<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
REGISTRATION NO. 333-22801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. / /
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 APRIL 29, 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 Underwriters have been granted 45-day options to purchase up to an
additional 187,500 shares, solely to cover over-allotments, if any, of which
an option to purchase up to 87,500 shares has been granted by the Company
and an option to purchase up to 100,000 shares has been granted by the
Selling Shareholder. The Company will not receive any proceeds from the sale
of shares by the Selling Shareholder. See "Principal and Selling
Shareholders" and "Underwriting." If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholder 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 CERTAIN LOCATIONS WITHIN 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.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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, 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 OPTIONS (INCLUDING THOSE GRANTED BY THE SELLING
SHAREHOLDER).
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 U.S. Gulf Coast region 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 believes that providers of cellular and
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 these regions, the local
communities in such regions may be able to make use of the available extra
carrier capacity, even though the 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 its 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 March 31, 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 and carrier....................................... $ 13,642 $ 14,566 $ 15,683 $ 6,664 $ 9,528
Land mobile............................................... 1,218 1,228 1,559 533 1,421
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 10,827 4,227 7,004
Cost of sales--product resales.............................. -- -- 9,588 -- 4,680
--------- --------- --------- --------- ---------
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)...................... 2,011 2,233 2,233 2,233 2,233
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 423 $ 8,423
Working capital........................................................................... 2,143 10,143
Total assets.............................................................................. 14,903 22,903
Notes payable, noncurrent portion......................................................... 4,865 4,865
Shareholders' equity...................................................................... 3,969 12,469
</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 made to them 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. Shell Oil Company, whose subsidiary
is a customer of the Company, also competes with the Company through services
provided over Shell Oil Company's microwave network in the Gulf of Mexico area.
Shell Oil Company has announced plans to become a full service
telecommunications
6
<PAGE>
provider to the oil and gas industry including in the Gulf Coast region
currently served by the Company. 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 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 which originate in the United States and which
terminate both domestically and internationally as a switchless reseller since
1994. The Company intends to begin offering these services as a switch-based
carrier by the end of 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 or will be able in
the future 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, competition
within this market is likely to be as intense as competition within the long
distance market. The services offered by the Company will compete with those
offered by LECs, such as BellSouth and Southwestern Bell, 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."
7
<PAGE>
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 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 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 transmission 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 from the
incumbent LECs 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 CLEC services will receive
market acceptance in a timely manner, or at all, or that the Company's CLEC
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 telecommunications services. In the United States, the provision of the
Company's services is subject to the provisions of the Communications Act of
1934, as
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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 state public service commissions ("PSCs"). 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 addition to detailed licensing, tariffing and operational requirements, the
FCC and the PSCs impose reporting obligations, annual fees, and other ongoing
regulatory obligations on the Company. These agencies also regulate certain
corporate matters and transactions including transfers of control of the
Company. 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. Changes in regulatory rules have also permitted
increased competition in land mobile, microwave and satellite radio services
from existing providers and new entrants. 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 or has not been operating under permissible
terms and conditions or in compliance with applicable requirements may result in
an enforcement action or investigation by the FCC or a PSC, which may consist of
a range of penalties including, but not limited to, fines and license
revocation, 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 for local exchange and access services. The 1996
Telecommunications Act also eliminates previous prohibitions on the provision of
inter-LATA (which is a Local Access and Transport Area) long distance services
by the BOCs and GTOCs and opens up local telephone service to long distance
companies and other competitors. 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 currently 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, but not limited to, fines or revocation or divestiture of its
licenses. The recently signed World Trade Organization ("WTO") agreement
committed 68 countries, including the United States, to eliminating barriers to
competition in basic telecommunications services, including foreign ownership
limitations. Thus, on the January 1, 1998 effective date of the WTO agreement,
the United States is expected to eliminate limits on foreign ownership. There
can be no assurance that the WTO agreement will be
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implemented in the U.S. in such a manner that eliminates entirely the current
foreign ownership limitations or that legislation will not be passed that
imposes ownership limitations. The Company's operations also will be affected by
introduction of new cellular, PCS and other radio 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."
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 original Alcatel agreement provided in its
terms for its expiration in December 1996; however, the parties continued to
abide by the terms of the original Alcatel agreement until a new agreement,
which renewed and extended the original Alcatel agreement, was entered into. The
renewed Alcatel agreement expires on December 31,
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1999. 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 its services or business. See "Business--Strategic
Relationships and Alliances."
In an attempt to make its services more accessible to potential customers,
the Company has entered into contracts with the owners of over 50 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.
SIGNIFICANT CAPITAL REQUIREMENTS
The expansion of the Company's telecommunications operations and the
continued funding of operating expenses has required and is expected to continue
to 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
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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."
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. See Note 7 to the Company's Consolidated Financial Statements.
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 agreements with customers and/or suppliers 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 on or create
competition for the Company's services. While the recent 68-nation WTO 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
currency. 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.
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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 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. Upon commencing service 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
incumbent 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 important in order to maintain sophisticated and reliable
transaction processing systems that produce accurate and complete billing
statements. 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
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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 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 53% if the Underwriters' over-allotment options are 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 60% if the Underwriters'
over-allotment options are 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
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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.
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."
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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. This volatility often has
been unrelated to the operating performance of the affected companies. There can
no assurance that market fluctuations will not 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
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 (3,565,316 shares if the
Underwriters' over-allotment options are 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 options are 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
$4.41 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 $8.5 million
($9.1 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 $7.8 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 $500,000
will be used to repay a CAPEX Term Note under its bank credit agreement with
Marine Midland Business Loans, Inc. ("Marine Midland"); and (iii) approximately
$200,000 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 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, including the development of its
network. 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. 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, including the
development of its network, which would have a material adverse effect on the
Company's financial condition, results of operations and cash flow. See "Risk
Factors--Significant Capital Requirements."
The Company intends to use approximately $500,000 of the estimated net
proceeds of the Offering to pay in full the outstanding balance of the CAPEX
Term Note dated December 20, 1995 in the original principal amount of $500,000
as executed and delivered by the Company under the Company's bank credit
agreement with Marine Midland. The CAPEX Term Note bears interest at a rate
equal to the prime rate plus .75% and is due on December 31, 1998 (subject to
renewals).
In the event the Underwriters exercise the over-allotment option granted to
them by the Selling Shareholder, the Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Shareholder.
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 $3.59 per share. This
represents an immediate increase in the net tangible book value of $1.81 per
share to existing shareholders and an immediate dilution in net tangible book
value of $4.41 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........................... 1.81
As adjusted net tangible book value per share after the Offering............. 3.59
Dilution per share to new investors.......................................... $ 4.41
---------
---------
</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. The issuance of additional
shares of Common Stock upon the exercise of any of the options outstanding as of
December 31, 1996 under the Incentive Stock Option Plan will result in
additional dilution. 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 $ 606
--------- -----------
--------- -----------
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 8,757
Retained earnings........................................................................ 3,677 3,677
--------- -----------
Total shareholders' equity............................................................... 3,969 12,469
--------- -----------
Total capitalization..................................................................... $ 8,834 $ 17,334
--------- -----------
--------- -----------
</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, and (iv)
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."
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 and carrier............................ $ 13,642 $ 14,566 $ 15,683 $ 6,664 $ 9,528
Land mobile.................................... 1,218 1,228 1,559 533 1,421
Product resales(1)............................. -- -- -- -- 10,554 -- 4,695
--------- --------- --------- --------- --------- --------- ---------
Total sales(4)............................... 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 10,827 4,227 7,004
Cost of sales--product resales................... -- -- -- -- 9,588 -- 4,680
--------- --------- --------- --------- --------- --------- ---------
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)........... 2,011 2,011 2,011 2,233 2,233 2,233 2,233
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<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 $ 8,423
Working capital.................................. 1,081 709 (367) (265) 1,811 2,143 10,143
Total assets..................................... 4,130 5,748 7,437 8,232 12,409 14,903 22,903
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 12,469
</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.
(4) The breakdown of sales between telecom and carrier and land mobile for
fiscal years 1992 and 1993 is not available.
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 telecommunications services, the provision of private leased 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 expects to 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
switchless reseller of long distance services in the United States in 1994. 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 and carrier............................. 91.8% 92.2% 56.4% 92.6% 60.9%
Land mobile..................................... 8.2 7.8 5.6 7.4 9.1
Product resales................................. -- -- 38.0 -- 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, $2.9 million, or 34.0%,
resulted from increases in the Company's telecom and carrier services, $900,000,
or 10.5%, resulted from increases in the Company's land mobile services, while
$4.7 million, or 55.5%, resulted in part from product resales to a single
customer. The increase in telecom and carrier revenues was largely attributable
to drilling activity in the Gulf of Mexico and elsewhere and to expansion of the
Company's business outside the Gulf of Mexico. The increase in land mobile sales
was largely due to increased demand which may have been favorably impacted by
increased marketing activities. 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
22
<PAGE>
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 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
fiscal 1996 due to 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. Of this increase,
$1.1 million or 9.3% resulted from increases in the Company's telecom and
carrier services. Land mobile services accounted for $300,000 or 2.7% of this
increase while $10.6 million, or 88%, resulted in part from product resales to a
single customer. While revenues related to land mobile services were relatively
constant, the increase in sales of telecom and carrier services reflected
continued growth of the Company's core business. 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,
23
<PAGE>
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 total sales, in fiscal 1996 from $862,000, or 5.5% of total sales, 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
general and administrative expenses was primarily due to a higher level of
expenses in fiscal 1996 associated with the expansion of 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 increased development of the Company's
infrastructure to accommodate growth, which resulted in increases in insurance
costs and employee compensation 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 and carrier services,
including the establishment of the Company's long distance carrier services.
Land mobile sales were relatively constant in fiscal 1995 and 1994.
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.
24
<PAGE>
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.
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 increased investment 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
25
<PAGE>
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>
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 invested $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.
The increase in inventory is largely attributable to the Company's increased
long-term contracts, which include work-in-process and increased inventory stock
levels to support increased sales. 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 invested $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
26
<PAGE>
$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 recently amended its credit agreement with its bank lender,
which increased the bank line of credit by $2.0 million for a total borrowing
capacity 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 8 of 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 earlier 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 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 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 12 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, although no assurances can be made
that such authority will be received. 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
believes that providers of cellular and PCS and other long distance carriers
will become additional customers.
The Company provides or will shortly provide its telecommunications services
through a satellite network, a microwave network, two-way radio licenses and
carrier agreements for long distance service combined with a switch-based
network. The IWL satellite network includes Very Small Aperture Terminal
("VSAT") networks, including two 5.6 meter Ku band hub 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 CLEC services that the
Company intends to provide will be obtained from (i) existing LECs on a reseller
basis and (ii) the Company's provision of such services through the use of its
own end-office switch and through leased or owned transmission facilities,
including fiber optic cable. 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, the privatization of government-operated industries in
South America, and the WTO agreement. 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 Holding 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 WTO agreement on
communications services, which reflects efforts to eliminate barriers to
competition in basic telecommunications services 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 a 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 that
company's main office for evaluation, with subsequent communications between the
remote and main office locations being
29
<PAGE>
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 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 an
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 or
cost-effective 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 significant opportunities exist 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.
30
<PAGE>
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 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 have 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
The Company's service offerings consists of telecom and carrier services,
land mobile services and product resales. The table set forth below provides a
summary of the Company's sales contributed by these various services as a
percent of the Company's total sales for the fiscal years ended June 30, 1994,
1995 and 1996 and the six months ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Telecom and carrier services............ 91.8% 92.2% 56.4% 92.6% 60.9%
Land mobile services.................... 8.2 7.8 5.6 7.4 9.1
Product resales......................... -- -- 38.0 -- 30.0
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
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, two-way
radio licenses, and carrier agreements for long distance service combined with a
switch-based network. The Company's satellite network includes
31
<PAGE>
VSAT networks with two 5.6 meter Ku band hub 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 CLEC services that the
Company intends to provide will be obtained from (i) existing LECs on a reseller
basis and (ii) the Company's provision of such services through the use of its
own end-office switch and through leased or owned transmission facilities,
including fiber optic cable.
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 other
carriers' network and a customer's location. Although this connection can span
large distances, it is commonly referred to as last-mile connectivity. The
Company's Offshore Dedicated Digital Services Program ("ODDS"), which 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 public switched 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 switched network is a direct distance dialing telephone network available
for public use, which 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. The Company's
earth stations receive signals from and transmit signals to orbital satellites,
which 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 capacity is
required for data transmissions and there is no existing infrastructure or, if
there is such infrastructure, it cannot 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 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 operate as a switch-based reseller,
rather than a switchless reseller. The Company's domestic and international
switched access services include a full range of services with enhanced
features, including: direct dial switched domestic service, which enables the
Company to originate and terminate
32
<PAGE>
long distance service in all equal access locations in the U.S. and in the Gulf
of Mexico; direct dial switched international service, which enables the Company
to originate calls into the U.S. and to terminate calls in virtually every
country in the world; dedicated access services which connect a customer's
location to the Company's facilities and other 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
the fourth quarter of fiscal 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.
The Company intends to begin providing CLEC services in the Texas and
Louisiana Gulf Coast region through the resale of incumbent LEC local services
and through its transition to arrangements that utilize the Company's own
switched and leased facilities. The Company is currently providing similar
services in the Gulf of Mexico. CLEC services will include dial tone service and
call termination, which will allow customers to obtain 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 obtain the appropriate
authority from the PSC in each state in which it intends to provide service.
Currently, the Company has obtained authority to provide dedicated access
services in Louisiana and CLEC and long distance service in Texas. The Company
has applied to provide CLEC and long distance service in Louisiana, which it
expects to receive by the end of the fourth quarter of fiscal 1997, although no
assurances can be made that such authority will be received. 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 mobile and portable units); 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
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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 this equipment 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, respectively. 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."
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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 and call completion and system solutions,
which allows 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 original Alcatel
agreement provided in its terms for its expiration in December 1996; however,
the parties continued to abide by the terms of the original Alcatel agreement
until a new agreement, which renewed and extended the original Alcatel
agreement, was entered into. The renewed Alcatel agreement expires on December
31, 1999.
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 Amoco,
Conoco/Polar Lights and Exxon.
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
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and 3.0 MHz of bandwidth on the Asia-Pacific Region INTELSAT satellites. These
bandwidths enable the 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 it will not compete for projects proposed by
the other party and will coordinate with the other party 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 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. Shell Oil Company, whose subsidiary
is a customer of the Company, also competes
37
<PAGE>
with the Company through services provided over Shell Oil Company's microwave
network in the Gulf of Mexico region. Shell Oil Company has announced plans to
become a full service telecommunications provider to the oil and gas industry,
including in the Gulf Coast region currently served by the Company. 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 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 WTO agreement 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 which originate in the United States and which
terminate both domestically and internationally. It has been providing these
services as a switchless reseller since 1994. The Company intends to begin
offering these services as a switch-based carrier by the end of 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, competition within this market is likely
to be as intense as competition within the long distance market. The services
offered by the Company will compete with those offered by LECs, such as
BellSouth and Southwestern Bell, who 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.
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<PAGE>
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 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.
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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 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 detailed 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 license 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 operating
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. In addition, 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 the 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 private fixed microwave services under
Part 101 (fomerly Part 94) of its rules and regulations. Generally, a private
carrier's provision of telecommunications services is limited to the
transmission of its own internal communications or its customers' private
communications, while a common carrier microwave service provider offers
services indifferently to all potential users. 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,
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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 including VSAT facilities and services under
Part 25 of the FCC's rules and regulations, which includes detailed requirements
regarding licensing, operation, technical standards, renewals and transfers of
control for earth station facilities and services. The Company's earth station
and VSAT authorizations permit the Company to provide both domestic and
international voice and data services. Under this authority, the Company
provides service between the U.S. and Bosnia pursuant to its private carrier
earth station license. The FCC continues to refine its satellite service rules
to accommodate advances in technology and new market developments. Effective
April 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 also 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.
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. Specifically, the Company is subject to the common
carrier obligations 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 and minimize many of
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
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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 co-location; 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 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 as to how the Interconnection Orders will be implemented or enforced
or the effect that such orders 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.
42
<PAGE>
There can be no assurance as to how the 1996 Telecommunications Act will be
implemented or enforced or the effect that 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 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 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, which 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.
With respect to 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 was 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
43
<PAGE>
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 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. In
February 1997, 68 nations, including the United States, entered into the WTO
agreement whereby participating countries agreed to eliminate barriers to
competition in basic telecommunications by January 1, 1998. The current U.S
foreign ownership limitations and FCC policies that assess the reciprocity of
foreign markets (which currently apply to the Company) may be eliminated or
changed dramatically when the WTO agreement becomes effective and as the FCC
establishes new policies to implement the WTO agreement. In addition, pending
legislation could implement the WTO agreement by imposing ownership requirements
different from the current requirements. There can be no assurance that the WTO
agreement and its implementation will eliminate all restrictions currently
applicable to the Company or will not result in increased competition in the
Company's markets. The FCC also 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, the FCC's restrictions on the use of
international private lines for providing switched services, or the failure of
the Company to meet relevant certification, licensing, and tariffing
requirements. 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 CLEC
and 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. An application to provide CLEC and long
distance services in Louisiana is pending, although no assurances can be made
that such authority will be received. 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
44
<PAGE>
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
local and 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.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 134 people,
including approximately 20 in sales 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 radio licenses issued to the Company allow it to provide land
mobile, microwave and satellite communications services. The Company currently
holds 35 FCC licenses, with approximately 320 frequency pairs, for commercial
mobile radio service. These licenses have varying terms which expire and will
require renewal between July 1997 and March 2001. These licenses allow the
Company to provide 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 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 has sought broader common
carrier authority from the FCC to provide global resale of switched and private
line services as well as global facilities-based service. 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
increase its service offerings, the Company has obtained authority to provide
dedicated services in Louisiana and CLEC and long distance services in Texas. An
application to provide CLEC and long distance service in Louisiana is pending.
The Company expects to receive this additional Louisiana authority by the end of
the fourth quarter of fiscal 1997, although no assurances can be made that such
authority will be received. 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' respective utility poles.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding the directors and
executive officers of the Company as of March 31, 1997:
<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 a 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. From 1986 to 1993, Mr. Allen served as Executive Vice
President of SBS Technologies, Inc. (Nasdaq: SBSE), a manufacturer of computer
components. Mr. Allen was a co-founder of SBS Technologies, Inc. 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 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 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 served as
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.
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
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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 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. Mr. Olivier graduated with a B.S. Degree in Electrical
Engineering from the University of Southwest Louisiana with a concentration in
telecommunications management and 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 B.A. 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 prescribed 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").
DIRECTOR COMPENSATION
Non-employee directors of the Board of Directors of the Company will be paid
$1,000 per meeting for attending or participating in meetings of the Board of
Directors or any committee thereof, and will receive
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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 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
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED 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.
(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.
49
<PAGE>
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 shares are
subject to options that have been granted under the Incentive Stock Option Plan
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 reserved for issuance upon the exercise of options which may 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
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Compensation Committee of the Board of Directors 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 Nasdaq National Market), 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, each option either 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 its
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 of Directors 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 the Company or upon certain mergers
where the shareholders of the Company receive cash or securities of another
issuer, each option either 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 the applicable provisions, rules or
regulations of the Exchange Act, the Code or the Nasdaq National Market, the
Board
51
<PAGE>
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 contributions by the Company. 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 a balance of $45,716, bearing interest at the rate of 12% per annum,
remained outstanding as of March 31, 1997.
52
<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 a balance of $45,716, bearing interest at the rate of 12% per annum,
remained outstanding as of March 31, 1997.
53
<PAGE>
PRINCIPAL AND SELLING 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 March 31, 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 March 31, 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.................................................... 2,000,000 89.8% 57.5%
Byron M. Allen.......................................................... 222,200 10.0 6.4
J. Keith Johnson(2)..................................................... 18,231 * *
Richard H. Roberson..................................................... -- -- --
Christopher J. Amenson(3)............................................... -- -- --
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 options. If the
Underwriters' over-allotment options are exercised in full, the Company will
sell an additional 87,500 shares of Common Stock and Ignatius W. Leonards,
the Company's Chief Executive Officer, Chairman of the Board and a director
(the "Selling Shareholder"), will sell 100,000 shares of Common Stock, and
the Company will have issued and outstanding 3,565,316 shares of Common
Stock. In such event, upon completion of the Offering, Mr. Leonards will
beneficially own 1,900,000 shares, or 53.3%, of the Company's outstanding
Common Stock. In addition, in such event, upon completion of the Offering
the executive officers and directors of the Company as a group will
beneficially own 2,155,290 shares, or 60.5%, of the Company's outstanding
Common Stock.
(2) 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.
(3) Mr. Amenson has agreed to become a director of the Company upon completion
of the Offering.
(4) 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 concurrently with the completion
of the Offering.
54
<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 March 31, 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 (3,565,316 if the Underwriters' over-allotment options are
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 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 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."
55
<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 ,
.
56
<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 options are 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 the Representative
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 the Representative, for a
period of one year from the date of this Prospectus. The Representative 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 one-year lock-up period, approximately 2,225,008
additional shares of Common Stock 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
57
<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 will receive demand and "piggy-back" registration
rights in connection with the issuance of 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 the holder or holders of the
Representative's Warrant exercise a demand registration right, 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.
58
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as 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 87,500 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. Ignatius W. Leonards, the Company's Chief Executive
Officer, Chairman of the Board and a director also has granted the Underwriters
an over-allotment option, exercisable during the 45-day period after the date of
this Propsectus, to purchase up to 100,000 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 options only to cover over-allotments in the sale of the Common
Stock offered hereby. If the Underwriters exercise the over-allotment options,
the Underwriters will purchase additional shares in approximately the same
proportion from the Company and the Selling Shareholder 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, except (i) to officers of the Representative, (ii)
to general partnerships, the general partners of which are the Representative
and one or more persons, each of whom on the date of transfer is an officer of
the Representative, (iii) a successor to the Representative in any merger or
consolidation, (iv) to a purchaser of all or substantially all of the
Representative's assets, or (v) to any person receiving the Representative's
Warrant from the persons listed in (i)-(iv). The holders of the Representative's
Warrant will have, in that capacity, no voting, dividend or other shareholder
rights. During the exercise period, the holders of the
59
<PAGE>
Representative's Warrant are entitled to certain demand and "piggy-back"
registration rights which will expire five years after the date of this
Prospectus and which 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.
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 Common Stock will be 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.
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid, or the effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member in connection
with the Offering are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-counter
market, or otherwise. Such stabilizing, if commenced, may be discontinued at any
time.
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.
60
<PAGE>
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 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.
61
<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...................................................................... 598,358 851,380 1,719,622
Costs and estimated earnings in excess of billings on uncompleted contracts.... 2,881 135,675 83,265
Deferred tax asset--current.................................................... 27,673 74,659 79,334
Prepaid expenses and deposits.................................................. 132,208 132,266 365,146
Deferred offering costs........................................................ -- -- 95,334
----------- ------------ -------------
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.............................................. 250,962 175,977 588,360
Billings in excess of costs and estimated earnings on uncompleted contracts.... -- 48,892 135,501
----------- ------------ -------------
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 and carrier...................... $ 13,642,478 $ 14,565,699 $ 15,683,375 $ 6,663,600 $ 9,528,296
Land mobile.............................. 1,217,501 1,228,375 1,558,858 533,177 1,420,571
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 (exclusive of items shown
separately below).................... (10,071,384) (9,639,347) (10,827,606) (4,226,509) (7,004,414)
Cost of sales--product resales......... -- -- (9,587,738) -- (4,680,001)
-------------- ------------- -------------- ------------- --------------
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........ 2,011,160 2,232,751 2,232,967 2,232,751 2,233,244
-------------- ------------- -------------- ------------- --------------
-------------- ------------- -------------- ------------- --------------
</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................................ (1,053,588) (296,166) (3,903,405) (772,320) 468,269
Inventory.......................................... 450,091 374,297 (253,022) (81,109) (868,242)
Costs and estimated earnings in excess of bilings.. -- (2,881) (132,794) -- 52,410
Prepaid expenses and other current assets.......... 17,412 (43,997) (58) 3,550 (232,870)
Deferred offering costs............................ -- -- -- -- (95,334)
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 (130,359) 1,984,409 378,151
Billings in excess of costs and estimated
earnings......................................... -- -- 48,892 -- 86,609
Federal income taxes payable....................... (19,060) (90,559) 37,418 43,700 (1,643)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities........ (510,738) 696,287 341,055 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
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..................................... (982,904) (1,230,823) (630,965) 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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Conversion of accounts receivable to notes receivable.... $ 558,654 $ 331,983 $ 395,637 -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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,
primarily based on contract cost incurred to date compared with total estimated
contract costs. Changes to total estimated costs and estimated earnings or
losses, if any, are recognized in excess of amounts billed and are classified as
current assets. It is anticipated that the incurred costs associated with work
in progress at the end of the respective periods will be billed and collected
within the next year. Amounts received from clients in excess of revenues
recognized to date are classified as current liabilities.
The following are components of revenues for the respective periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Service Revenue....................... $ 11,559,422 $ 10,004,504 $ 10,711,342 $ 4,049,561 $ 7,303,096
Rental Revenue........................ 3,300,557 5,789,570 6,530,891 3,147,216 3,645,771
Product Revenue....................... -- -- 10,553,846 -- 4,695,225
------------- ------------- ------------- ------------ -------------
$ 14,859,979 $ 15,794,074 $ 27,796,079 $ 7,196,777 $ 15,644,092
</TABLE>
Both telecom and carrier and landmobile revenues are comprised of service
and rental activities.
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
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)
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.
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.
FAIR VALUE
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature. The carrying amount of long-term debt approximates its fair
value because interest rates approximate market.
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
Earnings (loss) per common share are based on the weighted average number of
common stock outstanding during the respective periods adjusted for common stock
equivalents when dilutive and
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)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
significant except as described below. Pursuant to certain Securities and
Exchange Commission (SEC) Staff Accounting Bulletins, common stock issued for
consideration below the assumed initial public offering (IPO) price and stock
options and warrants granted with exercise prices below the assumed IPO price
during the 12-month period prior to the date of the initial filing of the
Registration Statement, even when antidulitive, have been included in the
calculation of net income (loss) per share, using the treasury stock method
based on the assumed IPO price, as if they were outstanding for all periods
presented prior to their issuance or grant.
Fully diluted earnings per share are not presented for 1994, 1995 and 1996
because they do not materially differ from primary earnings per share.
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.
(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>
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) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts............................ 163,459 271,100 523,380
Estimated earnings................................................. 48,826 127,332 193,379
--------- --------- ------------
212,285 398,432 716,759
Less: Billings to date............................................. 209,404 311,649 768,995
--------- --------- ------------
2,881 86,783 (52,236)
--------- --------- ------------
--------- --------- ------------
Included in accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess of billings on uncompleted
contracts...................................................... 2,881 135,675 83,265
Billings in excess of costs and estimated earnings on uncompleted
contracts...................................................... 0 (48,892) (135,501)
--------- --------- ------------
2,881 86,783 (52,236)
--------- --------- ------------
--------- --------- ------------
</TABLE>
(4) 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 trunk 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, $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.
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)
(4) INVESTMENT IN KENWOOD SYSTEMS GROUP (CONTINUED)
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>
(5) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND NET THE
PERIOD EXPENSES OF RECOVERIES END OF PERIOD
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended June 30, 1995................................ 85,000 29,510 (86,529) 27,981
Year ended June 30, 1996................................ 27,981 46,500 0 74,481
</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)
(6) 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)
Assets
Land................................................................ $ 41,046 $ 41,046 $ 41,046
Equip. for Rent/Lease............................................... 5,932,122 6,355,557 7,804,835
Building & Improvements............................................. 418,473 456,355 461,478
Computer, Office & Test Equip....................................... 371,032 889,326 1,547,028
Vehicles............................................................ 257,506 475,353 578,517
Furniture & Fixtures................................................ 143,633 167,901 275,471
------------ ------------ -------------
7,163,812 8,385,538 10,708,375
Accumulated depreciation and amortization
Equip. for Rent/Lease............................................... 2,614,179 3,316,813 3,730,497
Building & Improvements............................................. 124,187 144,548 154,896
Computer, Office & Test Equip....................................... 34,686 100,283 171,259
Vehicles............................................................ 187,953 234,601 260,618
Furniture & Fixtures................................................ 77,441 98,618 114,941
------------ ------------ -------------
3,038,446 3,894,863 4,432,211
------------ ------------ -------------
Net property, plant and equipment..................................... $ 4,125,366 $ 4,490,675 $ 6,276,164
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
(7) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: to provide advanced
communication solutions. The Company markets and sells its products and services
in the United States and in foreign countries through its direct sales
organization.
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)
(7) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the transaction originates.
<TABLE>
<CAPTION>
NORTH
AMERICA RUSSIA OTHER TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
1994:
Revenues................................................................... 12,251 2,194 415 14,860
Operating income (loss).................................................... 132 (92) 107 147
Identifiable assets........................................................ 7,437 0 0 7,437
1995:
Revenues................................................................... 11,956 3,262 576 15,794
Operating income (loss).................................................... 520 190 225 935
Identifiable assets........................................................ 8,232 0 0 8,232
1996:
Revenues................................................................... 25,306 2,281 209 27,796
Operating income (loss).................................................... 908 436 (66) 1,278
Identifiable assets........................................................ 12,409 0 0 12,409
</TABLE>
(8) 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% (9.0% 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
</TABLE>
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)
(8) 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 bank, principal due monthly in the amount of
$15,833, plus interest at prime plus .75% (9.0% 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% (9.25% 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% (10.75 %
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
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% (9.0% 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% (9.25% at June 30,
1996), due in February 1997, secured by specific underlying
equipment and inventory.................................... 211,111 84,444 --
</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)
(8) 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 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
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 -- --
</TABLE>
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)
(8) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
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). The line of credit described above was
increased to $4.5 million subsequent to December 31, 1996. Interest rate on the
borrowings under the Revolver is at prime plus .75% (9.0% 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 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.
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)
(9) 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>
Foreign income tax expense results from taxes withheld on sales related to
the Russian operations. Operating income for the years ended June 30, 1994, 1995
and 1996 were ($92,000), $190,000 and $436,000, respectively.
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>
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.
F-18
<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) INCOME TAXES (CONTINUED)
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>
(10) 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.
(11) 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.
(12) 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.
F-19
<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)
(12) LEASE CONTRACTS (CONTINUED)
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>
(13) 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>
(14) 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,
F-20
<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)
(14) SUBSEQUENT EVENTS (CONTINUED)
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-21
<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..................................... 46
Certain Transactions........................... 53
Principal and Selling Shareholders............. 54
Description of Capital Stock................... 55
Shares Eligible for Future Sale................ 57
Underwriting................................... 59
Legal Matters.................................. 60
Experts........................................ 61
Additional Information......................... 61
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.................................................... $ 25,188
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 December 31, 1996, 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.+
10.19 Reseller Agreement dated December 31, 1995, by and between Alcatel Network
Systems, Inc. and the Registrant.#
11.1 Computation of Earnings per Share.
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
+ Previously filed.
# 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 Amendment No. 1 to 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 29th day of April, 1997.
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Ignatius W. Leonards,
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ IGNATIUS W. LEONARDS Chairman of the Board,
- ------------------------------ and Director (Principal April 29, 1997
Ignatius W. Leonards Executive Officer)
/s/ BYRON M. ALLEN
- ------------------------------ President and Director April 29, 1997
Byron M. Allen
Chief Financial Officer
/s/ RICHARD H. ROBERSON and Director (Principal
- ------------------------------ Financial and Accounting April 29, 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 December 31, 1996, 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.+
10.19 Reseller Agreement dated December 31, 1995, by and between Alcatel Network Systems, Inc. and the
Registrant.#
11.1 Computation of Earnings per Share.
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
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
+ Previously filed.
# 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>
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.
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<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.
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LICENSE AGREEMENT BETWEEN
ENTERGY SERVICES, INC.
LICENSOR
AND
IWL COMMUNICATIONS, INC.
dba IWL CONNECT
LICENSEE
FOR
ATTACHMENT OF FIBER OPTIC CABLES TO FACILITIES
DATED November 25, 1996
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<PAGE>
LICENSE AGREEMENT
FOR
ATTACHMENTS OF FIBER OPTIC CABLES TO FACILITIES
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS 4
ARTICLE 2 - SCOPE OF AGREEMENT 5
ARTICLE 3 - ACCESS 5
ARTICLE 4 - PRACTICES 5
ARTICLE 5 - ACCESS RIGHTS 5
ARTICLE 6 - APPLICATION REQUIREMENTS 7
ARTICLE 7 - PLACING OR REARRANGING ATTACHMENTS 7
ARTICLE 8 - MODIFICATIONS AND/OR REPLACEMENTS 8
ARTICLE 9 - MAINTENANCE OF FACILITIES 9
ARTICLE 10 - ABANDONMENT AND REMOVAL OF FACILITIES 10
ARTICLE 10.5 - ALLOCATION OF COSTS FOR REARRANGEMENT,
RELOCATION AND REMOVAL OF FACILITIES 10
ARTICLE 11 - SPECIAL PROJECTS & CHANGES IN CHARACTER OF SERV. 11
ARTICLE 12 - TERMINATION OF PERMITS 11
ARTICLE 13 - PAYMENTS OF BILLS 12
ARTICLE 14 - TRANSFERS 12
ARTICLE 15 - RENTAL PAYMENTS 12
ARTICLE 16 - REVISION OF THE RENTAL RATE 13
ARTICLE 17 - FEES, CHARGES AND RENTS 14
ARTICLE 18 - LIABILITY AND DAMAGES 15
ARTICLE 19 - DUTIES, RESPONSIBILITIES, AND EXCULPATION 17
ARTICLE 20 - TAXES 19
ARTICLE 21 - SUBORDINATION 19
ARTICLE 22 - RIGHTS OF OTHER PARTIES 19
ARTICLE 23 - SERVICE OF NOTICES 19
ARTICLE 24 - TERMINATION OF AGREEMENT 20
ARTICLE 25 - ASSIGNMENT OF RIGHTS 21
ARTICLE 26 - CONVEYANCE OR SALE OF FACILITIES 21
ARTICLE 27 - TERM OF AGREEMENT 21
ARTICLE 28 - AMENDMENTS 22
ARTICLE 29 - EXISTING CONTRACTS 22
ARTICLE 30 - ELECTRICAL SERVICE TO LICENSEE 22
ARTICLE 31 - FRANCHISE RIGHTS 22
ARTICLE 32 - WAIVER 22
ARTICLE 33 - CONFIDENTIALITY 23
ARTICLE 34 - ENVIRONMENTAL 23
ARTICLE 35 - SIGNS 23
ARTICLE 36 - SURRENDER; HOLD-OVERS 23
ARTICLE 37 - PARTIAL INVALIDITY 24
ARTICLE 38 - WAIVER OF JURISDICTION 24
ARTICLE 39 - GOVERNING LOANS 25
ARTICLE 40 - JURISDICTION 25
EXHIBIT A - APPLICATION AND PERMIT FOR ATTACHMENTS TO FACILITIES
EXHIBIT B - NOTICE OF REMOVAL OF ATTACHMENTS TO FACILITIES
EXHIBIT C - SPACE RESERVATION DRAWINGS
EXHIBIT D - FEES, CHARGES AND RENTS
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LICENSE AGREEMENT
FOR
ATTACHMENTS OF FIBER OPTIC CABLES TO FACILITIES
THIS LICENSE AGREEMENT (hereinafter, the "Agreement") made as of this
25th day of November, 1996, by and between Entergy Services, Inc., a Delaware
corporation, on behalf of Entergy Arkansas, Inc., an Arkansas corporation,
Entergy Gulf States, Inc., a Texas Corporation, Entergy Louisiana, Inc., a
Louisiana corporation, Entergy Mississippi, Inc., a Mississippi Corporation,
and Entergy New Orleans, Inc., a Louisiana corporation, (hereinafter called
"Licensor"), and IWL Communications, Inc. DBA IWL Connect., a corporation
organized and existing under the laws of the State of Texas, (hereinafter
called "Licensee"), herein represented by Ignatuis Leonards its President,
duly authorized to act herein pursuant to general resolution of its Board of
Directors evidenced by its Secretary's Certificate, a copy of which is
attached hereto and made a part hereof.
WITNESSETH:
WHEREAS, Licensee proposes to install fiber optic cables and associated
equipment for the purpose of providing telecommunications in such allocated
territory of the States of Arkansas, Louisiana, Mississippi, and Texas in which
both parties operate, and desires to erect and maintain aerial cables, wires and
associated appliances in connection therewith, antennas or such other
attachments described herein above and also desires to attach or install such
cables, wires and appliances to certain facilities of Licensor ("Licensor's
facilities") and for which application is made to Licensor on the Application
and Permit for Attachment to Facilities attached hereto as Exhibit A (such
approved attachments hereinafter referred to as "authorized attachments" or
"attachments"); and
WHEREAS, Licensee agrees that this Agreement is limited to the uses
specifically stated above and any other use shall be considered a breach of this
Agreement.
WHEREAS, subject in all instances to considerations of Licensor's service
requirements including considerations of economy and safety, Licensor is
agreeable to permit the attachment or installation of Licensee's Authorized
Attachments to Licensor's facilities, except where provided otherwise in this
Agreement. Additionally, Licensor shall have the right to refuse to issue any
permit hereunder whenever Licensor, in its judgment, determines that the
issuance of such a permit is not possible for safety, reliability and generally
applicable engineering purposes, including the operation of Licensor's
distribution or transmission systems.
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NOW, THEREFORE, in consideration of the premises, the mutual covenants,
terms and conditions herein contained, the parties do hereby mutually covenant
and agree as follows:
ARTICLE 1 - DEFINITIONS
For the purpose of this Agreement, the following terms when used herein
shall have the following meanings:
A. ATTACHMENT is any material or apparatus now or hereafter used by
either party in the construction, operation or maintenance of its plant
installed on Licensor's facilities.
B. CHANGE IN CHARACTER OF SERVICE occurs whenever Licensee causes a
change in the physical characteristics of the attachment such as overlashing or
increasing the number of attachments, as well as the intended usage of the
attachment that Licensor determines is a deviation from or not accommodated in
the original application.
C. CODE means the applicable National Electrical Safety Code, as it may
be amended from time to time, the latest requirements of the Occupational Safety
and Health Act of 1970 and compliance with any lawful rules or orders now in
effect or that may hereafter be issued by Licensor or other authority having
jurisdiction.
D. OCCUPANCY is the maintaining or specifically reserving space for the
attachments of parties on the same pole at the same time.
E. LICENSOR'S FACILITY is any owned by Licensor upon which space is
provided or offered under this Agreement for the attachments of both parties,
and any other occupant subject to a similar license agreement.
F. REARRANGING OF ATTACHMENTS is the moving of attachments from one
position to another on Licensor's facilities.
G. TRANSFERRING OF ATTACHMENTS is the removing of attachments from one
facility and placing them upon another facility.
H. STANDARD SPACE ALLOCATION means an allocation of remaining space on
facility.
I. OVERLASHING is the attachment by winding, securing, fastening,
lashing, threading or looping of fiber optic cable onto a cable.
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J. TAGGING is the identification of Licensee's attachments at each point
of attachment to Licensor's facilities. Identification must be readable from
ground level with the naked eye and acceptable to Licensor.
K. LICENSOR CONTRACTORS are the contractors who regularly do work for
Licensor. Identification of those contractors will be available to Licensee
upon request.
ARTICLE 2 - SCOPE OF AGREEMENT
This Agreement shall cover all of Licensee's attachments to Licensor's
facilities approved and agreed to in Exhibit A.
ARTICLE 3 - ACCESS
Licensor is granting Licensee access to its facilities but is not offering
any warranty of conditions or any grant of easement. Specific sites will be
agreed to by the parties subject to availability and safety concerns, but do not
include the provision of utility services including electricity. Licensee will
be required to make separate and independent arrangements for these services.
ARTICLE 4 - PRACTICES
(a) Licensee's attachments, in each and every location, shall be installed
and maintained in accordance with the requirements and specifications of the
National Electrical Safety Code, the latest requirements of the Occupational
Safety and Health Act of 1970 and in compliance with any lawful rules or orders
now in effect or that may hereafter be issued by Licensor or other authority
having jurisdiction. If Licensee's attachment is being made to Licensor's pole,
the initial location of Licensee's attachments to be made on each pole will be
designated by Licensor. Licensee also shall promptly reimburse Licensor all
costs in connection with the initial installation or rearrangement of
Attachments as outlined in Exhibit C. The location of any attachment may be
redesignated by Licensor, and Licensee shall promptly change Licensee's
attachment to the redesignated location at Licensee's expense.
(b) Failure of Licensee to comply with this Article of this Agreement
shall constitute a default of this Agreement on the part of Licensee.
ARTICLE 5 - ACCESS RIGHTS
(a) Licensee shall secure satisfactory lawful authority, permits and
rights to place, maintain and operate its attachments on Licensor's facilities
and obtain agreements from the owners of private property, if required,
including the right to construct, maintain and operate the attachments on
Licensor's facilities which it occupies. Licensee shall defend, indemnify and
reimburse Licensor all loss and
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expense, including attorneys' fees, as provided for in Article 18, which
Licensor may incur as a result of claims from governmental bodies, owners of
property or others that Licensee has not a sufficient right or authority for
placing, operating and maintaining Licensee's attachments on Licensor's
facilities.
(b) Licensee and Licensor shall at all times observe and comply with all
laws, ordinances and regulations which in any manner affect the rights and
obligations of Licensor under this Agreement, so long as such laws, ordinances
or regulations remain in effect; and the provisions of this Agreement shall be
subject to all such laws, ordinances and regulations. Licensee will also
undertake the requisite environmental assessments it deems appropriate.
(c) The primary use of any facility is for the provision of utility
service. (i) Licensor may reserve space on its own facilities if such
reservation is consistent with a bona fide development plan that reasonably and
specifically projects a need for that space in the provision of its core utility
service. Licensor may permit Licensee to use the reserved space until the
Licensor has an actual need for that space. When Licensor reclaims the space,
it must afford the Licensee the opportunity to pay for the cost of any
modifications needed to expand capacity in order to maintain its attachment.
(ii) In the event Licensee's attachments interfere with the provision of
electric service, Licensee agrees to remove its attachments at its own expense.
Licensee shall not permit or suffer the installation and existence of any other
improvement (including, without limitation, transmission or reception devices)
upon the Licensee's attachments to Licensor's facilities or premises if such
improvement materially interferes with transmission or reception by Licensor's
facility in any manner whatsoever.
(d) Any offer and acceptance of an attachment agreement may be subject to
regulatory approval.
(e) Licensee shall be solely responsible for securing all necessary or
appropriate approvals, consents, permits, permission, certificates or other
authority (the "Approvals") from any Governmental Authority having jurisdiction
over Licensee's use of the Licensor's Facilities, including but not limited to
the Federal Communications Commission ("FCC") and the Federal Aviation
Administration ("FAA"). Upon reasonable notice and request, Licensor shall
provide Licensee with existing documentation or information regarding
Licensor's facilities that Licensee may need to secure the necessary approvals.
Licensee shall obtain all required approvals prior to effective date, including
but not limited to (1) a completed copy of FAA Form 7460 or study number and (2)
copies of current AM/FM FCC licenses relating to Licensee's attachments.
(f) Without limiting the generality of the foregoing, all installations,
lighting, obstruction markings, and operations in connection with this Agreement
by Licensee shall comply with all Applicable Law promulgated by each
Governmental Authority having jurisdiction over same, including but not limited
to the FAA and the FCC, and Licensor has no responsibility or liability for any
of same.
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(g) Failure to comply with this Article shall constitute a default of this
Agreement on the part of Licensee.
ARTICLE 6 - APPLICATION REQUIREMENTS
(a) Before Licensee shall have a right to attach to any facility of
Licensor, Licensee shall make application and receive a permit therefor. The
application shall be in the form of Exhibit A, hereto attached and made a part
hereof. Upon issuing such permit, Licensor agrees that Licensee is permitted to
make the attachments thereby covered, subject to the terms and conditions of
this Agreement. In accordance with this Agreement, Licensor reserves the right
to determine whether or not to issue a permit. Licensor may consider in
reviewing a permit application, issues of capacity, safety, reliability and
generally applicable engineering requirements, including the operation of
Licensor's distribution and/or transmissions systems, any presently existing
contractual obligation of Licensor to any public utilities, governmental bodies
or other entities which may be entitled to use of, or control of such facilities
and the terms of this agreement. Licensor may also consider the adverse effect
on any of Licensor's facilities including, but not limited to, all questions of
economy, safety and future needs of Licensor. This application and permitting
process is also a requirement for every instance where overlashing or Change in
Character of Service is proposed. Licensor shall state the reasons for any
denial in writing upon request of Licensee
(b) Upon Licensor's receipt of Licensee's "Application for Attachment
Permit", (Exhibit A) Licensee's design and layout proposal will be subject to
review by the Licensor.
(c) When Licensor reviews the application, an "Attachment Permit" in the
form of Exhibit A, hereto attached and made a part hereof, will be signed and
returned to Licensee indicating the Licensee's proposal acceptance or denial by
Licensor without unreasonable delay.
(d) If Licensee makes attachments without benefit of the requisite permit,
Licensee is deemed in default of this Agreement.
ARTICLE 7 - PLACING OR REARRANGING ATTACHMENTS
(a) Licensor reserves the right to refuse on a non-discriminatory basis to
grant a permit in accordance with this Agreement, and reserves the right to
revoke any such permit for the attachment to its facilities when Licensor
determines, in its judgment, that such facility is required for its exclusive
use or that the facility may not reasonably be rearranged or replaced to
accommodate the attachment.
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(b) Where Licensor rearranges its facilities to accommodate Licensee, the
Licensee shall pay Licensor's estimated cost of rearrangement in accordance with
Article 10.5. Said estimate expires after the lapse of three (3) months.
(c) Licensee is prohibited from tampering with, interfering with, removing
or relocating Licensor's facilities subject to this Agreement.
(d) Licensor has the option of placing or rearranging the property of
Licensee as provided in Article 14 herein or can require Licensee to perform the
work. Licensee shall, at its own expense and to the satisfaction of the
Licensor, place guys and anchors to sustain any unbalanced loads caused by the
Licensee's attachments.
(e) When Licensor is requested by Licensee to install grounds or make
connections to Licensor's system neutral, Licensee shall pay Licensor for the
estimated cost of installing such grounds or making such connections.
(f) In the event that a request for attachments is made by Licensee and
steps are taken by Licensor to carry out the request by performing necessary
engineering and administrative work and the job is canceled by Licensee causing
the job not to be done or completed, Licensee shall reimburse Licensor in
accordance with Article 10.5.
(g) Licensor reserves the right to inspect each attachment of Licensee on
its facilities or in the vicinity of its equipment and to make periodic
inspections as plant conditions may warrant; and Licensee shall reimburse
Licensor for the expense of such inspections. Inspections will not be made more
often than once a year and upon notice to Licensee unless, in Licensor's
judgment, such inspections are required for reasons involving safety or are
required because of a violation of the terms of this Agreement by Licensee. The
making of such inspections or the failure to do so shall not operate to relieve
Licensee of any responsibility, obligation or liability assumed under this
Agreement.
(h) Licensee shall assure that all of its work performed on Licensor's
facilities, either by its own employees or contractors shall be in compliance
with all applicable NESC requirements. Licensee shall assure that any party
installing facilities be familiar with the NESC requirements before being
allowed to perform work on Licensor's facilities.
ARTICLE 8 - MODIFICATIONS AND/OR REPLACEMENTS
(a) In the event that any facility to which Licensee desires to make
attachments is inadequate to support or accommodate the additional facilities in
accordance with the aforesaid specifications, Licensor will notify Licensee of
the changes necessary to accommodate the requested attachments, together with
the estimated cost thereof. Licensee shall pay to Licensor the estimated cost of
making the changes in advance and Licensor shall make such changes. Should
conditions
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significantly change between the time of the estimate and time work is
performed so that actual costs exceed the estimate, Licensee shall reimburse
Licensor the additional costs over the estimate. Licensee shall also pay in
advance to the owner or owners of other facilities attached to such
facilities any expense actually incurred by them for rearranging or
transferring their facilities.
(b) Should Licensor's need for its own service requirements or for
changes it is required to make as a result of any governmental mandate, the
space occupied by Licensee's attachments on any of Licensor's facilities,
Licensor will notify Licensee in writing and will include the estimated costs
necessary to accomplish the changes. If the changes are of the character
provided for in Article 14, they may be performed by Licensor. Within thirty
(30) calendar days after receipt of such notice, Licensee shall indicate in
writing to Licensor either that Licensee or Licensor will remove its
attachments. If Licensee requests Licensor to make such changes, Licensee shall
pay to Licensor the estimated cost of making the changes in advance before
Licensor will make such changes except as may be provided under the bundled rate
in Exhibit D.
(c) Licensee shall not be entitled to reimbursement of any amounts paid to
Licensor by any governmental entity or authorized user.
ARTICLE 9 - MAINTENANCE OF FACILITIES
(a) In instances of unplanned maintenance such as vehicle accident
involving Licensor's facilities, Licensor may remove Licensee's attachments or
may temporarily or permanently relocate or replace Licensee's attachments. In
the event its attachments are relocated or replaced, Licensee shall pay Licensor
as provided for in Exhibit D.
Licensor is in the business of providing electric service through its own
attachments to its poles and towers. In the event of major damage to those poles
and towers and Licensor's attachments thereto, including, but not limited to,
damage caused by hurricanes or tornadoes and/or ice or wind storms, Licensor's
primary responsibility is to restore service to its electric customers. At
Licensee's option, Licensee's qualified contractor may reattach Licensee's
attachments simultaneously with Licensor's restoration efforts so long as the
repairs to Licensee's attachments do not interfere with Licensor's restoration
efforts. Otherwise, Licensee's undamaged attachments will be reattached by
Licensor upon completion of its own power restoration as provided for in
Exhibit D.
(b) Any rearrangements of Licensor's facilities or replacement of
facilities required to accommodate Licensee's attachments shall be done by
Licensor in accordance with Article 10.5.
(c) Licensee shall reimburse Licensor for keeping facilities clear of
obstructions such as trees or brush as provided for in Exhibit D.
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ARTICLE 10 - ABANDONMENT AND REMOVAL OF FACILITIES
(a) If Licensor desires at any time to abandon any of its facilities to
which Licensee's attachments are attached, it will attempt to give Licensee
notice in writing to that effect at least thirty (30) calendar days prior to the
date on which it intends to abandon such facility. If Licensee's attachments
are not removed at the time of abandonment, Licensor will remove Licensee's
attachments and notify Licensee where its attachments are stored. Licensee will
be billed in accordance with Exhibit D. Licensee shall save harmless the
Licensor from all obligation, liability, damages, costs, expenses or charges
incurred because of or arising out of the removal of Licensee's attachments.
(b) Upon receipt of not less than thirty (30) days' prior written notice
from Licensor to Licensee that any attachment must be removed by reason of any
Federal, State, Parish, County, Municipal or other governmental requirement, or
the requirement of a property owner other than Licensor, the permit covering the
use of said poles shall terminate and the attachments of Licensee will be
removed promptly from Licensor's facilities at a cost due Licensor from Licensee
in accordance with Exhibit D.
ARTICLE 10.5 - ALLOCATION OF COSTS FOR REARRANGEMENT, RELOCATION
AND REMOVAL OF FACILITIES
(a) The costs for any rearrangement, relocation and removal of Licensee's
facilities not requested by the Licensee, including those required by Articles
8, 9,10 and 14 shall be allocated to the Licensor, Licensee or other entity on
the following basis:
(1) if the rearrangement, relocation or removal of Licensee's facilities
is the result of an additional attachment or the modification of an existing
attachment sought by an entity other than the Licensor or Licensee, Licensee may
request reimbursement for transfers or rearrangements from the third party
requesting the modification;
(2) if the rearrangement, relocation or removal of Licensee's facilities
is the result of the need to upgrade or reconfigure Licensor's energy
distribution/transmission system, the Licensee shall be responsible for the
rearrangement, relocation or removal of Licensee's facilities provided however
that Licensor shall make such transfers as may be applicable if Licensee has
elected to purchase services included in the bundled services rate as set forth
in Exhibit D. Licensor shall make a good faith effort to provide Licensee with
adequate notice of the need for the rearrangement, relocation or removal and
attempt to minimize the need for rearrangement, relocation or removal of
Licensee's facilities. If rearrangement, relocation or removal of Licensee's
facilities is required which Licensor would not make under the bundled rate in
Exhibit D, Licensee shall make such modifications as quickly as possible.
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(b) Where Licensor rearranges its facilities to accommodate Licensee,
Licensee shall pay Licensor's estimated cost of rearrangement in advance and
Licensor shall thereupon make such changes in accordance with Exhibit A. Said
estimate expires after the lapse of three (3) months.
(c) In the event a request for attachments is made by Licensee and
steps are taken by Licensor to carry out the request by performing necessary
engineering and administrative work and the job is canceled by Licensee
causing the job not to be done or completed, Licensee shall reimburse
Licensor for the actual costs incurred by Licensor with respect to the
canceled job, including engineering, clerical, administrative and
construction costs.
ARTICLE 11 - SPECIAL PROJECTS AND CHANGES IN CHARACTER OF SERVICE
(a) Installations other than those covered specifically by this
Agreement shall be considered special projects submitted by Licensee to
Licensor in writing on Exhibit A and shall be subject to separate
negotiations. The design, construction and cost of such projects shall be
decided and agreed upon, based on mutual benefits of both parties; but no
such project shall be undertaken without the prior written consent of
Licensor.
(b) Should Licensee propose a Change in the Character of Service,
Licensee shall notify Licensor in writing of such proposal. Such requests
will be handled in the same manner as in Paragraph (a) of this Article for
special projects.
ARTICLE 12 - TERMINATION OF PERMITS
(a) Upon written notice from Licensor to Licensee that the use of any
facility is no longer available for occupancy pursuant to this Agreement, the
permit covering the use of such facility shall immediately terminate and
Licensee shall remove, within thirty (30) calendar days or other reasonable
period agreed upon by the Licensor and Licensee, its attachments from the
affected facility at Licensee's expense. Upon receipt of written notice,
Licensee shall have thirty (30) calendar days to propose an alternative
location for its attachment. Upon agreement of the Licensee and Licensor
such attachment shall be moved to the alternative location as an authorized
attachment. If, after notice to remove is given, Licensee fails to remove its
facilities within thirty (30) calendar days, Licensor shall proceed with the
removal with no liability or repercussion from Licensee for damage that
Licensee might sustain. Costs associated with removal by Licensor shall be
borne by Licensee in accordance with Exhibit D.
(b) Licensee may at any time request removal of its attachments from any
facility of Licensor, and shall immediately give Licensor written notice of such
removal in the form of Exhibit B, hereto attached and made a part hereof. No
refund of any rental or other fees or costs will be made upon removal. If
Licensee surrenders its permit pursuant to the provisions of this Article, but
fails to remove Licensee's attachments
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from Licensor's facilities within thirty (30) days thereafter, Licensor shall
have the right to remove Licensee's attachments at Licensee's expense and
without any liability on the part of Licensor for damage or injury to
Licensee's facilities, and Licensee shall indemnify and hold Licensor
harmless for claims and demands of third parties arising out of such removal
in accordance with Article 18. If Licensee's attachments are removed by
Licensor as provided by this Article, Licensor may dispose of such
attachments at its discretion without the permission of and with no
obligation to Licensee. In the event that Licensee's attachments shall be
removed from any facility as provided by this Article, no attachment shall
again be made to such facility unless Licensee shall have first complied with
all of the provisions of this Agreement as though no such attachment had
previously been made.
ARTICLE 13 - PAYMENTS OF BILLS
Bills for expenses and other charges under this Agreement, except those
advance payments specifically covered herein, shall be payable within thirty
(30) days after presentation. Late charges at the rate of one and one-half
percent (1-1/2%) per month or the maximum provided by law shall accumulate
and be applied to all outstanding bills not paid within sixty (60) days after
receipt thereof.
Nonpayment of any such bill by Licensee shall constitute a default of
this Agreement.
ARTICLE 14 - TRANSFERS
All attachments of Licensee on a pole or other facility that is being
replaced or relocated may be transferred to the new pole or other facility by
Licensor and Licensee shall be invoiced and shall pay for such transfers or,
Licensor will make transfers in accordance with the bundled services
provision of Exhibit D if applicable. Licensor, however, reserves the right
to require transfers to be made by Licensee. In such case that transfer is
not made within thirty (30) days, the abandonment provision contained in
Article 10 shall apply.
Charges by Licensor for transfers will be in accordance with attached
Exhibit D. Exhibit D will be updated by Licensor as required to reflect
current costs.
ARTICLE 15 - RENTAL PAYMENTS
(a) Licensee shall pay to Licensor rental fees for each facility to which
any attachment is made pursuant to this Agreement. Said rental fees shall be
paid, in advance, on the first day of the month of each period of rental
(monthly, annually, etc.). For an annual fee, the total fee shall be based on
the number of facilities to which attachments are being maintained on the first
day of December next preceding said payment date. The amount agreed upon shall
be retroactive to the first day of the calendar quarter in which the Application
(Exhibit A) is executed. For the purpose of
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computing these rental payments, each outstanding permit shall be construed
as if the attachment authorized thereby had been made as of the date of the
approval thereof by the Licensor even though the attachment has not been made
on such date. The first payment of rental for each facility shall include an
amount based on a yearly rental amount prorated from the first day of the
calendar quarter in which the license or permit is granted. For a monthly
fee, rental shall be paid for an entire month for the first month of
reservation of space and in advance on the first day of each month thereafter.
(b) No refund of any attachment fee will be paid on account of any
termination or surrender of a permit granted hereunder except for removal of
an entire system which shall be refunded from the date of entire removal of
the system. (c) At intervals not exceeding five (5) years, an actual inventory
of attachments shall be made. The cost of inventory and inspection shall be
borne by Licensee and is due within thirty (30) calendar days upon receipt by
Licensee of billing. If it is found by such inventory that Licensee has made
an attachment to a facility of Licensor without the "Attachment Permit" as
provided in Article 5, Licensee shall pay as liquidated damages for safety
and liability aspects of unauthorized attachments, a per-attachment fee for
unauthorized attachment as provided for in Exhibit D. In addition to
liquidated damages, Licensee shall pay the appropriate rental amount plus
late charges from the first of the year in which the contacts were installed
until the time the contacts are discovered. If said date of attachment
cannot be determined, Licensee shall pay the regular contract rental rate
plus late charges for such attachment from the date of the prior inventory.
No refund shall be made for attachments paid for but found by the
inventory to have been removed without notification.
ARTICLE 16 - REVISION OF THE RENTAL RATE
At one (1) year intervals hereafter, the rental rate shall be reviewed
with Licensee by Licensor except in the event contemplated in Article 38. The
new rental rate shall be applied on a non-discriminatory basis on the first
day of the first month in the year of the annual review.
If Licensee elects to purchase services from Licensor in the bundled
rate as set forth on Exhibit D, the service portion of the rate (excluding
the cable rate) shall not be increased for two consecutive years beginning
from the first full year of rental under this Agreement. At the annual review
to determine the rental rate for the third full year, and on an annual basis
thereafter, the increase in the service portion of the bundled rate shall not
exceed XXXXXXXX from the preceding year except in cases of severely
abnormal catastrophic events experience.
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ARTICLE 17 - FEES, CHARGES AND RENTS
(a) Licensee shall make payment within thirty (30) calendar days of any
fees and charges imposed upon it by this Agreement.
(b) Each application for license shall be accompanied by a Survey Fee
payable to Licensor as provided for in Exhibit D. This fee covers any
pre-licensing inspection of facilities and is an average charge for the
necessary survey and administrative work involved in issuing a License.
(c) Upon execution of this Agreement, Licensee shall pay a License
Preparation Fee to Licensor as provided for in Exhibit D. This fee is a
nonrecurring charge for the necessary administrative and processing work
involved in issuing a License Agreement.
(d) In consideration of being permitted to occupy space on Licensor's
facilities with its equipment, Licensee shall pay rental for each facility
occupied as provided in Exhibit D.
(e) A Fee for Unauthorized Attachment shall be charged when Licensor
determines Licensee has occupied Licensor's facilities without first having
obtained a Permit. The Fee for Unauthorized Attachment shall be as provided
in Exhibit D.
(f) A Reserved Space Fee shall be the same as if an attachment were made.
(g) A Transfer of Attachments Fee shall be the fee charged for the
removal of Licensee's attachments from one of Licensor's facilities to
another of Licensor's facilities in accordance with the terms of this
Agreement.
(h) Right-of-Way Maintenance shall be the cost to Licensor for keeping
Licensee's attachments clear of trees, limbs or brush in connection with
Licensor's maintenance activities.
(i) A Removal of Licensee's Attachments Fee shall be charged to
Licensee in accordance with the terms of this Agreement in every instance
where it is necessary or desirable for Licensor to remove Licensee's
attachments from Licensor's facilities as set out on Exhibit D in this
Agreement.
(j) Licensor may offer and enter into installation or maintenance
agreements with the Licensee in accordance with the attached schedule.
(k) In addition to the assessment of the Fee provided for in Article
17(e), a penalty shall apply for unauthorized attachments as provided in
Exhibit D.
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(l) The current charges for the Engineering Fee, Application Fee,
Inspection Fee, Rental Fee, and Fee for Unauthorized Attachment and Penalty
Fee for Unauthorized Attachment are set forth in Exhibit D, FEES, CHARGES AND
RENTS, attached hereto and made a part hereof.
(m) The Fees, Charges and Rents set forth on Exhibit D are subject to
adjustment by Licensor annually effective as of January 1, upon thirty (30)
days' prior written notice to Licensee in accordance with Article 16. All
rentals contained in Exhibit D are in effect and payable until adjusted. The
pole attachment rental rate shall conform to public utility accounting
practices.
(n) Wherever this Agreement provides for Licensee to pay for work done by
Licensor, the charge for such work shall include all actual, reasonable, cost-
based material, labor, engineering and administrative costs and applicable
overheads in accordance with public utility accounting practices. Licensor will
credit Licensee for salvage, if any.
ARTICLE 18 - LIABILITY AND DAMAGES
(a) Licensor reserves to itself, its successors and assigns, the right
to maintain its poles and to operate its facilities thereon in such manner as
will best enable it to fulfill its own service requirements. Licensor shall
not be liable to Licensee for any interruption of service of Licensee or for
interference with the operation of facilities of Licensee arising out of the
use of Licensor's facilities. Additionally, Licensor shall not be liable to
Licensee for any interruption of service of Licensee or for any interference
with the operation of facilities of Licensee arising out of a cause outside
the control of Licensor.
(b) Licensee shall exercise special precautions to avoid damaging the
facilities of the Licensor and of others occupying Licensor's facilities and
Licensee hereby assumes all responsibility for the costs of making repairs or
replacements of such damage. Licensee shall make an immediate report to
Licensor of the occurrence of any such damage known to Licensee and hereby
agrees to reimburse the respective owners for the expense incurred in making
repairs. If Licensee shall fail to exercise precautions to avoid damage or if
Licensee shall fail to immediately report the occurrence of such damage, such
failure shall constitute a default of this Agreement.
(c) Licensee shall indemnify, protect, save harmless and defend
Licensor, and its affiliated and associated companies, shareholders,
directors, officers, agents, representatives and employees from and against
any and all claims and demands for damages to property and injury to or death
of persons, including payments made under any Workmen's Compensation Law,
payment for loss of revenue and other consequential damages for Licensor or
third parties and any other appropriate compensation which may arise,
including attorneys' fees, out of or caused by the erection, maintenance, use
or removal of Licensee's cable, equipment and facilities or
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<PAGE>
by any act of Licensee on or in the vicinity of Licensor's facilities or
Licensee's breach of any part of this Agreement regardless of the negligence
of Licensor. Licensee shall also indemnify, protect, save harmless and defend
Licensor and its affiliated and associated companies, shareholders,
directors, officers, agents, representatives and employees from any and all
claims and demands of whatever kind which arise directly or indirectly from
the operation of Licensee's facilities including taxes, special charges
by-others, claims and demands for damages or loss for infringement of
copyright, for libel and slander, for unauthorized use of television
broadcast programs, and for unauthorized use of other program material, and
from and against all claims and demands for infringement of patents with
respect to the manufacture, use and operation in combination with Licensor's
poles, anchors or other facilities or otherwise regardless of the negligence
of Licensor. Licensee's indemnity obligations hereunder shall extend to and
include all actual costs including overhead costs and/or consequential
damages (including the services of Licensor's regular employees and retained
attorneys) incident to the investigation and defense of all claims and
demands to which Licensee's indemnity obligations apply.
(d) Without limiting any obligations or liabilities of Licensee under this
Agreement, Licensee shall provide and maintain for the term of this Agreement,
at its own expense, without direct reimbursement, insurance coverage's in forms
and amounts that Licensee believes will adequately protect it but in no case
less than:
(1) Workers' Compensation Insurance in accordance with all applicable
state, federal, and maritime laws, including Employer's Liability
Insurance in the amount of $1,000,000 per accident. Policy shall be
endorsed to include a waiver of subrogation in favor of the Entergy
Companies and their affiliated and associated companies.
(2) Commercial General Liability Insurance including Contractual Liability
Coverage, covering liability assumed under this Agreement,
Products/Completed Operations Coverage, Broad Form Property Liability
Coverage, and Personal Injury Coverage in the amount of $5,000,000 per
occurrence for Bodily Injury and Property Damage.
(3) Commercial Automobile Liability Insurance including all owned, hired,
leased assigned, and non-owned vehicles, with a combined single limit
of not less than $5,000,000 per accident.
(4) Excess Liability Coverage to provide excess of 18.d.1 through 18.d.4
in the amount of $5 Million per occurrence.
Licensee's insurance policies required by paragraphs (2) through (4) above,
shall include the Licensor and its affiliated and associated companies as
additional insureds.
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<PAGE>
All of Licensee's policies of insurance shall be primary insurance and
non-contributing with any other insurance, maintained by Licensor, and its
affiliated and associated companies. Policies are to provide Licensor with
thirty (30) days' prior written notice of cancellation or any material
adverse change in conditions. Licensee shall provide Licensor with
Certificates of Insurance issued to the Licensor evidencing coverage
currently in effect upon execution of and for the duration of this Agreement.
Licensee shall be fully responsible for any deductible or self-insured
retention amounts contained in its insurance program or for any deficiencies
in the amounts of insurance maintained.
Unless agreed otherwise in writing by Licensor, any subcontractor
providing services under this Agreement shall be required to carry insurance
coverage's in a form and amount consistent with the requirements of this
Article 18(d) and Certificates of Insurance evidencing such coverage shall be
presented to Licensor prior to commencement of services by the subcontractor.
(e) Licensee shall furnish bond in the penal sum of not less than
$100,000 and in an amount agreed to by Licensor or satisfactory evidence to
Licensor of contractual insurance coverage to guarantee the payment of any
sums which may become due Licensor for rentals, inspections or for work
performed for the benefit of Licensee under this Agreement, including the
removal of attachments upon termination of this Agreement by any of its
provisions. Should Licensee elect to purchase the bundled service package as
set forth on Exhibit D, Licensor may waive the bond requirement on an annual
basis provided the need for a bond may be re-evaluated by the Licensor at the
annual review of the rental rate to be held pursuant to Article 16.
ARTICLE 19 - DUTIES, RESPONSIBILITIES, AND EXCULPATION
(a) Licensee does hereby acknowledge and agree that Licensor does not
warrant the condition of the premises or its facilities and equipment as to
its safety whatsoever and Licensee does hereby assume all risk of any damage,
injury or loss of any nature whatsoever caused by or in connection with the
use of said equipment and that it does hereby agree to indemnify, defend,
protect, and hold Licensor harmless in accordance with Article 18.
(b) If Licensee becomes defunct or files bankruptcy any time during the
term of this Agreement, Licensor shall have the right to utilize the proceeds
of the performance bond for reimbursement for removing Licensee's facilities
located on or adjacent to Licensor's facilities.
(c) By executing this Agreement, Licensee warrants that it has or will
fully acquaint itself and its employees and/or contractors with the conditions
relating to the work it will undertake under this Agreement, that it fully
understands or will acquaint
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<PAGE>
itself with the facilities, difficulties, and restrictions attending the
execution of such work and shall employ or engage only skilled and competent
personnel in the performance of installation and maintenance activities under
this Agreement.
(d) It is further understood and agreed by and between the parties that in
the performance of work performed under this Agreement, Licensee, its agents,
servants, employees, contractors and subcontractors may be required to work
near, about, adjacent to and in the vicinity of electrically energized lines,
transformers, or other equipment of Licensor, and it is the intention that
energy therein will not be interrupted during the continuance of this Agreement,
except in an emergency which might endanger life, cause grave personal injury,
or property damage. Licensee is fully and solely responsible for seeing that its
employees, servants, agents, contractors and subcontractors shall have the
necessary skill, knowledge, training, and experience to protect themselves,
their fellow employees, employees of Licensor, and the general public, from harm
or injury while performing work permitted pursuant to his Agreement, and for
furnishing said employees, servants, agents, contractors and subcontractors with
competent supervision and sufficient and adequate tools and equipment for their
work to be performed in a safe manner while the existing equipment of Licensor
remains energized. Licensee agrees that in emergency situations in which it may
be necessary to de-energize any part of Licensor's equipment, Licensee shall be
solely responsible to see that work is suspended until the facilities have been
de-energized and that no such work is conducted unless and until the facilities
are de-energized.
(e) In the event Licensor de-energizes any equipment or line at
Licensee's request and for its purposes, benefit and convenience in
performing a particular segment of any work, Licensee shall reimburse
Licensor in full for all costs and expenses incurred in order to comply with
Licensee's request for de-energization of any equipment or line. In the event
that Licensee shall cause an interruption of service by damaging or
interfering with any equipment or facilities of Licensor, Licensee shall
immediately do all things reasonable to avoid injury or damages, direct and
incidental, resulting therefrom and shall notify Licensor immediately. In
accordance with Article 18, Licensee shall be solely responsible for any
injuries or damages or claims for losses growing out of such interruption or
de-energization of Licensor's electric system, to all persons whomsoever, and
does hereby indemnify and hold harmless Licensor therefrom.
(f) Licensee further warrants that it is apprised of, conscious of, and
understands the imminent dangers inherent in the work necessary to make
installations on Licensor's facilities by Licensee's personnel, employees,
servants, agents, contractors or subcontractors, and accepts it as its duty
and sole responsibility to notify and inform Licensee's personnel, employees,
contractors and subcontractors of such dangers, and to keep them informed
regarding same.
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ARTICLE 20 - TAXES
All real property taxes, assessments and other real property charges
levied or assessed against the Facilities shall be paid by Licensor.
All taxes, assessments, license fees, operating fees, and other charges
that are levied or assessed against Licensee's personal or real property
installed or located in or on the Licensor's Facilities, against any business
activities conducted by Licensee in or on Licensor's Facilities, or against
Licensee on account of any activities of Licensee whatsoever in or on Licensor's
Facilities, shall be paid by Licensee.
ARTICLE 21 - SUBORDINATION
Licensor may from time to time, grant liens, deeds of trust, mortgages
or other security interests covering the Licensed Premises herein.
ARTICLE 22 - RIGHTS OF OTHER PARTIES
Nothing herein contained shall be construed as a grant of any exclusive
license, right or privilege to Licensee. Licensor shall have the right to
grant, renew and extend rights and privileges to others not parties to this
Agreement, by contract or otherwise, to use any facilities covered by this
Agreement, subject to the prior rights, if any, of Licensee to use such
facilities. No payment made pursuant to this Agreement shall create or vest
in Licensee or anyone else any ownership interest in any property or facility
of Licensor.
ARTICLE 23 - SERVICE OF NOTICES
Wherever in this Agreement notice is provided to be given by either
party to the other, such notice shall be in writing and shall be effective
when personally delivered to, or when mailed by certified mail, return
receipt requested, with postage prepaid and properly addressed as follows:
If to Licensor, at
Entergy Services, Inc.
P. O. Box 551
Little Rock, AR
ATTN: Joint Use Administrator
If to Licensee, at
IWL Communications, Inc.
12000 Aerospace Avenue, Suite 200
Houston, TX 77034
ATTN: Contracts Administrator
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or to such other address as either party may, from time to time, give the
other party written directions to use for such notice.
ARTICLE 24 - TERMINATION OF AGREEMENT
(a) If Licensee shall fail to comply with any of the terms or
conditions of this Agreement or defaults in any of its obligations under this
Agreement and shall fail within thirty (30) days after receipt of written
notice from Licensor to correct such default or noncompliance, Licensor may,
at its option, forthwith terminate this Agreement and all Licenses granted
hereunder, or the licenses covering the facilities as to which such default
or noncompliance shall have occurred; provided, however, that where the
nature or circumstances surrounding such default cannot reasonably, in
Licensor's sole opinion, be cured within said thirty (30) day period, and
further provided that if Licensee has proceeded promptly to cure same and
continues to pursue such curing with all due diligence, the period for curing
such default may be extended for such period of time as may be necessary, in
Licensor's reasonable opinion, to complete such curing.
(b) In addition, subject to subsection (a) above, Licensor shall have
the right to terminate this entire Agreement, or individual licenses granted
hereunder.
(1) If Licensee's attachments are maintained or used in violation of
any law or in aid of any unlawful act or undertaking; or
(2) If any permit or other authorization which may be required by any
governmental authority, or from any property owner, for the use,
operation or maintenance of Licensee's cables, equipment and
facilities on Licensor's facilities is revoked, denied, or not
granted before the date when possession of such permit or
authorization becomes a condition of continued operations; or
(3) Uses of Licensor's facilities not specifically provided for in
this Agreement, or
(4) If Licensee defaults under any of Articles 4, 5, 6,13,18, 25, or
36 of this Agreement unless cured pursuant to this Article.
(c) If any insurance carrier providing any coverage pursuant to Article 18
shall at any time notify Licensor that a policy or policies of insurance, will
be canceled or changed so that the requirements of Article 18 will no longer be
satisfied, then this Agreement shall cease and terminate without further notice,
the effective date of which cancellation or change, unless adequate replacement
coverage is obtained prior to the expiration or termination of the original
coverage.
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(d) This Agreement shall not automatically cease and terminate in the
event Licensee becomes the target of an involuntary corporate takeover
attempt, if Licensee successfully repels such takeover attempt within one
hundred twenty (120) days of its commencement. Should a takeover attempt be
successful, Article 25 shall apply.
(e) This Agreement shall automatically cease and terminate in the event
either party is unable to permanently perform the duties, obligations and
responsibilities herein and has been given thirty (30) days' written notice
that the events provided in this section have occurred due to circumstances
beyond the control of the party affected, including but not limited to acts
of God, fire, flood, explosion, war, civil unrest, injunction, accident,
lockouts and strikes.
ARTICLE 25 - ASSIGNMENT OF RIGHTS
(a) Licensee shall not assign or transfer the privileges contained in
this Agreement voluntarily or involuntarily without the prior consent in
writing of Licensor. Such consent shall not be unreasonably withheld by
Licensor but said assignment may contain differing terms and conditions. The
assignment or transfer by Licensee of such privileges without written consent
of Licensor shall constitute a default of Licensee's obligations and,
notwithstanding any other provisions of this Agreement, Licensor may at its
option forthwith terminate this Agreement or any license issued hereunder.
(b) Subject to the provisions of paragraph (a) hereof, this Agreement
shall extend to and bind the successors and assigns of the parties hereto.
ARTICLE 26 - CONVEYANCE OR SALE OF FACILITIES
In the event of a sale, donation, exchange, or other disposition or
conveyance by Licensor to a third party of fee simple title to the real
property comprising or including the Facilities or the real property on which
they are constructed as of the date that such conveyance is effective to
third parties, Licensor shall be automatically, irrevocably and completely
relieved from any liability on account of any matters arising or accruing
after said effective date, and the transferee shall for all purposes be
treated and regarded as the Licensor after such effective date.
ARTICLE 27 - TERM OF AGREEMENT
(a) This Agreement shall become effective upon its execution and if not
terminated in accordance with other provisions of this Agreement, shall
continue in effect for an initial term (the "Initial Term") of five (5)
years, with the option to renew this Agreement for an additional term of five
(5) years (the "Renewal Term") upon (a) sixty (60) days' written notice prior
to the expiration of the Initial Term and (b) consent of Licensor; provided,
however, that Licensee or Licensor can shorten the Renewal Term with or
without cause. The Initial Term can only be terminated for breach.
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(b) Upon termination of the Agreement in accordance with any of its terms
or conditions, all outstanding licenses shall terminate and shall be surrendered
and Licensee shall immediately begin to remove its attachments, and Licensee
shall complete such removal within six (6) months next following the termination
date. Despite any such termination, Licensee shall pay the rental payments
provided herein until all attachments are removed. If not so removed, Licensor
shall have the right to remove Licensee's attachments at the cost and expense of
Licensee and without any liability therefor; and Licensee shall be conclusively
presumed to have abandoned all such attachments not so removed by the Licensee,
so that Licensor may dispose of the same in the manner Licensor wishes to use.
(c) Even after the termination of this Agreement, Licensee's
responsibility and indemnity obligations shall continue with respect to any
claims or demands related to Licensee's attachments as provided for in
Article 18.
ARTICLE 28 - AMENDMENTS
Any amendment to this Agreement, to be effective, must be in writing and
signed by both parties hereto.
ARTICLE 29 - EXISTING CONTRACTS
All existing agreements between the parties hereto for the joint use of
facilities are by mutual consent hereby abrogated and superseded by this
Agreement.
ARTICLE 30 - ELECTRICAL SERVICE TO LICENSEE
Electrical service to Licensee shall be provided according to standard
practices by the Licensor and shall be covered under a separate agreement.
ARTICLE 31 - FRANCHISE RIGHTS
Notwithstanding anything elsewhere herein provided, nothing contained in
this Agreement shall abrogate, limit or affect any obligation of Licensee
under any franchise granted to Licensee.
ARTICLE 32 - WAIVER
Failure to enforce or insist upon compliance with any of the terms or
conditions of this Agreement or failure to give notice to declare this Agreement
or any permits granted hereunder terminated shall not constitute a general
waiver or relinquishment of any such terms, conditions or acts but the same
shall be and remain at all times in full force and effect.
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The waiver by Licensor or Licensee of the breach of any term, condition,
covenant or provision herein contained shall not be deemed a waiver of such
term condition, covenant or provision or any subsequent breach of the same or
any other term, covenant, condition or provision of this Agreement. The
subsequent acceptance of annual rental hereunder by Licensor shall not be
deemed to be a waiver of any preceding breach by Licensee of any term,
condition, covenant or condition of this Agreement other than the failure of
Licensee to pay the particular rental so accepted, regardless of Licensor's
knowledge of such preceding breach at the time of acceptance of such rental.
No term, condition, covenant and provision of this Agreement shall be deemed
to have been waived by Licensor or Licensee, unless such waiver be in writing
by Licensor or Licensee.
ARTICLE 33 - CONFIDENTIALITY
The terms and conditions of this Agreement are confidential and Licensee
agrees to have its officers or employees execute a Confidentiality Agreement
if requested.
ARTICLE 34 - ENVIRONMENTAL
Each party will be fully and solely responsible for environmental
contamination caused by its facilities, attachments, contractors, agents or
employees, and Licensee will undertake the requisite environmental
assessments it deems appropriate.
ARTICLE 35 - SIGNS
Licensee shall not have the right to place, construct or maintain signs
on the Licensor's facilities or any underlying property without the prior
written consent of Licensor. However, Licensee is required to identify its
attachments by tagging.
ARTICLE 36 - SURRENDER; HOLD OVER
Upon termination of this Agreement, whether by expiration, cancellation,
forfeiture or otherwise, Licensee shall remove the above-ground portions of
its property installed, placed or erected on Licensor's Facilities by
Licensee. Licensee shall have thirty (30) days after termination of this
Agreement within which to dismantle and remove the said property at its cost,
regardless of any considerations of force majeure or factors beyond
Licensee's control. After the aforementioned period, all property not removed
by Licensee shall become the property of Licensor, except that Licensor, at
its option, upon termination of this Agreement, may require Licensee to
remove any or all of the above-ground portions of such property and to pay
the cost of such removal.
In the event Licensee remains in possession of Licensor's Facilities after
the expiration of this Agreement, Licensee shall be deemed to be doing so from
month to
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month only, at twice the rate of the fee in effect during the last month of
the Term of the Agreement, and subject in all respects, except as to the
duration of the tenancy, to the provisions of this Agreement. Either Licensor
or Licensee may terminate such tenancy upon at least thirty (30) days' prior
written notice.
Any holding-over by Licensee after the expiration of the term of this
Agreement shall be considered a Default by Licensee.
ARTICLE 37 - PARTIAL INVALIDITY
In the event any term, covenant or condition of this Agreement, or the
application thereof, to any person or circumstance shall be deemed by the
appropriate jurisdictional governing or legal authority to be invalid or
unenforceable, the remainder of this Agreement or the application of such
term, covenant, condition or provision to persons or circumstances other than
those as to which it is held unenforceable, shall not be affected thereby and
each term, covenant, condition or provision of this Agreement shall be valid
and enforced to the fullest extent permitted by law.
ARTICLE 38 - WAIVER OF JURISDICTION
Licensee acknowledges and agrees that Licensor makes its facilities available
pursuant to and in consideration of this Agreement only. By execution of
this Agreement by its duly authorized representative, Licensee accepts that
the relationship of the parties will be governed exclusively by this
Agreement and Licensee waives any and all jurisdiction of federal, state or
local regulatory authorities over the terms and conditions of this Agreement,
access to Licensor's facilities, or any other matter respecting attachments
to Licensor's facilities, including without limitation the fees, charges or
rent due hereunder, for a period of two years from the effective date of this
Agreement. In the event that Licensee seeks relief before any federal, state
or local court or authority regarding any such matter, or seeks judicial
relief from or alteration of any term or condition of this Agreement in whole
or in part on the basis of any alleged jurisdiction of federal, state, or
local regulatory authority within two years of the effective date of this
Agreement, this Agreement shall immediately terminate and Licensee agrees
that it shall promptly remove all its attachments from Licensor's facilities
pursuant to this Agreement. Should Licensee fail to effect such removal(s)
within one hundred twenty (120) days of having initiated any such action or
proceeding, Licensor shall have the right without liability to remove or
cause to be removed Licensee's attachments and equipment, at Licensee's sole
expense, pursuant to the terms of this Agreement. Licensee further
acknowledges and agrees that Licensee shall provide Licensor with ninety (90)
days advance written notice of its intent to institute an action or
proceeding before any federal, state, or local court or authority for the
purpose of seeking the alteration of or relief from any term of this
Agreement, in whole or in part. Licensee and Licensor agree that, during such
90 day period, they will actively negotiate in good faith to attempt to
resolve the dispute for which Licensee intends to bring the action. This
waiver shall not preclude Licensee from bringing an action for breach of
contract in federal, state or local court.
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ARTICLE 39 - GOVERNING LAWS
The interpretation of the provisions of this Agreement and of the rights of
the parties hereto shall be under the laws of the state in which the facilities
are located.
ARTICLE 40 - JURISDICTION
Licensee acknowledges that Licensor and other utility companies have
taken and/or may take the position that the Pole Attachment Act of 1978 as
amended (the "Act"), or regulations promulgated with respect thereto, are
unconstitutional on their face or as applied or are otherwise defective as a
matter of law. Licensee further acknowledges and agrees that in the event
the Act or regulations promulgated with respect thereto are held by a court
or administrative agency of competent jurisdiction to be unconstitutional or
otherwise defective as a matter of law in whole or in part, and such decision
becomes final or is otherwise upheld, in whole or in part, by a final
decision upon appeal to the highest court or body to which appeal is sought,
Licensor and Licensee agree to renegotiate, in good faith, the terms and
conditions of this Agreement. If, following a period of ninety (90) days or
such other period as may be mutually agreed upon by the parties, such
renegotiation is unsuccessful, Licensor, in its sole discretion, may
terminate this Agreement without liability or further obligation upon one
hundred twenty (120) days' written notice, in which event Licensee promptly
shall remove or cause to be removed any and all of its attachments and
equipment from Licensor's poles, ducts, conduits, or rights-of-way. Should
Licensee fail to effect such notice of Licensor's intent to terminate this
Agreement pursuant to this Article 41, Licensor shall have the right, without
liability to remove or cause to be removed Licensee's attachments and
equipment, at Licensee's sole expense, pursuant to the terms of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in duplicate on the day and year first above written, each party
hereto retaining an executed copy hereof.
ENTERGY SERVICES, INC.
WITNESS: LICENSOR
- ----------------------------- BY:
------------------------------
- ----------------------------- TITLE:
---------------------------
IWL COMMUNICATIONS, INC.
dba IWL CONNECT
WITNESS: LICENSEE
Karen L. Beuchaw By: /s/ Ignatius Leonards
- ----------------------------- -----------------------
Ignatius Leonards
Kimberly D. Strader Title: President
- ----------------------------- --------------------
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PERMIT NO._________
REF WR#_________
(Entergy use only)
EXHIBIT A
APPLICATION AND PERMIT FOR ATTACHMENT TO FACILITIES
Licensee____________________________________________ _________, 19___
Contract No.______ Town/Operating Area_________________________
(one area per application)
Dear Sir:
In accordance with the terms and conditions of our Agreement dated __________,
application is hereby made for a permit to make _____ attachments to Entergy's
facilities for installation of _______________________ attachments at the
locations detailed below and/or shown on the attached design and layout
proposal.
TYPE OF ATTACHMENT SPECIFIC LOCATION
Advance payment is enclosed for a non-refundable fees as required in the
Agreement in the amount of $_______. Attachments, as provided for under this
"Application and Permit," shall commence within thirty (30) days and be
completed within one hundred twenty (120) days of the approval date as set forth
below, otherwise this application and permit shall become null and void, and
prepaid fees will not be refundable.
Licensee: By:
----------------------------
- ------------------------------ Title:
-------------------------
______________________________________________________________________________
(To Be Completed By Entergy)
____ Permit will be granted, subject to your approval of the necessary changes
and rearrangements at a cost to
you of $_________________ , payable in advance.
____ Permit denied under Section ________________ ______________, 19 ____
Comments: By:
------------------------ ---------------------------
--------------------------------- Title: -----------------------
_________________________________________________________________________
(To Be Completed By Licensee)
The above changes and rearrangements approved ___________, 19___, and advance
payment is enclosed.
__________________________________ By:
Licensee ----------------------------
Title:
-------------------------
_______________________________________________________________________________
(Entergy)
Permit Issued _______________ , 19___ ENTERGY
Total Previous Attachments______
Attachments This Permit ______ By:
New Total ________ --------------------------------
Title:
Routing Instructions: -----------------------------
(1) The party preparing this application will send three (3) signed copies and
application fee to Entergy.
(2) Entergy will return two (2) copies approving the application or requesting
approval and pre-payment of make ready work when require
(3) The party will return two (2) copies approving make ready work along with
pre-payment.
(4) After receipt of pre-payment, Entergy will return one (1) final approved
copy.
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PERMIT NO._________
EXHIBIT B
NOTICE OF REMOVAL OF ATTACHMENT TO FACILITIES
Licensee_____________________________ ________, 19___
Contract No.______ Town/Operating Area___________________________
(one area per application)
Dear Sir:
In accordance with the terms and conditions of our Agreement dated
____________,19___, please cancel from your records attachments to the following
facilities from which Licensee's attachments were removed on ___________ 19___.
TYPE OF ATTACHMENT __________ SPECIFIC LOCATION __________
________________________ By:
Licensee ------------------------------
Title:
---------------------------
________________________________________________________________________________
Notice Acknowledged:
_______________,19____ ENTERGY
Total Previous Attachments______
Attachments Removed ______ By:
New Total _______ ----------------------------
Title:
Routing Instructions: ------------------------
(1) The party preparing this application will send two (2) signed copies to
Entergy.
(2) Entergy will return one (1) copy acknowledging the removals.
28
<PAGE>
EXHIBIT C
SPACE RESERVATION DRAWINGS
[Drawing depicting transformer installation detail]
<PAGE>
EXHIBIT D
FEES, CHARGES AND RENTS
for
IWL Communications, Inc., dba IWL Connect
Effective Date: 11/25, 1996
Application Fee (non-refundable) XXXXX first time new application
(One-time fee) XXXXX subsequent applications in a
new Metropolitan Statistical Area
(MSA) assuming there are no contract
changes
Annual Bundled Rate $ XXXX /pole per year
Pole Attachment Rental Rate Current CATV rental rate as
calculated annually in accordance
with FCC formula
Up Front Engineering Pole Survey Fees $ XXXX /pole applied to make ready
work required on that pole
Periodic Inspection Fee Cost plus standard markup
Rental Fee for Unauthorized $ XXXX /pole
Attachment
Penalty Fee for Unauthorized $ XXXX /pole per year since last
Attachment inventory or date of contract
whichever is the most recent
Transfer of Attachments from old Included in Bundled Rate Pole Rental
facility to new facility for non- Rate or at Licensee's expense
severed cable
Right of Way Maintenance Included in Bundled Rate Pole Rental
Rate or at Licensee's expense
Restoration of service if cable not Included in Bundled Rate Pole Rental
damaged Rate or at Licensee's expense
Rearrangement of Facilities $XXXX per accessible pole (includes
consisting of one secondary and one $XXXX engineering fee)
service Make Ready on a non-
replacement pole. Cost for any $XXXX per non-accessible pole
additional services on a pole or a (includes $XXXX engineering fee)
pole replacement cost will be the
Licensor's Distribution Information
System estimate for that pole or
additional work.
Removal of Licensee Facilities Estimated cost for the specific
facilities to be removed
$_________ Other
29
<PAGE>
[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.
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<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]
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<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>
RESELLER AGREEMENT
BETWEEN
ALCATEL NETWORK SYSTEMS, INC.
AND
IWL COMMUNICATIONS, INC.
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<PAGE>
RESELLER AGREEMENT
TABLE OF CONTENTS:
1. Term
2. Exhibit
3. Product
4. Ordering
5. Prices
6. Delivery
7. Terms of Payment
8. Supply
9. Patent and Trademark Indemnity
10. Indemnity
11. Technical Specifications; Technical Documentation
12. Software
13. Testing
14. Warranty
15. Excusable Delay
16. Confidential Information
17. Non-Disclosure
18. Governing Law
19. Assignment
20. Termination
21. Default
22. Effect of Termination
23. Sales After Termination
24. No Liability for Termination
25. Failure to Enforce
26. No Oral Agreements
27. Conduct of Business
28. Relationship of Parties
29. Use of Trademarks
30. Permits and Licenses
31. Termination of Prior Agreements
32. Headings
33. Consequential and Other Damages
34. Notices/Contract Administration
35. Exclusive Arrangement
<PAGE>
RESELLER AGREEMENT
ALCATEL NETWORK SYSTEMS, INC., a corporation duly organized and existing
under the laws of the State of Delaware with its principal office at 1225
North Alma Road, Richardson, TX, 75081, hereinafter called "ALCATEL" and IWL
Communications, Inc. with its principal office at 12000 Aerospace Ave. Suite
200, Houston, TX, 77034 (hereinafter called "BUYER"), hereby agree to extend
their Reseller Agreement dated December 31, 1995 ("Original Agreement")
pursuant to the terms and provisions set forth below. This extension is made
as of the 31st day of December, 1996 and shall amend and restate all the
terms and provisions of the Original Agreement.
WHEREAS, ALCATEL is desirous of appointing BUYER an exclusive reseller of
ALCATEL's products to the oil and gas industry, and BUYER is desirous of
accepting such appointment.
WHEREAS, ALCATEL wishes to sell and BUYER wishes to purchase ALCATEL products
for BUYERS internal use.
THEREFORE, ALCATEL appoints BUYER as an exclusive reseller of ALCATEL's
products to the oil and gas industry and agrees to sell under the terms of
this Agreement to BUYER the ALCATEL products listed on Exhibit A, for resale
by BUYER to the oil and gas industry and for BUYERS internal use. BUYER
accepts such appointment and agrees to purchase product from ALCATEL under
the terms of this Agreement.
1. TERM
This Agreement will be in effect for a period of thirty six (36) months
commencing on the date first set forth above unless terminated sooner by
either party in accordance with the provisions of this Agreement. This
Agreement may be extended beyond the initial term of the Agreement by
written agreement of the parties. This Agreement, and the discounts stated
herein, shall apply to all products for which orders have been placed prior
to the expiration of the term of this Agreement whether or not delivered as
of that date.
2. EXHIBITS
Exhibit A, Products and Pricing, attached hereto, is an integral part of
this Agreement and is hereby made a part hereof.
<PAGE>
3. PRODUCTS
Products means the Products described in Exhibit A. Exhibit A may be
modified from time to time by ALCATEL on at least sixty (60) days prior
written notice to BUYER to reflect changes in specifications,
configurations, and other matters and to reflect product line additions and
deletions. BUYER will be promptly furnished with current copies of Exhibit
A when and if modified.
4. ORDERING
4.1 All purchases of products by BUYER shall be made by means of purchase
orders ("Orders") issued from time to time by BUYER for delivery to
locations specified by BUYER.
4.2 All Orders issued by BUYER, and acceptances by ALCATEL hereunder,
shall be deemed to incorporate the terms and conditions set out in
this Agreement. Any preprinted terms and conditions contained in any
Order or acceptance shall be deemed deleted and of no force and effect.
BUYER and ALCATEL may mutually agree, in writing, to additional
special or modified terms and conditions for specific Order(s) if the
scope of such Order(s) differs from the scope of this Agreement.
4.3 A particular Order issued with reference to this Agreement may be
amended from time to time by change orders in writing which shall set
forth the particular changes to be made, and the effect, if any, of
such changes on the price, quantity and delivery dates herein or
therein provided. BUYER may not defer delivery dates more than sixty
(60) days beyond ALCATEL's originally acknowledged delivery date.
Changes requested by BUYER shall not be binding on ALCATEL unless and
until acknowledged in writing by ALCATEL.
5. PRICES
5.1 The prices applicable to Orders issued and accepted hereunder shall be
ALCATEL list prices in effect on the date of this Agreement, or as
revised by ALCATEL under paragraph 5.4 below, less the applicable
discounts shown in Exhibit A.
<PAGE>
5.2 All ALCATEL prices are FOB the ALCATEL point of supply. All products
shall be shipped freight prepaid and added to invoice. ALCATEL will
not insure shipments made unless specifically requested by BUYER.
BUYER shall be invoiced for the cost of any such insurance.
5.3 All ALCATEL price lists do not include Federal Manufacturers and
Retailers excise, state or local sales and/or use taxes, nor any
Federal, state or local taxes of a similar nature. Any such taxes, if
applicable to and payable by ALCATEL in connection with the
performance of this Agreement shall be billed to and paid by BUYER as
separate items on ALCATEL invoices.
5.4 ALCATEL's prices may be revised by ALCATEL upon sixty (60) days prior
written notice to BUYER. Price changes shall apply only to Orders
placed after the effective date of such change.
6. DELIVERY
6.1 The delivery point for the domestic shipments of products supplied
hereunder shall be FOB the ALCATEL point of supply.
6.2 Except as provided in Section 12 as to Software, title and risk of
loss or damage to the products contained in each shipment shall pass
to BUYER upon delivery thereof to the carrier. Shipping arrangements
with such carrier shall be handled by ALCATEL. ALCATEL shall pack the
products for shipment in accordance with its standard commercial
packing practices. In the event that in-transit damage results from
ALCATEL's failure to adequately package products, ALCATEL will repair
or replace the damaged products at no charge to BUYER.
6.3 The delivery dates applicable to Orders placed hereunder will be
generally in accordance with the applicable normal delivery intervals
or as specified in a particular Order, but in no event shall delivery
be specified greater than six (6) months after order date. If, prior
to acceptance of an Order, ALCATEL advises BUYER that it cannot meet a
delivery date shown in an Order, both parties will attempt to
negotiate a revised delivery date. In any event, the governing
delivery date will be the date shown on ALCATEL's acknowledgements.
<PAGE>
6.4 Unless instructed otherwise by BUYER, ALCATEL shall, for Orders placed
hereunder: (1) ship Orders substantially complete, however partial
shipments may be made for usable units; (2) ship to the destination
designated in the Order in accordance with specific shipping
instructions; (3) see that all subordinate documents bear BUYER's
Order number; (4) enclose a packing memorandum with each shipment and
when more than one package is shipped, identify the one containing the
memorandum; (5) mark BUYER's Order number on all packages and shipping
papers; and (6) render separate invoices for each shipment or Order.
7. TERMS OF PAYMENT
Terms of payment are Net thirty (30) days after date of invoice.
8. SUPPLY
ALCATEL will make every reasonable effort to furnish a sufficient quantity
of said products to meet the resale requirements of BUYER.
9. PATENT & TRADEMARK INDEMNITY
ALCATEL, at its own expense, will defend any suit or proceeding against
BUYER insofar as it is based upon a claim of infringement of any United
States patent by ALCATEL's Products purchased hereunder provided BUYER
notifies ALCATEL promptly in writing of any such suit or proceeding and all
prior claims which relate to same, and gives ALCATEL full and complete
authority, information and assistance for defense of same and all
negotiations for its settlement or compromise. If, in ALCATEL's opinion,
any such Product is likely to become the subject of a claim of patent
infringement, or if a final injunction shall be obtained against BUYER's
use of any such ALCATEL's Product, or any of its parts, by reason of
infringement of any such patent, ALCATEL will, at its option and at its
expense, either procure for BUYER the right to continue using the Product,
replace or modify the same so that such Product becomes non-infringing, or
grant BUYER a credit for such Product less damage and depreciation for use,
and accept its return, provided ALCATEL so acts with regard to all such
Products to all customers generally. The depreciation shall be an equal
amount per year over the lifetime of the Product as established by ALCATEL.
However, ALCATEL shall have no liability to BUYER under this paragraph or
otherwise for any such patent infringement, or claim thereof, which is
based upon (i) the use of any Product in
<PAGE>
combination with any other Product, device or equipment not supplied by
ALCATEL, (ii) the use of any Product for a purpose or application not
intended by ALCATEL, it being understood that the sole intended purpose
or application of the Product shall be as set forth in ALCATEL's
published System Practices document, (iii) the furnishing to BUYER of
any information, data, service or applications assistance, or (iv) for
ALCATEL's compliance with BUYER's designs or specifications or (v) any
change or modification to the Product made by BUYER. No costs or
expenses shall be incurred for the account of ALCATEL without ALCATEL's
written consent. The foregoing states the entire liability of ALCATEL
with regard to patent infringement of ALCATEL's products. BUYER shall
indemnify ALCATEL for any loss, damage, expense or liability in any suit
or proceeding based upon any patent infringement claim brought against
ALCATEL resulting from ALCATEL's compliance with BUYER's designs or
specifications and for any trademark infringement involving any marking
or branding applied by ALCATEL at the request of BUYER.
10. INDEMNITY
ALCATEL agrees to indemnify, defend and save BUYER harmless from any
liabilities, claims or demands (including the cost, expense and reasonable
attorney's fees on account therefore) that may be made: (1) by any third
person for injuries, including death to persons or damage to tangible
property resulting from Seller's negligent or otherwise wrongful acts or
omissions, or those of persons furnished by Seller hereunder; (2) by any
third person for injuries, including death to persons or damage to tangible
property, caused by any Product supplied by ALCATEL hereunder in a
defective and unreasonable dangerous condition; or (3) under Worker's
Compensation, or similar employer-employee liability acts, against BUYER by
persons provided by ALCATEL. BUYER agrees to notify ALCATEL promptly of any
written claims or demands against BUYER for which ALCATEL is responsible
hereunder.
11. TECHNICAL SPECIFICATIONS: TECHNICAL DOCUMENTATION
The technical specifications applicable to the Products supplied hereunder
shall be ALCATEL's standard specifications as they are amended from time to
time which are hereby incorporated herein by reference.
<PAGE>
12. SOFTWARE
If the end user of the Software is other than BUYER, BUYER, as Licensee, may
sub-license the rights granted to it hereunder to the final end-user subject
to the same limitation.
12.1 Definitions
12.1.1 The Software
All or any part of the specific collection of programs, or
machine-readable instruction modules, that are covered by the
terms and conditions of a software license, and delivered to
Licensee, inclusive of the ALCATEL intellectual property therein,
whether or not the subject of any patent or copyright, issued or
pending.
12.1.2 Licensed System
The logical grouping of hardware, upon which the software covered
by a specific license agreement is intended to be installed,
which is identified specifically within that license agreement,
and which may be:
12.1.2.1 a single system controlled by a single main
processor or single redundant set of identical
processors, or
12.1.2.2 a number of systems of the same type that are
physically and logically connected into a network.
12.1.3 Distribution Media
The collection of tape(s), cartridge tape(s), diskette(s), or
other storage devices, or combinations of media types, that
contain the licensed Software, as packaged by, and received from,
ALCATEL.
12.1.4 Current Version of the Software
The latest of all Major Releases, Intermediate Releases, or
Maintenance Releases from ALCATEL which are applicable to the
system type of the Licensed System and which are approved by
ALCATEL for shipment.
12.1.5 Major Release
A version release of the Software designated by an increment of
the integer in the release number ("N" in N.xx.xx) and defined to
include
<PAGE>
substantial functionality not included in previous versions of
the same type of software.
12.1.6 Intermediate Release
A version release of the Software designated by an increment of
the first decimal division of the release number ("NN" in
x.NN.xx), and defined to include refinement or enhancement of
features and functionality existing in previous versions of the
same type of software.
12.1.7 Maintenance Release
A version release of the Software designated by an increment of
the second decimal division of the release number "NN" in
x.xx.NN), and defined to include remedial modifications of
features and functionality included in previous versions of the
same type of software for a specific Customer anomaly.
12.1.8 Generation
The series of release versions of the Software applicable to the
Licensed System beginning with a Major Release and including all
subsequent Intermediate Releases and Maintenance Releases prior
to, but not including, the next Major Release.
12.1.9 Documentation
The instruction and reference manuals pertaining to the Software
and the Licensed System and the Customer Release Notes.
12.2 Title
Title to the Software described herein shall remain with ALCATEL, or with
the various suppliers to ALCATEL whose software or software components are
contained in the Software and whose rights of ownership are maintained
through restrictive agreements with ALCATEL. ALCATEL grants to Licensee,
and Licensee accepts, a non-exclusive, restricted right to use the
Software and Documentation, limited as described herein.
12.3 Limitations of License Grant
12.3.1 The Software furnished hereunder is to be used only with the
system supplied by ALCATEL and identified by type and location as
the Licensed System. The Software and Documentation are to be used
only by the Licensee, for its own business use, and only for the
intended use of the Software and Documentation as offered and
furnished by ALCATEL.
<PAGE>
12.3.2 This grant of Licensee's right to use the Software is now and
throughout the term of the license contingent upon the payment by
Licensee to ALCATEL of applicable fees.
12.3.3 Licensed use is limited to the executable software as delivered by
ALCATEL to Licensee and does not permit modification or use of any
modified form of the Software, notwithstanding any claim by
Licensee of any defect in the Software, nor any other agreements
or covenants between ALCATEL and Licensee regarding maintenance by
Licensee of other products or of unspecified products. Unless so
specified Licensee may not duplicate the Software, except to make
a backup copy of the software for use in the event of system
failure. If the Purchase Order provides for duplication, for any
other purpose then Licensee shall account for and report to
ALCATEL the details of such duplication as authorized.
12.3.4 The Software and Documentation furnished are the property of
ALCATEL and are to be considered proprietary information. Licensee
shall not disclose, provide or otherwise make available the
Software or Documentation, or any part thereof, in any form, to
any third party, before or after termination of this Agreement,
except as may be permitted in writing by ALCATEL. Licensee shall
immediately notify ALCATEL, in writing, of any knowledge that any
unlicensed party possesses the Software or Documentation. Licensee
shall safeguard said Software with the same degree of care and
diligence as Licensee affords to its own similar property.
12.4 Derived Products and Derived Dependent Products
12.4.1 Any configuration, application, or arrangement of the Software and
its systems into networks, shall not be considered a derived
product with any distinction in ownership from that of the
Software as received by Licensee.
12.4.2 Any distinct and separate element of software in the form of
instruction macros, test cases, simulation data, or similar forms
of intellectual property, which is produced by normal use of the
Software and is initially dependent upon the Software for
execution, shall be considered a derived product to which ALCATEL
retains title and to which Licensee is granted an exclusive right
to use solely in its dependent form, and in conjunction with, the
Software and the Licensed System.
<PAGE>
12.4.3 The Software conveyed to Licensee under this Agreement is in
object code format. ALCATEL expressly prohibits, and Licensee
agrees to refrain from, any attempt by Licensee or Licensee's
agent to disassemble, reverse compile, reverse engineer, or, in
any similar way, expose the actual instruction sequences,
internal logic, protocols, algorithms or other intellectual
property represented within the Software, which ALCATEL
considers to be its proprietary information and trade secret
whether or not said intellectual property is included in any
patent or copyright. Any product derived from, or resulting
from, such effort by Licensee or any other party shall be
deemed the property of ALCATEL, for which no right to use is
granted to Licensee herein and for which ALCATEL shall bear no
obligations for support.
12.5 Assignment Restriction
12.5.1 This Agreement, and the rights and obligations of Licensee
shall not be pledged, mortgaged, assigned, sub-licensed or
otherwise transferred or disposed of, including by operation of
law, in whole or in part, by Licensee except as expressly set
out in this Agreement, or as consented to in writing by ALCATEL.
12.5.2 A transfer in whole of Licensee's rights described herein, may
be made only in conjunction with a transfer of the entire
Licensed System. Licensee shall provide notice to ALCATEL of
Licensee's intent to make such a transfer, and such notice
shall include, at a minimum, the identity of the recipient, the
new location of the Licensed System, and a detailed report of
the new configuration and interconnection of the Licensed
System. Any such transfer shall be subject to the agreement of
the transferee to assume the obligations of Licensee and other
restrictions contained in this Agreement. In the event that
ALCATEL determines that the use of the Software and Licensed
System after the intended transfer is not supportable by
ALCATEL, or is not comparable to the originally licensed use,
ALCATEL shall provide Notice to Licensee that all of its
obligations to Licensee are void after said transfer and do not
pass to transferee.
12.6 Software Indemnification
12.6.1 ALCATEL certifies that it has the lawful right to license and
distribute the Software as described herein, and that said
software is free of any encumbrances. ALCATEL will indemnify
and hold
<PAGE>
Licensee harmless from any loss, cost, liability and expense
arising out of any breach or claimed breach of this
certification.
12.7 Software Maintenance
12.7.1 Licensee agrees to report problems to the Technical Contact for
ALCATEL as shown in the Purchase Order. ALCATEL will maintain
the Software, and, from time to time, make additions,
modifications or adjustments to the Software at an ALCATEL
facility. Delivery to Licensee of new features or major
releases to the Software will require payment of the then
current ALCATEL prices for such Software.
12.7.2 Notice to Licensee of corrections or additions, modifications or
adjustments to the Software shall be sent to a designated
BUYER contact. ALCATEL will, at its own discretion, make such
additions, modifications or adjustments to the version of the
Software commonly known as the Current Release at the time that
the additions, modifications or adjustments are made, or to an
earlier version of the Software originally received by Licensee
under terms of this Agreement.
12.8 Source Code Delivery
If ALCATEL withdraws from its business related to the Software such that
it cannot or does not continue to provide support to the Licensee, and
without making arrangement with others for the purposes of that support,
that portion of the Source Code from which the Current Version of the
Software is derived and for which ALCATEL holds ownership or Source Code
distribution rights will be made available to the Licensee. In that
situation, ALCATEL would make available its own Source Code, ALCATEL
will notify the Licensee of any limits on source code delivery of third
party software included in the Software and provide to the Licensee
contact information for said third party.
12.9 Authorized User Requirement
ALCATEL expects, and Licensee agrees, that the licensed system and
licensed software will be used, monitored, controlled and managed
sufficient to Licensee's needs, by a qualified and authorized user.
Any error or malfunction, caused by, or aggravated by, the failure to
comply with this requirement shall be construed as the responsibility
of the Licensee.
<PAGE>
12.10 Distribution Media
12.10.1 No claim of ownership of the specific Distribution Media, or
its underlying magnetic media, by Licensee shall alter the
requirements of ALCATEL upon Licensee for storing or handling
the Distribution Media as described herein.
12.10.2 The distribution media must be held safe, and available for
inspection, at the Installation Site described in the Purchase
Order, if known. If the software is described in the Purchase
Order as network-downloadable or duplication of the software is
permitted by ALCATEL to be performed by Licensee at various
sites in a network, then the Original Installation Site will be
that site at which the software was originally loaded from the
Distribution Media on to the first system. The Distribution
Media must then be held safe, and available for inspection, at
that Original Installation Site.
12.11 Documentation
One set of instruction and reference manuals will be provided free of
charge with each Licensed System. Additional sets may be purchased by
BUYER. Customer Release Notes will be included free of charge with each
and every Major, Intermediate, or Maintenance Release delivered to
Licensee.
12.12 Termination
12.12.1 Except for termination as described hereunder, the grant of
license and the terms and conditions of this Agreement shall
continue and be renewed as long as the Licensed System upon
which the Software is running remains in service by Licensee.
12.12.2 The license granted herein shall terminate 30 days after
notification of Licensee by ALCATEL as to Licensee's
delinquency in making required payments.
12.12.3 Voluntary termination of this License Agreement and termination
of the use of the Software may be requested by the Licensee
with 90 days Notice to ALCATEL.
12.12.4 Termination for any other breach of the Agreement or material
violation of any of its terms, by the Licensee, shall occur
thirty days after written notice is sent by ALCATEL.
Determination of any period of breach shall commence on the
date of the violation by Licensee without regard to ALCATEL's
knowledge of the breach or Notice of the breach to Licensee.
<PAGE>
12.12.5 Within 72 hours of termination of the License, the Licensee
will ship to ALCATEL, by insured commercial carrier, all media
copies of the Software, including both original Distribution
Media and any copies made for backup purposes, and all
Documentation provided by ALCATEL associated with the Software.
Within the same period, Licensee will unload the Software, load
other software over the Software, or if necessary halt the
processor, on any and all systems on which the Software is
running. Any subsequent evidence of Licensee's beneficial use
of the Software after termination, as defined herein, shall be
in contravention of the provisions hereof.
13. TESTING
If requested by BUYER, ALCATEL shall provide to BUYER a description of its
standard factory tests related to any of the products covered by this
Agreement. BUYER may request, and upon concurrence by ALCATEL, be
allowed to witness the factory tests on a non-interfering basis.
14. WARRANTY
Subject to the limitations stated herein, Material manufactured by ALCATEL
(exclusive of Software originated and supplied by ALCATEL) is warranted to
be free of defects in workmanship and material at the time of delivery to
the BUYER for a period of one (1) year. However, certain products have
longer warranty periods as shown below:
Period Product
------ -------
7 Years D448 Channel bank
5 Years 1631 SX, 1633 SX, 1630 SX, 1603 SM,
1612 SM, 1648 SM
3 Years DML-3X50, DMX-3003/N
2 Years MDR-XXXX, T1 SPAN LINE
1 Year All other products
<PAGE>
Notice of the claimed defect or unsuitability must be given in writing within
twelve (12) months after delivery of the Material or Software or within such
longer warranty term as designated for the Material listed above.
14.1 Software is warranted for a period of one (1) year as follows:
14.1.1 ALCATEL warrants that the Distribution Media is free of
defects in materials or workmanship at the time of delivery to
Licensee.
14.1.2 ALCATEL warrants that the Software will perform in accordance
with the published ALCATEL specifications. This warranty
coverage is provided to Licensee, in conjunction with the
licensing of the Software, for a period of one year at no
charge. However, an Intermediate Release carries a simple
ninety (90) day warranty. If Customer notifies ALCATEL within
the ninety day warranty that the Release does not comply with
Customer's expectations, the Release can be returned to ALCATEL
for a full refund of the purchase price of the Release. Such
return will have no effect on any remaining warranty of the
Major Release.
14.2 In the event the Material is not as warranted herein at the time of
delivery, ALCATEL agrees to, at its option, repair, correct or replace
with new or equivalent Material at its designated Warranty Repair
Center any defective Material so as to make the Material conform to
this warranty or take back the Material and refund the Price therefor,
less a reasonable adjustment for the BUYER's beneficial use of the
Material provided:
14.2.1 Notice of the claimed defect or unsuitability is given in
writing within twelve (12) months after delivery of the
Material or Software or within such longer or shorter
warranty term as designated for Material listed below:
14.2.2 The defective Material is returned to ALCATEL's designated
Warranty Repair Center Transportation prepaid and risk of
loss borne by BUYER, in accordance with ALCATEL's
instructions which shall be promptly given; and,
14.2.3 An inspection of the returned Material by ALCATEL at its
Warranty Repair Center indicates the defect was not caused
by
<PAGE>
abuse or improper use, maintenance, repair, installation
or alteration by other than ALCATEL or its authorized
Service Center; and
14.2.4 The Material has not been connected directly or indirectly
to any apparatus not registered to the extent required by,
or which otherwise is not in compliance with, the FCC Rules
and Regulations.
14.3 Any equipment, accessory, or part repaired or replaced by ALCATEL
pursuant to the terms of this warranty agreement shall continue to be
warranted for the remainder of the period as set forth above, plus the
length of time necessary for repair or replacement. Equipment Repair
Services provided the BUYER by ALCATEL outside the scope of the above
specific warranties are warranted by ALCATEL for a period of twelve
(12) months against defects in workmanship or material under and
subject to all of the applicable terms, limitations and conditions
given herein.
14.4 Any Material including Software supplied by, but not of, ALCATEL's
manufacture or origination shall be subject only to the warranty of
the manufacturer or supplier thereof which shall be conveyed to the
BUYER.
14.5 The warranty set forth in this section is in lieu of all other
warranties whether expressed or implied, including warranties of
merchantability and fitness for its intended or particular purpose. In
no event shall ALCATEL have any liability for consequential damages
or for loss, damage or expense directly or indirectly arising from the
use of the equipment, or the inability to use them either separately or
in combination with other equipment, or from any other cause except as
specifically contained in the warranty agreement.
15. EXCUSABLE DELAYS
If the performance of any obligation under this Agreement or an Order
is interfered with by reason of any circumstances beyond the reasonable
control of the party affected, including, without limitation, fire,
explosion, power failure, acts of God, war, revolution, civil commotion,
acts of the public enemy or any law, order, regulation, ordinance or
requirement of any such governmental or legal body and strikes, then the
party affected shall be excused from such performance. The party so
affected shall use reasonable efforts to remove such causes of
non-performance; provided, however, in the context of labor unrest,
<PAGE>
that a party shall not be obligated to accede to any demands being made
by employees or other personnel. In the event that such delay shall
extend shipment in excess of one-hundred and eight (180) days beyond
the agreed upon delivery date as defined in Section 6.3, unaffected
party may at its option cancel without penalty the affected Orders as
to any products not already shipped.
16. CONFIDENTIAL INFORMATION
16.1 Each party agrees that it shall not, and that it shall take
reasonable precautions to see that it's employees do not,
communicate or give in any way whatsoever to any third party any
proprietary information furnished by the other, in writing, without
the prior consent in writing of the other party to this Agreement,
except as applies to Section 12, Software.
16.2 All proprietary documents will be so marked.
16.3 This obligation shall not apply to any such information (1) if
prior to its receipt by the other party it has been published or
is generally known to the public, (2) if after receipt by the other
party it becomes generally known to the public (other than through a
breach of this Agreement) or obtainable from bona fide sources, (3)
is known to the party at time of receipt, (4) is developed
independently, or (5) is required by law to be disclosed.
17. NON-DISCLOSURE
Unless otherwise required by law or regulatory agency, neither party shall
disclose to third parties the content of this Agreement, in whole or in
part, without the prior written consent of the other party.
18. GOVERNING LAW
The construction, interpretation, and performance of this Agreement shall
be governed by the laws of the State of Texas.
<PAGE>
19. ASSIGNMENT
Neither party may assign or transfer this Agreement or any rights hereunder
without the prior consent of the other party, except for assignment by
ALCATEL to ALCATEL International Corporation and assignment of rights to
receive payments.
20. TERMINATION
The reseller relationship hereby created may be terminated only (a) by an
agreement in writing duly signed by the parties hereto; or (b) by either
party at will, in accordance with Section 35, Exclusive Arrangement, upon
not less than ninety (90) days' notice in writing given by certified mail to
the other party; or (c) by either party hereto upon one (1) day's like
notice in the event the other party hereto attempts to assign this agreement
or any rights thereunder without the other party's written consent except as
identified in Section 19, or either party ceases to function as a going
concern or to conduct its operation in the normal course of business, or a
receiver is appointed or applied for by the party, or a petition under the
Federal Bankruptcy Act is filed by or against either party, or either party
makes an assignment for the benefit of creditors, or (d) as identified in
Section 21, Default.
21. DEFAULT
In the event of any material breach of this Agreement or an Order by
ALCATEL or BUYER which shall continue for thirty (30) days after written
notice of such breach shall have been given to the breaching party by the
aggrieved party, the aggrieved party shall be entitled, subject to any
limitations contained in this Agreement, to avail itself of any and all
remedies available at law or equity, expressly including cumulatively
without limitation the right to terminate this Agreement.
22. EFFECT OF TERMINATION
Upon termination, BUYER agrees to cease holding itself out as an authorized
exclusive reseller of ALCATEL and shall immediately upon termination remove
any signs, names, insignias, logos, proprietary marks, and other
promotional, advertising, sales information, technical, and other materials
which identifies or appears to identify it with ALCATEL and return same to
ALCATEL.
<PAGE>
23. SALES AFTER TERMINATION
The acceptance of any order from, or the sale of any Material to BUYER
after the termination or expiration of the reseller relationship hereby
created shall not be construed as a renewal or extension thereof nor as a
waiver of termination, but in the absence of a new written agreement all
such transactions shall be governed by provisions of ALCATEL's standard
terms of sale.
24. NO LIABILITY FOR TERMINATION
Neither party, shall by reason of the termination or non-renewal of
reseller relationship of said products, 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 in connection with the business or
goodwill of the other.
25. FAILURE TO ENFORCE
The failure of either party to enforce at any time or for any period of
time the provisions hereof shall not be construed to be waiver of such
provisions or of the right of such party thereafter to enforce each and
every such provision.
26. NO ORAL AGREEMENTS
Any amendments to this Agreement must be in writing and executed by both
parties.
27. CONDUCT OF BUSINESS
So that the relationship contemplated by this Agreement shall be mutually
advantageous and in recognition of the expertise and commitment necessary
for the effective marketing and support of the product, BUYER agrees to
continually use its best efforts to encourage and develop the full sales
potential for the products, to employ competent, well-trained sales
Personnel to meet the demands and needs for marketing and support of the
Products, and to encourage the purchase of the Products by its customers to
the best of BUYER's ability.
<PAGE>
28. RELATIONSHIP OF PARTIES
This Agreement does not in any way create the relationship of joint
venture, partnership, or principal and agent between ALCATEL and BUYER. And
neither shall have the power or ability to pledge the credit of the other
nor to bind the other nor to contract in the name of or create a liability
against the other in any way for any purpose.
29. USE OF TRADEMARKS
During the term of this Agreement or any extension thereof, BUYER may use
the trademark of ALCATEL or any of ALCATEL's trademarks, insignias, logos
or proprietary marks in connection with BUYER's sales, advertisements, and
promotions of the product. BUYER acknowledges that those trademarks and
logos are valuable assets of ALCATEL and BUYER's use of such proprietary
marks shall be in accordance with ALCATEL's direction and policies. ALCATEL
reserves the right to review all publicity, publication and promotional
literature concerning the products covered by the Agreement. BUYER
specifically disclaims any right in any of the proprietary marks and shall
not use the proprietary marks as part of the business name of BUYER.
30. PERMITS AND LICENSES
It shall not be the responsibility of ALCATEL to obtain any or all
necessary licenses and permits for the installation and operation of the
equipment at the site at which it is to be installed.
31. TERMINATION OF PRIOR AGREEMENTS
This Agreement terminates and supersedes all prior agreements between the
parties.
32. HEADINGS
Headings of this Agreement are inserted solely for the purpose of
convenience of reference and are in no manner to be construed as a part of
the Agreement.
<PAGE>
33. CONSEQUENTIAL AND OTHER DAMAGES
Subject to the provisions of Section 10, Indemnity, of this Agreement,
neither ALCATEL nor BUYER as the case may be, shall be liable for indirect,
special, incidental or consequential damages (including but not limited to
loss of revenues or loss of profits) resulting from its performance or
failure to perform any of its obligations under this Agreement or for any
other cause.
34. NOTICES/CONTRACT ADMINISTRATION
In matters relating to overall general administration of this Agreement,
notices and other communications shall be transmitted in writing to the
person and address listed below or to such other person and address as the
party to receive the notice or request shall have previously indicated in
writing.
TO: ALCATEL TO: BUYER
ALCATEL NETWORK SYSTEMS, INC. IWL COMMUNICATIONS, INC.
1225 North Alma Road 12000 Aerospace Ave. Suite 200
Richardson, TX 75081 Houston, TX 77034
Attn: Manager, Contracts 401-107 Attn: Contracts Administrator
35. EXCLUSIVE ARRANGEMENT
ALCATEL hereby appoints BUYER as an exclusive representative for the sale
of fiber and radio system Products to companies in the oil and gas
industry. ALCATEL, in consideration of BUYER's agreements below, will
refrain from making direct sales calls and proposals, or accepting orders
from such companies during the term of this agreement unless BUYER violates
its agreements or BUYER notifies ALCATEL that it will not submit a proposal
on a specific project at which point ALCATEL may respond to that specific
project.
BUYER agrees to propose ALCATEL fiber or radio Products exclusively in
the United States. In order to maintain the exclusive status, BUYER agrees
to contact, make sales calls, propose and pursue purchase orders for the
Products from such companies, and BUYER will propose only ALCATEL Products
in so far as those Products meet the technical requirements of the end
customer or ALCATEL releases BUYER from its exclusive arrangement for a
specific project. The Product prices and discounts are based upon BUYER's
total proposal activity. ALCATEL will, upon request from BUYER, assist in
the proposal activity. The
<PAGE>
charge for the activity is displayed on EXHIBIT A.
ALCATEL and BUYER agree that if a Party breaks this exclusive arrangement
that Party shall pay the other Party XXXXXXX as compensation.
BUYER acknowledges that ALCATEL has authorized distributors that are not
part of this agreement and those distributors may or may not provide
quotations and accept orders from such oil and gas industry companies.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
by a duly authorized officer as of the day and year first written above.
ALCATEL NETWORK SYSTEMS INC. IWL COMMUNICATIONS, INC.
BY: /s/ J. W. England, Jr. BY: /s/ Ignatius Leonards
------------------------------ ----------------------------------
NAME: J. W. England, Jr. NAME: Ignatius Leonards
TITLE: Director, Contracts TITLE: Chief Executive Officer
<PAGE>
EXHIBIT A
PRODUCT AND PRICING
1. For projects to be installed within the United States;
A. Prices for products ordered by BUYER shall be based upon the ALCATEL
list prices in effect on the date of receipt of purchase order less
applicable discount as shown below.
B. RADIO DISCOUNT FIBER OPTIC DISCOUNT
----- ------- ----------- --------
MDR-3X18 XXX DML-3X50 XXX
DMX-3003 XXX
MDR-410XE 2,6,U6,11 XXX DMX-3003N XXX
MDR-420XE 2,6,U6,11 XXX ADM-50 XXX
MDR-430XE 2,6,U6,11 XXX TM-50 XXX
1603/12 SM XXX
MDR-5X02 XXX 1648 SM XXX
MDR-5X06 XXX 1610 OA XXX
MDR-560X XXX
CARRIER
-------
MDR-6X02-2, 4, 8 XXX D448* XXX
MDR-6702-12, 16 XXX 1740 VC (DTV45) XXX
MDR-6X06-2, 4, 8, 12, 16 XXX 1745 VC XXX
MDR-6X10-2, 4, 8, 12, 16 XXX 17130 V XXX
17140 V XXX
MDR-7XXX XXX RESALE-LTS XXX
RDI-3104e XXX DIG X-CONN
----------
1633 SX XXX
1320 NM XXX 1631 SX XXX
MCS-11 XXX 1630 SX XXX
TSM-2500 XXX
TSM-3500 XXX
*NOTE: NOT UNDERWRITERS LAB. INC. (UL) APPROVED
C. ALCATEL and BUYER agree that engineering support services between the
parties shall be priced at $XXXX per day plus travel expenses. The
parties shall mutually agree upon the scope and duration of the
service before these services are rendered.
2. For projects to be installed outside the United States, ALCATEL shall
provide equivalent discounts to BUYER within seventy two (72) hours of
receipt of request from BUYER and identification of the destination country.
3. The discount shall be reduced by XXXXXXXX if ALCATEL is required
to engineer or prepare proposal for BUYER.
<PAGE>
SELECT PARTNER AGREEMENT
FOR
PRODUCTS
BETWEEN
NEWBRIDGE NETWORKS INC.
AND
IWL COMMUNICATIONS. INC.
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<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.
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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
6
<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.
7
<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
8
<PAGE>
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
9
<PAGE>
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.
---------------------------
10
<PAGE>
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
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Finder's Fee Request
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SELECT PARTNER Information
Name:
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Address:
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SELECT Acct. Mgr. Phone #:
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NNI Acct. Mgr.
Date:
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END USER Information
Company Name:
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Address:
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Contacts: Phone #:
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PROJECT Information
Description of Opportunity:
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Products
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Estimated total dollar value of project:
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APPROVALS
Director, Reseller Sales: Date:
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Vice President: Date:
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Contracts: Date:
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\<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>
RESELLER AGREEMENT
BETWEEN
ALCATEL NETWORK SYSTEMS, INC.
AND
IWL COMMUNICATIONS, INC.
Legend: Confidential Treatment Requested. A series of XXX's has been
inserted in this exhibit to indicate redactions for which
confidential treatment has been requested. The redacted
portions of this exhibit have been separately filed with the
Commission.
<PAGE>
RESELLER AGREEMENT
TABLE OF CONTENTS:
1. Term
2. Exhibit
3. Product
4. Ordering
5. Prices
6. Delivery
7. Terms of Payment
8. Supply
9. Patent and Trademark Indemnity
10. Indemnity
11. Technical Specifications; Technical Documentation
12. Software
13. Testing
14. Warranty
15. Excusable Delay
16. Confidential Information
17. Non-Disclosure
18. Governing Law
19. Assignment
20. Termination
21. Default
22. Effect of Termination
23. Sales After Termination
24. No Liability for Termination
25. Failure to Enforce
26. No Oral Agreements
27. Conduct of Business
28. Relationship of Parties
29. Use of Trademarks
30. Permits and Licenses
31. Termination of Prior Agreements
32. Headings
33. Consequential and Other Damages
34. Notices/Contract Administration
35. Exclusive Arrangement
36. Technical Assistance and Software Support
<PAGE>
RESELLER AGREEMENT
Agreement made as of the 31st day of December, 1995, by and BETWEEN ALCATEL
NETWORK SYSTEMS, INC. a corporation duly organized and existing under the laws
of the State of Delaware with its principal office at 1225 North Alma Road,
Richardson, TX, 75081, hereinafter called "ALCATEL" and IWL Communications, Inc.
with its principal office at 4311 FM2351 Friendswood, TX 77546 hereinafter
called "BUYER".
WHEREAS, ALCATEL is desirous of appointing BUYER an exclusive reseller of
ALCATEL's products to the oil and gas industry, and
WHEREAS, BUYER is desirous of accepting such appointment.
THEREFORE, ALCATEL appoints BUYER as an exclusive reseller of ALCATEL's
products to the oil and gas industry and agrees to sell under the terms of
this Agreement to BUYER the ALCATEL products listed on Exhibit A, for resale
by BUYER. BUYER accepts such appointment and agrees to purchase product from
ALCATEL under the terms of this Agreement.
1. TERM
This Agreement will be in effect for a period of twelve (12) months
commencing on the date first set forth above unless terminated sooner by
either party in accordance with the provisions of this Agreement. This
Agreement may be extended beyond the initial term of the Agreement by
written agreement of the parties. This Agreement, and the discounts stated
herein, shall apply to all products for which orders have been placed prior
to the expiration of the term of this Agreement whether or not delivered as
of that date.
2. EXHIBITS
Exhibit A, Products and Pricing, attached hereto, is an integral part of
this Agreement and is hereby made a part hereof.
3. PRODUCTS
Products means the Products described in Exhibit A. Exhibit A may be
modified from time to time by ALCATEL on at least sixty (60) days prior
written notice to BUYER to reflect changes in specifications,
configurations, and other matters and
<PAGE>
to reflect product line additions and deletions. BUYER will be promptly
furnished with current copies of Exhibit A when and if modified.
4. ORDERING
4.1 All purchases of products by BUYER shall be made by means of purchase
orders ("Orders") issued from time to time by BUYER for delivery to
locations specified by BUYER.
4.2 All Orders issued by BUYER, and acceptances by ALCATEL hereunder,
shall be deemed to incorporate the terms and conditions set out in
this Agreement. Any preprinted terms and conditions contained in any
Order or acceptance be deemed deleted and of no force and effect.
BUYER and ALCATEL may mutually agree, in writing, to additional
special or modified terms and conditions for specific Order(s) if the
scope of such Order(s) differs from the scope of this Agreement.
4.3 A particular Order issued with reference to this Agreement may be
amended from time to time by change orders in writing which shall set
forth the particular changes to be made, and the effect, if any, of
such changes on the price, quantity and delivery dates herein or
therein provided. BUYER may not defer delivery dates more than sixty
(60) days beyond ALCATEL's originally acknowledged delivery date.
Changes requested by BUYER shall not be binding on ALCATEL unless and
until acknowledged in writing by ALCATEL.
5. PRICES
5.1 The prices applicable to Orders issued and accepted hereunder shall be
ALCATEL list prices in effect on the date of this Agreement, or as
revised by ALCATEL under paragraph 5.4 below, less the applicable
discounts shown in Exhibit A.
5.2 All ALCATEL prices are FOB the ALCATEL point of supply. All products
shall be shipped freight prepaid and added to invoice. ALCATEL will
not insure shipments made unless specifically requested by BUYER.
BUYER shall be invoiced for the cost of any such insurance.
5.3 All ALCATEL price lists do not include Federal Manufacturers and
Retailers excise, state or local sales and/or use taxes, nor any
Federal, state or local taxes of a similar nature. Any such taxes, if
applicable to and payable by
<PAGE>
ALCATEL in connection with the performance of this Agreement shall be
billed to and paid by BUYER as separate items on ALCATEL invoices.
5.4 ALCATEL's prices may be revised by ALCATEL upon sixty (60) days prior
written notice to BUYER. Price changes shall apply only to Orders
placed after the effective date of such change.
6. DELIVERY
6.1 The delivery point for the domestic shipments of products supplied
hereunder shall be FOB the ALCATEL point of supply.
6.2 Except as provided in Section 12 as to Software, title and risk of
loss or damage to the products contained in each shipment shall pass
to BUYER upon delivery thereof to the carrier. Shipping arrangements
with such carrier shall be handled by ALCATEL. ALCATEL shall pack the
products for shipment in accordance with its standard commercial
packing practices. In the event that in-transit damage results from
ALCATEL's failure to adequately package products, ALCATEL will repair
or replace the damaged products at no charge to BUYER.
6.3 The delivery dates applicable to Orders placed hereunder will be
generally in accordance with the applicable normal delivery intervals
or as specified in a particular Order, but in no event shall delivery
be specified greater than six (6) months after order date. If, prior
to acceptance of an Order, ALCATEL advises BUYER that it cannot meet a
delivery date shown in an Order, both parties will attempt to
negotiate a revised delivery date. In any event, the governing
delivery date will be the date shown on ALCATEL's acknowledgements.
6.4 Unless instructed otherwise by BUYER, ALCATEL shall, for Orders placed
hereunder: (1) ship Orders substantially complete, however partial
shipments may be made for usable units; (2) ship to the destination
designated in the Order in accordance with specific shipping
instructions; (3) see that all subordinate documents bear BUYER's
Order number; (4) enclose a packing memorandum with each shipment and
when more than one package is shipped, identify the one containing the
memorandum; (5) mark BUYER's Order number on all packages and shipping
papers; and (6) render separate invoices for each shipment or Order.
<PAGE>
7. TERMS OF PAYMENT
Terms of payment are Net thirty (30) days after date of invoice.
8. SUPPLY
ALCATEL will make every reasonable effort to furnish a sufficient quantity
of said products to meet the resale requirements of BUYER.
9. PATENT & TRADEMARK INDEMNITY
ALCATEL, at its own expense, will defend any suit or proceeding against
BUYER insofar as it is based upon a claim of infringement of any United
States patent by ALCATEL's Products purchased hereunder provided BUYER
notifies ALCATEL promptly in writing of any such suit or proceeding and all
prior claims which relate to same, and gives ALCATEL full and complete
authority, information and assistance for defense of same and all
negotiations for its settlement or compromise. If, in ALCATEL's opinion,
any such Product is likely to become the subject of a claim of patent
infringement, or if a final injunction shall be obtained against BUYER's
use of any such ALCATEL's Product, or any of its parts, by reason of
infringement of any such patent, ALCATEL will, at its option and at its
expense, either procure for BUYER the right to continue using the Product,
replace or modify the same so that such Product becomes non-infringing, or
grant BUYER a credit for such Product less damage and depreciation for use,
and accept its return, provided ALCATEL so acts with regard to all such
Products to all customers generally. The depreciation shall be an equal
amount per year over the lifetime of the Product as established by ALCATEL.
However, ALCATEL shall have no liability to BUYER under this paragraph or
otherwise for any such patent infringement, or claim thereof, which is
based upon (i) the use of any Product in combination with any other Product,
device or equipment not supplied by ALCATEL, (ii) the use of any Product for
a purpose or application not intended by ALCATEL, it being understood that
the sole intended purpose or application of the Product shall be as set
forth in ALCATEL's published System Practices document, (iii) the furnishing
to BUYER of any information, data, service or applications assistance, or
(iv) for ALCATEL's compliance with BUYER's designs or specifications or (v)
any change or modification to the Product made by BUYER. No costs or
expenses shall be incurred for the account of ALCATEL without ALCATEL's
written consent. The foregoing states the entire liability of ALCATEL
with regard to patent infringement of ALCATEL's products. BUYER shall
indemnify ALCATEL for any loss, damage, expense or liability in any suit
or proceeding based upon any patent infringement claim brought against
ALCATEL
<PAGE>
resulting from ALCATEL's compliance with BUYER's designs or specifications
and for any trademark infringement involving any marking or branding applied
by ALCATEL at the request of BUYER.
10. INDEMNITY
ALCATEL agrees to indemnify, defend and save BUYER harmless from any
liabilities, claims or demands (including the cost, expense and reasonable
attorney's fees on account therefore) that may be made: (1) by any third
person for injuries, including death to persons or damage to tangible
property resulting from Seller's negligent or otherwise wrongful acts or
omissions, or those of persons furnished by Seller hereunder; (2) by any
third person for injuries, including death to persons or damage to tangible
property, caused by any Product supplied by ALCATEL hereunder in a
defective and unreasonable dangerous condition; or (3) under Worker's
Compensation, or similar employer-employee liability acts, against BUYER by
persons provided by ALCATEL. BUYER agrees to notify ALCATEL promptly of any
written claims or demands against BUYER for which ALCATEL is responsible
hereunder.
11. TECHNICAL SPECIFICATIONS: TECHNICAL DOCUMENTATION
The technical specifications applicable to the Products supplied hereunder
shall be ALCATEL's standard specifications as they are amended from time to
time which are hereby incorporated herein by reference.
12. SOFTWARE
Alcatel assumes that the Customer is the end-user of the product and
therefore the Licensee. If end-user is other than Customer, a separate
Software License Agreement with Licensee will be required prior to delivery
of product.
A. Definitions
(1) The Software
All or any part of the specific collection of programs, or
machine-readable instruction modules, that are covered by the
terms and conditions of a software license, and delivered to
Licensee, inclusive of the Alcatel intellectual property therein,
whether or not the subject of any patent or copyright, issued or
pending.
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(2) Licensed System
The logical grouping of hardware, upon which the software covered
by a specific license agreement is intended to be installed,
which is identified specifically within that license agreement,
and which may be:
(i) a single system controlled by a single main
processor or single redundant set of identical
processors, or
(ii) a number of systems of the same type that are
physically and logically connected into a network.
(3) Distribution Media
The collection of tape(s), cartridge tape(s), diskette(s), or
other storage devices, or combinations of media types, that
contain the licensed Software, as packaged by, and received from,
Alcatel.
(4) Current Version of the Software
The latest of all Major Releases, Intermediate Releases, or
Maintenance Releases from Alcatel which are applicable to the
system type of the Licensed System and which are approved by
Alcatel for shipment.
(5) Major Release
A version release of the Software designated by an increment of
the integer in the release number ("N" in N.xx.xx) and defined to
include substantial functionality not included in previous versions
of the same type of software.
(6) Intermediate Release
A version release of the Software designated by an increment of
the first decimal division of the release number ("NN" in
x.NN.xx), and defined to include refinement or enhancement of
features and functionality existing in previous versions of the
same type of software.
(7) Maintenance Release
A version release of the Software designated by an increment of
the second decimal division of the release number "NN" in
x.xx.NN), and defined to include remedial modifications of
features and functionality included in previous versions of the
same type of software for a specific Customer anomaly.
(8) Generation
The series of release versions of the Software applicable to the
Licensed System beginning with a Major Release and including all
subsequent
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Intermediate Releases and Maintenance Releases prior
to, but not including, the next Major Release.
(9) Documentation
The instruction and reference manuals pertaining to the Software
and the Licensed System and the Customer Release Notes.
B. Title
Title to the Software described herein shall remain with Alcatel, or with
the various suppliers to Alcatel whose software or software components are
contained in the Software and whose rights of ownership are maintained
through restrictive agreements with Alcatel. Alcatel grants to Licensee,
and Licensee accepts, a non-exclusive, restricted right to use the
Software and Documentation, limited as described herein.
C. Limitations of License Grant
(1) The Software furnished hereunder is to be used only with the
system supplied by Alcatel and identified by type and location on the
attached Schedule A as the Licensed System. The Software and
Documentation are to be used only by the Licensee, for its own business
use, and only for the intended use of the Software and Documentation as
offered and furnished by Alcatel.
(2) This grant of Licensee's right to use the Software is now and
throughout the term of the license contingent upon the payment by
Licensee to Alcatel of fees as shown on the Schedule B hereto.
(3) Licensed use is limited to the executable software as delivered by
Alcatel to Licensee and does not permit modification or use of any
modified form of the Software, notwithstanding any claim by
Licensee of any defect in the Software, nor any other agreements
or covenants between Alcatel and Licensee regarding maintenance by
Licensee of other products or of unspecified products. Unless so
specified in the Schedule A hereto, Licensee may not duplicate the
Software, except to make a backup copy of the software for use in the
event of system failure. If Schedule A provides for duplication, for
any other purpose then Licensee shall account for and report to Alcatel
the details of such duplication as authorized.
(4) The Software and Documentation furnished are the property of
Alcatel and are to be considered proprietary information. Licensee
shall not disclose, provide or otherwise make available the
Software or Documentation, or any part thereof, in any form, to
any third party, before or after termination of this Agreement,
except as may be permitted in writing by Alcatel.
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Licensee shall immediately notify Alcatel, in writing, of any knowledge
that any unlicensed party possesses the Software or Documentation.
Licensee shall safeguard said Software with the same degree of care and
diligence as Licensee affords to its own similar property.
D. Derived Products and Derived Dependent Products
(1) Any configuration, application, or arrangement of the Software and
its systems into networks, shall not be considered a derived
product with any distinction in ownership from that of the
Software as received by Licensee.
(2) Any distinct and separate element of software in the form of
instruction macros, test cases, simulation data, or similar forms
of intellectual property, which is produced by normal use of the
Software and is initially dependent upon the Software for
execution, shall be considered a derived product to which Alcatel
retains title and to which Licensee is granted an exclusive right
to use solely in its dependent form, and in conjunction with, the
Software and the Licensed System.
(3) The Software conveyed to Licensee under this Agreement is in
object code format. Alcatel expressly prohibits, and Licensee
agrees to refrain from, any attempt by Licensee or Licensee's
agent to disassemble, reverse compile, reverse engineer, or, in
any similar way, expose the actual instruction sequences,
internal logic, protocols, algorithms or other intellectual
property represented within the Software, which Alcatel
considers to be its proprietary information and trade secret
whether or not said intellectual property is included in any
patent or copyright. Any product derived from, or resulting
from, such effort by Licensee or any other party shall be
deemed the property of Alcatel, for which no right to use is
granted to Licensee herein and for which Alcatel shall bear no
obligations for support.
E. Assignment Restriction
(1) This Agreement, and the rights and obligations of Licensee
shall not be pledged, mortgaged, assigned, sub-licensed or
otherwise transferred or disposed of, including by operation of
law, in whole or in part, by Licensee except as expressly set
out in this Agreement, or as consented to in writing by Alcatel.
(2) A transfer in whole of Licensee's rights described herein, may
be made only in conjunction with a transfer of the entire
Licensed System. Licensee shall provide notice to Alcatel of
Licensee's intent to make such a transfer, and such notice
shall include, at a minimum, the identity of the recipient, the
new location of the Licensed System, and a detailed report of
the new
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configuration and interconnection of the Licensed System. Any such
transfer shall be subject to the agreement of the transferee to
assume the obligations of Licensee and other restrictions contained
in this Agreement. In the event that Alcatel determines that the use
of the Software and Licensed System after the intended transfer is
not supportable by Alcatel, or is not comparable to the originally
licensed use, Alcatel shall provide Notice to Licensee that all of
its obligations to Licensee are void after said transfer and do not
pass to transferee.
F. Software Warranty and Indemnification
(1) Alcatel warrants that it has the lawful right to license and
distribute the Software as described herein, and that said
software is free of any encumbrances. Alcatel will indemnify
and hold Licensee harmless from any loss, cost, liability and
expense arising out of any breach or claimed breach of this
warranty.
(2) Alcatel warrants that the Distribution Media is free of defects in
materials or workmanship at the time of delivery to Licensee.
(3) Alcatel warrants that the Software will perform in accordance with the
published Alcatel specifications. The sole means of discharging
Alcatel' s obligations with respect to this warranty is contained in
the paragraph 36 herein entitled Technical Assistance and Software
Support. This coverage is initially provided to Licensee, in conjunction
with the licensing of the Software, for a period of one year at no
charge. However, a Intermediate Release carries a simple ninety (90) day
warranty. If Customer notifies Alcatel within the ninety day warranty
that the Release does not comply with Customer's expectations, the
Release can be returned to Alcatel for a full refund of the purchase
price of the Release. Such return will have no effect on any remaining
warranty of the Major Release.
(4) ALCATEL NETWORK SYSTEMS, INC. DISCLAIMS ALL OTHER WARRANTIES ON THE
SOFTWARE FURNISHED HEREUNDER, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. The
performance by Alcatel under the Standard Terms for Technical
Assistance and Software Support is in lieu of all such obligations or
liabilities on the part of Alcatel.
G. Software Maintenance
(1) Licensee agrees to report problems to the Technical Contact for
Alcatel as shown in Schedule A. Alcatel will maintain the Software,
and, from time to time, make additions, modifications or adjustments
to the Software at an
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Alcatel facility. DELIVERY TO THE LICENSEE OF ADDITIONS, MODIFICATIONS
OR ADJUSTMENTS TO THE SOFTWARE IS LIMITED TO THE TERMS AND CONDITIONS
OF THE TECHNICAL ASSISTANCE AND SOFTWARE SUPPORT AS DESCRIBED HEREIN
OR IN A SEPARATELY EXECUTED TECHNICAL ASSISTANCE AND SOFTWARE SUPPORT
AGREEMENT (TASSA). Absent any TASSA being in force between Alcatel
and Licensee, or either a prepaid or renewal basis, delivery to Licensee
of updates to the Software will require payment of the then current
Alcatel prices for such software.
(2) Notice to Licensee of corrections or additions, modifications or
adjustments to the Software shall be sent to a designated
Customer contact. Alcatel will, at its own discretion, make such
additions, modifications or adjustments to the version of the
Software commonly known as the Current Release at the time that
the additions, modifications or adjustments are made, or to an
earlier version of the Software originally received by Licensee
under terms of this Agreement.
H. Source Code Delivery
If ALCATEL withdraws from its business related to the Software such that
it cannot or does not continue to provide support to the Licensee, and
without making arrangement with others for the purposes of that support,
that portion of the Source Code from which the Current Version of the
Software is derived and for which Alcatel holds ownership or Source Code
distribution rights will be made available to the Licensee. In that
situation that
Alcatel would make available its own Source Code, Alcatel will notify
the Licensee of any limits on source code delivery of third party
software included in the Software and provide to the Licensee contact
information for said third party.
I. Authorized User Requirement
Alcatel expects, and Licensee agrees, that the licensed system and
licensed software will be used, monitored, controlled and managed
sufficient to Licensee's needs, by a qualified and authorized user.
Any error or malfunction, caused by, or aggravated by, the failure to
comply with this requirement shall be construed as the responsibility
of the Licensee.
J. Distribution Media
(1) No claim of ownership of the specific Distribution Media, or
its underlying magnetic media, by Licensee shall alter the
requirements of Alcatel upon Licensee for storing or handling
the Distribution Media as described herein.
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(2) The distribution media must be held safe, and available for
inspection, at the Installation Site described in the attached
Schedule A, if known. If the software is described in Schedule A
as network-downloadable or duplication of the software is
permitted by Alcatel to be performed by Licensee at various
sites in a network, then the Original Installation Site will be
that site at which the software was originally loaded from the
Distribution Media on to the first system. The Distribution
Media must then be held safe, and available for inspection, at
that Original Installation Site.
K. Documentation
One set of instruction and reference manuals will be provided free of
charge with each Licensed System. Additional sets may be purchased by
Buyer. Customer Release Notes will be included free of charge with each
and every Major, Intermediate, or Maintenance Release delivered to
Licensee.
L. Termination
(1) Except for termination as described hereunder, the grant of
license and the terms and conditions of this Agreement shall
continue and be renewed as long as the Licensed System upon
which the Software is running remains in service by Licensee.
(2) The license granted herein shall terminate 30 days after
notification of Licensee by Alcatel as to Licensee's
delinquency in making payments as outlined in Schedule B.
(3) Voluntary termination of this License Agreement and termination
of the use of the Software may be requested by the Licensee
with 90 days Notice to Alcatel.
(4) Termination for any other breach of the Agreement or material
violation of any of its terms, by the Licensee, shall occur
thirty days after written notice is sent by Alcatel.
Determination of any period of breach shall commence on the
date of the violation by Licensee without regard to Alcatel's
knowledge of the breach or Notice of the breach to Licensee.
(5) Within 72 hours of termination of the License, the Licensee
will ship to Alcatel, by insured commercial carrier, all media
copies of the Software, including both original Distribution
Media and any copies made for backup purposes, and all
Documentation provided by Alcatel associated with the Software.
Within the same period, Licensee will unload the Software, load
other software over the Software, or if necessary halt the
processor, on any and all systems on which the Software is
running. Any subsequent
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evidence of Licensee's beneficial use of the Software after
termination, as defined herein, shall be in contravention of
the provisions hereof.
13. TESTING
If requested by BUYER, ALCATEL shall provide to BUYER a description of its
standard factory tests related to any of the products covered by this
Agreement. BUYER may request, and upon concurrence by ALCATEL, be
allowed to witness the factory tests on a non-interfering basis.
14. WARRANTY
Subject to the limitations stated herein, Material manufactured by ALCATEL
(exclusive of Software originated and supplied by ALCATEL) is warranted to
be free of defects in workmanship and material at the time of delivery to
the BUYER for a period of one (1) year. However, certain products have
longer warranty periods as shown below:
Period Product
------ -------
7 Years D448/424 Channel bank
5 Years 1631SX, 1633SX, 1630SX, 1603SM,
1612SM, 1624SM, 1648SM, 1501AN, 1503AN
3 Years DML-3X50, DMX-3003/N, DVS-1000,
LTS-1565/D/R/, LTS-21130/D/R/,
TM/ADM-50, FTS-150/600
2 Years MDR-4000e, MDR-4000i, MDR-4000s,
MDR-4000, RDI-3104, B302/303 APS,
DST-4000, MDR-3X18, MDR-5X02,
MDR-5111, T1 SPAN LINE,
1 Year All other products
Software warranty is described in paragraph 12,
subparagraph F, herein entitled Software Warranty and
Indemnification.
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14.1 In the event the Material is not as warranted herein at the time of
delivery, ALCATEL agrees to, at its option, repair, correct or replace
with new or equivalent Material at its designated Warranty Repair
Center any defective Material so as to make the Material conform to
this warranty or take back the Material and refund the Price therefor,
less a reasonable adjustment for the BUYER's beneficial use of the
Material provided:
14.1.1 Notice of the claimed defect or unsuitability is given in
writing within twelve (12) months after delivery of the
Material or Software or within such longer or shorter
warranty term as designated for Material listed below:
14.1.2 The defective Material is returned to ALCATEL's designated
Warranty Repair Center Transportation prepaid and risk of
loss borne by BUYER, in accordance with ALCATEL's
instructions which shall be promptly given; and,
14.1.3 An inspection of the returned Material by ALCATEL at its
Warranty Repair Center indicates the defect was not caused
by abuse or improper use, maintenance, repair, installation
or alteration by other than ALCATEL or its authorized
Service Center; and
14.1.4 The Material has not been connected directly or indirectly
to any apparatus not registered to the extent required by,
or which otherwise is not in compliance with, the FCC Rules
and Regulations.
14.2 Any equipment, accessory, or part repaired or replaced by ALCATEL
pursuant to the terms of this warranty agreement shall continue to be
warranted for the remainder of the period as set forth above, plus the
length of time necessary for repair or replacement. Equipment Repair
Services provided the BUYER by ALCATEL outside the scope of the above
specific warranties are warranted by ALCATEL for a period of ninety
(90) days against defects in workmanship or material under and
subject to all of the applicable terms, limitations and conditions
given herein.
14.3 Any Material including Software supplied by, but not of, ALCATEL's
manufacture or origination shall be subject only to the warranty of
the manufacturer or supplier thereof which shall be conveyed to the
BUYER.
14.4 The warranty set forth in this section is in lieu of all other
warranties whether expressed or implied, including warranties of
merchantability and fitness for its intended or particular purpose. In
no event shall ALCATEL have any
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liability for consequential damages or for loss, damage or expense
directly or indirectly arising from the use of the equipment, or the
inability to use them either separately or in combination with other
equipment, or from any other cause except as specifically contained
in the warranty agreement.
15. EXCUSABLE DELAYS
If the performance of any obligation under this Agreement or an Order
is interfered with by reason of any circumstances beyond the reasonable
control of the party affected, including, without limitation, fire,
explosion, power failure, acts of God, war, revolution, civil commotion,
acts of the public enemy or any law, order, regulation, ordinance or
requirement of any such governmental or legal body and strikes, then the
party affected shall be excused from such performance. The party so
affected shall use reasonable efforts to remove such causes of
non-performance; provided, however, in the context of labor unrest,
that a party shall not be obligated to accede to any demands being made
by employees or other personnel. In the event that such delay shall
extend shipment in excess of one-hundred and eight (180) days beyond
the agreed upon delivery date as defined in Section 6.3, unaffected
party may at its option cancel without penalty the affected Orders as
to any products not already shipped.
16. CONFIDENTIAL INFORMATION
16.1 Each party agrees that it shall not, and that it shall take
reasonable precautions to see that its employees do not,
communicate or give in any way whatsoever to any third party any
proprietary information furnished by the other, in writing, without
the prior consent in writing of the other party to this Agreement,
except as applies to Section 12, Software.
16.2 All proprietary documents will be so marked.
16.3 This obligation shall not apply to any such information (1) if
prior to its receipt by the other party it has been published or
is generally known to the public, (2) if after receipt by the other
party it becomes generally known to the public (other than through a
breach of this Agreement) or obtainable from bona fide sources, (3)
is known to the party at time of receipt, (4) is developed
independently, or (5) is required by law to be disclosed.
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17. NON-DISCLOSURE
Unless otherwise required by law or regulatory agency, neither party shall
disclose to third parties the content of this Agreement, in whole or in
part, without the prior written consent of the other party.
18. GOVERNING LAW
The construction, interpretation, and performance of this Agreement shall
be governed by the laws of the State of Texas.
19. ASSIGNMENT
Neither party may assign or transfer this Agreement or any rights hereunder
without the prior consent of the other party, except for assignment by
ALCATEL to ALCATEL International Corporation and assignment of rights to
receive payments.
20. TERMINATION
The reseller relationship hereby created may be terminated only (a) by an
agreement in writing duly signed by the parties hereto; or (b) by either
party at will, with or without cause, upon not less than ninety (90) days'
notice in writing given by certified mail to the other party; or (c) by
either party hereto upon one (1) day's like notice in the event the other
party hereto attempts to assign this agreement or any rights thereunder
without the other party's written consent except as identified in
Section 19, or either party ceases to function as a going concern or
to conduct its operation in the normal course of business, or a receiver
is appointed or applied for by the party, or a petition under the Federal
Bankruptcy Act is filed by or against either party, or either party makes
an assignment for the benefit of creditors, or (d) as identified in
Section 21, Default.
21. DEFAULT
In the event of any material breach of this Agreement or an Order by
ALCATEL or BUYER which shall continue for thirty (30) days after written
notice of such breach shall have been given to the breaching party by the
aggrieved party, the aggrieved party shall be entitled, subject to any
limitations contained in this Agreement, to avail itself of any and all
remedies available at law or equity,
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expressly including cumulatively without limitation the right to terminate
this Agreement.
22. EFFECT OF TERMINATION
Upon termination, BUYER agrees to cease holding itself out as an authorized
exclusive reseller of ALCATEL and shall immediately upon termination remove
any signs, names, insignias, logos, proprietary marks, and other
promotional, advertising, sales information, technical, and other materials
which identifies or appears to identify it with ALCATEL and return same to
ALCATEL.
23. SALES AFTER TERMINATION
The acceptance of any order from, or the sale of any Material to BUYER
after the termination or expiration of the reseller relationship hereby
created shall not be construed as a renewal or extension thereof nor as a
waiver of termination, but in the absence of a new written agreement all
such transactions shall be governed by provisions of ALCATEL's standard
terms of sale.
24. NO LIABILITY FOR TERMINATION
Neither party, shall by reason of the termination or non-renewal of
reseller relationship of said products, 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 in connection with the business or
goodwill of the other.
25. FAILURE TO ENFORCE
The failure of either party to enforce at any time or for any period of
time the provisions hereof shall not be construed to be waiver of such
provisions or of the right of such party thereafter to enforce each and
every such provision.
26. NO ORAL AGREEMENTS
Any amendments to this Agreement must be in writing and executed by both
parties.
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27. CONDUCT OF BUSINESS
So that the relationship contemplated by this Agreement shall be mutually
advantageous and in recognition of the expertise and commitment necessary
for the effective marketing and support of the product, BUYER agrees to
continually use its best efforts to encourage and develop the full sales
potential for the products, to employ competent, well-trained sales
Personnel to meet the demands and needs for marketing and support of the
Products, and to encourage the purchase of the Products by its customers to
the best of BUYER's ability.
28. RELATIONSHIP OF PARTIES
This Agreement does not in any way create the relationship of joint
venture, partnership, or principal and agent between ALCATEL and BUYER. And
neither shall have the power or ability to pledge the credit of the other
nor to bind the other nor to contract in the name of or create a liability
against the other in any way for any purpose.
29. USE OF TRADEMARKS
During the term of this Agreement or any extension thereof, BUYER may use
the trademark of ALCATEL or any of ALCATEL's trademarks, insignias, logos
or proprietary marks in connection with BUYER's sales, advertisements, and
promotions of the product. BUYER acknowledges that those trademarks and
logos are valuable assets of ALCATEL and BUYER's use of such proprietary
marks shall be in accordance with ALCATEL's direction and policies. ALCATEL
reserves the right to review all publicity, publication and promotional
literature concerning the products covered by the Agreement. BUYER
specifically disclaims any right in any of the proprietary marks and shall
not use the proprietary marks as part of the business name of BUYER.
30. PERMITS AND LICENSES
It shall not be the responsibility of ALCATEL to obtain any or all
necessary licenses and permits for the installation and operation of the
equipment at the site at which it is to be installed.
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31. TERMINATION OF PRIOR AGREEMENTS
This Agreement terminates and supersedes all prior agreements between the
parties.
32. HEADINGS
Headings of this Agreement are inserted solely for the purpose of
convenience of reference and are in no manner to be construed as a part of
the Agreement.
33. CONSEQUENTIAL AND OTHER DAMAGES
Subject to the provisions of Section 10, Indemnity, of this Agreement,
neither ALCATEL nor BUYER as the case may be, shall be liable for indirect,
special, incidental or consequential damages (including but not limited to
loss of revenues or loss of profits) resulting from its performance or
failure to perform any of its obligations under this Agreement or for any
other cause.
34. NOTICES/CONTRACT ADMINISTRATION
In matters relating to overall general administration of this Agreement,
notices and other communications shall be transmitted in writing to the
person and address listed below or to such other person and address as the
party to receive the notice or request shall have previously indicated in
writing.
TO: ALCATEL TO: BUYER
ALCATEL NETWORK SYSTEMS, INC. IWL COMMUNICATIONS, INC.
1225 North Alma Road 4311 FM 2351
Richardson, TX 75081 Friendswood, TX 77546
Attn: Manager, Contracts 401-107 Attn: Contracts Administrator
35. EXCLUSIVE ARRANGEMENT
ALCATEL hereby appoints BUYER as an exclusive representative for the sale
of fiber and radio system Products to companies in the oil and gas
industry. ALCATEL, in consideration of BUYER's agreements below, will
refrain from making direct sales calls and proposals, or accepting orders
from such companies during the term of this agreement unless BUYER violates
its agreements or
<PAGE>
BUYER notifies ALCATEL that it will not submit a proposal on a specific
project at which point ALCATEL may respond to that specific project.
BUYER agrees to propose ALCATEL fiber or radio Products exclusively.
In order to maintain the exclusive status, BUYER agrees to contact,
make sales calls, propose and pursue purchase orders for the Products
from such companies, and BUYER will propose only ALCATEL Products in
so far as those Products meet the technical requirements of the end
customer or ALCATEL releases BUYER from its exclusive arrangement for a
specific project. The Product prices and discounts are based upon BUYER's
total proposal activity. Depending upon the amount of effort requested by
BUYER, there may be a charge for the activity, however the value of the
charge will be subject to mutual agreement between ALCATEL and BUYER.
ALCATEL and BUYER agree that if a Party breaks this exclusive arrangement
that Party shall pay the other Party XXXXXXX as compensation.
BUYER acknowledges that ALCATEL has authorized distributors that are not
part of this agreement and those distributors may or may not provide
quotations and accept orders from such oil and gas industry companies.
Additionally in international tenders, other units of Alcatel Alsthom
might be a competitor to BUYER using non-ALCATEL Products.
36. TECHNICAL ASSISTANCE AND SOFTWARE SUPPORT (TASSA)
A. SERVICES PROVIDED
(1) Routine Telephone Assistance, is provided by the designated
Technical Assistance Center (TAC) for the covered Software, the
address and telephone number of which are shown on Schedule A,
during normal business hours of 8:00 AM to 5:00 PM (local time
for the designated TAC), Monday through Friday. Such Routine
Telephone Assistance includes assistance in investigating,
diagnosing, and troubleshooting problems of any nature which
exist within, or are reasonably believed to exist within, the
covered Software product. Routine Telephone Assistance also
includes guidance and assistance in installation, turn-up,
operation, configuration and management of the covered Software
product.
(a) The TASSA charges are based on a model of TAC inquiries
covering the range of functions described under routine
telephone assistance above. In the event Alcatel's TAC
receives an excessive number of inquiries, not associated
with the isolation and resolution
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(i) New Major Releases of the Software applicable to the system
on which the covered Software is operating.
(ii) Premium Features applicable to the system on which the
covered Software is operating, and supported by a release
of the Software that is either due and deliverable to
Licensee under this Agreement or under separate purchase
orders and license agreements.
(iii) Technical assistance on Licensee's premise provided by TAC
personnel or other technically qualified Alcatel personnel,
selected at the discretion of Alcatel.
(iv) Technical assistance provided by TAC over the telephone
which is not during normal business hours as described for
Routine Telephone Assistance, and not of an emergency nature
as described under Emergency Telephone Assistance.
The discounts available to Licensee under this Agreement for future
Major Releases and Premium Features will vary and will be announced in
conjunction with the announcement of such product releases. Discounts
applicable to Licensee on billable technical services provided by
Alcatel are ten percent (10%). The description, herein, of discounts
which may be applicable to optional, billable software products does
not constitute an obligation by Alcatel to produce or deliver any such
products.
B. RESPONSE TIME
Requests for service will receive a telephone response in one hour or
less in most cases, whether during normal business hours or after
business hours. During peak workload, such as high-traffic holiday
periods which are widely known in the industry, delays may occur which
are beyond the control of Alcatel. Alcatel will always make a
significant effort to respond within a one hour timeframe.
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C. SERVICES NOT COVERED
Services requested by Licensee and provided by Alcatel which are
beyond those defined herein, or beyond the limits of the services
defined herein, shall be at Alcatel's current prices as may be
published for structured services or for time and materials.
Alcatel reserves the right to waive applicable charges for such
non-covered services, at its discretion.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
by a duly authorized officer as of the day and year first written above.
ALCATEL NETWORK SYSTEMS INC. IWL COMMUNICATIONS, INC.
BY: /s/ J. W. England, Jr. BY: /s/ Ignatius Leonards
------------------------------ ----------------------------------
NAME: J. W. England, Jr. NAME: Ignatius Leonards
TITLE: Director, Contracts TITLE: President
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EXHIBIT A
PRODUCT AND PRICING
1. For projects to be installed within the United States;
A. Prices for products ordered by BUYER shall be based upon the ALCATEL's
list prices in effect on the date of receipt of purchase order less
applicable discount as shown below.
B. RADIO DISCOUNT FIBER OPTIC DISCOUNT
----- ------- ----------- --------
MDR-3X18 XXX DML-3X50 XXX
DMX-3003 XXX
MDR-410XE 2,6,U6,11 XXX DMX-3003N XXX
MDR-420XE 2,6,U6,11 XXX LTS-1565/D/R XXX
MDR-430XE 2,6,U6,11 XXX LTS-21130/D/R XXX
ADM-50 XXX
MDR-5X02 XXX FTS-150 XXX
MDR-5X06 XXX TM-50 XXX
MDR-560X XXX 1603 SM XXX
1624 SM XXX
1648 SM XXX
1610 OA XXX
MDR-6X02-2, 4, 8 XXX
MDR-6702-12, 16 XXX CARRIER
MDR-6X06-2, 4, 8, 12, 16 XXX -------
MDR-6X10-2, 4, 8, 12, 16 XXX D448* XXX
1740 VC (DTV45) XXX
1745 VC XXX
17130V XXX
RDI-3104 XXX 17140V XXX
RESALE-LTS XXX
MCS-11 XXX
TSM-1500 XXX
DIG X-CONN
----------
1633SX XXX
1631SX XXX
1630SX XXX
*NOTE: NOT UNDERERITERS LAB. INC. (UL) APPROVED
C. ALCATEL and BUYER agree that engineering support services between the
parties shall be priced at $XXXX per day plus travel expenses. The
parties shall mutually agree upon the scope and duration of the
service before these services are rendered.
2. For projects to be installed outside the United States, ALCATEL shall
provide equivalent discounts to BUYER within seventy two (72) hours of
receipt of request from BUYER and identification of the destination country.
<PAGE>
EXHIBIT 11.1
IWL COMMUNICATIONS, INC.
EARNINGS PER SHARE COMPUTATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------- ----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income 143,824 535,641 733,662 84,709 260,408
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common stock outstanding........ 2,000,609 2,222,200 2,222,416 2,222,200 2,225,810
Adjustment for stock and options issued within
one year of offering:
Stock issued(1)................................ 5,616 5,616 5,616 5,616 0
Options issued................................. 13,394 13,394 13,394 13,394 13,394
---------- ---------- ---------- ---------- ----------
2,019,619 2,241,210 2,241,426 2,241,210 2,239,204
less: assumed treasury stock purchased at
expected initial offering price.............. 8,459 8,459 8,459 8,459 5,960
---------- ---------- ---------- ---------- ----------
Adjusted weighted average common shares
outstanding.................................... 2,011,160 2,232,751 2,232,967 2,232,751 2,233,244
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings per Share............................... 0.07 0.24 0.33 0.04 0.12
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- ------------------------
(1) In accordance with Staff Accounting Bulletin 83, stock and warrants issued
within a one year period prior to the initial filing of the registration
statement relating to the initial public offering should be treated as
outstanding for all reported periods.
<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
April 28, 1997
