Environmental Reports
concerning any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary.
(e) Debtor shall deliver promptly to Secured Party (i) copies of any
documents received from the United States Environmental Protection Agency
or any state, county, or municipal environmental or health agency
concerning Debtor's or any Consolidated Subsidiary's operations; and (ii)
copies of any documents submitted by Debtor or any Consolidated Subsidiary
to the United States Environmental Protection Agency or any state, county,
or municipal environmental or health agency concerning its operations.
10.17. DEFEND COLLATERAL. Debtor shall defend the Collateral against the
claims and demands of all other parties (other than Secured Party), including,
without limitation, defenses, set-offs, and counterclaims asserted by any
Account Debtor against Debtor or Secured Party.
10.18. USE OF PROCEEDS. Debtor shall use the proceeds of Advances under
the Revolving Credit solely for (a) repayment of indebtedness to Texas Commerce
Bank National Association and Associates Capital, (b) for Debtor's working
capital and (c) for such other legal and proper corporate purposes as are
consistent with all applicable laws, Debtor's articles or certificate of
incorporation and by-laws, resolutions of Debtor's Board of Directors, and the
terms of this Agreement.
LOAN AGREEMENT - PAGE 31
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10.19. COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and personal
property owned or leased by it in the conduct of its business.
10.20. MAINTENANCE OF PROPERTY. Debtor shall maintain its property,
including, without limitation, the Collateral, in good condition and repair and
shall prevent the Collateral, or any part thereof, from being or becoming an
accession to other goods not constituting Collateral.
10.21. LICENSES, PERMITS, ETC. Debtor shall maintain all of its
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, and orders, if any, in full force and effect until their
respective expiration dates.
10.22. TRADEMARKS AND PATENTS. Debtor shall maintain all of its
trademarks, trademark rights, patents, patent rights, licenses, permits,
tradenames, tradename rights, and approvals, if any, in full force and effect
until their respective expiration dates.
10.23. ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
10.24. MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding capital stock of each
Consolidated Subsidiary set forth in ITEM 34 of the Schedule and notify Secured
Party in writing prior to the incorporation of any new Consolidated Subsidiary.
10.25. ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions of
this Section 10.25 are expressly waived by Secured Party in writing, Debtor
shall cause each Consolidated Subsidiary to comply with Sections 10.1(b), 10.9,
10.11(a), 10.12, 10.16, and 10.19 through 10.23, inclusive, and any of the
provisions contained in ITEM 22 of the Schedule, and shall cause each
Consolidated Subsidiary to refrain from doing any of the acts proscribed by
Sections 11.2, 11.3, and 11.6 through 11.15, inclusive, or proscribed by any of
the provisions contained in ITEM 22 of the Schedule.
10.26 GUARANTOR FINANCIAL STATEMENTS. Debtor shall cause to be
furnished to Secured Party:
(a) Within 90 days after the end of each fiscal year, annual financial
statements of Spacelink Systems, Inc., in form satisfactory to Secured Party.
Each such statement shall show Spacelink Systems, Inc.'s financial results as of
the end of the preceding fiscal year.
(b) Within 90 days after the end of each calendar year, annual financial
statements of Ignatius W. Leonards, in form satisfactory to Secured Party.
11. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains unpaid
or this Agreement remains in effect, Debtor, without the written consent of
Secured Party, shall not violate any covenant contained in ITEM 22 of the
Schedule and shall not:
LOAN AGREEMENT - PAGE 32
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11.1. LOCATION OF INVENTORY, EQUIPMENT, AND BUSINESS RECORDS. Move the
Inventory, Equipment, or the records concerning the Collateral from the location
where they are kept as specified in ITEMS 11 and 13 of the Schedule; provided,
however, Debtor may lease Rental Equipment subject to ITEM 22 of the Schedule.
11.2. BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may be
specified in ITEM 25 of the Schedule.
11.3. SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume,
or suffer to exist any mortgage, security interest, lien, or other encumbrance
upon any of its properties or assets, whether now owned or hereafter acquired,
except mortgages, security interests, liens, and encumbrances (a) in favor of
Secured Party and (b) as may be specified in ITEM 12 of the Schedule.
11.4. STORING THE COLLATERAL. Place the Collateral in any warehouse
which may issue a negotiable Document with respect thereto.
11.5. USE OF COLLATERAL. Use the Collateral in violation of any
provision of the Transaction Documents, of any applicable statute, regulation,
or ordinance, or of any policy insuring the Collateral.
11.6. MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate with
or into any corporation; (b) enter into any joint venture or partnership with
any person, firm, or corporation; (c) convey, lease, or sell all or any material
portion of its property or assets or business to any other person, firm, or
corporation except for the sale of Inventory in the ordinary course of its
business and in accordance with the terms of this Agreement; or (d) convey,
lease, or sell any of its assets to any person, firm, or corporation for less
than the fair market value thereof
11.7. CAPITAL STOCK. Purchase or retire any of its capital stock or
issue any capital stock, except pro rata to its present stockholders, or
otherwise change the capital structure of Debtor or change the relative fights,
preferences, or limitations relating to any of its capital stock.
Notwithstanding the foregoing, Debtor may issue new capital stock to be
purchased solely by employees of Debtor, provided that the number of new capital
shares issued does not exceed ten percent (10.0%) of the number of shares
currently issued and outstanding as specified in ITEM 17 of the Schedule.
11.8. DIVIDENDS OR DISTRIBUTIONS. Pay or declare any cash or other
dividends or distributions on any of its corporate stock, except that stock
dividends may be paid, and except that a Consolidated Subsidiary may pay
dividends of any kind to Debtor.
11.9. INVESTMENTS AND ADVANCES. Make any investment in, or advances to,
any other person, firm, or corporation, except (a) advance payments or deposits
against purchases made in the ordinary course of Debtor's regular business; (b)
direct obligations of the United States of
LOAN AGREEMENT - PAGE 33
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America; (c) any existing investments in, or existing advances to, the
Consolidated Subsidiaries; or (d) any investments or advances that may be
specified in ITEM 26 of the Schedule.
11.10. GUARANTIES. Become a guarantor, a surety, or otherwise liable for
the debts or other obligations of any other person, firm, or corporation,
whether by guaranty or suretyship agreement, agreement to purchase indebtedness,
agreement for furnishing funds through the purchase of goods, supplies, or
services (or by way of stock purchase, capital contribution, advance, or loan)
for the purpose of paying or discharging indebtedness, or otherwise, except as
an endorser of instruments for the payment of money deposited to its bank
account for collection in the ordinary course of business and except as may be
specified in ITEM 27 of the Schedule.
11.11. LEASES. Enter, as lessee, into any lease of real or personal
property (whether such lease is classified on Debtor's financial statements as
an operating lease) if the aggregate of the rentals of such lease and of
Debtor's other then existing leases would exceed, in any one of Debtor's fiscal
years, the amount specified in ITEM 28 of the Schedule.
11.12. CAPITAL EXPENDITURES. Enter into any capital leases or make or
incur any capital expenditures in any one fiscal year in an aggregate amount in
excess of the amount, if any, specified in ITEM 29 of the Schedule.
11.13. COMPENSATION.
(a) Pay, or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to its officers or
directors, or members of their immediate families, in the aggregate
exceeding the amount, if any, specified in ITEM 30 of the Schedule.
(b) Pay, or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to the individuals, if
any, specified in ITEM 31 of the Schedule in excess of the amount therein
specified for such individuals.
11.14. NAME CHANGE. Change its name without giving at least thirty (30)
days prior written notice of its proposed new name to Secured Party, together
with delivery to Secured Party of UCC-1 Financing Statements reflecting Debtor's
new name, all in form and substance satisfactory to Secured Party.
11.15. DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of, or encumber the Collateral or any interest therein, or grant a
security interest therein, or license thereof, except to Secured Party and
except the sale or lease of Inventory in the ordinary course of business of
Debtor and in accordance with the terms of this Agreement.
11.16. FINANCIAL COVENANTS. Fail to comply with the financial covenants
set forth in ITEM 24 of the Schedule.
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12. EVENTS OF DEFAULT.
12.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an Event
of Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal, interest,
premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 11.
(c) Article 7. Default in the observance of any of the covenants or
agreements of Debtor contained in Article 7.
(d) Other Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in the Transaction Documents,
other than in Article 7, Article 11 or Sections 8.1, 8.2, 8.3, or 8.4 or in
any other agreement with Secured Party which is not remedied within the
earlier often (10) days after (i) notice thereof by Secured Party to
Debtor, or (ii) the date Debtor was required to give notice to Secured
Party under Section 10.15.
(e) Cessation of Business or Voluntary Insolvency Proceedings. The
(i) cessation of operations of Debtor's business as conducted on the date
of this Agreement; (ii) filing by Debtor of a petition or request for
liquidation, reorganization, arrangement, adjudication as a bankrupt,
relief as a debtor, or other relief under the bankruptcy, insolvency, or
similar laws of the United States of America or any state or territory
thereof or any foreign jurisdiction now or hereafter in effect; (iii)
making by Debtor of a general assignment for the benefit of creditors; (iv)
consent by the Debtor to the appointment of a receiver or trustee,
including, without limitation, a "custodian," as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; (v) making of any,
or sending of any, notice of any intended, bulk sale by Debtor; or (vi)
execution by Debtor of a consent to any other type of insolvency proceeding
(under the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of; or settlement of; claims
against or winding up of affairs of, Debtor.
(f) Involuntary Insolvency Proceedings. (i) The appointment of a
receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian," as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; or the filing
against Debtor of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of America,
any state or territory thereof; or any foreign jurisdiction now or
hereafter in effect; or of any other type of insolvency proceeding (under
the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims
against, or winding up of affairs of Debtor
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<PAGE>
shall be instituted against Debtor; and (ii) such appointment shall
not be vacated, or such petition or proceeding shall not be dismissed,
within sixty (60) days after such appointment, filing, or institution.
(g) Other Indebtedness and Agreements. Failure by Debtor to pay, when
due, (or, if permitted by the terms of any applicable documentation, within
any applicable grace period) any indebtedness owing by Debtor to Secured
Party or any other person or entity (other than the Indebtedness incurred,
pursuant to this Agreement, and including, without limitation, indebtedness
evidencing a deferred purchase price), whether such indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration,
by demand, or otherwise, or failure by the Debtor to perform any term,
covenant, or agreement on its part to be performed under any agreement or
instrument (other than a Transaction Document) evidencing or securing or
relating to any indebtedness owing by Debtor when required to be performed
if the effect of such failure is to permit the holder to accelerate the
maturity of such indebtedness.
(h) Judgments. Any judgment or judgments against Debtor (other than
any judgment for which Debtor is fully insured) shall remain unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a period of
thirty (30) days.
(i) Pension Default. Any Reportable Event which Secured Party shall
determine in good faith constitutes grounds for the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation, or for the
appointment by an appropriate United States district court of a trustee to
administer any Pension Plan, shall occur and shall continue thirty (30)
days after written notice thereof to Debtor by Secured Party; or the
Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any
Pension Plan; or a trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan; or any Pension Plan
shall be terminated; or Debtor or any Consolidated Subsidiary shall
withdraw from a Pension Plan in a complete withdrawal or a partial
withdrawal; or there shall arise vested unfunded liabilities under any
Pension Plan that, in the good faith opinion of Secured Party, have or will
or might have a material adverse effect on the finances or operations of
Debtor; or Debtor or any Consolidated Subsidiary shall fail to pay to any
Pension Plan any contribution which it is obligated to pay under the terms
of such plan or any agreement or which is required to meet statutory
minimum funding standards.
(j) Collateral; Impairment. There shall occur with respect to the
Collateral any (i) misappropriation, conversion, diversion, or fraud; (ii)
levy, secure, or attachment; or (iii) loss, theft, or damage.
(k) Insecurity; Change. Secured Party shall believe in good faith
that the prospect of payment of all, or any part, of the Indebtedness or
performance of Debtor's obligations under the Transaction Documents or any
other agreement between Secured Party and Debtor is impaired; or there
shall occur any materially adverse change in the business or financial
condition of Debtor.
LOAN AGREEMENT - PAGE 36
<PAGE>
(l) Third Party Default. There shall occur with respect to any Third
Party or any Consolidated Subsidiary, including, without limitation, any
guarantor or Consolidated Subsidiary (i) any event described in Section
12.1(d), 12.1(e), 12.1(f), or 12.1(g); (ii) any pension default event such
as described in Section 12. 1(i) with respect to any pension plan
maintained by such Third Party or such Consolidated Subsidiary; or (iii)
any failure by Third Party or such Consolidated Subsidiary to perform in
accordance with the terms of any agreement between such Third Party and
Secured Party.
(m) Representations. Any certificate, statement, representation,
warranty, or financial statement furnished by, or on behalf of; Debtor or
any Third Party, pursuant to, or in connection with, this Agreement
(including, without limitation, representations and warranties contained
herein) or as an inducement to Secured Party to enter into this Agreement
or any other lending agreement with Debtor shall prove to have been false
in any material respect at the time as of which the facts therein set forth
were certified or to have omitted any substantial contingent or
unliquidated liability or claim against Debtor or any such Third Party, or
if on the date of the execution of this Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such
statement or certificate which shall not have been disclosed in writing to
Secured Party at, or prior to, the time of such execution.
(n) Challenge to Validity. Debtor or any Third Party commences any
action or proceeding to contest the validity or enforceability of any
Transaction Document or any lien or security interest granted or
obligations evidenced by any Transaction Document.
(o) Death or Incapacity; Termination. Any Third Party dies or
becomes incapacitated, or terminates or attempts to terminate, in
accordance with its terms or otherwise, any guaranty or other Transaction
Document executed by such Third Party. Notwithstanding the foregoing, the
death of Ignatius W. Leonards shall not be an Event of Default until the
expiration of a period of 150 days immediately following his death, so long
as, during such period Debtor is diligently conducting an executive search
for a new President with credentials comparable to those of Ignatius W.
Leonards.
(p) Change of Ownership. If all, or a controlling interest of; the
capital stock of Debtor shall be sold, assigned, or otherwise transferred
or if a security interest or other encumbrance shall be granted or
otherwise acquired therein or with respect thereto.
12.2. EFFECTS OF AN EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default (except an Event
of Default under either Section 12.1(e) or 12.1(f), Secured Party may declare
any obligations it may have hereunder to be canceled, and the principal of the
Indebtedness then outstanding to be immediately due and payable, together with
all interest thereon and costs and expenses accruing under the Transaction
Documents. Upon such declaration, any obligations Secured Party may have
hereunder shall be immediately canceled, and the
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Indebtedness then outstanding shall become immediately due and payable
without presentation, demand, or further notice of any kind to Debtor.
(b) Upon the happening of one or more Events of Default under Section
12.1(e) or 12.1(f), Secured Party's obligations hereunder shall be canceled
immediately, automatically, and without notice, and the Indebtedness then
outstanding shall become immediately due and payable without presentation,
demand, or notice of any kind to the Debtor.
13. SECURED PARTY'S RIGHTS AND REMEDIES.
13.1. GENERALLY. Secured Party's rights and remedies with respect to
the Collateral, in addition to those rights granted herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect, shall be
those of a secured party under the Uniform Commercial Code as in effect in the
State and under any other applicable law.
13.2. NOTIFICATION OF ACCOUNT DEBTORS. Upon the occurrence of an Event
of Default or an event which with notice or lapse of time, or both, would
constitute an Event of Default, Secured Party may, at any time and from time to
time, notify any or all Account Debtors of the Security Interest and may direct
such Account Debtors to make all payments on Receivables directly to Secured
Party.
13.3. POSSESSION OF COLLATERAL. Whenever Secured Party may take
possession of the Collateral, pursuant to Section 13.1, Secured Party may take
possession of the Collateral on Debtor's premises or may remove the Collateral,
or any part thereof; to such other places as the Secured Party may, in its sole
discretion, determine. If requested by Secured Party, Debtor shall assemble the
Collateral and deliver it to Secured Party at such place as may be designated by
Secured Party.
13.4. COLLECTION OF RECEIVABLES. Upon the occurrence of an Event of
Default or an event which with notice or lapse of time, or both, would
constitute an Event of Default, Secured Party may demand, collect, and sue for
all monies and Proceeds due, or to become due, on the Receivables (in either
Debtor's or Secured Party's name at the latter's option) with the right to
enforce, compromise, settle, or discharge any or all Receivables. If Secured
Party takes any action contemplated by this Section with respect to any
Receivable, Debtor shall not exercise any right that Debtor would otherwise have
had to take such action with respect to such Receivable.
13.5. ENDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same manner,
to the same extent, and with the same effect as if Debtor were to do the same:
upon the occurrence of an Event of Default or an event of which with notice or
lapse of time, or both, would constitute an Event of Default, to endorse
Debtor's name on any Instruments or Documents pertaining to any Collateral, to
receive and collect all mail addressed to Debtor, to direct the place of
delivery of such mail to any location designated by Secured Party, to open such
mail, to remove all contents therefrom, and to retain all contents thereof
constituting or relating to the Collateral. This agency is unconditional
LOAN AGREEMENT - PAGE 38
<PAGE>
and shall not terminate until all of the Indebtedness is paid in full and
this Agreement has been terminated. Secured Party agrees to give Debtor
notice in the event it exercises this agency, except with respect to the
endorsement of Debtor's name on any instruments or documents pertaining to
any Collateral.
13.6. LICENSE TO USE PATENTS, TRADEMARKS, AND TRADENAMES. Debtor grants
to Secured Party a royalty-free license to use any and all patents, trademarks,
and tradenames now or hereafter owned by, or licensed to, Debtor for the
purposes of manufacturing and disposing of Inventory after the occurrence of an
Event of Default. All Inventory shall at least meet quality standards maintained
by Debtor prior to such Event of Default.
14. MISCELLANEOUS.
14.1. PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL.
Debtor will execute and deliver to Secured Party such financing statements,
assignments, and other documents and will do such other things in connection
with the Transaction Documents as Secured Party may request. Debtor hereby
authorizes Secured Party to file such financing statements relating to the
Collateral without Debtor's signature thereon as Secured Party may deem
appropriate, and appoints Secured Party as Debtor's attorney-in-fact (without
requiring Secured Party) to execute any such financing statement or statements
in Debtor's name and to perform all other acts which Secured Party deems
appropriate to perfect and continue the Security Interest and to protect,
preserve, and realize upon the Collateral.
14.2. PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to
perform any of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 10.11,
Secured Party may, but shall not be obligated to, perform any or all such
duties.
14.3. NOTICE OF SALE. Without in any way requiring notice to be given
in the following manner, Debtor agrees that any notice by Secured Party of sale,
disposition, or other intended action hereunder, or in connection herewith,
whether required by the Uniform Commercial Code as in effect in the State or
otherwise, shall constitute reasonable notice to Debtor if such notice is mailed
by regular or certified mail, postage prepaid, at least five (5) days prior to
such action, to Debtor's address or addresses specified above or to any other
address which Debtor has specified in writing to Secured Party as the address to
which notices hereunder shall be given to Debtor.
14.4. WAIVER BY SECURED PARTY. No course of dealing between Debtor and
Secured Party and no delay or omission by Secured Party in exercising any right
or remedy under the Transaction Documents or with respect to any Indebtedness
shall operate as a waiver thereof or of any other right or remedy, and no single
or partial exercise thereof shall preclude any other or further exercise thereof
or the exercise of any other right or remedy. All rights and remedies of Secured
Party are cumulative.
LOAN AGREEMENT - PAGE 39
<PAGE>
14.5. WAIVER BY DEBTOR. Secured Party shall have no obligation to
take, and Debtor shall have the sole responsibility for taking, any and all
steps to preserve rights against any and all Account Debtors and against any
and all prior parties to any note, Chattel Paper, draft trade acceptance, or
other instrument for the payment of money covered by the Security Interest
whether or not in Secured Party's possession. Secured Party shall not be
responsible to Debtor for loss or damage resulting from Secured Party's
failure to enforce any Receivables or to collect any moneys due, or to become
due, thereunder or other Proceeds constituting Collateral hereunder. Debtor
waives protest of any note, check, draft, trade acceptance, or other
instrument for the payment of money constituting Collateral at any time held
by Secured Party on which Debtor is in any way liable and waives notice of
any other action taken by Secured Party, including, without limitation,
notice of Secured Party's intent to accelerate the Indebtedness or any part
thereof.
14.6. SETOFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured Party,
at its sole election, may setoff against the Indebtedness any and all monies
then or thereafter owed to Debtor by Secured Party in any capacity, whether or
not the Indebtedness or the obligation to pay such monies owed by Secured Party
is then due, and Secured Party shall be deemed to have exercised such right of
setoff immediately at the time of such election even though any charge therefor
is made or entered on Secured Party's records subsequent thereto.
14.7. ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party acquiring any interest
in the Indebtedness or any part thereof.
14.8. SUCCESSORS AND ASSIGNS. Secured Party and Debtor, as used
herein, shall include the successors or assigns of those parties, except that
Debtor shall not have the right to assign its rights hereunder or any
interest herein.
14.9. MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as may be
provided in Item 36 of the Schedule or by a written agreement signed by
Debtor and a duly authorized officer of Secured Party.
14.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all of
which shall together constitute one in the same Agreement
14.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Any financial calculation
to be made, all financial statements and other financial information to be
provided, and all books and records to be kept in connection with the provisions
of this Agreement, shall be in accordance with generally accepted accounting
principles consistently applied during each interval and from interval to
interval; provided, however, that in the event changes in generally accepted
accounting principles shall be mandated by the Financial Accounting Standards
Board or any
LOAN AGREEMENT - PAGE 40
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similar accounting body of comparable standing, or should be recommended by
Debtor's certified public accountants, to the extent such changes would
affect any financial calculations to be made in connection herewith, such
changes shall be implemented in making such calculations only from and after
such date as Debtor and Secured Party shall have amended this Agreement to
the extent necessary to reflect such changes in the financial and other
covenants to which such calculations relate.
14.12. INDEMNIFICATION.
(a) If after receipt of any payment of all, or any part of; the
Indebtedness, Secured Party is, for any reason, compelled to surrender such
payment to any person or entity because such payment is determined to be
void or voidable as a preference, an impermissible set-off, or a diversion
of trust funds, or for any other reason, the Transaction Documents shall
continue in full force and Debtor shall be liable, and shall indemnify and
hold Secured Party harmless for, the amount of such payment surrendered.
The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Secured Party's rights under the Transaction
Documents and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this Section
14.12(a) shall survive the termination of this Agreement and the
Transaction Documents.
(b) Debtor agrees to indemnify, defend, and hold harmless Secured
Party from, and against, any and all liabilities, claims, damages,
penalties, expenditures, losses, or charges, including, but not limited to,
all costs of investigation, monitoring, legal representations, remedial
response, removal, restoration, or permit acquisition, which may now, or in
the future, be undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by Secured Party or any other person or entity as a result of the
presence of, Release of, or threatened Release of Hazardous Substances on,
in, under, or near the property owned, leased, or operated by Debtor or any
Consolidated Subsidiary. The liability of Debtor under the covenants of
this Section 14.12(b) is not limited by any exculpatory provisions in this
Agreement or any other documents securing the Indebtedness and shall
survive repayment of the Indebtedness or any transfer or termination of
this Agreement regardless of the means of such transfer or termination.
Debtor agrees that Secured Party shall not be liable in any way for the
completeness or accuracy of any Environmental Report or the information
contained therein. Debtor further agrees that Secured Party has no duty to
warn Debtor or any other person or entity about any actual or potential
environmental contamination or other problem that may have become apparent,
or will become apparent, to Secured Party.
(c) Debtor agrees to pay, indemnify, and hold Secured Party harmless
from, and against, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, or disbursements of
any kind or nature whatsoever (including, without limitation, counsel and
special counsel fees and disbursements in connection with any litigation,
investigation, hearing, or other proceeding) with respect, or in any way
LOAN AGREEMENT - PAGE 41
<PAGE>
related, to the existence, execution, delivery, enforcement, performance,
and administration of this Agreement and any other Transaction Document
(all of the foregoing, collectively, the "Indemnified Liabilities"). The
agreements in this Section 14.12(c) shall survive repayment of the
Indebtedness.
14.13. TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is, and is intended to be, a
continuing Agreement and shall remain in full force and effect for an
initial term equal to the term set forth in ITEM 33 of the Schedule and for
any renewal term also specified in ITEM 33 of the Schedule; provided,
however, that either party may terminate this Agreement as of the end of
the initial term or any subsequent renewal term by giving the other party
notice to terminate in writing at least sixty (60) days prior to the end of
any such period whereupon at the end of such period all Indebtedness shall
be due and payable in full without presentation, demand, or further notice
of any kind, whether or not all or any part of such Indebtedness is
otherwise due and payable pursuant to the agreement or instrument
evidencing same. Secured Party may terminate this Agreement immediately and
without notice upon the occurrence of an Event of Default. Notwithstanding
the foregoing or anything in this Agreement or elsewhere to the contrary,
the Security Interest, Secured Party's rights and remedies under the
Transaction Documents and Debtor's obligations and liabilities under the
Transaction Documents, shall survive any termination of this Agreement and
shall remain in full force and effect until all of the Indebtedness
outstanding, or contracted or committed for (whether or not outstanding),
before the receipt of such notice by Secured Party, and any extensions or
renewals thereof (whether made before or after receipt of such notice),
together with interest accruing thereon after such notice, shall be finally
and irrevocably paid in full. No Collateral shall be released or financing
statement terminated until: (i) such final and irrevocable payment in full
of the Indebtedness as described in the preceding sentence; and (ii) Debtor
and Secured Party execute a mutual general release, in form and substance
satisfactory to the Secured Party and Debtor and their counsel.
(b) Revolving Credit Prepayment Premium. If Debtor pays in full all,
or substantially all, of the principal balance of Advances under the
Revolving Credit prior to the end of the initial term or any renewal term
of this Agreement as set forth in ITEM 33 of the Schedule, other than
temporarily from funds internally generated in the ordinary course of
business, at the time of any such payment, Debtor shall also pay to Secured
Party the prepayment premium set forth in ITEM 35 of the Schedule. Any
tender of payment in full of such principal balance following an
acceleration by Secured Party of the Indebtedness, pursuant to Section 12.2
shall be, for purposes of this Section 14.13(b), deemed to be considered a
prepayment requiring Debtor to pay the prepayment premium set forth in ITEM
35 of the Schedule.
14.14. FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional documents,
instruments, certificates, and
LOAN AGREEMENT - PAGE 42
<PAGE>
agreements as Secured Party may reasonably request to effectuate the purposes
of the Transaction Documents.
14.15. HEADINGS. Article and Section headings used in this Agreement
are for convenience only and shall not affect the construction of this
Agreement.
14.16. CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery of
this Agreement shall in no manner impair or affect any other security (by
endorsement or otherwise) for payment or performance of the Indebtedness, and no
security taken hereafter as security for payment or performance of the
Indebtedness shall impair in any manner or affect this Agreement, or the
security interest granted hereby, all such present and future additional
security to be considered as cumulative security.
14.17. SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers conferred on Secured Party hereunder are solely
to protect its interests and shall not impose any duty to exercise any such
powers; and (b) except as may be required by applicable law, Secured Party shall
not have any duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral.
14.18. NOTICES GENERALLY. All notices and other communications hereunder
shall be made by telegram, telex, electronic transmitter, overnight air courier,
or certified or registered mail, return receipt requested, and shall be deemed
to be received by the party to whom sent one Business Day after sending, if sent
by telegram, telex, electronic transmitter, or overnight air courier, and three
Business Days after mailing, if sent by certified or registered mail. All such
notices and other communications to a party hereto shall be addressed to such
party at the address set forth on the cover page hereof or to such other address
as such party may designate for itself in a notice to the other party given in
accordance with this Section 14.18.
14.19. SEVERABILITY. The provisions of this Agreement are independent
of, and separable from, each other, and no such provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part. If
any provision of this Agreement is prohibited or unenforceable in any
jurisdiction, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable nor render prohibited or
unenforceable such provision in any other jurisdiction.
14.20. INCONSISTENT PROVISIONS. The terms of this Agreement and the
other Transaction Documents shall be cumulative except to the extent that they
are specifically inconsistent with each other, in which case the terms of this
Agreement shall prevail.
14.21. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement and understanding between the parties
hereto with respect to the transactions contemplated hereby and supersede all
prior negotiations, understandings, and agreements between such parties with
respect to such transactions, including, without limitation,
LOAN AGREEMENT - PAGE 43
<PAGE>
those expressed in any commitment letter delivered by Secured Party to
Debtor. Further pursuant to Section 26.01 of the Texas Business and Commerce
Code the following notice is given:
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
14.22. APPLICABLE LAW. THIS AGREEMENT, AND THE TRANSACTIONS EVIDENCED
HEREBY, SHALL BE GOVERNED BY, AND CONSTRUED UNDER, THE INTERNAL LAWS OF THE
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, AS THE SAME MAY FROM
TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE.
14.23. CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT ANY
ACTION OR PROCEEDING TO ENFORCE, OR ARISING OUT OF, THE TRANSACTION DOCUMENTS
MAY BE COMMENCED IN ANY COURT OF THE STATE IN ANY COUNTY, OR IN THE DISTRICT
COURT OF THE UNITED STATES IN ANY DISTRICT IN WHICH SECURED PARTY HAS AN
OFFICE, AND DEBTOR WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT
SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY
REGISTERED OR CERTIFIED MAIL TO DEBTOR, OR AS OTHERWISE PROVIDED BY THE LAWS
OF THE STATE OR THE UNITED STATES.
14.24. JURY TRIAL WAIVER. DEBTOR AND SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR OR
SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN
CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO. DEBTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF
SECURED PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SECURED PARTY
WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY
TRIAL WAIVER DEBTOR ACKNOWLEDGES THAT SECURED PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION
14.24.
14.25. WAIVER OF CONSUMER RIGHTS. DEBTOR HEREBY WAIVES ITS RIGHTS UNDER THE
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.,
BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF DEBTOR'S OWN SELECTION,
DEBTOR VOLUNTARILY CONSENTS TO THIS WAIVER. DEBTOR EXPRESSLY WARRANTS
LOAN AGREEMENT - PAGE 44
<PAGE>
AND REPRESENTS THAT DEBTOR (a) IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION RELATIVE TO LENDER, AND (b) HAS BEEN REPRESENTED BY LEGAL
COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
DEBTOR HAS READ AND UNDERSTANDS SECTION 14.25: IWL (Initials)
The undersigned have executed this Agreement on December 20, 1995.
IWL COMMUNICATIONS, INCORPORATED
By: /s/ Ignatius W. Leonards
-----------------------------------------------
Ignatius W. Leonards, President
Accepted by: MARINE MIDLAND BUSINESS
LOANS, INC.
By: /s/ Neal T. Legan
-----------------------------------------------
Neal T. Legan, Assistant Vice President
At Dallas, Texas
LOAN AGREEMENT - PAGE 45
<PAGE>
SCHEDULE
This Schedule is a part of a Loan and Security Agreement, dated December 20,
1995, between IWL COMMUNICATIONS, INCORPORATED and MARINE MIDLAND BUSINESS
LOANS, INC.
1. Borrowing Capacity (Section 1.1(c))
Borrowing Capacity under the Revolving Credit at any time shall be the net
amount determined by taking the lesser of the following amounts:
(A) the Maximum Credit,
or
(B) the amount equal to the sum of:
(i) up to eighty percent (80%) of the Receivables Borrowing
Base; and
(ii) the lesser of Five Hundred Thousand Dollars ($500,000.00) or
the amount of the Inventory Borrowing Base;
and subtracting from the lesser of (A) or (B) above, the sum of (a)
banker's acceptances, plus (b) letters of guaranty, plus (c) Letters of
Credit
1A. Term Loan Borrowing Capacity (Section 1.1(ccc))
Term Loan Borrowing Capacity under the Term Loan at any time shall be the
net amount determined by taking the lesser of the following amounts:
(A) Nine Hundred Fifty Thousand Dollars ($950,000.00),
or
(B) the amount equal to the sum of:
(i) up to seventy percent (70%) of the orderly liquidation value
of Debtor's Eligible Equipment, as such orderly liquidation value is
determined by an appraiser acceptable to Secured Party at its option;
and
(ii) up to sixty percent (60%) of the orderly liquidation value
of Debtor's Eligible Rental Inventory, as such orderly liquidation
value is determined by an appraiser acceptable to Secured Party at its
option.
SCHEDULE - PAGE 1
<PAGE>
1B. CAPEX Loan Borrowing Capacity (Section 11(f))
CAPEX Loan Borrowing Capacity under the CAPEX Loan at any time shall be the
net amount determined by taking the lesser of the following amounts:
(A) Five Hundred Thousand Dollars ($500,000.00),
or
(B) up to sixty percent (60%) of the invoice cost of new Eligible
Equipment or Eligible Rental Inventory purchased by the Company with proceeds of
any Advance under the CAPEX Loan.
2. Inventory Borrowing Base Percentages (Section 1.1(gg))
The following percentage of dollar value (calculated at the lower of actual
cost or market value, as such market value is determined by an appraiser
acceptable to Secured Party in its sole discretion) is applicable to the
Eligible Inventory:
a. finished goods, to the extent of up to forty percent (40%); and
b. raw materials, to the extent of up to forty percent (40%).
3. Cash Discount (Sections 1.1(j), 10.3)
Maximum Cash Discount of 2.0%, 30 days.
4. Receivables-Age (Section 1.1 (dd)(i))
Ninety (90) days after the Invoice date.
5. Receivables Disqualification Percentage (Section 1.1(dd)(vi))
Fifty percent (50%) or more.
6. Permissible Foreign Account Debtors (Section 1.1(dd)(vii))
None.
7. Inventory Accounting (Section 1.1(gg))
First-in, First-out
SCHEDULE - PAGE 2
<PAGE>
8. Marine Payment Account (Section 1.1(jj))
There is a Marine Payment Account.
Name and address of depository bank:
Marine Midland Bank
One Marine Midland Center
Buffalo, New York 14203
Account number: _______________________
9. Standby Letters of Credit (Section 2.4)
Five Hundred Thousand Dollars ($500,000.00).
10. State of Incorporation (Sections 4.2(b), 5.1)
Debtor State
-------------------------------- -----
IWL Communications, Incorporated Texas
Consolidated Subsidiaries
-------------------------
Spacelink Systems, Inc. Texas
11. Location(s) of Inventory and Equipment (Sections 5.4(c), 5.7,5.8(a) & 11.1)
Inventory Locations:
(a) 4311 FM 2351
Friendswood, TX 77546
(b) 4317B FM 2351
Friendswood, TX 77546
(c) 3354 FM 528
Friendswood, TX 77546
(d) 1000 Riverbend Blvd., Suite R
St. Charles, LA 70087
Equipment Locations (including names and addresses of owners of real
property and mortgagees):
SCHEDULE - PAGE 3
<PAGE>
(a) 4311 FM 2351
Friendswood, TX 77546
Owner: IWL Communications, Inc.
4311 FM 2351
Friendswood, TX 77546
Mortgagee: Independence Mortgage
(b) 4317B FM 2351
Friendswood, TX 77546
Owner: Larry Eubanks
P.O. Box 1246
Friendswood, TX 77549
(c) 3354 FM 528
Friendswood, TX 77546
Owner: CNA
P.O. Box 371-976
Pittsburgh, PA 15250
(d) 1000 Riverbend Blvd., Suite R
St Charles, LA 70087
Owner: Prudential Insurance
1250 Poydras, Suite 200
New Orleans, LA 70113
12. Permitted Encumbrances (Sections 5.5(a), 5.5(c) & 11.3)
(a) Lease agreements for a period of no more than ninety (90) days
between Debtor and Account Debtors pursuant to which Debtor
agrees to lease Rental Inventory.
(b) Liens on Equipment of Debtor created solely for the purpose of
securing the deferred purchase price of Equipment provided that
such liens cover only the property being acquired or proceeds
thereof and that the principal amount of the indebtedness secured
by any such lien shall not at any time exceed the original
purchase price of such Equipment
(c) Liens set forth on Exhibit B attached to the Agreement.
SCHEDULE - PAGE 4
<PAGE>
13. Business Records Location (Sections 5.8(a), 5.8(c) & 11.1)
(a) 4311 FM 2351
Friendswood, Texas 77546
(b) 4317B FM 2351
Friendswood, Texas 77546
14. Trademarks and Patents (Section 5.17)
Debtor: __________________________
Consolidated Subsidiaries: N/A
15. Margin Stock (Section 5.22) None.
16. Labor Contracts (Section 5.24)
Debtor:
Consolidated Subsidiaries: N/A
17. Authorized Shares (Sections 5.27, 11.7)
Total Authorized Common Shares: 100,000,000
Par Value: $ 0
Issued and Outstanding Shares: 2,222,200
18. Required Documents (Sections 6.1, Frequency
9.2(b), 9.4(a)) Due
---------
Borrowing Base Report Monthly, within 20 days after end of month.
Invoice register/sales journal Upon request.
Cash Receipts Journal and Upon request.
Schedule of Payments on
Receivables
Credits and Extensions Reports Upon request.
SCHEDULE - PAGE 5
<PAGE>
18. Required Documents (Sections 6.1, Frequency
9.2(b), 9.4(a)) Due
----------
Copies of shipping documents Upon Request.
relating to the Receivables
Receivables Summary Aging Monthly, within 20 days after end of
month.
Reconciliation of collateral to Monthly, within 20 days
Receivables Aging after end of month.
Payables aging report. Monthly, within 20 days after end of
month.
Reconciliation report, Monthly, within 30 days
reconciling monthly financial after end of month.
statements with Receivables
Aging, Inventory Summary
and Payable Aging
Inventory Summary Reports Monthly, within 30 days after end of
month.
List of names and addresses of Upon request.
Account Debtors
19. Interest Rate for the Revolving Credit (Section 8.2(a))
The lesser of (1) the Maximum Legal Rate, or (2) three-quarters percent
(0.75%) plus the Prime Rate.
19A. Interest Rate for the Term Loan (Section 8.2(b))
The lesser of (1) the Maximum Legal Rate, or (2) three-quarters percent
(.75%) plus the Prime Rate.
SCHEDULE - PAGE 6
<PAGE>
19B. Interest Rate for the Capex Loan (Section 8.2(c))
The lesser of (1) the Maximum Legal Rate, or (2) three-quarters percent
(0.75%) plus the Prime Rate.
19C. Default Interest Rate (Section 8.2(d))
The lesser of (1) the Maximum Legal Rate, or (2) three and
three-quarters percent (3.75%) plus the Prime Rate.
20. Fees and Due Dates (Section 8.3)
Type Amount Due Date(s)
- ---------------------- ---------------------------- -------------------------
Unused Line Fee 0.50% (on a per annum basis) Monthly, on the first day
of the difference between (i) of each month, in
the Maximum Credit and (ii) arrears.
the sum of (a) the average
daily outstanding balance
during each month of all
Advances under the Revolving
Credit and (b) the amount of
outstanding undrawn Letters
of Credit.
Letters of Credit Fees The greater of (i) $250 or At the time of issuance
(ii) One and one-half of any such Letters of
percent (1.50%) per annum Credit.
of the face amount of the
Letter of Credit.
21. Uncollected Funds Adjustment (Sections 1.1(d), 8.6)
Two (2) Business Days.
22. Additional Covenants (Sections 10 & 11)
(a) Debtor shall promptly notify Secured Party in writing if any
Rental Inventory is leased to an Account Debtor of the Debtor who is
located outside of the states in which Secured Party has filed UCC
financing statements.
(b) If Debtor agrees to lease any Rental Inventory for a period of
more than ninety (90) days, Debtor shall notify Secured Party in writing
prior to the seventy-fifth (75th) day of the relevant lease agreement.
SCHEDULE - PAGE 7
<PAGE>
23. Terms of Sale (Section 10.3)
Due dates of no more than 45 calendar days from date of Invoice, except in
regard to transactions specified below under "Datings."
Datings: None.
24. Minimum Tangible Net Worth; Debt to Tangible Net Worth Ratio; Net Profit
After Taxes; Debt Coverage Ratio, etc. (Sections 10.13,11.16)
(a) DEBTOR - Consolidated Basis
(1) MINIMUM TANGIBLE NET WORTH: Debtor shall maintain, on a
consolidated basis, a Tangible Net Worth ("TNW") not less than the amounts
set forth below for the time periods set forth below:
Amount Time Period
------ -----------
$2,480,000 From the date of closing
through June 29, 1996
Prior Year TNW PLUS From June 30, 1996
$200,000 through June 29, 1997
Prior Year TNW PLUS From June 30, 1997
$200,000 through June 29, 1998
Prior Year TNW PLUS From June 30, 1998
$200,000 through June 29, 1999
Prior Year TNW PLUS As determined on a yearly
$200,000 basis for all subsequent 1-year
terms granted pursuant to an
Extension Period.
"Tangible Net Worth" means the sum of stockholders' equity, PLUS the
principal balance of any debt that is subordinated to Secured Party in a manner
satisfactory to Secured Party, MINUS the book value of Intangible Assets (as
defined below), all determined in accordance with generally accepted accounting
principles consistently applied.
"Intangible Assets" means (1) all loans or advances to, and other
receivable owing from' any officers, employees, subsidiaries and other
affiliates, (2) all investments, whether in a subsidiary or otherwise, (3)
goodwill, (4) any other assets deemed intangible under
SCHEDULE - PAGE 8
<PAGE>
generally accepted accounting principles, and (5) any other assets determined
to be intangible by Secured Party in its reasonable credit judgment.
"Prior Year TNW" means, for any relevant one-year period, the TNW as
calculated for the year immediately preceding the current one-year period.
(2) MAXIMUM DEBT TO TANGIBLE NET WORTH RATIO: Debtor shall maintain, on
a consolidated basis, a ratio of total liabilities (excluding the principal
balance of any debt that is subordinated to Secured Party in a manner
satisfactory to Secured Party) to Tangible Net Worth (as defined above) of no
greater than the ratio set forth below during the time periods set forth
below:
Ratio Time Period
----- -----------
3.0:1.0 At all times, tested monthly.
(3) MINIMUM NET PROFIT AFTER TAXES: Debtor shall achieve, on a
consolidated basis, Net Profit After Taxes of at least $200,000, on an annual
basis, as at the end of each fiscal year.
"Net Profit After Taxes" means, for the period of determination, net income
after provisions for taxes for such period, determined in accordance with
generally accepted accounting principles consistently applied.
(4) MINIMUM DEBT SERVICE COVERAGE RATIO: Debtor shall maintain, on a
consolidated basis, Debt Service Coverage Ratio of no less than the ratio set
forth below for the time periods set forth below:
Ratio Time Period
----- -----------
1.25:1.0 Tested monthly, on a
rolling 12-month basis.
"Debt Service Coverage Ratio" means, for the period of determination, a
ratio with Net Profit After Taxes (as defined above) PLUS depreciation and
amortization expense as the numerator and the sum of the regular principal
payments of any long term debt due over the prior 12 months as the denominator.
(b) DEBTOR - Unconsolidated Basis.
(1) MINIMUM TANGIBLE NET WORTH: Debtor shall maintain a Tangible Net Worth
("TNW") of not less than the amounts set forth below for the time periods set
forth below:
SCHEDULE - PAGE 9
<PAGE>
Amount Time Period
------ -----------
$2,000,000 From the date of closing
through June 29, 1996
Prior Year TNW PLUS From June 30, 1996
$200,000 through June 29, 1997
Prior Year TNW PLUS From June 30, 1997
$200,000 through June 29, 1998
Prior Year TNW PLUS From June 30, 1998
$200,000 through June 29, 1999
Prior Year TNW PLUS As determined on a yearly
$200,000 basis for all subsequent 1-year
terms granted pursuant to an
Extension Period.
(2) MAXIMUM DEBT TO TANGIBLE NET WORTH RATIO: Debtor shall maintain a
ratio of total liabilities (excluding the principal balance of any debt that is
subordinated to Secured Party in a manner satisfactory to Secured Party) to
Tangible Net Worth (as defined above) of no greater than the ratio set forth
below during the time periods set forth below:
Ratio Time Period
----- -----------
3.0:1.0 At all times, tested monthly.
(3) MINIMUM NET PROFIT AFTER TAXES: Debtor shall achieve Net Profit After
Taxes of at least $200,000 on an annual basis, as determined at the end of each
fiscal year.
(4) MINIMUM DEBT SERVICE COVERAGE RATIO: Debtor shall maintain a Debt
Service Coverage Ratio of no less than the ratio set forth below for the time
periods set forth below:
Ratio Time Period
----- -----------
1.5:1.0 Tested monthly, on a
rolling 12-month basis.
SCHEDULE - PAGE 10
<PAGE>
(c) Spacelink Systems, Inc.
(1) MINIMUM TANGIBLE NET WORTH: Spacelink Systems, Inc. shall maintain a
Tangible Net Worth ("TNW") of not less than the amount set forth below for the
time period set forth below:
Amount Time Period
------ -----------
$450,000 At all times.
25. Permitted Borrowings (Section 11.2)
Debtor:
(a) Borrowings of Debtor incurred solely for the purpose of financing
the deferred purchase price of Equipment, provided that such
borrowings, if secured, are secured only by the property being
acquired or proceeds thereof and that the principal amount of the
borrowings incurred shall not at any time exceed the original
purchase price of the Equipment acquired thereby.
(b) Borrowings set forth on Exhibit B attached to the Agreement.
Consolidated Subsidiaries: Only those existing borrowings, by Spacelink
Systems, Inc. pursuant to term lending
facilities with First Bank & Trust and
secured by specific identified equipment.
26. Permitted Investments and Advances (Section 119(d))
Debtor:
(a) Advances and/or investments to Spacelink Systems, Inc.; provided,
however, that the aggregate amount of such advances and investments shall
not exceed seventy-five thousand dollars ($75,000.00) at any time.
(b) Advances and/or investments to Kenwood Systems Group, Inc.;
provided, however, such advances and investments shall not exceed fifty
thousand dollars ($50,000.00) at any time.
Consolidated Subsidiaries: N/A
27. Permitted Guaranties (Sections 5.18, 11.10)
Debtor: The guaranty of the existing obligations of Spacelink Systems,
Inc. to First Bank & Trust pursuant to a term lending facility.
SCHEDULE - PAGE 11
<PAGE>
Consolidated Subsidiaries: N/A
28. Maximum Annual Lease Rentals (Section 11.11)
Debtor: N/A
Consolidated Subsidiaries: N/A
29. Permitted Capital Expenditures (Section 11.12)
Debtor: $ 1,500,000
Consolidated Debtor $1,500,000
Consolidated Subsidiaries: N/A
30. Maximum Aggregate Compensation (Section 11.13(a))
Debtor: N/A
Consolidated Subsidiaries: N/A
31. Maximum Annual Compensation for Certain Individuals (Section 11.13(b))
Debtor: N/A
Consolidated Subsidiaries: N/A
32. State(Section 1.1(aaa)) Texas.
33. Initial Term and Renewal Term (Section 14.13(a))
Initial Term: From the Closing Date until December 31, 1998.
Renewal Term: Successive twelve (12)-month periods thereafter.
34. Percentage of Stock Ownership of Consolidated Subsidiaries (Sections 5.25,
10.24)
Debtor's Percentage
Consolidated Subsidiary of Ownership
----------------------- ------------
Spacelink Systems, Inc. 100%
35. Prepayment Premium (Section 14.13(b))
(A) Revolving Credit:
SCHEDULE - PAGE 12
<PAGE>
If termination of the Revolving Credit occurs on or before the first
anniversary of the date of the Agreement, then the prepayment premium shall
be equal to two percent (2.0%) of the Maximum Credit. If termination of the
Revolving Credit occurs on or before the second anniversary of the date of
the Agreement, but after the first anniversary of the date of the
Agreement, then the prepayment premium shall be equal to one percent (1.0%)
of the Maximum Credit. If termination of the Revolving Credit occurs
before the third anniversary of the date of the Agreement, but after the
second Anniversary, then the prepayment premium shall be equal to one-half
percent (0.5%) of the amount prepaid or accelerated, as the case may be. No
prepayment fee will be payable if payment occurs on or after the third
anniversary of the date of the Agreement.
(B) Term Loan:
No prepayment fee will be payable.
(C) CAPEX Loan:
No prepayment fee will be payable.
36. Other Provisions (Section 14.9)
[This space intentionally left blank.]
The undersigned have executed this Schedule on December 20, 1995.
IWL COMMUNICATIONS,
INCORPORATED
By: /s/ Ignatius W. Leonards
------------------------------------------
Ignatius W. Leonards, President
MARINE MIDLAND BUSINESS LOANS, INC.
By: /s/ Neal T. Legan
------------------------------------------
Neal T. Legan, Assistant Vice President
At ILLEGIBLE Dallas, Texas
------------------------------------------
SCHEDULE - PAGE 13
<PAGE>
TERM NOTE
$950,000.00 December 20, 1995
FOR VALUE RECEIVED, the undersigned ("BORROWER"), hereby promises to pay
to the order of MARINE MIDLAND BUSINESS LOANS, INC., a Delaware corporation
("LENDER"), in such coin or currency of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the
time of payment, the principal sum of Nine Hundred Fifty Thousand Dollars and
No/l00 ($950,000.00), together with interest on the unpaid principal balance
outstanding from and after the date hereof (i) until maturity (whether by
acceleration or otherwise) at a variable rate per annum equal to
three-fourths percent (0.75%) above the Prime Rate and (ii) thereafter, at a
variable rate per annum equal to three and three-fourths percent (3.75%)
above the Prime Rate.
This Term Note (the "NOTE") is the Term Note referred to in, and is
issued pursuant to, that certain Loan and Security Agreement between Borrower
and Lender dated December ____, 1995 (as amended from time to time, the "LOAN
AGREEMENT"), and is entitled to all of the benefits and security of the Loan
Agreement. All of the terms, covenants and conditions of the Loan Agreement
and all other instruments evidencing or securing the indebtedness hereunder
(including, without limitation, the "Transaction Documents" as defined in the
Loan Agreement) are hereby made a part of this Note and are deemed
incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed
to them in the Loan Agreement.
Borrower acknowledges and understands that the Prime Rate merely serves
as a basis upon which effective rates of interest are calculated for loans
making reference to the per annum rate of interest publicly announced by
Marine Midland Bank from time to time as its prime rate and that such rate
may not be the lowest or best rate at which such bank calculates interest or
extends credit. After the date hereof, the rate of interest in effect
hereunder shall be increased or decreased, as the case may be, by an amount
equal to any increase or decrease in the Prime Rate, with such adjustments to
be effective as of the opening of business on the date that any such change
in the Prime Rate becomes effective. The Prime Rate in effect on the date
hereof shall be the Prime Rate effective as of the opening of business on the
date hereof, but if this Note is executed on a day that is not a Business
Day, the Prime Rate in effect on the date hereof shall be the Prime Rate
effective as of the opening of business on the last Business Day immediately
preceding the date hereof.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be
paid to Lender for the use, forbearance or detention of money advanced
hereunder exceed the highest lawful rate permissible under any law which a
court of competent jurisdiction may deem applicable hereto. In the event that
such a court determines that Lender has charged or received interest
hereunder in excess of the highest applicable rate, such rate shall
automatically be reduced to the maximum
TERM NOTE-PAGE 1
<PAGE>
rate permitted by applicable law and Lender shall promptly refund to Borrower
any interest received by Lender in excess of the maximum lawful rate or, if
so requested by Borrower, shall apply such excess to the principal balance of
this Note. It is the intent hereof that Borrower not pay or contract to pay,
and that Lender not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by
Borrower under applicable law.
For so long as no Event of Default shall have occurred under the Loan
Agreement, the principal amount and accrued interest of this Note shall be
due and payable on the dates and in the manner hereinafter set forth:
(a) interest shall be due and payable monthly, in arrears, on the
first day of each month, commencing on February 1, 1996, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) commencing on February 1, 1996, and continuing on the first day
of each month thereafter to and including the first day of the month
immediately preceding the expiration of the Renewal Term (as set forth in
the Schedule to the Loan Agreement, including any extensions there),
principal payments in the amount of Fifteen Thousand Eight Hundred Thirty-
Three Dollars and No/100 ($15,833.00) each; and
(c) at the expiration of the Renewal Term (which presently is
December 31, 1998), a final principal payment equal to the entire
unpaid principal balance hereof, together with any and all other
amounts due hereunder.
If the Renewal Term is extended in a manner as provided by the Loan
Agreement, then the final principal payment will be due upon the expiration
of the extended Renewal Term; and monthly principal payments, as contemplated
in clause (b) above, shall continue to be payable during the period of any
such extension.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon any
termination of the Loan Agreement pursuant to Section 14.13 thereof.
This Note shall be subject to mandatory prepayment in accordance with the
provisions of Section 14.13 of the Loan Agreement. Borrower may prepay this
Note in whole at any time or in part from time to time, subject to the
applicable prepayment premium set forth in the Schedule.
All partial prepayments, whether mandatory or voluntary, shall be applied
to installments of principal in the inverse order of their maturities.
The occurrence of an Event of Default under the Loan Agreement,
including, without limitation, (i) the failure to pay any installment of
principal or interest on this Note in full on the due date thereof in
accordance with the terms of this Note or (ii) the failure to pay any
TERM NOTE-PAGE 2
<PAGE>
installment of principal or interest on the CAPEX Term Note (as such term is
defined in the Loan Agreement) in full on the due date thereof in accordance
with the terms of the CAPEX Term Note, shall constitute an Event of Default
under this Note and shall entitle Lender, at its option, upon, or at any time
after the occurrence of any such Event of Default, to declare the then
outstanding principal balance and accrued interest hereof to be, and the same
shall thereupon become, immediately due and payable without notice to or
demand upon Borrower, all of which Borrower hereby expressly waives. If this
Note is collected by or through an attorney at law, then Borrower shall be
obligated to pay, in addition to the principal balance and accrued interest
hereof, reasonable attorney's fees, not to exceed 15% of such principal and
interest, and court costs.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by Lender of any right or remedy preclude any other right or remedy.
Lender, at its option, may enforce its rights against any collateral securing
this Note without enforcing its rights against Borrower, any guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to Borrower. Borrower agrees that, without releasing or impairing
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness
evidenced by this Note.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Texas.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered in Dallas, Texas, on the date first above written.
IWL COMMUNICATIONS
INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-------------------------------------
Ignatius W. Leonards, President
TERM NOTE-PAGE 3
<PAGE>
CAPEX TERM NOTE
$500,000.00 December 20, 1995
FOR VALUE RECEIVED, the undersigned ("BORROWER"), hereby promises to pay
to the order of MARINE MIDLAND BUSINESS LOANS, INC., a Delaware corporation
("LENDER"), in such coin or currency of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the
time of payment, the principal sum of Five Hundred Thousand and No/l 00
Dollars ($500,000.00), or so much of such principal sum as may have been
advanced and be outstanding hereunder, together with interest on the unpaid
principal balance outstanding from and after the date hereof (i) until
maturity (whether by acceleration or otherwise) at a variable rate per annum
equal to three-fourths percent (0.75%) above the Prime Rate and (ii)
thereafter, at a variable rate per annum equal to three and three-fourths
percent (3.75%) above the Prime Rate.
This CAPEX Term Note (the "NOTE") is the CAPEX Term Note referred to in,
and is issued pursuant to, that certain Loan and Security Agreement between
Borrower and Lender dated December 20, 1995 (as amended from time to time,
the "LOAN AGREEMENT"), and is entitled to all of the benefits and security of
the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and all other instruments evidencing or securing the indebtedness
hereunder (including, without limitation, the "Transaction Documents" as
defined in the Loan Agreement) are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed
to them in the Loan Agreement.
Borrower acknowledges and understands that the Prime Rate merely serves
as a basis upon which effective rates of interest are calculated for loans
making reference to the per annum rate of interest publicly announced by
Marine Midland Bank from time to time as its prime rate and that such rate
may not be the lowest or best rate at which such bank calculates interest or
extends credit. After the date hereof, the rate of interest in effect
hereunder shall be increased or decreased, as the case may be, by an amount
equal to any increase or decrease in the Prime Rate, with such adjustments to
be effective as of the opening of business on the date that any such change
in the Prime Rate becomes effective. The Prime Rate in effect on the date
hereof shall be the Prime Rate effective as of the opening of business on the
date hereof, but if this Note is executed on a day that is not a Business
Day, the Prime Rate in effect on the date hereof shall be the Prime Rate
effective as of the opening of business on the last Business Day immediately
preceding the date hereof.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be
paid to Lender for the use, forbearance or detention of money advanced
hereunder exceed the highest lawful rate
CAPEX TERM NOTE-PAGE 1
<PAGE>
permissible under any law which a court of competent jurisdiction may deem
applicable hereto. In the event that such a court determines that Lender has
charged or received interest hereunder in excess of the highest applicable
rate, such rate shall automatically be reduced to the maximum rate permitted
by applicable law and Lender shall promptly refund to Borrower any interest
received by Lender in excess of the maximum lawful rate or, if so requested
by Borrower, shall apply such excess to the principal balance of this Note.
It is the intent hereof that Borrower not pay or contract to pay, and that
Lender not receive or contract to receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be paid by Borrower
under applicable law.
For so long as no Event of Default shall have occurred under the Loan
Agreement, the principal amount and accrued interest of this Note shall be
due and payable on the dates and in the manner hereinafter set forth:
(a) interest shall be due and payable monthly, in arrears, on the
first day of each month, commencing on January 1, 1997, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) commencing on January l, 1997, and continuing on the first day of
each month thereafter to and including the first day of the month
immediately preceding the expiration of the Renewal Term (as set forth on
the Schedule to the Loan Agreement, including any extensions thereof),
principal payments in the amount of 1/48th of the amount outstanding under
the CAPEX Loan (as such term is defined in the Loan Agreement) on December
31, 1996 each; and
(c) at the expiration of the Renewal Term (which presently is
December 31, 1998), a final principal payment equal to the entire unpaid
principal balance hereof, together with any and all other amounts due
hereunder.
If the Renewal Term is extended in a manner as provided by the Loan
Agreement, then the final principal payment will be due upon the expiration
of the extended Renewal Term; and monthly principal payments, as contemplated
in clause (b) above, shall continue to be payable during the period of any
such extension.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon any
termination of the Loan Agreement pursuant to Section 14.13 thereof.
This Note shall be subject to mandatory prepayment in accordance with the
provisions of Section 14.13 of the Loan Agreement. Borrower may prepay this
Note in whole at any time or in part from time to time, subject to the
applicable prepayment premium set forth in the Schedule.
All partial prepayments, whether mandatory or voluntary, shall be applied
to installments of principal in the inverse order of their maturities.
CAPEX TERM NOTE-PAGE 2
<PAGE>
The occurrence of an Event of Default under the Loan Agreement,
including, without limitation, (i) the failure to pay any installment of
principal or interest on this Note in full on the due date thereof in
accordance with the terms of this Note or (ii) the failure to pay any
installment of principal or interest on the Term Note (as such term is
defined in the Loan Agreement) in full on the due date thereof in accordance
with the terms of the Term Note, shall constitute an Event of Default under
this Note and shall entitle Lender, at its option, upon, or at any time after
the occurrence of any such Event of Default, to declare the then outstanding
principal balance and accrued interest hereof to be, and the same shall
thereupon become, immediately due and payable without notice to or demand
upon Borrower, all of which Borrower hereby expressly waives. If this Note
is collected by or through an attorney at law, then Borrower shall be
obligated to pay, in addition to the principal balance and accrued interest
hereof, reasonable attorney's fees, not to exceed 15% of such principal and
interest, and court costs.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by Lender of any right or remedy preclude any other right or remedy.
Lender, at its option, may enforce its rights against any collateral securing
this Note without enforcing its rights against Borrower, any guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to Borrower. Borrower agrees that, without releasing or impairing
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness
evidenced by this Note.
This Note shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of Texas.
CAPEX TERM NOTE-PAGE 3
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered in Dallas, Texas, on the date first above written.
IWL COMMUNICATIONS,
INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
------------------------------------
Ignatius W. Leonards, President
CAPEX TERM NOTE-PAGE 4
<PAGE>
PROMISSORY NOTE
$100,000.00 Date: May 4, 1995
For value received, the undersigned IWL COMMUNICATIONS, INC. (the "Promisor")
promises to pay to the order of BYRON M. ALLEN (the "Payee"), at 505
Cedarwood, Friendswood, TX 77546, (or at such other place as the Payee may
designate in writing) the sum of $100,000.00 with interest from May 4, 1995,
on the unpaid principal at the annual rate of 2% over the Edward D. Jones
margin account borrowing cost. Such rate will be adjusted as often as the
Edward D. Jones margin account borrowing rate in Friendswood, TX is adjusted.
The unpaid principal and accrued interest shall be payable in monthly
installments, beginning on June 4, 1995, and continuing until May 4, 1999,
(the "Due Date"), at which time the remaining unpaid principal and interest
shall be due in full. All payments on this Note shall be applied first in
payment of accrued interest and any remainder in payment of principal.
If any installment is not paid when due, the remaining unpaid balance and
accrued interest shall become due immediately at the option of the Payee.
If the Promisor obtains additional equity financing in the capital markets,
the remaining unpaid balance and accrued interest shall become due
immediately at the option of the Payee.
The Promisor reserves the right to prepay this Note (in whole or in part)
prior to the Due Date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
If any of the following events of default occur, this Note and any other
obligations of the Promisor to the Payee, shall become due immediately,
without demand or notice:
1) the failure of the Promisor to pay the principal and any accrued interest
in full on or before the Due Date;
2) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
3) the application for appointment of a receiver for the Promisor;
4) the making of a general assignment for the benefit of the Promisor's
creditors;
5) the insolvency of the Promisor; or
6) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit.
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as security for
the payment of this Note, or if there is a default in any security agreement
which secures this Note.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
<PAGE>
All payments of principal and interest on this Note shall be paid in the
legal currency of the United States. Promisor waives presentment for payment,
protest, and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the
Payee under this Note, or assignment by Payee of this Note shall affect the
liability of the Promisor. All rights of the Payee under this Note are
cumulative and may be exercised concurrently or consecutively at the Payee's
option.
This Note shall be construed in accordance with the laws of the State of
Texas.
Signed this 4th day of May, 1995, at
4311 FM 2351, Friendswood, TX 77546
IWL COMMUNICATIONS, INC.
By: /s/ Ignatius Leonards
-------------------------------------
IWL COMMUNICATIONS, INC.
<PAGE>
[LETTERHEAD]
February 28, 1997
Mr. Ignatius W. Leonards
IWL Communications, Inc.
12000 Aerospace Avenue
Houston, Texas 77034
RE: Amendment to the Loan and Security Agreement between IWL Communications,
Inc. and Marine Midland Bank successor in interest to Marine Midland Business
Loans, Inc. dated December 20, 1995.
Dear Mr. Leonards:
Please allow this correspondence to document the following amendments to the
above referenced loan agreement:
1) Amend item number 24.(a)(2) Maximum Debt to Tangible Net Worth Ratio -
Consolidated in the Schedule to the Loan and Security Agreement to: 4.0 : 1.0.
2) Amend item number 24.(b)(2) Maximum Debt to Tangible Net Worth Ratio -
Unconsolidated in the Schedule to the Loan and Security Agreement to: 4.5 : 1.0.
3) Amend item number 29. Permitted Capital Expenditures in the Schedule
to the Loan and Security Agreement to: $5,000,000.
4) Amend Section 1.1(11) in the Loan and Security Agreement to: Maximum
Credit means Four Million Five Hundred Thousand Dollars ($4,500,000.00).
5) Amend Section 11.7 in the Loan and Security Agreement to: Capital
Stock. Purchase or retire any of its capital stock where the accounting for
such a transaction would create a breach of the financial covenants. Debtor
may issue capital stock so long as no default is created under Section
12.1(p) Change of Ownership.
Although executed on the above date, the effective date of these amendments
is September 30, 1996.
Acknowledged and Agreed: Accepted:
/s/ Ignatius W. Leonards /s/ Neal T. Legan
- --------------------------------- ----------------------------------
Ignatius W. Leonards Neal T. Legan
President Vice President
<PAGE>
ACCOUNTANT'S CONSENT
The Board of Directors
IWL Communications, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
March 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1996 AND THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1995 JUL-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 361 423
<SECURITIES> 0 0
<RECEIVABLES> 5,812 5,229
<ALLOWANCES> 75 65
<INVENTORY> 987 1,803
<CURRENT-ASSETS> 7,367 7,995
<PP&E> 8,386 10,708
<DEPRECIATION> 3,895 4,432
<TOTAL-ASSETS> 12,409 14,903
<CURRENT-LIABILITIES> 5,556 5,853
<BONDS> 2,944 4,865
0 0
0 0
<COMMON> 22 22
<OTHER-SE> 3,676 3,946
<TOTAL-LIABILITY-AND-EQUITY> 12,409 14,903
<SALES> 0 0
<TOTAL-REVENUES> 27,796 15,644
<CGS> 20,415 11,684
<TOTAL-COSTS> 26,518 15,055
<OTHER-EXPENSES> 26 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 316 231
<INCOME-PRETAX> 1,050 395
<INCOME-TAX> 316 134
<INCOME-CONTINUING> 734 261
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 734 261
<EPS-PRIMARY> .33 0.12
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
CONSENT
The undersigned, Christopher J. Amenson, has been nominated to become a
director of IWL Communications, Incorporated, a Texas corporation (the
"Company"), upon completion of the Company's initial public offering pursuant
to a Registration Statement on Form S-1 (the "Registration Statement") and
hereby accepts such nomination. The undersigned hereby consents to being
named as a director nominee in the Registration Statement.
Date: March 3, 1997 /s/ Christopher J. Amenson
-------------------------------------
Christopher J. Amenson
