<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1997
Registration No. 333-25593
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 4
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
SYSCOMM INTERNATIONAL CORPORATION
(exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5081 1731 11-2889809
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
275 Marcus Boulevard
Hauppauge, New York 11788
(516) 273-3200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
John H. Spielberger
Chairman of the Board, President and Chief Executive Officer
275 Marcus Boulevard
Hauppauge, New York 11788
(516) 273-3200 o (516) 952-3788 (fax)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Raymond S. Evans, Esq. Martin Todtman, Esq.
Norman M. Friedland, Esq. Beth S. Barash, Esq.
David M. Kastin, Esq. Todtman, Young, Nachamie, Hendler & Spizz, P.C.
Ruskin, Moscou, Evans & Faltischek, P.C. 425 Park Avenue
170 Old Country Road New York, New York 10022
Mineola, New York 11501 (212) 754-9400 o (212) 754-6262 (fax)
(516) 663-6600 o (516) 663-6641 (fax)
</TABLE>
---------------------
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, 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. [ ]
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed Maximum Proposed Maximum
Title of each Class of Securities to Number of Shares to Offering Price Aggregate Offering Amount of
be Registered be Registered (1) per Share (2) Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ......... 1,725,000 $5.50 $9,487,500 $ 2,875.00
- ---------------------------------------------------------------------------------------------------------------------------
Representative's Common Stock
Purchase Warrants .................. 150,000 $.001 $150 (3)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (4) . 150,000 $8.80 $1,320,000 $ 400.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Fee ............................................................................................. $ 3,275.00*
===========================================================================================================================
</TABLE>
(1) Includes 225,000 shares to cover the Underwriter's over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
(3) No fee due pursuant to Rule 457(g).
(4) Reserved for issuance upon exercise of the Representative's Common Stock
Purchase Warrants, together with such indeterminate number of shares which
may be issuable as a result of anti-dilution adjustments.
* Previously, paid.
---------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
Item Location in Prospectus
- --------------------------------------------------------- -----------------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus ...................... Outside front cover page
2. Inside Front and Outside Back Cover Pages of
Prospectus ........................................ Inside front and outside back cover pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ......................... Prospectus Summary; The Company;
Risk Factors; Business
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price ..................... Outside front cover page; Underwriting
6. Dilution .......................................... Dilution
7. Plan of Distribution .............................. Underwriting
8. Description of Capital Stock to be Registered ...... Description of Capital Stock
9. Interests of Named Experts and Counsel ............ Legal Matters; Experts
10. Information with Respect to the Registrant
(a) Item 101 of Regulation S-K ........................ The Company; Business
(b) Item 102 of Regulation S-K ........................ Business
(c) Item 103 of Regulation S-K ........................ Business
(d) Item 201 of Regulation S-K ........................ Dividend Policy; Underwriting; Description of
Capital Stock; Shares Eligible for Future Sale
(e) Financial Statements .............................. Summary Consolidated Financial Information;
Selected Consolidated Financial Data
(f) Item 301 of Regulation S-K ........................ Selected Consolidated Financial Data
(g) Item 302 of Regulation S-K ........................ Inapplicable
(h) Item 303 of Regulation S-K ........................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(i) Item 304 of Regulation S-K ........................ Experts
(j) Item 401 of Regulation S-K ........................ Management
(k) Item 402 of Regulation S-K ........................ Management
(l) Item 403 of Regulation S-K ........................ Principal Stockholders
(m) Item 404 of Regulation S-K ........................ Certain Transactions
(n) Item 405 of Regulation S-K ........................ Inapplicable
11. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ........................ Management
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 12, 1997
PROSPECTUS
SYSCOMM INTERNATIONAL CORPORATION
1,500,000 Shares
Common Stock
SysComm International Corporation ("SysComm" or the "Company") is hereby
offering 1,500,000 shares of Common Stock, $.01 par value per share ("Common
Stock"). Prior to the offering (the "Offering"), there has been no public
market for the Common Stock of the Company, and there can be no assurance that
such a market will develop or be sustained. See "Underwriting."
Application has been made to have the Common Stock approved for quotation
on the NASDAQ National Market, under the symbol "SYCM." It is currently
estimated that the initial public offering price of the Common Stock will be
between $5.00 and $5.50 per share. See "Underwriting" for information relating
to the factors to be considered in the initial public offering price.
---------------------
Investors should carefully consider the factors set forth under "Risk Factors"
commencing on page 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Underwriting Discounts and
Price to Public Commissions(1) Proceeds to Company(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ...... $ $ $
- ------------------------------------------------------------------------------------------
Total (3) ...... $ $ $
==========================================================================================
</TABLE>
(1) Does not include additional compensation to be received by Commonwealth
Associates, as representative (the "Representative") of the several
underwriters (the "Underwriters"), in the form of: (i) a non-accountable
expense allowance in an amount equal to 1.5% of the gross proceeds derived
from the Offering; (ii) an advisory fee equal to 1.5% of the gross
proceeds derived from the Offering ("Advisory Fee"); and (iii) warrants
(the "Representative's Warrants") to purchase up to 150,000 shares of
Common Stock at a price equal to 160% of the initial public offering
price, exercisable for a period of four years commencing one year from the
date of this Prospectus. In addition, the Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, including
the non-accountable expense allowance and Advisory Fee, estimated at
$______ ($______ if the Underwriters' Over-Allotment Option is exercised
in full). See "Underwriting."
(3) The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$_______, $_______ and $_______, respectively. See "Underwriting."
----------------
The shares of Common Stock are being offered on a firm commitment basis by
the Underwriters named herein, subject to prior sale, when, as and if delivered
to and accepted by them, and subject to certain conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock offered hereby will be available for delivery on or about
__________, 1997, at the office of Commonwealth Associates, New York, New York.
---------------------
Commonwealth Associates
The date of this Prospectus is _____________, 1997
<PAGE>
[COMPANY ILLUSTRATIONS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK. SPECIFICALLY, THE
UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND
PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------
Upon completion of the Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934. The Company
intends to furnish its stockholders with annual reports containing consolidated
financial statements audited by its independent auditors, and quarterly reports
for the first three quarters of each fiscal year containing unaudited
consolidated financial statements.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all information set
forth herein (i) assumes an initial public offering price of $5.25 per share,
(ii) assumes no exercise of the Underwriters' Over-Allotment Option, and (iii)
reflects a 2-for-1 split of Common Stock, effected on March 31, 1997, and an
amendment to the Company's Certificate of Incorporation filed with the
Secretary of State of Delaware on April 21, 1997, increasing the number of
authorized shares of Common Stock and creating a new class of preferred stock.
See "Description of Capital Stock."
The Company
SysComm International Corporation ("SysComm" or the "Company"), through
its wholly owned subsidiary, Information Technology Services, Inc.
("InfoTech"), is a leading systems integrator and reseller of computer
hardware, operating software and networking applications to Fortune 1000
companies. The Company provides its customers with cost efficient,
comprehensive solutions that satisfy their information technology requirements.
Since 1985, the Company's primary focus has been on the sale, integration and
servicing of International Business Machine Corporation ("IBM") products
including personal computers, mid-range systems based on the IBM RS/6000,
servers, and the IBM AS/400. In addition, the Company integrates, resells and
services products from manufacturers such as Hewlett Packard, Compaq, Apple,
Microsoft, 3Com, Bay Networks and Novell.
In March 1997, the Company commenced the assembly and sale of IBM PCs
through IBM's Authorized Assembler Program (the "AAP") providing the Company
with greater flexibility in meeting its customers' needs. The Company believes
that this relationship with IBM will provide it with the opportunity to enhance
its responsiveness to client specific requests and orders, and improve its
operating efficiencies.
A significant percentage of the Company's revenues are derived from sales
to customers in the financial and investment communities. However, the
Company's customer base also includes mid-size retailers, manufacturers,
distributors, colleges, universities and state and local government agencies in
the Northeastern United States. The Company's customers include:
<TABLE>
<S> <C> <C>
Astra Pharmaceutical CPC International Merrill Lynch
Boston College Deutsche Bank Northeastern University
Boston Financial Group Fidelity Investments Oxford Healthcare
Brown Brothers Harriman The Gillette Company Pepsico
Cadbury-Motts GTE Services Corp. The Pershing Division of
Carrier Corporation Harvard University Donaldson Lufkin &
The Chase Manhattan Bank Healthsource Jenrette
Citibank International Business Machines Smith Barney
The City University of Corporation The Stop & Shop
New York J.P. Morgan Companies
</TABLE>
The Company intends to pursue new business by focusing on the sale and
integration of high-end systems in financial, commercial, governmental,
healthcare and educational areas. To this end, the Company has the following
growth strategies: (i) targeting vertical markets, (ii) offering a complete
line of IBM products, including IBM mainframe systems, (iii) expanding its role
as an IBM Premier Business Partner, (iv) enhancing competitiveness through the
IBM PC Authorized Assembler Program, and (v) expanding into other geographic
regions through selected acquisitions and strategic alliances.
3
<PAGE>
The Company currently has five operating locations: it operates a
distribution center, a computer configuration, integration and PC assembly
facility and technical support service center from its Hauppauge, New York
headquarters and conducts its sales operations from its headquarters and
offices located in New York City, New York, Waltham, Massachusetts, Marlton,
New Jersey, and North Haven, Connecticut.
The Company's principal executive offices are located at 275 Marcus
Boulevard, Hauppauge, New York 11788 and its telephone number is (516)
273-3200.
IBM, AS/400, RS/6000, PC Server System/390, OS/2, Netfinity, Eduquest, and
Lotus Notes are registered trademarks of International Business Machines
Corporation. All other products are trademarks of their respective companies.
4
<PAGE>
The Offering
Common Stock Offered ... 1,500,000 shares
Common Stock Outstanding
Before Offering (1) ... 3,170,540 shares
Common Stock Outstanding After
Offering (1)............ 4,670,540 shares
Use of Proceeds ......... The Company intends to use the net proceeds of the
Offering (i) to establish and operate an IBM PC
assembly facility under IBM's Authorized Assembler
Program, including the lease or purchase of a
building, (ii) to reduce the Company's interest
bearing obligations to IBM Credit Corporation, (iii)
for general corporate purposes including working
capital, and (iv) for acquisitions. See "Use of
Proceeds."
Proposed NASDAQ National
Market Symbol...............................................................
Risk Factors ............ The Offering involves certain risks and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
- ------------
(1) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1988 Stock Option Plan (of which 498,000 shares of Common Stock
are issuable upon exercise of the stock options outstanding as of the date
of this Prospectus) and 150,000 shares of Common Stock issuable upon
exercise of the Representative's Warrants. See "Management -- Stock Option
Plan" and "Underwriting."
5
<PAGE>
Summary Consolidated Financial Information
The Summary Consolidated Financial Information set forth below was derived
from the financial statements of the Company and should be read in conjunction
with the financial statements and related notes thereto appearing elsewhere in
this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months Ended March 31,
Year Ended September 30, (unaudited)
------------------------------------------------ ------------------------------
1994(1) 1995 1996 1996 1997
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales ........................... $ 45,459,575 $ 55,195,507 $ 98,446,698 $ 38,042,823 $39,158,875
Cost of sales ........................ 40,796,425 49,441,544 89,025,331 34,159,227 33,890,028
------------ ------------ ------------ ------------ ------------
Gross profit ........................ 4,663,150 5,753,963 9,421,367 3,883,596 5,268,847
Selling and administrative expenses . 3,406,316 4,079,184 5,028,812 2,382,727 2,957,149
------------ ------------ ------------ ------------ ------------
Income from operations ............... 1,256,834 1,674,779 4,392,555 1,500,869 2,311,698
Interest expense (net) ............ (713,778) (1,207,316) (1,390,867) (633,193) (551,907)
Other income ........................ 39,630 37,126 63,151 7,964 57,324
Realized loss on available-for-sale
securities ........................ 0 0 (1,406,250) 0 0
------------ ------------ ------------ ------------ ------------
Income from continuing operations
before income taxes ............... 582,686 504,589 1,658,589 875,640 1,817,115
Provision for income taxes ......... 242,889 223,769 735,886 371,000 766,800
------------ ------------ ------------ ------------ ------------
Income from continuing operations . 339,797 280,820 922,703 504,640 1,050,315
Discontinued operations ............ 1,485,698 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income ........................... $ 1,825,495 $ 280,820 $ 922,703 $ 504,640 $ 1,050,315
============ ============ ============ ============ ============
Per Share Data:
Income from continuing
operations ........................ $ .10 $ .08 $ .25 $ .14 $ .29
Income from discontinued
operations ........................ $ .43 -- -- -- --
Weighted average number of shares
outstanding ........................ 3,448,900 3,614,040 3,677,290 3,686,040 3,668,540
</TABLE>
March 31, 1997
-------------------------------
(unaudited)
Actual As Adjusted (2)
------------ ----------------
Consolidated Balance Sheet Data:
Working capital .................. $4,217,120 $10,788,638
Total assets ..................... 24,543,969 24,543,969
Short term debt .................. 6,907,940 336,422
Long term debt .................. 85,156 85,156
Stockholders' equity ............ 5,048,992 11,620,510
- ------------
(1) Includes sales of the Company's subsidiary, Romel Technology, Inc. (d/b/a
MSG) of $4,127,768, which was sold in November 1993. The loss from this
subsidiary was de minimis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 11 to Consolidated
Financial Statements.
(2) As adjusted to give effect to the sale of 1,500,000 shares of Common Stock
and the initial application of the net proceeds. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors in addition to the other information
contained in this Prospectus or incorporated by reference. This Prospectus
contains forward-looking statements which include risks and uncertainties. The
Company's actual results, performance or achievements could differ materially
from the results expected in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in the following risk factors.
Dependence on IBM as a Supplier
For the fiscal year ended September 30, 1996 and for the six months ended
March 31, 1997, in excess of 90% of the Company's revenues resulted from the
sale of personal computers, mid-range computer systems, networking systems and
operating software manufactured by International Business Machines Corporation
("IBM"). Although the Company has had a long standing reseller relationship
with IBM, IBM may terminate this relationship with the Company at will or upon
relatively short notice. The Company's reseller arrangements with IBM are not
exclusive. Moreover, IBM is not obligated to have product on hand for timely
delivery to the Company, nor can IBM guarantee product availability in
sufficient quantities to meet the Company's demands.
If IBM were to discontinue direct sales to the Company as a result of
insufficient purchase volumes or for any other reason, the Company would be
required to purchase IBM products from a wholesaler or other reseller, which
would likely be on terms less favorable than those currently obtained from IBM.
There can be no assurance, therefore, that all IBM products will be available
in a timely fashion as required by the Company. The loss of IBM as the
Company's prime vendor or the loss of the Company's status as an authorized
reseller of IBM products, the deterioration of the Company's relationship with
IBM, the loss of the Company's status as a Premier Business Partner or the
deterioration of the industry's perception of IBM as a leading manufacturer of
high quality computers would have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business --
Products/IBM Relationship."
Periodic IBM Product Shortages
From time to time, including during the quarter ended March 31, 1997, IBM
has been unable to deliver its products in a timely fashion to meet the
Company's outstanding orders, which has affected the Company's quarterly
results of operations. Specifically, during the quarter ended March 31, 1997,
delays by IBM in shipment of products resulted in a backlog of approximately
$4,000,000 of sales by the Company. For example, with respect to IBM PCs, IBM
allocates a significant portion of IBM PC's to dealers who then resell them to
customers in IBM's Large Account Initiative Program ("LAI"). IBM's allocation
of products for these large account customers, at times, has resulted in
delayed product shipments to the Company, which, in turn, delays the Company
from filling its customer orders. Accordingly, there can be no assurance that
IBM (and other manufacturers who the Company deals with) will consistently
provide an adequate supply of products in order for the Company to fulfill all
of its customers' orders in a timely manner. The failure to obtain adequate
product supplies would have a material adverse effect on the Company's results
of operations or financial condition.
Significant Fluctuations to Quarterly Results
The Company's quarterly operating results have fluctuated in the past and
will continue to do so in the future. Quarterly operating results may fluctuate
as a result of a variety of factors, including: the timing of the Company's
delivery of significant orders, the ability of IBM to deliver, in a timely
fashion, products for which the Company has received orders, the length of the
sales cycle, receipt of volume discounts by IBM, the demand for products and
services offered by the Company, the introduction or announcements by IBM and
other manufacturers relating to new products, the hiring and training of
additional personnel, problems or delays associated with the Company's assembly
of personal computer systems (under the AAP) as well as general business
conditions.
7
<PAGE>
Historically, the size and timing of the Company's sales transactions have
varied substantially from quarter to quarter and the Company expects such
variations to continue in future periods, including the possibility of losses
in one or more fiscal quarters. The Company's revenue for the past three
quarters have declined from approximately $33,644,000 in the quarter ended June
30, 1996 to approximately $17,876,000 in the quarter ended March 31, 1997.
Additionally, in its second quarter of fiscal year 1995, the Company did not
achieve its expected revenue, yielding a loss. This was caused by IBM's delays
in shipping certain computer systems for which the Company received orders that
it expected to deliver during that quarter. In addition, the Company's
collection periods have fluctuated due to periodic unavailability of product
from IBM, which resulted in the Company not receiving payment from certain
customers until their entire orders were shipped. In contrast, in the second
quarter of fiscal year 1996, in the absence of significant delays by IBM in
shipping computer systems, the Company's revenue increased, generating a
profit. Accordingly, it is likely that in one or more future fiscal quarters,
the Company's operating results may be below the expectations of public market
analysts and investors. As a result, the market price of the Company's Common
Stock would be materially adversely affected. See "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations."
Participation in IBM's Authorized Assembler Program
In March 1997, the Company commenced operation of an IBM PC system
assembly facility under IBM's Authorized Assembler Program (the "AAP"). In
order to participate in the AAP, the Company intends to commit, in the near
future, significant capital to hire and train a high quality work force to
establish an appropriate assembly facility and to initially increase its
inventory of components to satisfy anticipated customer demand. The Company
anticipates that any initial cost associated with the establishment and
operation of the PC assembly facility will be satisfied by the proceeds of this
Offering. As a component assembler of finished products, the Company will face
operational concerns, which it has not faced as a reseller. These operational
concerns include the ability of the Company to hire and train qualified
assembly personnel and maintain an adequate supply of component parts
inventory. The continued operation of this assembly facility is dependent upon
the Company complying with the terms of its AAP agreement (the "AAP Agreement")
with IBM, including satisfying certain minimum purchase requirements,
compliance with strict quality control provisions and maintaining trained and
certified personnel. The AAP Agreement is terminable by either IBM or the
Company upon 30 days' prior notice and is immediately terminable by IBM in the
event that IBM determines, in its sole discretion, that (i) the assembled
products fail to meet required specifications, (ii) the Company materially
breaches the terms and/or conditions of the AAP Agreement, (iii) the Company
engages in a course of conduct that has injured IBM's reputation or the
reputation of its products, or (iv) the Company's status with IBM as a Business
Partner is terminated for any reason, expires or if the Company is no longer
eligible to purchase IBM personal computer components directly from IBM. In
addition, the Company is required to maintain ISO 9002 registration standards,
the registered international standard for ensuring the consistent and
measurable quality of products and services. Subject to the terms of the AAP
Agreement, IBM is permitted to periodically review the Company's performance in
order to monitor and assess continued compliance. The AAP Agreement expires on
December 31, 1997 and, although the Company plans to renew it, there can be no
assurance that it will be renewed on similar terms, if at all. See "Use of
Proceeds."
The Company currently plans to expand its participation in the AAP to
include the workstation elements of IBM's RS/6000 computer systems. The
Company's ability to participate in the program with respect to such products
is contingent upon the Company moving into larger facilities to accommodate
such operations, equipping such facilities for assembly activities, hiring
technical employees and approval from IBM. The Company's planned operations and
future growth, to a significant extent, are dependent on the Company's ability
to participate in the AAP with respect to a broad range of IBM product lines.
There can be no assurance that the Company will be able to successfully operate
an IBM approved facility capable of serving an expanded product line, that IBM
will authorize the Company's participation in assembly programs beyond personal
computers, that the Company will maintain necessary industry registrations or
that the computer systems produced by such assembly programs will gain market
acceptance. See "Business -- Products/IBM Relationship."
Financing Agreement
The Company's business activities are capital intensive, requiring the
Company to finance accounts receivable and inventory. The failure to obtain
adequate product financing on a timely basis could have a material
8
<PAGE>
adverse affect on the Company's business, results of operations and financial
condition. Pursuant to the Company's financing agreement ("Financing
Agreement") with IBM Credit Corporation ("IBM Credit"), the Company is
permitted to borrow up to $27,500,000, based upon 85% of all eligible
receivables due within 90 days and up to 100% of all eligible inventory. As of
March 31, 1997, borrowings outstanding under the Financing Agreement were
$6,867,271. Pursuant to the Financing Agreement, the Company's credit
availability is reduced by the aggregate amount of accounts payable owed to IBM
Credit which, as of March 31, 1997, was $10,082,368. The Financing Agreement,
which expires on September 30, 1997, is subject to temporary increases, thereby
increasing the line of credit to $41,250,000 during certain periods. The
Company is also required to comply with certain additional financial covenants.
The amount of credit available to the Company pursuant to the Financing
Agreement at any point in time may be adversely affected by factors such as
delays in collection or deterioration in the quality of the Company's accounts
receivable, inventory obsolescence, economic trends in the computer industry
and interest rate fluctuations. Any decrease or material limitation on the
amount of capital available to the Company under the Financing Agreement would
limit the ability of the Company to fill existing sales orders, purchase
inventory or expand its sales levels and, therefore, would have a material
adverse effect on the Company's financial conditions and results of operations.
The Financing Agreement expires on September 30, 1997. The Company has had a
credit facility with IBM Credit since 1992, and the Company believes that it
will enter into a renewal of this credit facility with IBM. There can be no
assurance that the financing to the Company under this renewal will be
available in amounts at comparable or better terms than those in effect, if at
all. The inability of the Company to have continuous access to such financing
at reasonable costs would materially and adversely impact the Company's
financial condition and results of operations. See "Use of Proceeds,"
"Management's Discussion And Analysis of Financial Condition and Results of
Operations."
Dependence on IBM's Volume Discount Schedules and Market Development Funds
As part of its overall reseller arrangements with IBM, IBM provides the
Company with volume discounts and market development funds on products
purchased from IBM. These discounts and funds are used to offset a portion of
the Company's cost of IBM's products sold, thereby affecting income from
operations and the Company's expenses relating to marketing and technical
support resources for IBM products. Any adverse change in the volume discount
schedule available to the Company, which the Company believes is currently at
IBM's highest discount level, or changes in the availability, structure or
timing of the receipt of development funds, would materially adversely affect
the Company's business, results of operations and financial condition.
Dependence on Major Customers; Risk of Industry Concentration
For the last three fiscal years, 1994, 1995 and 1996, a significant
portion (47%, 55% and 50%, respectively) of the Company's revenues were derived
from sales to five principal customers, which customers vary annually, and
encompass markets wherein the demands of any one customer may vary greatly. In
addition, the Company does not have any exclusive long-term arrangements with
its customers for the continued sales of computer systems. In fiscal year 1994,
sales to The Chase Manhattan Bank accounted for 22% of the Company's total
revenues; revenues from sales to The Chase Manhattan Bank and Deutsche Bank
accounted for 23% and 14%, respectively, of the Company's total revenues in
fiscal year 1995; and revenues from sales to Deutsche Bank and Citibank
accounted for 19% and 16%, respectively, of the Company's total revenues in
fiscal year 1996. Although the number of customers who purchase at least
$250,000 of computer systems from the Company has increased from 25 in fiscal
year 1994 to 41 in fiscal year 1996, the failure to acquire a significant or
principal customer could have a material adverse effect on the Company's
operations. See "Business -- Principal Markets and Customers."
In the fiscal year ended September 30, 1996, approximately 58% of the
Company's sales of computer systems were to customers in the banking, financial
and securities industry based in the Northeastern United States. Although the
Company continues to broaden its vertical market focus to include sales to
other markets, such as educational institutions, government agencies,
healthcare and insurance companies, the Company expects that it will continue
to derive a substantial percentage of its sales of computer systems from such
banking, financial
9
<PAGE>
and securities businesses. Accordingly, unfavorable economic conditions or
factors that relate to these industries, particularly any such conditions that
might result in reductions in capital expenditures or changes in such company's
information processing system requirements, would have a material adverse
affect on the Company's results of operations.
Rapid Technological Change
The industry in which the Company competes is characterized by rapid
technological change and frequent introduction of new products and product
enhancements which result in relatively short product life cycles and rapid
product obsolescence. The expectation, or announcement of new or enhanced
products often causes customers to delay their purchasing decisions until such
new or enhanced products are announced and available. Furthermore, the
Company's success depends in large part on IBM's ability to identify and
develop products that meet the changing requirements of the marketplace. In the
event that IBM is unable to do so, the Company's continued success will depend
upon its ability to identify and source substitute products from other vendors.
There can be no assurance that the Company will be able to identify and offer
such products necessary to remain competitive or avoid losses related to
obsolete inventory and drastic price reductions. For the year ended September
30, 1996, approximately 59% of the Company's revenues were generated from the
sale of IBM's RS/6000 mid-range business computer systems. The failure of these
systems to continue to command a significant market share or IBM's
discontinuing this computer system without a suitable substitute would have a
material adverse effect on the Company's business, results of operations and
financial condition.
Management of Growth
The Company's ability to manage growth effectively and expand its AAP
operations will require it to continue to implement and improve its
operational, technical, financial, and sales systems, to develop the skills of
its managers and supervisors, and to hire, train, motivate and manage its
employees. There can be no assurance that the Company will be successful in
managing growth. The failure to do so would materially adversely affect the
Company's financial position and results of operations. The Company has
recently opened sales offices in Marlton, New Jersey and North Haven,
Connecticut. In October 1995 it closed a sales facility in Princeton, New
Jersey after eleven months of operations. Within the next twelve months, the
Company intends to relocate its headquarters, including its distribution
operations and assembly facilities, in the Long Island region. The Company
anticipates that it will incur substantial costs in connection with these
plans, including expenditures for construction, furniture, fixtures, and
equipment. The Company anticipates that any costs associated with the
relocation of its headquarters, distribution and assembly facility will be
funded by the proceeds from this Offering. There can be no assurance that the
Company will be able to further expand its operations successfully either
through acquisition or the establishment and operation of an IBM PC assembly
facility. Expansion of the Company's operations will be dependent upon, among
other things, the continued growth of the computer industry, the Company's
ability to withstand intense price competition, its ability to obtain new
customers, and retain skilled technicians, engineers, sales and other
personnel. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. There can be no assurance that additional financings will be
available to the Company on commercially reasonable terms, if at all. See "Use
of Proceeds" and "Business -- Strategy."
Acquisition and Acquisition Financing
In addition to expanding its operations through internal growth, the
Company intends to grow through the acquisition of selected regional resellers.
Management believes that increased competition for acquisition candidates
exists and may continue in the future, in which event there may be fewer
acquisition opportunities available to the Company as well as higher
acquisition prices. There can be no assurance that the Company will be able to
identify, acquire, manage or successfully integrate acquired businesses into
the Company without substantial costs, delays, operational, or financial
problems. To date, the Company has no understandings, commitments or agreements
with respect to any such acquisition. The Company may finance future
acquisitions by using cash and/or shares of its Common Stock for the
consideration to be paid. In the event that the Common Stock does not maintain
a sufficient market value or potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. If the
10
<PAGE>
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. There can be no assurance that the additional financing will be
available to the Company on commercially reasonable terms, if at all.
Limited Backlog of Orders
Customers typically do not place recurring "long-term" orders with the
Company, resulting in a limited order backlog at any point in time. The failure
by the Company to receive orders from customers on a continuous basis would
have a material adverse effect on the Company's financial condition and results
of operations given the Company's lack of recurring orders.
Competition; Pricing Competition
Many established computer manufacturers, system integrators and other
resellers of personal computers or networking products compete with the Company
in the configuration, integration and distribution of computer systems and
equipment. In the highly fragmented computer services area, the Company
competes with several larger competitors, other corporate resellers pursuing
high-end services opportunities, as well as several smaller computer services
companies. In addition, the Company competes directly with IBM for the sale of
several computer systems, including those systems manufactured by IBM,
including the RS/6000 computer system. The Company believes that the principal
competitive factors in the business in which it operates are price and
performance, product availability, technical expertise, adherence to industry
standards, financial stability, service support and reputation. There can be no
assurance that the Company will be able to compete successfully with existing
or new competition. Some of these competitors, including IBM, have financial,
technical, manufacturing, sales, marketing and other resources which are
substantially greater than those of the Company. As a result, they may be
better able to respond more quickly to new or emerging technologies or changes
in customer requirements, benefit from greater purchasing economies, offer more
aggressive hardware and service pricing or devote greater resources to the
promotion of their products and services. There can be no assurance that the
Company will be able to continue to compete successfully with existing or new
competitors.
The Company and other U.S. based system integrators and resellers
currently face price and gross profit margin pressures. In recent years, all
major information system manufacturers have instituted extremely aggressive
price reductions in response to lower component costs, discount pricing by
certain competitors and increased competition from non-U.S. based information
systems manufacturers. The increased price competition among computer
manufacturers has resulted in declining gross margins for many computer
resellers and may result in a reduction in existing vendor subsidies and
reduced profitability for the Company. There can be no assurance that the
Company will be able to continue to compete effectively in the marketplace
given the continual price reductions and intense competition currently existing
in the information processing and value-added reseller industry. See "Business
- -- Competition."
Dependence on Key Personnel
The Company's success during the foreseeable future will depend largely
upon the continued services of its founder and Chief Executive Officer, John H.
Spielberger, and the executive team of Dennis R. Wilson, Thomas J. Baehr and
Norman Gaffney, who joined the Company in 1995, 1994 and 1994, respectively.
Each of the executive officers will enter into employment agreements upon the
consummation of the Offering that expire on September 30, 1999. The loss of any
of the services of the Company's key personnel could have a material adverse
affect on the Company's business, ongoing results and financial condition.
These employment agreements contain confidentiality, non-compete, and
non-solicitation provisions. In addition, the Company has attempted to mitigate
the risks associated with its dependence on John H. Spielberger and Thomas
Baehr by obtaining $1,000,000 key person life insurance policies on each of
such individuals. The Company's success also depends in part on its ability to
attract and retain qualified managerial, technical, sales and marketing
personnel. The Company's results of operations could be adversely affected if
the Company were unable to attract, hire, assimilate, and train these personnel
in a timely manner. See "Management."
Control by Principal Stockholder
Upon completion of the Offering, John H. Spielberger, Chairman of the
Board, President and Chief Executive Officer of the Company, will continue to
beneficially own approximately 50% of the Company's outstand-
11
<PAGE>
ing Common Stock. As a result of his stock ownership, Mr. Spielberger will have
effective control of the Company and will continue to have the power to control
the outcome of matters submitted to a vote of the Company's stockholders, such
as the election of at least a majority of the members of the Company's Board of
Directors and to direct the future operations of the Company. Such
concentration may have the effect of discouraging, delaying or preventing a
change in control of the Company. See "Principal Stockholders."
Tax Audits
The Internal Revenue Service commenced an audit of the Company's Federal
Income Tax return for the fiscal year ended September 30, 1995. In addition,
New York State commenced a sales tax audit for the period June 1, 1994 to
February 28, 1997. Although management believes that both these audits are
within the ordinary course of business and will not have a material adverse
effect on the Company, there can be no assurance that such is the case.
No Prior Market for the Common Stock; Determination of Offering Price;
Potential Volatility of Stock Price
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained or that the Common Stock will be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock offered hereby will be determined by negotiations between the Company and
the Representative. Among the factors to be considered in determining the
initial public offering price will be the history of, and the prospects for,
the Company's business and the industry in which it competes, an assessment of
the Company's management, its past and present operations, the prospects for
earnings of the Company, the general condition of the securities market at the
time of the Offering and the market prices and earnings of similar securities
of comparable companies at the time of the Offering and prevailing market and
economic conditions. See "Underwriting."
After the Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including, but not
limited to, fluctuations or uncertainties in the Company's quarterly operating
results (including losses), delays with respect to the AAP, announcements of
technological innovations of new products by IBM or other suppliers, conditions
in the markets in which the Company and its competitors compete, changes by
financial analysts in their estimates of the earnings of the Company, and the
economy in general. From time to time, the stock market experiences significant
price and volume volatility which may affect the market price of the Company's
Common Stock for reasons unrelated to the performance of the Company. Because
the Company is closely dependent upon and associated with IBM, the Company's
stock price may be adversely affected based on the performance of IBM's
operations.
Common Stock Eligible for Future Sale
Immediately after completion of the Offering, the Company will have
4,670,540 shares of Common Stock outstanding, of which the 1,500,000 shares
(1,725,000 shares if the Underwriter's Over-Allotment Option is exercised in
full) sold pursuant to the Offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended ("Securities Act"), by persons other than "affiliates" of the Company,
as defined under the Securities Act. The remaining 3,170,540 shares of Common
Stock are deemed "restricted securities" as defined by Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
the exemption provided by Rule 144. All of the restricted shares of Common
Stock will be eligible for trading under Rule 144, subject to certain
limitations and other restrictions prescribed by such rule, and to the
contractual restrictions described below, commencing 90 days following the date
of this Prospectus. The Company, its officers, directors, current stockholders,
and option holders have agreed to enter into agreements (the "Lock-Up
Agreements") under which they will agree not to sell or otherwise dispose of
any of their shares of Common Stock of the Company for a period of one year
commencing upon the date of this Prospectus, without the prior written consent
of the Representative. See "Underwriting." Sales of substantial amounts of
Common Stock, or the perception that these sales could occur, could adversely
affect the prevailing market price for the Common Stock and could impair the
ability of the Company to raise additional capital through the sale of its
securities or through debt financing.
12
<PAGE>
In addition, upon completion of the Offering, the Company has agreed to
issue to the Representatives, warrants to purchase an aggregate of 150,000
shares of Common Stock exercisable for a four year period commencing one year
from the date of the Offering, at an exercise price equal to 160% of the
initial public offering price. The exercise of the Representative's Warrants
may dilute the book value per share of Common Stock. The holders of such
warrants may exercise them at a time when the Company would otherwise be able
to obtain additional equity capital on terms more favorable to the Company and
have the opportunity to benefit from increases in the price of the Common Stock
without risk of an equity investment. The Company has agreed to grant certain
demand and piggyback registration rights to the holders of these warrants. Such
registration rights could involve substantial expenses to the Company and may
adversely affect the terms upon which the Company may obtain additional
financing. See "Shares Eligible for Future Sale" and "Underwriting."
Sale of substantial amounts of Common Stock in the public market may
adversely affect the market price of the Common Stock and may also adversely
affect the Company's ability to raise additional capital in the future. See
"Shares Eligible for Future Sale" and "Underwriting."
Dilution
Investors purchasing shares of the Common Stock in the Offering will incur
immediate and substantial dilution of approximately $2.77 per share in net
tangible book value from the assumed $5.25 per share initial public offering
price. Additional dilution may occur as a result of the exercise of options and
warrants to purchase shares of Common Stock or future acquisitions by the
Company in exchange for stock. See "Dilution."
Absence of Dividends
To date, the Company has not paid any cash dividends and does not
presently intend to pay cash dividends in the foreseeable future. As a holding
company, the ability of the Company to pay dividends is dependent upon its
receipt of dividends or other payments from its subsidiaries. Currently
InfoTech is the Company's only subsidiary. See "Dividend Policy."
Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation"), Amended and Restated By-laws
("By-Laws") and Delaware law may be deemed to have an anti-takeover effect. The
Company's Certificate of Incorporation provides that the Board of Directors may
issue additional shares of Common Stock or establish one or more classes or
series of Preferred Stock with such designations, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations that
the Board of Directors fixes without stockholder approval. Moreover, the
Company's Certificate of Incorporation and By-Laws provide that its Board of
Directors is divided into three classes serving staggered three year terms,
resulting in approximately one-third of the directors being elected each year
and also contain certain other provisions relating to voting and the removal of
the officers and directors. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law. In general, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. Each of the foregoing provisions may have the effect of
rendering more difficult, delaying, discouraging, preventing or rendering more
costly an acquisition of the Company or a change in control of the Company. See
"Description of Capital Stock -- Anti-Takeover Provisions; Section 203 of the
Delaware Corporation Law."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,500,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$6,570,000 assuming an initial public offering price of $5.25 per share and
after deducting the estimated underwriting discounts and offering expenses
payable by the Company. The net proceeds will be used for (i) the establishment
and operation of an IBM assembly facility under IBM's Authorized Assembler
Program, including the lease or purchase of a building, (ii) the reduction of
the Company's interest bearing obligations to IBM Credit Corporation, (iii) for
general corporate purposes, including working capital, and (iv) acquisitions.
The Company intends to use approximately $2,500,000 of the proceeds of the
Offering to establish and operate an IBM PC assembly facility under the AAP. In
connection with the establishment of an IBM PC assembly facility, the Company
anticipates leasing or purchasing a 25,000 to 30,000 square foot building. In
connection with the operation of this assembly facility, the Company intends on
increasing component parts inventory.
The Company intends to use the balance of the proceeds of the Offering for
working capital and acquisitions. Until such funds are required for these
purposes, these proceeds will be used to temporarily reduce the Company's
interest bearing obligations to IBM Credit Corporation under the Financing
Agreement. Pursuant to the Financing Agreement, which became effective on
September 30, 1996, the Company may borrow up to $27,500,000, based upon 85% of
all eligible receivables due within 90 days and up to 100% of all eligible
inventory. As of March 31, 1997, borrowings outstanding under the Financing
Agreement were $6,867,271. The Company's credit availability is reduced by the
aggregate amount of accounts payable owed to IBM Credit which, as of March 31,
1997, was $10,082,368. The Financing Agreement, which expires on September 30,
1997, is subject to temporary increases, increasing the amount of credit to
$41,250,000 during certain periods. Effective September 30, 1996, interest on
the outstanding borrowings is payable monthly at prime plus 1.375%, or prime
plus 6.5% should the Company fail to meet certain collateral requirements. See
"Risk Factors -- Financing Agreement."
The Company believes that there are numerous opportunities available to
acquire comparable and established regional system integrators. The Company
plans to actively seek out and evaluate potential acquisitions of such
businesses. As of the date of this Prospectus, however, the Company has no
agreements, understandings or commitments and is not engaged in any
negotiations relating to any potential acquisitions.
DIVIDEND POLICY
The Company intends to retain earnings for use in the operation and
expansion of its business and therefore does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. As a holding company,
the ability of the Company to pay dividends is dependent upon its receipt of
dividends or other payments from its subsidiaries. Currently InfoTech is the
Company's only subsidiary. The payment of dividends is within the discretion of
the Board of Directors and will be dependent, among other things, upon
earnings, capital requirements, financing agreement covenants, including the
Financing Agreement, the financial condition of the Company and applicable law.
14
<PAGE>
DILUTION
As of March 31, 1997, the Company had a net tangible book value of
$5,003,359 or $1.58 per share of Common Stock outstanding. Net tangible book
value equals the tangible net worth of the Company (tangible assets less total
liabilities) divided by the aggregate number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 1,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$5.25 per share and the application of the net proceeds therefrom, the pro
forma net tangible book value of the Company as of March 31, 1997, would be
$11,574,877 or $2.48 per share. This represents an immediate increase in pro
forma net tangible book value of $.90 per share to current stockholders and an
immediate dilution of $2.77 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ..................... $5.25
Net tangible book value before the Offering ............ $1.58
Increase attributable to new investors .................. .90
------
Pro forma net tangible book value after the Offering ...... 2.48
------
Dilution to new investors ................................. $2.77
======
</TABLE>
The following table sets forth the difference between the existing
stockholders of the Company and the new investors with respect to the aggregate
number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average cash price per share paid. The calculation
below is based upon an assumed initial public offering price of $5.25 per share
(before deducting underwriting discounts and commissions and other estimated
expenses of the Offering payable by the Company):
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Paid Per Share
-------------------------- -------------------------- --------------
Number Percentage Amount Percentage
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (1) ...... 3,170,540 67.9% $ 152,290 1.9% $ .05
New Investors .................. 1,500,000 32.1% 7,875,000 98.1% $5.25
---------- ------- ----------- -------
Total ........................ 4,670,540 100.0% $8,027,290 100.0%
========== ======= =========== =======
</TABLE>
- ------------
(1) Excludes 498,000 shares of Common Stock issuable upon exercise of
outstanding options and 150,000 shares of Common Stock issuable upon
exercise of the Representative's Warrants. See "Underwriting."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted to give effect to the sale by the Company of
1,500,000 shares of Common Stock at an assumed initial public offering price of
$5.25 per share, and the application by the Company of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements, including the Notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
-------------------------
(unaudited, in thousands)
Actual As Adjusted
---------- ------------
<S> <C> <C>
Debt:
Short Term debt:
Credit facility .......................................... $ 6,867 $ 295
Current maturities of long-term debt ..................... 41 41
--------- ---------
Total short term debt .................................... 6,908 336
--------- ---------
Long-term debt, less current maturities .................. 85 85
--------- ---------
Stockholders' equity: (1)(2)
Common Stock, $.01 par value, 5,000,000 shares authorized,
3,170,540 shares outstanding, actual and 4,670,540 shares
outstanding, as adjusted (3) ........................... 36 51
Additional paid-in-capital .............................. 138 6,695
Retained earnings ....................................... 5,017 5,017
Treasury stock .......................................... (142) (142)
--------- ---------
Total stockholders' equity .............................. 5,049 11,621
--------- ---------
Total capitalization .................................... $ 12,042 $ 12,042
========= =========
</TABLE>
- ------------
(1) See "Description of Capital Stock" for description of the relative rights
of the Preferred Stock and Common Stock.
(2) On April 21, 1997, a special meeting of stockholders was held to amend the
Certificate of Incorporation to increase the aggregate of authorized
shares from 5,000,000 shares of Common Stock to 40,000,000 shares of
Common Stock and to authorize 1,000,000 shares of Preferred Stock.
(3) Excludes 498,000 shares of Common Stock issuable upon exercise of
outstanding options and 150,000 shares of Common Stock issuable upon
exercise of Representative's Warrants. See "Underwriting."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The financial statement data as of and for the
fiscal years ended September 30, 1994, 1995 and 1996 are derived from, and are
qualified by reference to, the audited Consolidated Financial Statements
included elsewhere in this Prospectus and should be read in conjunction with
those Consolidated Financial Statements and the Notes thereto. The financial
statement data as of and for the fiscal years ended September 30, 1992 and 1993
are derived from audited consolidated financial statements not included in this
Prospectus. The Selected Consolidated Financial Data presented for the six
months ended March 31, 1996 and 1997 have been derived from unaudited
consolidated financial statements of the Company, but in the opinion of
management of the Company include all adjustments necessary for a fair
presentation for the results of such operating periods. The operating results
for such interim periods are not necessarily indicative of operating results
for the full year. This data is qualified by reference to, and should be read
in conjunction with, the Company's consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in this Prospectus.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales ........................ $ 40,355,000(1)$ 51,085,000(1)$ 45,459,575(1) $ 55,195,507 $ 98,446,698
Cost of sales .................. 37,575,000 46,948,000 40,796,425 49,441,544 89,025,331
--------------- --------------- --------------- ------------ ------------
Gross profit ..................... 2,780,000 4,137,000 4,663,150 5,753,963 9,421,367
Selling and administrative
expenses ........................ 2,754,000 3,565,000 3,406,316 4,079,184 5,028,812
--------------- --------------- --------------- ------------ ------------
Income from operations ......... 26,000 572,000 1,256,834 1,674,779 4,392,555
Interest expense (net) ......... (225,000) (498,000) (713,778) (1,207,316) (1,390,867)
Other income ..................... -- -- 39,630 37,126 63,151
Realized loss on available-for-
sale securities ............... -- -- -- -- (1,406,250)
--------------- --------------- --------------- ------------ ------------
Income (loss) from continuing
operations before income
taxes ........................... (199,000) 74,000 582,686 504,589 1,658,589
Provision for income taxes ...... 8,000 31,000 242,889 223,769 735,886
--------------- --------------- --------------- ------------ ------------
Income (loss) from continuing
operations ..................... (207,000) 43,000 339,797 280,820 922,703
Discontinued operations ......... -- -- 1,485,698 -- --
Cumulative effect of a change in
accounting principle ............ -- 78,000 -- -- --
--------------- --------------- --------------- ------------ ------------
Net income (loss) ............... $ (207,000) $ 121,000 $ 1,825,495 $ 280,820 $ 922,703
=============== =============== =============== ============ ============
Per Share Data:
Income (loss) from continuing
operations ..................... $ (.06) $ .01 $ .10 $ .08 $ .25
Income from discontinued
operations ..................... -- -- $ .43 -- --
Income from accounting
changes ........................ -- $ .02 -- -- --
Weighted average number of
shares outstanding ............ 3,584,164 3,615,830 3,448,900 3,614,040 3,677,290
<PAGE>
<CAPTION>
Six Months Ended
March 31,
---------------------------
1996 1997
------------ -----------
<S> <C> <C>
Consolidated Statement of Operations
Net sales ........................ $ 38,042,823 $39,158,875
Cost of sales .................. 34,159,227 33,890,028
------------ ------------
Gross profit ..................... 3,888,596 5,268,847
Selling and administrative
expenses ........................ 2,382,727 2,957,149
------------ ------------
Income from operations ......... 1,500,869 2,311,698
Interest expense (net) ......... (633,193) (551,907)
Other income ..................... 7,964 57,324
Realized loss on available-for-
sale securities ............... -- --
------------ ------------
Income (loss) from continuing
operations before income
taxes ........................... 875,640 1,817,115
Provision for income taxes ...... 371,000 766,800
------------ ------------
Income (loss) from continuing
operations ..................... 504,640 1,050,315
Discontinued operations ......... -- --
Cumulative effect of a change in
accounting principle ............ -- --
------------ ------------
Net income (loss) ............... $ 504,640 $ 1,050,315
============ ============
Per Share Data:
Income (loss) from continuing
operations ..................... $ .14 $ .29
Income from discontinued
operations .....................
Income from accounting
changes ........................ -- --
Weighted average number of
shares outstanding ............ 3,686,040 3,668,540
</TABLE>
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
1992 1993 1994 1995 1996 March 31, 1997
----------- ------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital ............... $ 579,000 $ 661,000 $ 1,171,764 $ 1,769,589 $ 3,342,545 $ 4,217,120
Total assets .................. 8,380,000 16,067,000 18,867,758 18,471,659 32,102,557 24,543,969
Short term debt ............... 2,665,000 7,677,000 6,469,072 10,797,111 12,510,017 6,907,940
Long term debt .................. -- -- -- -- 67,291 85,156
Stockholders' equity ............ 920,000 1,041,000 2,412,564 2,355,884 3,998,587 5,048,992
</TABLE>
- ------------
(1) Includes sales of the Company's former subsidiary, Romel Technology, Inc.
(d/b/a MSG) of $19,876,500, $29,272,300 and $4,127,768 for the three years
ended September 30, 1994, respectively, which was sold in November 1993.
The profit/loss from this subsidiary during these periods were de minimis.
After adjusting for these sales figures, the Company's revenues were
$20,478,500, $21,812,700 and $41,331,807 for the three years ended
September 30, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 11 to Consolidated Financial
Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis is intended to assist the reader in
understanding and assessing the significant changes and trends relating to the
results of operations and financial condition of SysComm and its subsidiaries.
This discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and Notes.
The Company is a systems integrator and a reseller of a broad range of
computers and related products. The Company offers integrated technological
expertise to serve its customers' automation and communication needs.
The Company has experienced significant growth over the past three years
with sales increasing approximately 21% from $45,459,575 in the fiscal year
ended September 30, 1994 to $55,195,507 in the fiscal year ended September 30,
1995 and 78% from $55,195,507 in the fiscal year ended September 30, 1995 to
$98,446,698 in the fiscal year ended September 30, 1996. The Company operates
in a highly competitive industry which in turn places constant pressures on
maintaining gross profit margins. Many of the Company's sales are high volume
equipment sales which produce lower than average gross profit margins, but are
often accompanied by a service arrangement, which yields higher than average
gross profit margins.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------ ---------------------
(unaudited)
1994 1995 1996 1996 1997
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ..................... (89.7) (89.6) (90.4) (89.8) (86.5)
Gross profit ..................... 10.3 10.4 9.6 10.2 13.5
Selling and administrative
expenses ........................ (7.5) (7.4) (5.1) (6.3) (7.6)
Income from operations ............ 2.8 3.0 4.5 3.9 5.9
Interest expense (net) ............ (1.6) (2.1) (1.4) (1.6) (1.3)
Realized loss on available-for-sale
securities ........................ -- -- (1.4) -- --
Income from continuing operations
before income taxes ............... 1.2 .9 1.7 2.3 4.6
Income taxes ..................... (.5) (.4) (.7) (1.0) (2.0)
Income from continuing operations .7 .5 1.0 1.3 2.6
Discontinued operations income
from sale of subsidiary ......... 3.3 -- -- -- --
Net income ........................ 4.0 .5 1.0 1.3 2.6
</TABLE>
Six Months Ended March 31, 1997 Compared to Six Months Ended March 31, 1996
Sales for the six months ended March 31, 1997 increased 3% or $1,116,052
to $39,158,875 from $38,042,823 for the six months ended March 31, 1996. This
increase in sales was primarily attributable to an increase in demand for IBM's
mid-range RS/6000 computer systems. At March 31, 1997, the Company had a
backlog of approximately $4,000,000 which would have been shipped had product
been available. In addition, the Company's concentration and dependence on any
one customer diminished during the six months ended March 31, 1997 when no one
customer accounted for more than 10% of the Company's sales as compared to the
six months ended March 31, 1996 when two customers accounted for 26% and 13% of
the Company's sales. Also the Company had a major rollout for one of its
customers postponed from the second quarter to the third and fourth quarters of
the current fiscal year.
18
<PAGE>
Gross profit as a percentage of sales increased to 13.5% for the six
months ended March 31, 1997 as compared to 10.2% for the six months ended March
31, 1996. This increase is due in part to the Company taking lower volume but
higher margin business. Generally, the Company generates a higher gross profit
percentage on customer orders aggregating less than $1 million, and conversely,
a lower profit percentage on customer orders aggregating greater than $1
million, regardless of product mix. In addition, the Company increased the
revenue it generated from its service business, which is generally higher
margin business. During the six months ended March 31, 1996, the Company sold
two RISC Symmetrical Processors which accounted for approximately $6,000,000 in
sales. This type of sale is typically low margin business and tends to pull
down the overall gross profit percentage.
Selling and administrative expenses increased by 24% or $574,422 to
$2,957,149 in the six months ended March 31, 1997 from $2,382,727 for the six
months ended March 31, 1996. Included in the increase of $574,422 were
increases of approximately $290,000 in commissions, payroll and payroll related
expenses and an increase of approximately $100,000 in the Company's bad debt
expense.
Interest expense for the six months ended March 31, 1997 decreased 13% to
$552,143 from $633,716 for the six months ended March 31, 1996. This decrease
was primarily the result of credits received from IBM Credit Corporation
relating to various leases for which the Company's payment had been delayed. In
addition, the Company believes that its constant monitoring of accounts
receivable has helped to keep interest costs at a minimum. The Company uses all
available funds to reduce its outstanding loan balance on a daily basis.
Income from continuing operations before income taxes increased by 108% to
$1,817,115 for the six months ended March 31, 1997 from $875,640 for the six
months ended March 31, 1996. This increase resulted from the significant
increase in gross profit.
The Company's effective tax rate is 42.2% for the six months ended March
31, 1997 and 42.4% for the six months ended March 31, 1996.
The Company's net income for the six months ended March 31, 1997 increased
to $1,050,315 from $504,640 for the six months ended March 31, 1996 resulting
from all the factors described above.
Fiscal Year 1996 Compared to Fiscal Year 1995
Sales for fiscal 1996 increased 78% or $43,251,191 to $98,446,698 from
$55,195,507 in fiscal year 1995. This increase in sales was primarily due to
the increase in sales in IBM's mid-range RS/6000 computer systems. The Company
also participated in major rollouts for a number of financial institutions
which produced substantial sales. In addition, two of the Company's customers
accounted for 16% and 19%, of those fiscal year 1996 sales. During fiscal year
1996, the Company also increased the amount of service and service related
billings from the prior year.
Gross profit as a percentage of sales slightly decreased in fiscal year
1996 from fiscal year 1995. This decrease was the result of pricing
competition, major customer rollouts which typically produce lower gross profit
margins, vendor pricing, and rebate policies. A reduction of cost of goods sold
resulted from rebates and other favorable pricing from many vendors. These
rebates, if cancelled or lowered, will have an effect on gross profit
percentages and profitability.
Selling and administrative expenses increased by 23% or $949,628 to
$5,028,812 in fiscal year 1996 from $4,079,184 in fiscal year 1995. Included in
the increase of $949,628 were increases in commission expense of $456,587,
which was a direct result of the significant increase in sales during fiscal
year 1996. In addition, payroll expenses increased by approximately $350,000
due to additional personnel, payroll increases and management incentives of
approximately $100,000, which were paid based on the profitability of the
Company.
Interest expense for fiscal year 1996 increased 15% to $1,391,452 from
$1,211,727 in fiscal year 1995, due to an increase in borrowings necessary to
fund the Company's continuing sales growth. The Company believes that its
constant monitoring of accounts receivable has helped to keep interest costs at
a minimum. In addition, the Company uses all available funds to reduce its
outstanding loan balance on a daily basis. Net interest expense (interest
expenses less interest income) for fiscal year 1996 and 1995 was $1,390,867 and
$1,207,316, respectively.
19
<PAGE>
As of September 30, 1996, the Company determined that the decline in value
of its available-for-sale securities was other-than-temporary and recorded a
realized loss on these securities. The effect of this was to reduce income from
continuing operations, income taxes and net income by $1,406,250, $562,500 and
$843,750, respectively, for the year ended September 30, 1996.
Income from continuing operations before income taxes increased by 229% to
$1,658,589 in fiscal year 1996 from $504,589 in fiscal year 1995. This increase
resulted from a significant increase in sales during 1996.
The Company's effective tax rate was 44.4% for fiscal year 1996 and 44.3%
for fiscal year 1995.
The Company's net income for fiscal year 1996 increased to $922,703 from
$280,820 in fiscal year 1995 resulting from all the factors described above.
Fiscal Year 1995 Compared to Fiscal Year 1994
Sales for fiscal year 1995 increased 21% or $9,735,932 to $55,195,507 from
$45,459,575 in fiscal year 1994. This increase in sales was due to the fact
that the Company began selling IBM's RS/6000 mid-range computers during fiscal
year 1995.
Gross profit as a percentage of sales increased slightly over the
preceding year, resulting from the Company's effort to increase its service and
service related sales.
Selling and administrative expenses increased by 20% or $672,868 to
$4,079,184 in fiscal year 1995 from $3,406,316 in fiscal year 1994 due to
increases in payroll and payroll related expenses, the Company's move to a new
location in Waltham Massachusetts, the opening of a new office in Princeton,
New Jersey and the first full year of operations in the Company's New York City
office.
Interest expense for fiscal year 1995 increased 67% to $1,211,727 from
$726,367 in fiscal year 1994 resulting from inventory increases during the year
which were necessary due to the Company's increased sales level. Net interest
expense (interest expense less interest income) for fiscal year 1995 and 1994
was $1,207,316 and $713,778, respectively. Also, due to sporadic collateral
shortfalls, the Company was paying interest on the shortfall amounts at the
rate of 6.5% over the prime rate.
Income from continuing operations before income tax decreased $78,907 or
13% primarily due to the reasons described above.
The Company's effective tax rate was 44.3% for fiscal year 1995 and 41.7%
for fiscal year 1994.
Income from discontinued operations was $1,485,698 for fiscal year 1994.
Effective November 30, 1993, the Company exchanged 100% of the shares of a
subsidiary (Romel Technology, Inc. (d/b/a MSG)) for 300,000 shares of
Ameriquest Technologies, Inc., formerly known as CMS Enhancements, Inc. Such
transaction qualified as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended. The Company realized a gain as a
result of this transaction of $1,485,698, which is net of deferred taxes of
$641,000.
Net income for fiscal year 1995 was significantly below fiscal year 1994
due to the gain resulting from the sale of a subsidiary discussed above as well
as the other items mentioned above.
Liquidity and Capital Resources
The Company's current ratios at March 31, 1997 and 1996 were 1.22 and
1.10, respectively. Working capital at March 31, 1997 was $4,217,120, an
increase of $2,014,292 over the prior period. This increase was primarily due
to the Company's earnings.
Cash provided by operating activities was $5,338,600 for the six months
ended March 31, 1997. Cash used by operating activities was $7,966,923 for the
six months ended March 31, 1996. Cash used in investing activities was $213,716
and $58,371 for the six months ended March 31, 1997 and 1996, respectively, and
was used to finance capital expenditures including computer equipment,
leasehold improvements, furniture and fixtures and automobiles. Cash used by
financing activities included $5,633,337 for the six months ended March 31,
1997 and included net payments under the Financing Agreement and cash provided
by financing activities was $8,308,067 for the six months ended March 31, 1996
and included net proceeds under the Financing Agreement.
Since 1992, the Company has had a series of credit arrangements with IBM
Credit Corporation. Pursuant to the Financing Agreement, the Company may borrow
up to 85% of its eligible receivables and 100% of eligible inventory, to a
maximum of $27,500,000. In addition to the permanent credit line, there are
various credit
20
<PAGE>
line uplifts during the year which can increase the line of credit by as much
as 50%. As of March 31, 1997 and 1996, interest on outstanding borrowings was
prime plus 1.375% and 1.625%, respectively, or prime plus 6.5%, should the
Company fail to meet certain collateral requirements. As of March 31, 1997 and
1996, borrowings outstanding under this facility were $6,867,271 and
$10,999,060, respectively. Additionally, $10,082,368 and $9,624,695 were
included in accounts payable at March 31, 1997 and 1996, respectively, and are
included against the maximum credit available.
The Company believes that its present line of credit with IBM Credit
coupled with its current earning capacity and the proceeds of this Offering
will be sufficient to meet its capital and operational requirements for at
least the next twelve months, including but not limited to establishing a new
headquarters, distribution and assembly facility and inventory and accounts
receivable financing. Through the first six months of fiscal 1997, the Company
has been in a positive collateral position with IBM Credit and has had the
ability to draw down against its current line of credit whenever needed.
Although the last three quarters have not shown progressive increases in sales,
net income for the six months ended March 31, 1997 increased 108% over the same
period last year. The Company's sales volume has caused an increase in
borrowings from IBM Credit and thus the Company has become highly leveraged.
Additionally, accounts receivable has fluctuated as a function of sales. The
number of days sales outstanding has been reduced to approximately 70 as of
March 31, 1997 from a high of approximately 92 as of March 31, 1995. The
Company is increasing its personnel resources in accounts receivable as well as
utilizing its existing sales force in its collection effort in order to
generate additional cash flow. As of March 31, 1997, the Company has
approximately $10,500,000 of unused borrowings which based upon inventory and
accounts receivable availability may be utilized. This amount will increase to
approximately $16,000,000 after the Offering is completed.
The Internal Revenue Service commenced an audit of the Company's Federal
Income Tax return for the fiscal year ended September 30, 1995. In addition,
New York State commenced a sales tax audit for the period June 1, 1994 to
February 28, 1997. Management believes that both these audits are within the
ordinary course of business and will not have a material adverse effect on the
Company.
Seasonality and Quarterly Fluctuations
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its net sales, earnings from operations
and net earnings. As the Company continues to increase its percentage of sales
from business, education and government markets, management believes that the
Company's quarterly net sales will be less impacted by seasonality. The revenue
for the quarter ended June 30, 1996 reflected an unusually large sale
(approximately $10 million) of a major system to a financial institution.
Disregarding that sale, the Company's upward revenue trend would have continued
through the quarter ended September 30, 1996. Sales declined during the first
quarter of fiscal year 1997 (the quarter beginning October, 1996) due to the
postponement by one of the Company's customers of the purchase of computer
equipment associated with the completion of that customer's project. The
Company's sales in the second quarter declined from the prior quarter due to
the postponement of orders by several customers in anticipation of IBM's
announcement of "upgrades/refreshers" of certain products which the Company
would otherwise have sold then in that quarter. The following table sets forth
certain quarterly information for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year 1995
-----------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30,
1994 1995 1995 1995
---------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Net sales .................. $10,135 $13,723 $15,840 $15,497
Gross profit ............... 1,333 1,059 1,376 1,986
Income (loss) from continu-
ing operations before
income taxes ............ 198 (306) 73 539
Net income (loss) (1) ...... 116 (223) 73 315
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
----------------------------------------------- ---------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1995 1996 1996 1996 1996 1997
---------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales .................. $14,556 $23,487 $33,644 $ 26,760 $21,283 $17,876
Gross profit ............... 1,490 2,393 2,497 3,041 2,640 2,629
Income (loss) from continu-
ing operations before
income taxes ............ 198 678 1,022 (239) 962 855
Net income (loss) (1) ...... 114 390 547 (128) 560 490
</TABLE>
- ------------
(1) Taxes are computed based on effective tax rates for the respective fiscal
years.
Recent Pronouncement of the Financial Accounting Standards Board
A recent pronouncement of the Financial Accounting Standards Board
("FASB"), which is not required to be adopted at this date, is Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," issued
in February 1997. This statement establishes standards for computing and
presenting earnings per share and is effective for periods ending after
December 15, 1997. This standard requires the Company to present basic earnings
per share and diluted earnings per share. The impact of adopting this standard
has not yet been determined.
21
<PAGE>
BUSINESS
General
SysComm International Corporation ("SysComm" or the "Company"), through
its wholly owned subsidiary, Information Technology Services, Inc.
("InfoTech"), is a leading systems integrator and reseller of computer
hardware, operating software and networking applications to Fortune 1000
companies. The Company provides its customers with cost efficient,
comprehensive solutions that satisfy their information technology requirements.
Since 1985 the Company's primary focus has been on the sale, integration and
servicing of International Business Machine Corporation ("IBM") products
including personal computers, mid-range systems based on the IBM RS/6000,
servers, and the IBM AS/400. In addition, the Company integrates, resells and
services products from manufacturers such as Hewlett Packard, Compaq, Apple,
Microsoft, 3Com, Bay Networks and Novell.
In March 1997, the Company commenced the assembly and sale of IBM PCs
through the "AAP" providing the Company with greater flexibility in meeting its
customers' needs. The Company believes that this relationship with IBM will
provide it with the opportunity to enhance its responsiveness to client
specific requests and orders, and improve its operating efficiencies.
A significant percentage of the Company's revenues are derived from sales
to customers in the financial and investment communities. However, the
Company's customer base also includes mid-size retailers, manufacturers,
distributors, colleges, universities and state and local government agencies in
the Northeastern United States. The Company's customers include:
<TABLE>
<S> <C> <C>
Astra Pharmaceutical CPC International Merrill Lynch
Boston College Deutsche Bank Northeastern University
Boston Financial Group Fidelity Investments Oxford Healthcare
Brown Brothers Harriman The Gillette Company Pepsico
Cadbury-Motts GTE Services Corp. The Pershing Division of
Carrier Corporation Harvard University Donaldson Lufkin & Jenrette
The Chase Manhattan Bank Healthsource Smith Barney
Citibank International Business The Stop & Shop Companies
The City University of Machines Corporation
New York J.P. Morgan
</TABLE>
The Company intends to pursue new business by focusing on the sale and
integration of high-end systems in financial, commercial, governmental,
healthcare and educational areas. To this end, the Company has the following
growth strategies: (i) targeting vertical markets, (ii) offering a complete
line of IBM products, including IBM mainframe systems, (iii) expanding its role
as an IBM Premier Business Partner, (iv) enhancing competitiveness through the
AAP, and (v) expanding into other geographic regions through selected
acquisitions and strategic alliances.
The Company currently has five operating locations. From its Hauppauge,
New York headquarters it operates a distribution center, a computer
configuration, integration and PC assembly facility and its technical support
services. The Company conducts its sales operations from offices located in
Hauppauge, New York City, Waltham, Massachusetts, Marlton, New Jersey, and
North Haven, Connecticut.
Strategy
The Company strives to offer its customers high quality computer and
networking system hardware (particularly IBM products), related operating
system software and network design, system installation and testing in a
timely, cost-effective and value-added manner. The Company believes that the
following factors are significant elements to the successful implementation of
this strategy:
Targeting Vertical Markets
The Company has a ten year track record as a market leader in the
installation and integration of high-level information systems to the banking
and financial services communities. In addition, the Company focuses
22
<PAGE>
on other selected, major vertical markets, including retailers, manufacturers
and distributors, institutions of higher learning, health care and
pharmaceutical companies, and state and local government agencies. The
Company's in-depth understanding of its customers current and future needs
combined with its experience and in-depth market focus enable it to offer an
optimum range of products and services that meet each customer's requirements.
Offering a Complete Line of IBM Products
The Company has chosen to represent IBM products because it believes that
IBM is the world's premier designer and manufacturer of computer equipment,
software and networking products. The wide range of products and services
offered by the Company, include personal computers (desktop workstations, file
servers and notebook computers), mid-range computers (RS/6000 and AS/400
systems), networking products (network hubs, routers, bridges and switches) and
IBM software products, including OS/2, Netfinity, Eduquest and Lotus Notes. The
Company also offers warranty repair, systems support and customized training
programs. In order to offer its customers a full line of IBM products, the
Company is planning on becoming a value-added reseller of IBM S/390 mainframe
systems. The Company believes that its current mix of IBM products meets the
needs of its customers and brings the Company closer to reaching its goal of
becoming a total solution integrator of the complete IBM product line.
Expanding the Company's Role as an IBM Premier Business Partner
The Company's designation as an IBM Premier Business Partner provides it
with important competitive advantages. In 1997, the Company was among a small
number of original value-added resellers selected by IBM as a Premier Business
Partner. This designation by IBM was in recognition of the Company's
long-standing relationship with IBM, combined with its overall value,
performance and contribution in value to its customers. The Company believes
that the principal advantage to being a Premier Business Partner is the
potential referral of business by the IBM sales force.
Enhancing Competitiveness Through the IBM AAP
Within the past twelve months, the PC industry has experienced a
fundamental change as major PC suppliers, led by IBM, have begun shifting
responsibility for the final assembly and delivery of PC products to a select
number of companies, including the Company. The AAP will allow the Company to
sell IBM PCs configured to the exact customer hardware and software
specifications in a more timely and efficient manner. In addition to permitting
the Company to offer greater product selection, the Company believes AAP will
afford it future opportunities and competitive advantages, including the
potential to increase gross margins on build-to-
order systems, and the ability to act as an assembler and distributor to other
resellers. The Company is also planning on becoming an assembler of the RS/6000
product line.
Expanding Into Other Geographic Regions Through Acquisition and Strategic
Alliance
The Company's participation in the AAP will make it an attractive acquirer
and/or joint venture partner to companies that do not possess the expertise or
resources to attain this status. The Company believes that the systems
integration business which targets Fortune 1000 companies is both extremely
competitive and based on existing relationships.
The Company believes that the expansion of its business into growing
markets and varied geographic regions, including the possibility of
acquisitions of qualified systems integrators and resellers, will allow it to
service existing customers in these new locations, expand its customer base,
expand its product and service offerings, and obtain more competitive pricing
as a result of increased purchasing volumes of particular products. The Company
intends to focus its expansion efforts on value-added resellers that complement
its existing operations. In particular, the Company believes that IBM resellers
who do not participate in the AAP will be at a competitive disadvantage to the
Company and other AAP participants. Accordingly, the Company believes that
certain of these companies will find that an acquisition by, or a joint venture
with, the Company to be an attractive alternative.
23
<PAGE>
Industry Background
Complex computer information processing systems, the foundation on which
business and organizations now function, are continuously being redesigned,
modified and upgraded as new computer and telecommunications technologies are
introduced. Until the mid-1980's, either mid-range or mainframe computer
systems, were used to manage an organization's mission-critical,
transaction-oriented commerce and business functions, such as banking, credit
transactions, retail point-of-sale transactions and airline reservations.
Client/server networks, otherwise known as "hub and spoke" networks, supported
access to these functions, either within a single site or from numerous
geographically-dispersed sites.
In the late 1980's, a new architecture for information processing called
"client/server" computing emerged, fueled by the growing intelligence in
desktop computers, expanding capabilities of software applications and growing
capabilities of networks. A client/server system typically consists of multiple
intelligent desktop client computers linked with high performance server
computers by a local and/or wide area network ("LAN" and/or "WAN") and is
characterized by the flexibility and mobility of both application and user. In
order to take advantage of their established operational staff and physical
plant, many corporations are seeking to reconfigure their existing
mainframe/mid-range computers (sometimes referred to as "legacy" systems) to
operate in parallel with client/server networks.
The Company believes that these two information system models - legacy
systems and client/server systems - will continue to coexist, each with
advantages for certain applications. Thus, organizations are faced with complex
decisions concerning the current and future configurations of their information
systems, based upon factors such as the re-engineering of aspects of legacy
systems to function more efficiently with related client/server systems, the
explosive growth of the Internet (and related World Wide Web) and stand-alone
intranets, the convergence of computer and telecommunications technologies and
the universal recognition of information systems as the medium for commerce,
finance, education and administration. Mid-range and mainframe computer systems
remain important in this changing environment, and the Company intends to
exploit opportunities in both segments of the high end computer system markets.
At the same time, manufacturers such as IBM are increasing their reliance upon
companies such as SysComm to work with mid- and large-sized businesses and
organizations to provide single-source responsibility for the design,
procurement, installation and implementation of such systems.
24
<PAGE>
Principal Markets and Customers
Since 1994, the Company has sold and delivered computer systems, network
products, software, maintenance and system support services to more than 700
customers throughout the United States and in more than 20 countries worldwide.
Based on its installed customer base, the Company believes it is a leading IBM
supplier/systems integrator of mid-range and computer/network systems in the
northeast United States. In fiscal year 1994, sales to The Chase Manhattan Bank
accounted for 22% of the Company's total revenues; revenues from sales to The
Chase Manhattan Bank and Deutsche Bank accounted for 23% and 14%, respectively,
of the Company's total revenues in fiscal year 1995; and revenues from sales to
Deutsche Bank and Citibank accounted for 19% and 16%, respectively, of the
Company's total revenues in fiscal year 1996. In fiscal year 1996, the
Company's top five customers (two of which were new customers) accounted for
50% of total revenues.
The Company's significant markets, some of its representative customers
and some of the applications to which the customers adapted the Company's
systems are described below.
<TABLE>
<CAPTION>
Market Organizations Applications
- ------------------------- ------------------------------------ -------------------------------------
<S> <C> <C>
Banking Bankers Trust; Citibank; The Chase Credit Card Processing; Retail
Manhattan Bank Banking; Research; Customer Ser-
vice; Account Inquiry; Data Mining
Brokerage Deutsche Bank; J.P. Morgan; Mer- Electronic Mail; Foreign Exchange;
rill Lynch; Smith Barney; Spear, Securities Trading; Currency Trad-
Leeds & Kellogg; Brown Brothers ing; Client-Server Computing; Ana-
Harriman; Fidelity Investments lytics
Pharmaceutical/ Astra; Healthsource; Private Office Automation; Order Entry;
Healthcare Healthcare Systems; Oxford Bill Payments; Invoicing; Account
Healthcare History; Healthcare Electronic Mail
Education Boston College; Harvard Univer- Student Registration; Office Auto-
sity; Lawrence Public Schools; mation; Electronic Mail; Primary
MIT; Northeastern University; City Education; Teaching Aid; School
University of New York Administration; Student Schedul-
ing; Grades Administration, Report-
ing, Research
Governmental State and local government agen- Office Automation; Reporting;
cies throughout the Northeastern Printing Systems
United States
Industrial and Consumer Cadbury-Motts; Carrier Corpora- Office Automation; Order Process-
tion; The Stop & Shop Companies; ing; Electronic Mail; Invoicing;
CPC International; Pepsico; Barnes Client-Server Computing
& Noble
</TABLE>
25
<PAGE>
Banking. The Company was engaged by a large international bank to
configure, install and provide operating and network support for a 98 node
RS/6000 Power Parallel System 2 for data mining and market evaluations for
credit card products. Examples of data mining include profiling prospective
credit card customers and usage, spending patterns, credit risks, new credit
card product offerings, credit card marketing and promotion.
Brokerage. The Company provided RS/6000 workstations, servers and Power
Parallel System 2 systems to the investment banking and finance operations
departments of a large investment bank to assist in the international trading
of loans in the United States, Asia and Latin America.
Pharmaceutical/Healthcare Industry. The Company has been an ongoing
supplier of IBM PC's and related hardware to several divisions of a
pharmaceutical company. In connection with the sales of the computer systems,
the Company provided the pharmaceutical company with a long-term on-site
support technician. The Company has assisted the pharmaceutical company in
establishing its computer system to operate salesforce automation and FDA
application programs based on Windows NT and the Pentium Pro server.
Education. One of the public school systems in the Massachusetts area has
implemented a technology plan to incorporate computers in the teaching
environment. The plan, which covers 22 schools, includes the installation of a
LAN comprised of IBM servers and running the IBM Schoolview(TM) software, and a
WAN, running a large Lotus Notes network, utilizing attendance, discussion, and
mail databases. Each LAN server connects each classroom, containing 4 student
and 1 teacher workstations. Systemwide, the Company supplied the schools with
2,000 PCs and 40 servers. The Company believes that working closely with school
systems affords it the opportunity to increase the utilization of technology in
the classroom.
Industrial and Consumer. The Company completed the installation and
integration of a networking system linking 180 stores of a major retail chain.
To accomplish this task, the Company custom configured each RS/6000 and PC
systems with specific store information, allowing the systems to "plug & play"
immediately upon their arrival at each store location. The Company worked
closely with IBM to coordinate delivery of all hardware in a timely and orderly
manner, resulting in the successful installation of the systems within a two
month time-frame.
26
<PAGE>
Products/IBM Relationship
The Company has access to a full range of computer product lines,
networking and interconnectivity systems and operating software, from IBM,
Hewlett Packard and Compaq, as well as other selected manufacturers. However,
the Company has concentrated its efforts in developing strong relationships
with IBM because it believes that IBM offers the most comprehensive and well
established product line in the industry. The Company has had a long term
relationship with IBM whereby it has the opportunity to configure, sell and
service IBM's full line of PCs and mid-range information processing systems. In
addition, as a member of several IBM advisory committees, the Company maintains
close communications with IBM's future plans and directions. The Company
believes its strong marketing and technical skills have enabled it to become
North America's largest reseller of IBM's RS/6000 product line, and the Company
believes it will continue to have a close business relationship with IBM. The
Company's principal sales are derived from the following: (i) IBM PC systems;
(ii) IBM RS/6000 systems; (iii) IBM AS/400 systems; and (iv) communication and
networking systems.
IBM PC Product Line and Participation in IBM's PC Company Authorized Assembler
Program
IBM is one of the world's leading designers and manufacturers of personal
computer systems. IBM's personal computer product line includes mobile
(notebook) and desktop workstations as well as file, application and network
servers. In 1996, according to industry estimates, IBM produced and sold more
than $13 billion of PC products worldwide. Accordingly, in 1996, IBM had
approximately a 9% marketshare of the worldwide personal computer market.
IBM PC systems feature Pentium(TM) processors from Intel and are available
with a choice of operating software, including SelectaSystem, which allows
end-users' systems to store both IBM OS/2 Warp and Microsoft DOS/Windows on the
same hardware, or Microsoft(R) Windows 95(TM). For the last five years, due to
the amount of sales volume for IBM products generated by the Company, IBM has
enabled the Company to purchase products directly from IBM for resale at the
lowest prices available. There can be no assurances that the Company will be
able to continue to purchase at these prices, and loss of this competitive
pricing could have a material adverse affect on the Company's business and
results of operations.
In fiscal year 1996, the Company's sales of IBM PC products were
approximately $30 million, or 30.5%, of the Company's annual sales.
In March 1997, the Company commenced participation in the AAP at its
Hauppauge, New York location. By combining the assembly of PCs with its proven
systems integration abilities, the Company believes that it will provide its
clients with speed of delivery and flexibility of design at both the PC and
systems levels. The Company also believes that the establishment and operation
of its IBM PC assembly facility will greatly enhance the Company's position in
the marketplace, enabling it to assemble various IBM personal computer systems,
which in effect permits it to better serve its customers as well as reduce
finished goods inventory levels.
The continued operation of this assembly facility is dependent upon the
Company complying with the terms of the AAP Agreement, including satisfying
certain minimum purchase requirements, compliance with strict quality control
provisions and maintaining trained and certified personnel. The AAP Agreement
is terminable by either IBM or the Company upon 30 days' prior notice and
immediately terminable by IBM in the event that IBM determines, in its sole
discretion, that (i) the assembled products fail to meet required
specifications (whether or not the Company is at fault), (ii) the Company
materially breaches the terms and/or conditions of the AAP Agreement, (iii) the
Company engages in a course of conduct that has injured IBM's reputation or the
reputation of its products, or (iv) the Company's status with IBM as a Business
Partner is terminated for any reason, expires or if the Company is no longer
eligible to purchase IBM personal computer products directly from IBM. In
addition, the Company is required to maintain ISO 9002 registration standards,
the registered international standard for ensuring the consistent and
measurable quality of products and services. Subject to the terms of the AAP
Agreement, IBM is permitted to periodically review the Company's performance in
order to monitor and assess continued compliance. The AAP Agreement expires on
December 31, 1997. The Company intends to renew it.
By being part of the AAP, the Company believes it may increase its
inventory turnover rate, expand the range of products available to its
customers and improve delivery time to its customers. In addition, the Company
will maintain an inventory of component parts, rather than an inventory of
fully-configured PC models.
27
<PAGE>
IBM RISC System/6000
The IBM RISC System/6000 is a mid-range computer workstation and server
configuration providing industry-leading computing and graphic performance that
meets large-scale, data handling and network management demands for many types
of businesses. RS/6000 systems perform mission critical applications, such as
those found in financial trading systems, from the combination of a robust UNIX
operating system with fast 2D and 3D graphic capabilities. The RS/6000 is a
flexible and scalable system incorporating (1) symmetric multiprocessing
capabilities, a design that makes it possible for a number of processors to
share memory and other existing features more efficiently; (2) scalable
parallel processing, a technology that allows several hundred processor nodes
to run in tandem as application servers, data servers, Internet or Intranet
servers; and (3) a multi-operating system support, allowing a user to run
existing programs simultaneously.
RS/6000 systems have been used for general business and financial
applications, including billing, payroll and accounts receivable, as well as
for advanced graphics programs for mechanical and electrical design, scientific
visualization, communications and networking applications for optimum
client/server and Internet performance, and word processing and desktop
publishing applications for both scientific and commercial documents. These
applications are particularly useful for the securities, manufacturing, retail,
education and transportation industries.
As Internet and Intranet-based transactions grow, RS/6000 systems'
networking capabilities, including security and integrity features, are
becoming increasingly important.
IBM has recognized the Company (ranked by dollar value of systems sold) as
its largest "Industry Remarketer" for RS/6000 systems in North America for the
year ending December 31, 1996, with sales of the RS/6000 for fiscal year 1996
of approximately $59 million, or 59%, of the Company's annual sales. The
Company considers RS/6000 systems to be an integral product for future
increases in the Company's sales volume.
All Other Products
IBM AS/400 Product Line. Although the IBM Application System/400 (also
known as AS/400) has not been a major source of revenue to the Company, the
Company is attempting to increase its revenue in this market. The AS/400 is
designed and built as a multi-user commercial application platform integrating
a relational database and networking capabilities into the operating system of
the computer. It is designed as a general purpose business computer, optimized
for the commercial environment. Its design reflects the dominant requirements
for businesses, i.e., integration of new technology without disrupting existing
applications, large portfolio of business solutions allowing companies to
discover the most suitable application for their needs, integration of
functions including security, database, system management, communications and
on-line teleprocessing, enabling companies to manage a system with limited
resources in a demanding business climate.
The AS/400 provides businesses with a cost effective solution, allowing
them to adopt advanced technologies at their own pace, integrating high quality
PC technology and associated software to enhance the computer's speed for PC
file serving. The AS/400 is a popular business computing system due to its ease
of installation, implementation, usage (it can support up to 7,000 users) and
ability to upgrade.
Communication -- Networking Systems. The Company provides various
communications and networking products including complex data communications
equipment and software such as bridges, hubs and routers, as well as modems and
network interface cards (NIC) to connect personal computers to local and wide
area networks (LAN/WAN). Nearly every computer sold today in the commercial
marketplace is connected to a communications network.
Other. The Company is authorized to sell other manufacturers' personal
computer systems, networking, printers and software products including: Bay
Networks, Compaq, Lexmark, Hewlett Packard, Apple, MicroSoft, Novell, and 3Com.
Certain of the Company's agreements with such suppliers provide for minimum
annual purchase requirements. Although the Company, to date, has complied with
these agreements, there is no assurance that the Company will continue to meet
such minimum purchase requirements or other terms of such agreements. To the
extent that it does not comply with such terms, the Company may lose its status
as an authorized reseller for such suppliers. For fiscal year 1996, the
Company's sales of non-IBM products accounted for approximately $9 million, or
9%, of total revenue.
28
<PAGE>
Sales and Marketing
The Company has a broad customer base of primarily Fortune 1000 companies.
The Company's sales and marketing efforts are focused on high level decision
making executives, whose purchasing decisions are based on factors such as the
overall cost of purchasing and maintaining a system and the Company's
reputation and expertise in delivering and installing effective total
information technology solutions, which initially may not be the least
expensive. The Company relies on its marketing and sales programs, its
industry-wide expertise, its relationship with existing customers and its
status as an IBM Premier Business Partner to generate sales opportunities.
The Company currently has sales offices in five locations: New York City
and Hauppauge, New York, Waltham, Massachusetts, Marlton, New Jersey and North
Haven, Connecticut. Currently, the Company employs 28 field sales
representatives and system engineers. The sales efforts are led by the
Company's senior executives, John H. Spielberger, Thomas Baehr and Norman
Gaffney, who have more than 69 years of combined experience in sales of
high-level computer systems. The Company believes that due to the complex
nature of the computer products it sells and supports, maximum marketing
effectiveness can only be achieved by sales specialization. Each sales
representative is trained in one specific product line and representatives of
one product line can call upon specialized sales and systems engineering
personnel from another product line.
The Company pursues new business opportunities by referrals from IBM or
other manufacturers, referrals from existing customers, direct solicitation by
telephone or mail of prequalified customers, and participation in IBM and other
industry trade shows.
The Company has developed and maintained automated sales tools intended to
improve sales productivity, quality and reliability and increased customer
satisfaction. These systems include on-line systems configuration and pricing,
real time order entry, order confirmation and electronic mail for customers
through privately leased telephone lines and through the Internet.
Customer Support and Service
The Company believes that its ability to provide effective total solutions
to meet the needs of its customers is enhanced by its internal management
information system, which combines accounting, purchasing, inventory control,
sales order processing and work order management. The Company provides a large
array of services to its customers, including warranty repair on all IBM
personal computer products; toll-free telephone number for sales and product
information and order placement; toll-free telephone number for customer
service on all products sold, including technical assistance and repair
warranty; E-mail network access for customers to receive real time price
quotations, place orders and check order status; on-site system engineers to
provide technical assistance for installations and upgrades; partnership with
IBM to provide customized services such as helpdesk, consulting, extended
warranty, extended maintenance coverage; and IBM Credit Corporation financing
options on all products sold.
Competition
The markets in which the Company operates are characterized by intense
competition from several types of network integrators and technical service
providers, including mainframe and mid-range computer manufacturers and
outsourcers, including, among others, Digital Equipment Corporation, Sun
Microsystems, Electronic Data Systems Corporation, Hewlett-Packard Company and
Integrated Systems Solution Corporation. Other competitors which purchase
directly from IBM, like the Company, include value added resellers, systems
integrators and third-party service companies, including AmeriData
Technologies, Inc., CompuCom Systems, Inc., Entex Information Services, InaCom
Corp., MicroAge, Inc. and Vanstar. While the Company receives substantial sales
and marketing assistance from IBM, including introductions and referrals to
potential customers, the Company, from time to time, faces direct competition
from IBM with respect to large contracts. The Company expects to face further
competition from new market entrants and possible alliances between competitors
in the future. Certain of the Company's current and potential competitors have
greater financial, technical, marketing and other resources than the Company.
As a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sales of their services than the
Company. No assurance can be given that the Company will be able to compete
successfully against current and future competitors.
29
<PAGE>
The Company's ability to compete successfully depends on a number of
factors such as breadth of product and service offerings, sales and marketing
efforts, pricing, quality and reliability of services and other support
capabilities. While there can be no assurance that the Company will be able to
continue to compete successfully with existing or new competition, the Company
believes that it currently competes favorably due to its focus and expertise of
network integration and its concentration on sales of IBM product lines.
Employees
As of March 31, 1997, the Company had 59 full-time employees. The Company
has no collective bargaining agreements and believes its relations with its
employees are good.
Description of Property
The Company leases 11,200 square feet of executive office and warehouse
space in Hauppauge, New York pursuant to a five year contract which expires on
January 31, 1999. The lease provides for payments totaling $288,580 over the
course of the lease.
The Company leases 5,027 square feet of general office space in New York
City pursuant to a five year lease at an annual rental of $130,704. This lease
expires on February 28, 2002.
The Company leases 5,350 square feet of general office space in Waltham,
Massachusetts pursuant to a five year lease which expires on October 31, 1999.
The lease provides payments in the amount of $70,085 annually for the period
from December 1, 1994 through September 30, 1997 and $76,772 annually for the
period from October 1, 1997 through December 31, 1999.
The Company leases 300 square feet of general office space in Marlton, New
Jersey and North Haven, Connecticut for $7,800 per year and $8,100 per year,
expiring on January 31, 1998 and December 31, 1997, respectively.
Legal Proceedings
The Company is involved in a legal proceeding that is incidental to the
conduct of its business. This proceeding is not, in the opinion of management,
material. In the ordinary course of its business, the Company is, from time to
time, subject to litigation. The Company does not believe that any litigation
to which the Company is currently subject is likely, individually or in the
aggregate, to have a material adverse effect on the financial condition of the
Company.
30
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the Company's
directors and persons nominated to become directors and executive officers and
the positions they hold with the Company.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- ----- -------------------------------------------
<S> <C> <C>
John H. Spielberger 55 Chairman of the Board of Directors,
President and Chief Executive Officer of
SysComm
Thomas J. Baehr (2) 40 Vice President, Director of SysComm,
President and Chief Operating Officer of
InfoTech
Dennis R. Wilson 47 Vice President, Chief Financial Officer,
Secretary and Director of SysComm
Norman M. Gaffney 49 Director of SysComm, Executive Vice
President of Marketing and Sales of Info-
Tech
John C. Spielberger (1) 28 Director of SysComm
Cornelia Eldridge (1) (2) 55 Nominee for Director of SysComm
Lee Adams (1)(2) 65 Nominee for Director of SysComm
</TABLE>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John H. Spielberger is the Chairman of the Board of Directors, President
and Chief Executive Officer of SysComm, which he founded in 1986. He is also
currently the Chairman of the Board and Chief Executive Officer of InfoTech,
which he founded in 1980. From 1968 through 1976, Mr. Spielberger worked for
IBM as a sales representative. From 1976 through 1980, Mr. Spielberger was
employed as Vice President of The Harvey Group Inc., a company listed on the
American Stock Exchange, where he was responsible for all management
information systems and communications. In 1980, Mr. Spielberger founded John
Spielberger & Associates, Inc., a designer, programmer and installer of
computer systems, which later became known as InfoTech. Mr. Spielberger is a
member of various IBM advisory boards which assist IBM in developing new and
innovative programs to market their products. Mr. Spielberger graduated from
Long Island University, C.W. Post Campus, New York in May 1966 with a B.A. in
Biology.
Thomas J. Baehr joined InfoTech in January 1994 and has been a member of
SysComm's Board of Directors since August 1995. Mr. Baehr became InfoTech's
President in January 1996 and is currently its Chief Operating Officer. From
June 1978 through October 1979, Mr. Baehr worked as a sales representative at
the Burroughs Corporation. From October 1979 through November 1986, Mr. Baehr
was employed at Honeywell Information Systems, where he was responsible for the
sale of mainframe and minicomputers to the General Electric Company. From
November 1986 through July 1992, Mr. Baehr was employed by Prime Computer Inc.
in various positions including sales manager for the New York metropolitan area
and regional manager for the northeastern United States. From July 1992 through
January 1994, Mr. Baehr was employed by Basic Computer Corporation in White
Plains, New York. Mr. Baehr graduated Fairfield University, Connecticut in May
of 1978 with a B.S. in Marketing.
Dennis R. Wilson has been a director of the Company since 1986 and became
Vice President and Chief Financial Officer of SysComm and InfoTech in March
1995. From 1972 through March 1992, Mr. Wilson was employed by The Harvey Group
Inc. During his career at The Harvey Group, Mr. Wilson held the following
positions: Member of the Board of Directors, Executive Vice President and Chief
Financial Officer, Corporate Secretary and Director of Internal Audit. From
1992 through February 1995, Mr. Wilson was employed at
31
<PAGE>
The Boerner Company, a successor to the Harvey Group, as Chief Financial
Officer. He received a B.S. in Accounting from St. John's University in June
1970 and received his M.B.A. from St. John's in January 1976. He is also a
member of the Association of Management Accountants and the Association of MBA
Executives.
Norman M. Gaffney has been a Director of the Board of SysComm since
September 1996. He joined the Company in November 1994 and has served as
Executive Vice President of Sales and Marketing of InfoTech since January 1996.
Prior to joining SysComm, Mr. Gaffney was employed by IBM in various positions
including Consulting Marketing Representative and Senior Accounts Manager for
22 years. Mr. Gaffney graduated from the University of Miami receiving a B.S.
in Marketing.
John C. Spielberger is a Director of the Board of SysComm. In 1991, he
received a B.S. in Marketing from the Wallace School of Management, Boston
College. From February 1992 through October 1992, Mr. Spielberger was employed
as a marketing support representative for Lexmark International. Mr.
Spielberger joined InfoTech in October 1992 and is a sales specialist for the
RISC System/6000. Mr. Spielberger is the son of John H. Spielberger, the
Chairman of the Board, President and Chief Executive Officer of SysComm.
Cornelia Eldridge has been nominated to serve on the Company's Board of
Directors upon consummation of the Offering. Since 1981, Ms. Eldridge has been
President of Eldridge Associates, Inc., a management consulting firm. Eldridge
Associates provides strategic planning and organizational consulting services
to senior executive management including Chief Executive Officers. Ms. Eldridge
has a B.A. from Ohio Wesleyan University and an M.B.A. from the University of
Massachusetts. She serves on the Board of Directors of DE Frey, Inc., a
privately-held financial services firm. Ms. Eldridge also currently provides
consulting services to Commonwealth Associates.
Lee Adams has been nominated to serve on the Company's Board of Directors
upon consummation of the Offering. From 1989 through March 1997, when that
company was sold, Mr. Adams was the Chairman and Chief Executive Officer of
Target Solutions, Incorporated, a privately-held vertical remarketer of IBM's
AS/400 line of products. From 1963 to 1989, Mr. Adams held various executive
sales and marketing positions at IBM. Mr. Adams received a B.B.A. from
Kalamazoo College in June 1963.
Board of Directors
The Board of Directors currently consists of five members. There are two
vacancies on the Board. Upon completion of the Offering, the Company expects to
appoint Cornelia Eldridge and Lee Adams as directors to its Board of Directors.
The Company's Board of Directors is divided into three classes with each
class consisting, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board. The Company's Board of
Directors presently consists of five members with one member in Class I and two
members in Classes II and III. Class III consists of John H. Spielberger and
Thomas Baehr, whose term will expire at the 2000 annual meeting of
stockholders; Class II consists of Norman Gaffney and John C. Spielberger,
whose term will expire at the 1999 annual meeting of stockholders; and Class I
currently consists of Dennis Wilson, and, upon their appointment upon
completion of the Offering, will additionally consist of Cornelia Eldridge and
Lee Adams, whose term will expire at the 1998 annual meeting of stockholders.
After the initial term, each Class is elected for a term of three years. At
each annual meeting, directors are elected to succeed those in the Class whose
term expires at that annual meeting, such newly elected directors to hold
office until the third succeeding annual meeting and the election and
qualification of their respective successors.
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
Board Committees
The Board of Directors has an Audit Committee and Compensation Committee.
The Audit Committee makes annual recommendations to the Board of Directors
concerning the appointment of the independent public accountants of the Company
and reviews the results and scope of the audit and other services provided by
the Company's independent auditors. The Audit Committee is currently comprised
of one Board Member,
32
<PAGE>
John C. Spielberger. The Compensation Committee, currently comprised of Thomas
Baehr, makes recommendations to the Board of Directors concerning salaries and
incentive compensation for employees of the Company. Upon consummation of the
Offering, the Board of Directors intends to appoint Cornelia Eldridge and Lee
Adams to the Audit Committee and the Compensation Committee.
Director Compensation
Directors who are employees of the Company receive no compensation, as
such, for service as members of the Board. It is expected that directors who
are not employees of the Company will receive options to purchase 5,000 shares
of Common Stock for each year served on the Board of Directors, and
reimbursement of expenses incurred in connection with attendance of Board and
committee meetings.
Key Man Insurance
The Company is the beneficiary of $1,000,000 whole life policy covering
the life of John H. Spielberger and a $1,000,000 term policy covering the life
of Thomas J. Baehr.
Limitation of Liability and Indemnification of Directors and Officers
The Certificate of Incorporation and By-Laws of the Company provides that
a director shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except: (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (iii) for liability under
Section 174 of the Delaware General Corporation Law (relating to certain
unlawful dividends, stock repurchases or stock redemptions); or (iv) for any
transaction from which the director derived any improper personal benefit. The
effect of this provision in the Certificate is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. These provisions will not
alter the liability of directors under federal securities laws.
The Company's By-Laws provides that the Company shall indemnify each
director and such of the Company's officers, employees and agents as the Board
of Directors shall determine from time to time in its sole discretion to the
fullest extent provided by the laws of the State of Delaware.
33
<PAGE>
Executive Compensation
The following table sets forth the compensation for services in all
capacities awarded to, earned by or paid to the Company's Chief Executive
Officer and the most highly compensated executive officers of the Company whose
aggregate cash compensation exceeded $100,000 during the last three fiscal
years:
Annual Compensation
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)
- ----------------------------------------- ------ ------------ ----------- -----------------
<S> <C> <C> <C> <C>
John H. Spielberger, Chairman of the 1996 100,000 90,000 $ 29,411(1)
Board of Directors, President and Chief 1995 100,000 -- --
Executive Officer of SysComm 1994 100,000 -- --
Dennis R. Wilson, Vice President, 1996 100,000 35,000 --
Chief Financial Officer, Secretary and 1995 58,333 -- --
Director of SysComm 1994 -- -- --
Thomas J. Baehr, Vice President and 1996 134,579 157,000 --
Director of SysComm, President and 1995 157,016 -- --
Chief Operating Officer of InfoTech 1994 101,272 -- --
Norman M. Gaffney, Director of 1996 304,613 -- --
SysComm, Executive Vice President, 1995 141,972 -- --
Marketing and Sales of InfoTech 1994 -- -- --
</TABLE>
- ------------
(1) Consists of expenses for a Company car ($4,464), life insurance premiums
($23,897) for John H. Spielberger, and administration fees on his pension
plan ($1,050). This life insurance policy will be cancelled after the
effective date of this Prospectus and any cash value will be returned to
the Company.
Employment Agreements
The Company will enter into employment agreements effective upon the
consummation of the Offering with its executive officers. Each of the
employment agreements expire on September 30, 1999, unless sooner terminated
for death, physical or mental incapacity or cause (which is defined as the
uncured refusal to perform, or habitual neglect of, the performance of his
duties, willful misconduct, dishonesty or breach of trust which causes the
Company to suffer any loss, fine, civil penalty, judgment, claim, damage or
expense, a material breach of the employment agreement, or a felony
conviction), or terminated by either party with thirty (30) days' written
notice, and are automatically renewed for consecutive terms, unless cancelled
at least thirty days prior to expiration of the existing term. Each Employment
Agreement provides that all of such executive's business time be devoted to the
Company. In addition, each of the Employment Agreements also contain: (i)
non-competition provisions that preclude each employee from competing with the
Company for a period of up to two years from the date of the termination of his
employment of the Company, (ii) non-disclosure and confidentiality provisions
providing that all confidential information developed or made known during the
term of employment shall be exclusive property of the Company, and (iii)
non-interference provisions whereby, for a period of two years after his
termination of employment with the Company, the executive shall not interfere
with the Company's relationship with its customers or employees.
The employment agreements also include compensation plans for fiscal year
1997 as follows: John H. Spielberger will receive base salary of $140,000 plus
a bonus based on 3% of all pre-tax earnings of the Company; Thomas J. Baehr
will receive $150,000 plus a bonus based on 3.5% of all pre-tax earnings of
InfoTech, payable quarterly; Dennis R. Wilson will receive $120,000 plus a
discretionary bonus determined by the Compensation Committee; and Norman M.
Gaffney will receive $125,000 plus a bonus plan based on 1.5% of gross profit
dollars of InfoTech, payable monthly.
These employment agreements contain annual performance incentive plans
which will be reviewed during the fiscal year and new incentive plans will be
implemented by the Company's Compensation Committee for fiscal year 1998, and
thereafter as applicable.
34
<PAGE>
In addition, the employment agreements provide that if an executive
officer is terminated for reasons other than for cause, the Company has agreed
to continue to pay his total base salary for the remainder of the term of the
employment agreement or one year, whichever is greater.
Stock Option Plan
On July 29, 1988, the stockholders approved a stock option plan (the "1988
Stock Option Plan"). In connection with the 1988 Stock Option Plan, 1,000,000
shares of Common Stock are reserved for issuance pursuant to options that may
be granted under the plan through May 5, 1998. As of September 30, 1996,
498,000 options were granted at exercise prices ranging from $.68 to $.75 per
share. To date, none of those options has been exercised. The options vest over
a three year period following the date of the grant. Currently, only 166,000
shares are exercisable.
The purpose of the 1988 Stock Option Plan is to encourage stock ownership
by employees of the Company, its divisions and subsidiary corporations and to
give them a greater personal interest in the success of the Company. The 1988
Stock Option Plan is administered by the Compensation Committee. The
Compensation Committee consists of at least three members of the Board of
Directors. The Compensation Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and authorities
either specifically granted to it under the Plan or necessary or advisable in
the administration of the Plan, including, without limitation, the authority to
grant Options; to determine which Options shall constitute incentive stock
options ("ISO") and which Options shall constitute Non-Qualified Stock Options;
to determine which Options (if any) shall be accompanied by rights or limited
rights; to determine the purchase price of the shares of Common Stock covered
by each Option (the "Option Price"); to determine the persons to who, and the
time or times at which, Options shall be granted; to determine the number of
shares to be covered by each Option; to interpret the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. The Compensation Committee may delegate to one or more of its members or
to one or more agents such administrative duties as it may deem advisable, and
the Compensation Committee or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Compensation Committee or such person may have under the
Plan.
Options granted under the 1988 Stock Option Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of grant
(or 110% of fair market value in the case of persons holding 10% or more of the
voting stock of the Company). The aggregate fair market value of shares for
which ISOs granted to any employee are exercisable for the first time by such
employee during any calendar year (under all stock option plans of the Company
and any related corporation) may not exceed $100,000. Options granted under the
1988 Stock Option Plan will expire not more than ten years from the date of
grant (five years in the case of ISOs granted to persons holding 10% or more of
the voting stock of the Company). Options granted under the 1988 Stock Option
Plan are not transferable during an optionee's lifetime but are transferable at
death by will or by the laws of descent and distribution.
Each Executive Officer and Director has been granted options to purchase
shares of Common Stock pursuant to the 1988 Stock Option Plan as follows:
Option Grants
<TABLE>
<CAPTION>
Potential
Dated Options Exercise Expiration Realizable
Name Granted Granted (1) Price Date Value (2)
- --------------------- --------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
John H. Spielberger 6/30/95 40,000 $.75 9/1/98 $180,000
Dennis R. Wilson 6/30/95 104,000 $.68 9/1/98 $475,280
Thomas J. Baehr 6/30/95 100,000 $.68 9/1/98 $457,000
Norman M. Gaffney 6/30/95 100,000 $.68 9/1/98 $457,000
John C. Spielberger 6/30/95 4,000 $.68 9/1/98 $ 18,280
</TABLE>
- ------------
(1) Each option is exercisable into one share of Common Stock.
(2) Assumes an offering price of $5.25 per share less the respective exercise
price.
35
<PAGE>
401(k) Plan
On January 1, 1994, the Company adopted a 401(k) savings plan for the
benefit of all eligible employees. All employees as of the effective date of
the 401(k) became eligible. An employee who became employed after January 1,
1994 would become a participant after the completion of six months of service
and attainment of 20 years of age. Under the 401(k) plan, participants may
elect to contribute from their compensation any amount up to the maximum
deferral allowed by the Internal Revenue Code. Company contributions are
discretionary and the Company may make optional contributions for any plan year
at its discretion. During the fiscal years ended September 30, 1996, 1995 and
1994, the Company recorded 401(k) costs totalling $31,738, $19,148 and $100,
respectively.
36
<PAGE>
CERTAIN TRANSACTIONS
John H. Spielberger has a consulting agreement with Ameriquest
Technologies, Inc., a company that purchased Romel Technology, Inc., a SysComm
subsidiary. This agreement, which commenced in December 1993, pays Mr.
Spielberger $10,000 per month through January 1998.
Currently, the Company is required to purchase as much as $1,000,000 worth
of Mr. Spielberger's stock from his family upon the occurrence of his death.
The buy-back price per share would be the greater of ten times the net income
for the prior four quarters preceding his death divided by the average number
of shares outstanding during that period or three times the current net worth
divided by the current number of shares outstanding, whichever is greater. The
Company and Mr. Spielberger have agreed to cancel the buy-back arrangement
concurrent with the Offering.
In addition, Mr. Spielberger has personally guaranteed the Company's
financing arrangements with IBM Credit Corporation. The Company and Mr.
Spielberger anticipate that IBM Credit Corporation will release Mr. Spielberger
from his personal guarantee immediately prior to, or upon completion of, the
Offering.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of
Common Stock as of the date of this Prospectus, and as adjusted to reflect the
sale of 1,500,000 shares of Common Stock offered hereby by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director and nominee director of
the Company, (iii) each named executive officer of the Company, and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Percentage Beneficially Owned (2)
-----------------------------------
Number of Shares
Name and Address Beneficially Owned (2) Before Offering After Offering
- --------------------------------------- ------------------------ ----------------- ---------------
<S> <C> <C> <C>
John H. Spielberger (1) (3) 2,506,667 71.62% 50.14%
Dennis R. Wilson (1) (5) 88,640 2.53% 1.77%
Thomas J. Baehr (1) (6) 86,000 2.46% 1.72%
Norman M. Gaffney (1) (6) 66,000 1.89% 1.32%
John C. Spielberger (1) (4) 7,667 .22% .15%
Cornelia Eldridge (7) -- -- --
Lee Adams (8) -- -- --
Mark Vinelli (1) 270,000 7.72% 5.40%
All Officers and Directors as a group
(five persons) 2,754,680 78.72% 55.10%
</TABLE>
- ------------
(1) The addresses of John H. Spielberger, Dennis R. Wilson, Thomas Baehr, John
C. Spielberger, Norman Gaffney, and Mark Vinelli are c/o SysComm
International Corporation, 275 Marcus Boulevard, Hauppauge, New York
11788.
(2) Beneficial ownership is determined in accordance with the Rule 13d-3 of the
Securities Exchange Act of 1934 and generally includes voting and
investment power with respect to securities, subject to community property
laws, where applicable. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the
date of this Prospectus upon exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Prospectus have been exercised. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(3) Includes 600,000 shares owned by Bearpen Limited Partnership, a partnership
of which John H. Spielberger and his wife, Catherine, are the general
partners. Excludes 50,000 shares owned by Mr. Spielberger's wife,
Catherine, of which John H. Spielberger disclaims beneficial ownership.
Includes options to purchase 26,640 shares of Common Stock at an exercise
price of $.75 per share, exercisable as of June 30, 1997. Does not include
options to purchase 13,600 shares of Common Stock at an exercise price of
$.75 per share.
(4) Excludes 20,000 shares owned by Teresa Murphy, John C. Spielberger's wife.
Includes options to purchase 2,640 shares of Common Stock at an exercise
price of $.68 per share, exercisable as of June 30, 1997. Does not include
options not currently exercisable to purchase 1,360 shares of Common Stock
at an exercise price of $.75 per share.
(5) Includes options to purchase 68,640 shares of Common Stock at an exercise
price of $.68 per share, exercisable as of June 30, 1997. Does not include
options not currently exercisable to purchase 35,360 shares of Common
Stock at an exercise price of $.68 per share.
(6) Includes options to purchase 66,000 shares of Common Stock at an exercise
price of $.68 per share, exercisable as of June 30, 1997. Does not include
options not currently exercisable to purchase 34,000 shares of Common
Stock at an exercise price of $.68 per share.
(7) The address of Cornelia Eldridge is 4514 Elkhorn Road, P.O. Box 6243, Sun
Valley, Idaho 83354.
(8) The address of Lee Adams is P.O. Box 2404, Lake Arrowhead, California
92352.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred
stock, par value $.01 per share. As of April 15, 1997, there were 3,632,200
shares of Common Stock issued and 3,170,540 shares of Common Stock outstanding
held of record by 30 stockholders. No shares of Preferred Stock are issued and
outstanding.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock are entitled to receive dividends when, as,
and if declared by the Company's Board of Directors out of funds legally
available to the Company. The Company currently intends to retain all future
earnings for the use in the operation of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy." Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in the
assets remaining after payment of all liabilities and liquidation of
preferences if any. Shares of Common Stock are not redeemable and have no
preemptive or similar rights to subscribe for additional shares. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will, upon issuance and payment, be fully paid and non-assessable.
Preferred Stock
The Board of Directors has the authority to cause the Company to issue
without any further vote or action by the stockholders, up to 1,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), in one or
more series, to designate the number of shares constituting any series, and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, voting rights, rights and terms of redemption, redemption
price or prices and liquidation preferences of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control. The Company has no present plans to issue any shares of
preferred stock. See "Risk Factors -- Anti-Takeover Provisions."
Anti-Takeover Provisions; Section 203 of the Delaware General Corporation Law
The Company is governed by Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, this statute restricts a corporation
from entering into certain business combinations with an interested stockholder
(defined as any person or entity that is the beneficial owner of at least 15%
of a corporation's voting stock) or its affiliates for a period of three years
after the date of the transaction in which the person became an interested
stockholder unless (i) the transaction is approved by the Board of Directors of
the corporation prior to such business combination, (ii) the interested
stockholder acquires 85% of the corporation's voting stock in the same
transaction in which it exceeds 15%, or (iii) the business combination is
approved by the Board of Directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. The Company's Amended and
Restated Certificate of Incorporation excludes John H. Spielberger from the
definition of "interested stockholder" and also defines an "interested
stockholder" as any person or entity that is the beneficial owner of at least
10% of the Company's voting stock.
The Company's Amended and Restated Certificate of Incorporation and/or
Amended and Restated By-Laws include certain provisions which may have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interests, including
attempts that might result in a premium over the market for the shares held by
the stockholders and could make it more difficult to remove incumbent
management. The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws provide (i) that the Board of Directors will be
divided into three classes of directors serving staggered three year terms
resulting in approximately one-third of the Company's Board of Directors being
elected each year; (ii) that directors may be removed from office only for
cause and only by the affirmative vote of the holders of 66 2/3% of the then
outstanding shares of capital stock entitled to vote generally in an election
of directors; (iii) that, except as otherwise required by law, vacancies in the
Board of Directors may be filled
39
<PAGE>
only by the remaining directors; (iv) that commencing with the consummation of
the Offering, any action required or permitted to be taken by the stockholders
of the Company may be effected only at an annual or special meeting of
stockholders and not by written consent of the stockholders; (v) that subject
to certain provisions, any special meeting of stockholders may be called only
upon the affirmative vote of at least a majority of the members of the Board of
Directors; and (vi) for an advance notice procedure for the nomination other
than by or at the discretion of the Board of Directors or a committee of the
Board of Directors for the candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of the
stockholders. In general, notice of an intent to nominate a director or raise
business at such meetings must be received by the Company not less than sixty
(60) nor more than ninety (90) days prior to the first anniversary of the
preceeding year's annual meeting and must contain certain information
concerning the person to be nominated or the matters to be brought before the
meeting and concerning stockholders submitting the proposal. The affirmative
vote of at least a majority of the directors or the holders of at least 662/3%
of the voting power of the Company's Common Stock is required to alter, amend,
repeal or adopt any provision inconsistent with the provisions described in
this paragraph.
The Delaware General Corporation Law, the Amended and Restated Certificate
of Incorporation and the Amended and Restated By-Laws may discourage certain
types of transactions involving an actual or potential change in control of the
Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, Inc.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The 1,500,000 shares of Common Stock sold in the Offering will be freely
transferable without restriction or further registration under the Securities
Act unless acquired by an "affiliate" of the Company within the meaning of the
Securities Act. Upon completion of the Offering, the existing stockholders of
the Company will own 3,170,540 shares of Common Stock. All of these shares are
deemed "restricted securities" as defined by Rule 144 under the Securities
("Rule 144"). Upon expiration of the contractual restrictions between the
Company, its officers, directors and current stockholders and option holders
and the Representative, beginning one year after the date of this Prospectus,
these shares will be available for sale in the public market, subject to
compliance with Rule 144.
Rule 144, as currently in effect, provides that a person (or persons whose
sales are aggregated) who is an affiliate of the Company, or who has
beneficially owned shares for at least one year which were issued and sold in
reliance upon certain exemptions from registration under the Securities Act
("Restricted Shares"), is entitled to sell within any three month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who has beneficially owned Restricted Shares for at
least two years and who is not an affiliate of the Company may sell such shares
under Rule 144 without regard to volume limitations, manner-of-sale provisions,
notice requirements or the availability of current public information about the
Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act ("Rule 701")
may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisors prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and subject
to the contractual restrictions described above, beginning ninety days after
the date of this Prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market
sales of Restricted Shares or the availability of Restricted Shares for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of Restricted Shares in the public market could
adversely affect prevailing market prices.
41
<PAGE>
UNDERWRITING
The underwriters named below (collectively, the "Underwriters") for which
Commonwealth Associates is acting as representative (the "Representative" or
"Commonwealth"), have severally, not jointly, subject to the terms and
conditions of the underwriting agreement ("Underwriting Agreement") agreed to
purchase from the Company, and the Company has agreed to sell, the shares of
Common Stock which equal the number of shares set forth opposite the name of
such Underwriters below:
Underwriter Number of Shares
- ------------------------------- -----------------
Commonwealth Associates ......
Total ........................ 1,500,000
==========
The Underwriters are committed on a "firm commitment" basis to purchase
and pay for all shares of Common Stock offered hereby (other than those covered
by the Over-Allotment Option described below), if any such shares are
purchased. The shares are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other
conditions.
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock to the public at
the price set forth on the cover page of this Prospectus and the Underwriters
may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") concessions, not in excess of $---- per
share, of which not in excess of $---- per share may be reallowed to other
dealers who are members of the NASD. After the commencement of the Offering,
the public offering price, concessions and reallowance may be changed. The
Representative has informed that Company that it does not expect any sales of
the shares of Common Stock offered hereby to be made to discretionary accounts
of the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 225,000 additional
shares of Common Stock, at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. Such option may
be exercised in whole or, from time to time, in part, to purchase additional
shares solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the shares offered hereby.
The Company has agreed to pay to Commonwealth individually, and not as
Representative of the Underwriters, a non-accountable expense allowance in the
amount of 1.5% of the gross proceeds of the Offering, including the
Over-Allotment Option, $50,000 of which has been paid to date. The Company
shall bear all fees and expenses incurred by the Company in connection with
qualifying the shares of Common Stock offered hereby for sale under the laws of
such states as the Representative may designate, including expenses of counsel
retained for such purposes by the Representative.
In addition, the Company has agreed to pay to Commonwealth individually,
and not as Representative of the Underwriters, a corporate advisory fee equal
to 1.5% of the gross proceeds of the Offering (including any shares purchased
pursuant to the Underwriters' Over-Allotment Option) as reimbursement for
Commonwealth's advisory services, which is payable at the closing of the
Offering.
The Company has agreed to sell to the Representative and its designees for
an aggregate price of $150, the warrants ("Representative's Warrants") to
purchase up to 150,000 shares of Common Stock at an exercise price per share
equal to 160% of the initial public offering price per share of Common Stock
offered hereby. The Representative's Warrants may not be transferred for one
year from the date of this Prospectus, except to the officers or partners of
the Representative and are exercisable during the four-year period commencing
one year from
42
<PAGE>
the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Representative's Warrants are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Company's Common Stock. To the extent that the Representative's Warrants are
exercised or exchanged, dilution to the interests of the Company's stockholders
will occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Representative's Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representative's
Warrants. Any profit realized by the Representative on the sale of the
Representative's Warrants or the underlying shares of Common Stock may be
deemed additional underwriting compensation. Subject to certain limitations and
exclusions, the Company has agreed to register the Representative's Warrants
and the underlying shares of Common Stock under the Securities Act on one
occasion during the four year period ending five years from the date of this
Prospectus and to include such Representative's Warrants and shares in any
appropriate Registration Statement that is filed by the Company during the
seven years following the date of this Prospectus. The Representative's
Warrants include a provision permitting the holders to elect a "cashless
exercise" whereby the holders may exchange, in lieu of cash, such number of
shares issuable upon exercise of the Representative's Warrants equal in value
to the aggregate exercise price.
The Company and its officers, directors, stockholders and holders of any
options, warrants or other securities convertible into, or exercisable for,
shares of Common Stock, have agreed that they will not, directly or indirectly,
offer, sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or other capital stock
of the Company, or any securities convertible into or exchangeable for any
shares of Common Stock or other capital stock of the Company for a period of
one year commencing upon the date of this Prospectus, without the prior written
consent of Commonwealth, on behalf of the Underwriters.
The Underwriting Agreement provides for reciprocal indemnification and
contribution between the Company and the Underwriters against certain civil
liabilities in connection with the Registration Statement of which this
Prospectus forms a part, including liabilities under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representative. Among
the factors considered in determining the initial public offering price are the
history of, and the prospects for, the Company's business and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for earnings of the Company, the present
state of the Company's development, the general condition of the securities
market at the time of the Offering and the market prices and earnings of
similar securities of comparable companies at the time of the Offering and
prevailing market and economic conditions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New
York. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Todtman, Young, Nachamie, Hendler & Spizz, P.C., New
York, New York.
EXPERTS
The Consolidated Financial Statements of SysComm International Corporation
and its subsidiaries included in this prospectus and the related financial
statement schedules included elsewhere in the Registration Statement have been
audited by Albrecht, Viggiano, Zureck & Company, P.C., independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the
43
<PAGE>
shares of Common Stock offered hereby. This Prospectus, which forms a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and such exhibits and
schedules, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission in Washington, D.C. 20549.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company; the address of such site is http://www.sec.gov.
44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................................ F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1995 and 1996 and March 31, 1997
(unaudited)............................................................................ F-3
Consolidated Statements of Operations for the Years Ended September 30, 1994, 1995, and
1996 and the Six Months Ended March 31, 1996 (unaudited) and 1997 (unaudited) ............ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1994,
1995, and 1996 and the Six Months Ended March 31, 1997 (unaudited) ....................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994, 1995, and
1996 and the Six Months Ended March 31, 1996 (unaudited) and 1997 (unaudited) ............ F-6
Notes to Consolidated Financial Statements .............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SysComm International Corporation and Subsidiaries
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of SysComm
International Corporation and Subsidiaries as of September 30, 1995 and 1996
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 SysComm
International Corporation and Subsidiaries as of September 30, 1995 and 1996
and the results of its operations and its cash flows for each of the years in
the three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
November 1, 1996, except as to
Note 14 which is as of April 21, 1997
and Note 15 which is as of
May 29, 1997
F-2
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
----------------------------------- March 31,
1995 1996 1997
---------------- ---------------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 1,064,949 $ 1,180,680 $ 672,227
Accounts receivable, net .............................. 10,343,186 21,012,242 13,834,592
Note receivable ....................................... 21,939 -0- -0-
Inventory ............................................. 5,976,192 8,936,845 8,703,014
Prepaid expenses ....................................... 66,598 43,207 210,708
Investments .......................................... 412,500 206,250 206,400
------------- ------------- -------------
Total Current Assets .............................. 17,885,364 31,379,224 23,626,941
Property, Plant and Equipment, Net ..................... 399,708 539,174 723,148
Other Assets ............................................. 186,587 184,159 193,880
------------- ------------- -------------
Total Assets ....................................... $ 18,471,659 $ 32,102,557 $ 24,543,969
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Supplier credit facility .............................. $ 10,797,111 $ 12,483,391 $ 6,867,271
Accounts payable and accrued liabilities ............... 5,194,454 14,440,421 12,384,282
Current portion of long-term liabilities ............... -0- 26,626 40,669
Income taxes payable ................................. 23,053 1,069,197 100,495
Deferred income taxes ................................. 101,157 17,044 17,104
------------- ------------- -------------
Total Current Liabilities ........................... 16,115,775 28,036,679 19,409,821
Long-Term Liabilities .................................... -0- 67,291 85,156
------------- ------------- -------------
Total Liabilities ................................. 16,115,775 28,103,970 19,494,977
------------- ------------- -------------
Commitments and Contingencies
Stockholders' Equity
Common stock; $.01 par value; 5,000,000
shares authorized; 3,632,200 shares issued;
3,170,540 shares outstanding ........................ 36,322 36,322 36,322
Additional paid-in capital ........................... 138,143 138,143 138,143
Unrealized gain (loss) on available-for-sale securities (720,000) -0- 90
Retained earnings .................................... 3,043,589 3,966,292 5,016,607
Less: Treasury stock (at cost) -- 461,660 shares ...... (142,170) (142,170) (142,170)
------------- ------------- -------------
Total Stockholders' Equity ........................ 2,355,884 3,998,587 5,048,992
------------- ------------- -------------
Total Liabilities and Stockholders' Equity ......... $ 18,471,659 $ 32,102,557 $ 24,543,969
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
---------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales ........................... $ 45,459,575 $ 55,195,507 $ 98,446,698 $ 38,042,823 $ 39,158,875
Cost of Sales ........................ 40,796,425 49,441,544 89,025,331 34,159,227 33,890,028
------------- ------------- ------------- ------------- -------------
Gross Profit ..................... 4,663,150 5,753,963 9,421,367 3,883,596 5,268,847
Selling and Administrative Expenses 3,406,316 4,079,184 5,028,812 2,382,727 2,957,149
------------- ------------- ------------- ------------- -------------
Income from Operations ......... 1,256,834 1,674,779 4,392,555 1,500,869 2,311,698
------------- ------------- ------------- ------------- -------------
Other Income (Expense)
Interest expense .................. (726,367) (1,211,727) (1,391,452) (633,716) (552,143)
Interest income ..................... 12,589 4,411 585 523 236
Other income ........................ 39,630 37,126 63,151 7,964 57,324
Realized loss on available-for-sale
securities ........................ -0- -0- (1,406,250) -0- -0-
------------- ------------- ------------- ------------- -------------
Total Other Expense ............ (674,148) (1,170,190) (2,733,966) (625,229) (494,583)
------------- ------------- ------------- ------------- -------------
Income from Continuing
Operations Before Income
Taxes ........................ 582,686 504,589 1,658,589 875,640 1,817,115
Provision for Income Taxes ......... 242,889 223,769 735,886 371,000 766,800
------------- ------------- ------------- ------------- -------------
Income from Continuing
Operations .................. 339,797 280,820 922,703 504,640 1,050,315
Discontinued Operations
Income from sale of subsidiary ...... 1,485,698 -0- -0- -0- -0-
------------- ------------- ------------- ------------- -------------
Net Income ..................... $ 1,825,495 $ 280,820 $ 922,703 $ 504,640 $ 1,050,315
============= ============= ============= ============= =============
Net Income Per Common Share
Continuing Operations ............... $ .10 $ .08 $ .25 $ .14 $ .29
Discontinued Operations ............ .43 -0- -0- -0- -0-
------------- ------------- ------------- ------------- -------------
Net Income per Common Share $ .53 $ .08 $ .25 $ .14 $ .29
============= ============= ============= ============= =============
Weighted Average Number of Common
Shares Outstanding .................. 3,448,900 3,614,040 3,677,290 3,686,040 3,668,540
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------------ Paid-In -------------------------
Shares Amount Capital Shares Amount
----------- ---------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1993 ... 3,368,164 $ 36,322 $ 138,143 264,036 $ (72,440)
Net Income ........................
Purchase of Common Stock ............ (197,624) 197,624 (69,730)
Unrealized Loss on Available-for-
Sale Securities .....................
--------- -------- --------- ------- ---------
Balance as of September 30, 1994 ... 3,170,540 36,322 138,143 461,660 (142,170)
Net Income ........................
Unrealized Loss on Available-for-
Sale Securities ..................
--------- -------- --------- ------- ---------
Balance as of September 30, 1995 . 3,170,540 36,322 138,143 461,660 (142,170)
Net Income ...........................
Unrealized Loss on Available-for-
Sale Securities .....................
Realized Loss on Available-for-Sale
Securities ........................
--------- -------- --------- ------- ---------
Balance as of September 30, 1996 ... 3,170,540 36,322 138,143 461,660 (142,170)
Net Income (unaudited) ...............
Unrealized Gain on Available-for-
Sale Securities (unaudited) ......
--------- -------- --------- ------- ---------
Balance as of March 31, 1997
(unaudited) ........................ 3,170,540 $ 36,322 $ 138,143 461,660 $(142,170)
========== ========= ========== ======== =========
<PAGE>
<CAPTION>
Unrealized Total
Gain (Loss) Retained Stockholders'
on Securities Earnings Equity
-------------- ------------- --------------
<S> <C> <C> <C>
Balance as of September 30, 1993 ... $ 937,274 $ 1,039,299
Net Income ........................ 1,825,495 1,825,495
Purchase of Common Stock ............ (69,730)
Unrealized Loss on Available-for-
Sale Securities ..................... $ (382,500) (382,500)
------------ ---------- ------------
Balance as of September 30, 1994 ... (382,500) 2,762,769 2,412,564
Net Income ........................ 280,820 280,820
Unrealized Loss on Available-for-
Sale Securities .................. (337,500) (337,500)
------------ ---------- ------------
Balance as of September 30, 1995 . (720,000) 3,043,589 2,355,884
Net Income ........................... 922,703 922,703
Unrealized Loss on Available-for-
Sale Securities ..................... (123,750) (123,750)
Realized Loss on Available-for-Sale
Securities ........................ 843,750 843,750
------------ ---------- ------------
Balance as of September 30, 1996 ... -0- 3,966,292 3,998,587
Net Income (unaudited) ............... 1,050,315 1,050,315
Unrealized Gain on Available-for-
Sale Securities (unaudited) ...... 90 90
------------ ---------- ------------
Balance as of March 31, 1997
(unaudited) ........................ $ 90 $5,016,607 $ 5,048,992
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1994 1995 1996
--------------- ------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income ............................................. $ 1,825,495 $ 280,820 $ 922,703
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ........................ 111,412 134,139 149,090
Income from sale of subsidiary ........................ (1,485,698) -0- -0-
Disposition of accumulated deficit of subsidiary ...... 514,198 -0- -0-
Deferred tax (benefit) expense ........................ 35,115 (5,442) (1,614)
(Gain) loss on disposition of fixed assets ............ 2,701 114 (23)
Realized loss on available-for-sale securities ......... -0- -0- 843,750
Changes in assets and liabilities:
Accounts receivable ................................. (592,271) (585,610) (10,669,056)
Note receivable ....................................... (40,217) 41,705 21,939
Inventory ............................................. (55,516) 93,808 (2,960,653)
Prepaid expenses and other assets ..................... (37,028) (55,666) 25,819
Accounts payable and accrued liabilities ............ 2,465,743 (287,525) 9,245,967
Income taxes payable ................................. 156,237 (164,451) 1,046,144
Deferred revenue .................................... (89,517) -0- -0-
------------ ------------ -------------
Net Cash Provided (Used) by Operating
Activities .......................................... 2,810,654 (548,108) (1,375,934)
------------ ------------ -------------
Cash Flows From Investing Activities
Purchase of fixed assets ................................. (291,387) (92,697) (235,388)
Proceeds from disposition of fixed assets ............... 10,000 400 450
------------ ------------ -------------
Net Cash Used in Investing Activities ............... (281,387) (92,297) (234,938)
------------ ------------ -------------
Cash Flows From Financing Activities
Net proceeds from (payments under) supplier credit
facility ............................................. (1,436,428) 343,000 1,686,280
Net proceeds from long-term debt ........................ -0- -0- 58,229
Payments of long-term liabilities ..................... -0- -0- (17,906)
Purchase of treasury stock .............................. (69,730) -0- -0-
------------ ------------ -------------
Net Cash Provided (Used) by Financing
Activities .......................................... (1,506,158) 343,000 1,726,603
------------ ------------ -------------
Net Increase (Decrease) in Cash and Cash
Equivalents ....................................... 1,023,109 (297,405) 115,731
Cash and Cash Equivalents at Beginning of Period ......... 339,245 1,362,354 1,064,949
------------ ------------ -------------
Cash and Cash Equivalents at End of Period ............... $ 1,362,354 $ 1,064,949 $ 1,180,680
============ ============ =============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes .......................................... $ 63,709 $ 219,543 $ 248,606
Interest ............................................. 732,864 1,211,727 1,391,452
Supplemental Schedules of Noncash Investing and
Financing Activities
Acquisition of equipment:
Cost of equipment .................................... $ -0- $ -0- $ 53,594
Less: Equipment financed .............................. -0- -0- (53,594)
------------ ------------ -------------
Cash Paid for Capital Expenditures .................. $ -0- $ -0- $ -0-
============ ============ =============
<PAGE>
<CAPTION>
Six Months Ended
March 31,
--------------------------------
1996 1997
--------------- --------------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income ............................................. $ 504,640 $ 1,050,315
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ........................ 67,781 81,437
Income from sale of subsidiary ........................ -0- -0-
Disposition of accumulated deficit of subsidiary ...... -0- -0-
Deferred tax (benefit) expense ........................ -0- -0-
(Gain) loss on disposition of fixed assets ............ -0- (2,570)
Realized loss on available-for-sale securities ......... -0- -0-
Changes in assets and liabilities:
Accounts receivable ................................. (6,538,994) 7,177,650
Note receivable ....................................... 20,621 -0-
Inventory ............................................. (554,133) 233,831
Prepaid expenses and other assets ..................... 40,579 (177,222)
Accounts payable and accrued liabilities ............ (1,733,399) (2,056,139)
Income taxes payable ................................. 225,982 (968,702)
Deferred revenue .................................... -0- -0-
------------ ------------
Net Cash Provided (Used) by Operating
Activities .......................................... (7,966,923) 5,338,600
------------ ------------
Cash Flows From Investing Activities
Purchase of fixed assets ................................. (58,371) (221,016)
Proceeds from disposition of fixed assets ............... -0- 7,300
------------ ------------
Net Cash Used in Investing Activities ............... (58,371) (213,716)
------------ ------------
Cash Flows From Financing Activities
Net proceeds from (payments under) supplier credit
facility ............................................. 8,313,021 (5,616,120)
Net proceeds from long-term debt ........................ -0- -0-
Payments of long-term liabilities ..................... (4,954) (17,217)
Purchase of treasury stock .............................. -0- -0-
------------ ------------
Net Cash Provided (Used) by Financing
Activities .......................................... 8,308,067 (5,633,337)
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents ....................................... 282,773 (508,453)
Cash and Cash Equivalents at Beginning of Period ......... 1,064,949 1,180,680
------------ ------------
Cash and Cash Equivalents at End of Period ............... $ 1,347,722 $ 672,227
============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes .......................................... $ 77,114 $ 1,735,528
Interest ............................................. 633,716 552,143
Supplemental Schedules of Noncash Investing and
Financing Activities
Acquisition of equipment:
Cost of equipment .................................... $ 78,472 $ 49,125
Less: Equipment financed .............................. (78,472) (49,125)
------------ ------------
Cash Paid for Capital Expenditures .................. $ -0- $ -0-
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited)
Note 1 -- Summary of Significant Accounting Policies
Nature of Operations
SysComm International Corporation (the "Company"), incorporated on
September 30, 1987, is a Delaware corporation with one active subsidiary:
Information Technology Services, Inc. (doing business as InfoTech, a New York
Corporation since 1980).
The Company, through its subsidiary, is authorized to conduct business in
New York, New Jersey, Massachusetts, and Connecticut. The Company is a supplier
and systems integrator of a broad range of computer and related products.
Basis of Consolidation
The consolidated financial statements include the accounts of SysComm
International Corporation and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are presented net of allowances for doubtful accounts
and for sales returns.The allowances are based on prior experience and
management's evaluation of the collectibility of accounts receivable and
returned merchandise credits. Authorized sales returns from the supplier are
classified as receivables. Management believes that the allowances are
adequate. However, further additions to the allowances may be necessary based
on changes in economic conditions.
The allowance for doubtful accounts was $50,000, $63,846, and $114,127 as
of September 30, 1995, September 30, 1996, and March 31, 1997, respectively.
The allowance for sales returns was $125,000 as of September 30, 1995 and
$37,389 as of September 30, 1996 and March 31, 1997.
Inventory
Inventory consists principally of computer hardware and software, and is
valued at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation. Expenditures for maintenance and repairs are charged against
operations as incurred. Upon retirement or sale, the assets disposed are
removed from the accounts and any resulting gain or loss is reflected in the
results of operations. Capitalized values of property under leases are
amortized over the life of the lease or the estimated life of the asset,
whichever is less.
F-7
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
Estimated
Useful Lives
-------------
Vehicles ..................... 1-5 years
Computer Equipment ......... 5 years
Furniture and Fixtures ...... 7 years
Leasehold Improvements ...... 5 years
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities.
Investments
The Company evaluates its investment policies consistent with Financial
Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FASB 115"). Accordingly, investment
securities are classified as available-for-sale securities and carried at fair
value, with temporary unrealized gains and losses reported as a separate
component of stockholders' equity. Realized losses are recorded for any decline
in value determined to be other-than-temporary on available-for-sale
securities.
Revenue Recognition
Revenue related to the sales of computer equipment is recorded at the time
of shipment. Service revenue and costs are recognized when services are
provided.
Net Income Per Common Share
Net income per common share is based on the weighted average number of
shares of common stock and dilutive common share equivalents outstanding during
each period. Dilutive common share equivalents include stock options.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
liquid instruments purchased with a maturity of three months or less to be cash
equivalents.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, prepaid expenses, accounts payable and
accrued liabilities, approximate fair value due to the relatively short
maturity of these instruments. The fair value of investments is estimated based
on quoted market price. The carrying value of the supplier credit facility and
long-term debt, including the current portion, approximates fair value based on
the incremental borrowing rates currently available to the Company for
financing with similar terms and maturities.
F-8
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
Unaudited Interim Financial Statements
In the opinion of management, the unaudited consolidated financial
statements for the six months ended March 31, 1996 and 1997 are presented on a
basis consistent with the audited consolidated financial statements and reflect
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results thereof. The results of operations for the
six months ended March 31, 1997, are not necessarily indicative of the results
to be expected for the year ending September 30, 1997.
Recently Issued Pronouncement
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
issued in February 1997, establishes standards for computing and presenting
earnings per share and is effective for periods ending after December 15, 1997.
This standard requires the Company to present basic earnings per share and
diluted earnings per share. The impact of adopting this standard has not yet
been determined.
Note 2 -- Investments
Investments consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Ameriquest Technologies, Inc.
(Formerly CMS Enhancements, Inc.)
Number of Shares ............... 300,000 300,000 300,000
Fair Value ..................... $ 412,500 $ 206,250 $ 206,400
Cost ........................... $1,612,500 $1,612,500 $1,612,500
</TABLE>
Marketable equity securities have been categorized as available for sale
and are stated at fair value. At September 30, 1995, an unrealized loss of
$1,200,000 is shown, net of deferred taxes of $480,000 as a separate component
of stockholders' equity until realized. The increase in the net unrealized loss
for the years ended September 30, 1995 and 1996 totaled $337,500 and $123,750,
respectively, and $67,500 for the six months ended March 31, 1996. As further
discussed in Note 15, the Company recorded a realized loss on available-for-
sale securities of $1,406,250 for the year ended September 30, 1996. The net
unrealized gain for the six months ended March 31, 1997, was $90.
Note 3 -- Property, Plant and Equipment
Property, plant and equipment is set forth below.
<TABLE>
<CAPTION>
September 30,
----------------------------- March 31,
1995 1996 1997
------------- ------------- -----------
(unaudited)
<S> <C> <C> <C>
Vehicles ................................. $ 33,182 $ 93,412 $ 119,159
Computer equipment ..................... 615,786 733,297 886,195
Furniture and fixtures .................. 267,090 360,106 442,145
Leasehold improvements .................. 76,017 93,243 93,243
---------- ---------- ----------
992,075 1,280,058 1,540,742
Accumulated depreciation ............... (592,367) (740,884) (817,594)
---------- ---------- ----------
Property, plant and equipment, net ...... $ 399,708 $ 539,174 $ 723,148
---------- ---------- ----------
</TABLE>
F-9
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 4 -- Other Assets
The Company is the owner and beneficiary of a $1,000,000 whole life policy
covering the life of the principal stockholder/officer. The cash surrender
value of life insurance included in Other Assets as of September 30, 1995,
September 30, 1996, and March 31, 1997, amounted to $137,546, $145,046, and
$145,046, respectively.
Note 5 -- Financing Arrangements
The Company entered into a formal credit agreement with the financing
subsidiary of its major supplier. Under the credit facility, the Company may
borrow up to 85% of receivables due within 90 days and up to 100% of eligible
inventory, to a maximum of $27,500,000. The agreement, which expires on
September 30, 1997, is subject to temporary increases, thereby increasing the
line of credit to $41,250,000 during certain periods.
As of September 30, 1995, September 30, 1996 and March 31, 1997,
borrowings outstanding under this facility were $10,591,511, $12,483,391, and
$6,867,271, respectively. For the years ended September 30, 1995 and 1996, and
for the six months ended March 31, 1996 and 1997, interest on the outstanding
borrowings was payable monthly at prime plus 1.625%, 1.375%, 1.625% and 1.375%,
respectively, or prime plus 6.5%, should the Company fail to meet certain
collateral requirements. Interest costs included in interest expense for the
years ended September 30, 1994, 1995, and 1996 totaled $726,367, $1,188,525,
and $1,381,373, respectively. Interest costs included in interest expense for
the six months ended March 31, 1996 and 1997, totaled $633,716 and $552,143,
respectively.
The credit facility contains certain financial covenants and is personally
guaranteed by the principal stockholder/officer of the Company. Additionally,
$4,772,075, $12,560,441, and $10,082,368, were included in accounts payable at
September 30, 1995, September 30, 1996, and March 31, 1997, respectively, and
are included against the maximum credit available.
F-10
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 6 -- Long-Term Liabilities
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1997
--------------- ------------
(unaudited)
<S> <C> <C>
Ford Motor Credit Corp.
Collateralized by a lien on a Company automobile; payable in 36 monthly
installments of $815 including interest of 9.0% per annum; final pay-
ment due October 1999. $ -0- $ 22,470
Collateralized by a lien on a Company automobile; payable in 36 monthly
installments of $1,194 including interest of 9.9% per annum; final pay-
ment due December 1998. 27,832 21,928
Collateralized by a lien on a Company automobile; payable in 36 monthly
installments of $678 including interest of 8.9% per annum; final pay-
ment due November 1998. 16,480 13,066
AT&T Credit Corp.
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $654 including interest of 14.446%
per annum; final payment due May 2001. .............................. 29,497 27,105
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $573 including interest of 15.089%
per annum; final payment due December 2000. ........................... 20,108 18,256
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $494 including interest of 9.9% per
annum; final payment due February 2002. .............................. -0- 23,000
--------- ---------
93,917 125,825
Less: Current maturities ............................................. (26,626) (40,669)
--------- ---------
$ 67,291 $ 85,156
========= =========
</TABLE>
Maturities of long-term liabilities as of March 31, 1997 are as follows:
1998 ...... $ 40,669
1999 ...... 38,958
2000 ...... 22,010
2001 ...... 17,673
2002 ...... 6,515
---------
$125,825
=========
Note 7 -- Capital Leases
As further discussed in Note 6, the Company began leasing telephone
equipment in December 1995. As of September 30, 1996 and March 31, 1997, the
gross assets capitalized under such leases totaled $54,486 and $77,980,
respectively, and the accumulated amortization totaled $3,892 and $7,934,
respectively. The amortization expense for the year ended September 30, 1996,
of $3,892 is included in depreciation expense. Amortization expense included in
depreciation expense for the six months ended March 31, 1997 is $4,042.
F-11
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 8 -- Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal ........................ $ 145,859 $ 148,504 $ 956,000 $ 262,000 $ 566,100
State ........................... 61,915 80,707 344,000 109,000 200,700
---------- ---------- ---------- ---------- ----------
Total Current ............ 207,774 229,211 1,300,000 371,000 766,800
---------- ---------- ---------- ---------- ----------
Deferred:
Federal ........................ 29,848 (4,626) (479,642) -0- -0-
State ........................ 5,267 (816) (84,472) -0- -0-
---------- ---------- ---------- ---------- ----------
Total Deferred ............ 35,115 (5,442) (564,114) -0- -0-
---------- ---------- ---------- ---------- ----------
Provision for Income Taxes ...... $ 242,889 $ 223,769 $ 735,886 $ 371,000 $ 766,800
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
The difference between the provision for income taxes at the Company's
effective income tax rate and the federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate ............ $ 198,113 $ 171,560 $563,920 $ 297,718 $ 617,819
State taxes, net of federal benefit ...... 44,340 52,728 122,735 71,940 132,462
Other .................................... 436 (519) 49,231 1,342 16,519
---------- ---------- --------- ---------- ----------
Provision for Income Taxes ............... $ 242,889 $ 223,769 $735,886 $ 371,000 $ 766,800
========== ========== ========= ========== ==========
</TABLE>
The tax effects of temporary differences giving rise to significant
portions of deferred taxes are as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------- March 31,
1995 1996 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Allowance for doubtful accounts ...... $ 20,000 $ 25,538 $ 30,000
Inventory capitalization ............ 21,753 15,742 16,000
Investments ........................... (161,000) (78,500) (78,560)
Depreciation ........................ -0- 5,840 5,360
Other .............................. 18,090 14,336 10,096
------------ ----------- -----------
Net deferred tax liability ............ $ (101,157) $ (17,044) $ (17,104)
============ =========== ===========
</TABLE>
Note 9 -- Stock Option Plan
On July 29, 1988, the stockholders approved a stock option plan. In
connection therewith, 1,000,000 shares of common stock are reserved for
issuance pursuant to options that may be granted under the plan through May 5,
1998. The options vest straight-line over a three-year period following the
date of grant.
F-12
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 9 -- Stock Option Plan -- (Continued)
A summary of stock option activity related to the Company's plan is as
follows:
<TABLE>
<CAPTION>
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Period Period Period Outstanding Exercisable
------------- --------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Number of shares ............... 0 302,000 0 0 302,000 0
Weighted average exercise price
per share ..................... 0 $ .95 0 0 $ .95 0
Year ended September 30, 1995
Number of shares ............ 302,000 768,000 0 502,000 568,000 0
Weighted average exercise price
per share ..................... $ .95 $ .72 0 $ .90 $ .69 0
Year ended September 30, 1996
Number of shares ............... 568,000 0 0 70,000 498,000 166,000
Weighted average exercise price
per share .................. $ .69 0 0 $ .68 $ .69 $ .69
Six months ended March 31, 1997
Number of shares ............ 498,000 0 0 0 498,000 166,000
Weighted average exercise price
per share .................. $ .69 0 0 0 $ .69 $ .69
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation ("FASB 123"), which is
effective for the Company's year beginning October 1, 1996. As permitted under
FASB 123, the Company has elected not to adopt the fair value based method of
accounting for its stock-based compensation plans, but will continue to account
for such compensation under the provisions of Accounting Principles Board
Opinion No. 25. FASB 123 requires pro forma disclosures of the effects of all
awards granted in years that begin after December 15, 1994, which would be the
Company's year beginning October 1, 1995 and ending September 30, 1996. There
is no impact of FASB 123 on the Company's operating results or financial
position, since the Company has not granted any options since June 30, 1995.
The weighted average per share fair value of the options granted during
the years ended September 30, 1994 and 1995 was estimated as $.13 and $.20,
respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
1994 1995
------------ ----------------
Risk-free interest rates ...... 6.53% 5.92-7.84%
Expected option lives ......... 4.33 years 3.17-3.75 years
Expected volatilities ......... 21.94% 22.03-23.87%
Expected dividend yields ...... 0% 0%
The weighted average remaining contractual life of the options outstanding
at March 31, 1997 is 1.417 years. The exercise price of such options range from
$.68 to $.75 per share.
F-13
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 10 -- 401(k) Plan
On January 1, 1994, the Company adopted a 401(k) Savings Plan (the "Plan")
for the benefit of all eligible employees. All employees as of the effective
date of the Plan became eligible. An employee who became employed after January
1, 1994, would become a participant after the completion of a half-year of
service and the attainment of 20 years of age.
Participants may elect to contribute from their compensation any amount up
to the maximum deferral allowed by the Internal Revenue Code. Employer
contributions are a discretionary percentage match. The Company may make
optional contributions for any plan year at its discretion.
During the years ended September 30, 1994, 1995, and 1996, the Company
incurred 401(k) costs totaling $100, $19,148, and $31,738, respectively. During
the six months ended March 31, 1997, the Company's 401(k) costs totaled $7,181.
Note 11 -- Sale of Subsidiary
Effective November 30, 1993, the Company exchanged 100% of the shares of a
subsidiary (Romel Technology, Inc. (d/b/a MSG)) for 300,000 shares of CMS
Enhancements, Inc. Such transaction qualified as a tax-
free reorganization under Section 368 of the Internal Revenue Code. The Company
realized a gain as a result of this transaction of $1,485,698, which is net of
deferred income taxes of $641,000. Included in the consolidated statement of
operations for the year ended September 30, 1994, are net sales of $4,127,768,
cost of sales of $3,775,372, and an operating loss of $22,432.
Note 12 -- Concentration of Credit Risk
Cash
The Company places most of its temporary cash investments with one
financial institution and normally exceeds the Federal Deposit Insurance
Corporation limit. The Company has not experienced any loss to date as a result
of this policy.
Major Customers
Computer sales encompass markets wherein the demands of any one customer
may vary greatly due to changes in technology. One customer accounted for 22%
of sales for the year ended September 30, 1994, and 31% of accounts receivable
as of September 30, 1994. In comparison, two customers accounted for 23% and
14%, respectively, of sales for the year ended September 30, 1995. One of these
customers accounted for 10% of accounts receivable as of September 30, 1995.
Two customers comprised 16% and 19%, respectively, of sales for the year ended
September 30, 1996. One of these customers accounted for 33% of accounts
receivable as of September 30, 1996. Two customers accounted for 26% and 13%,
respectively, of sales during the six months ended March 31, 1996. No single
customer comprised more than 10% of sales during the six months ended March 31,
1997. At March 31, 1997, one customer accounted for 15% of accounts receivable.
Purchases
The Company purchases a majority of goods from International Business
Machines Corporation, whose subsidiary represents the Company's major lending
source. The loss of this supplier could materially affect the Company.
Purchases from this supplier represented 70% of total purchases for each of the
years ended September 30, 1994 and 1995 and approximately 90% of total
purchases for the year ended September 30, 1996 and the six months ended March
31, 1996 and 1997.
F-14
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) -- (Continued)
Note 13 -- Commitments and Contingencies
The Company has operating leases on real property and equipment expiring
through the year 2002. In addition to fixed rentals, the real property leases
have escalation clauses that require the Company to pay a percentage of common
area maintenance, real estate taxes, and insurance.
Rent expense and other charges totaled $173,051, $255,307, and $253,412
for years ended September 30, 1994, 1995, and 1996, and $128,357 and $131,919
for the six months ended March 31, 1996 and 1997, respectively.
As of March 31, 1997, the future minimum rental commitments for the twelve
months ending March 31, are as follows:
1998 ...... $ 276,657
1999 ...... 254,748
2000 ...... 175,488
2001 ...... 130,704
2002 ...... 119,812
----------
$ 957,409
==========
The Company is a defendant in a lawsuit which alleges wrongful termination
of employment. The action has been in the discovery stage since 1992. While the
results of litigation cannot be predicted with any certainty, management
believes that the final outcome of such litigation will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows. Changes in assumptions, as well as actual experience,
could cause the estimates made by management to be altered.
In March 1997, the Company commenced operation of an IBM PC assembly
facility under IBM's Authorized Assembler Program (the "AAP"). Under the terms
of the AAP Agreement with IBM, the Company must purchase a sufficient number of
Base System Units and Approval Components to enable it to assemble at least 20%
of the Company's actual sales volume of PCs.
Note 14 -- Subsequent Events
In March 1997, the Company and an underwriter agreed to a proposed public
offering of the Company's common stock. In connection with the proposed public
offering, 150,000 warrants will be granted to the underwriter. The fair value
is estimated as $.55 per warrant using the Black-Scholes pricing model. The
fair value of these warrants will be offset against the offering proceeds at
the time of the initial public offering.
On March 31, 1997, the Company effected a two-for-one split of common
stock. All references in the accompanying consolidated financial statements and
notes thereto relating to common stock and additional paid-in capital, stock
options, per share and share data have been retroactively adjusted to reflect
the two-for-
one stock split.
On April 21, 1997, a special meeting of the stockholders was held to amend
the Certificate of Incorporation to increase the aggregate of authorized shares
of common stock from 5,000,000 shares of common stock to 40,000,000 shares of
common stock and to authorize 1,000,000 shares of preferred stock. The
preferred stock is not expected to be issued at any time in the near future.
The preferred stock's rights, preferences and characteristics will be
determined by the Board of Directors at such time as the preferred stock is
issued.
Note 15 -- Restatement of Financial Statements
The financial statements for the fiscal year ended September 30, 1996
originally reflected an unrealized loss on available-for-sale securities as a
separate component of stockholders' equity. The financial statements for the
year ended September 30, 1996 have been restated to reflect a realized loss on
available-for-sale securities, since the decline in value was determined to be
other-than-temporary as of that date. The effect of this adjustment was to
reduce retained earnings and unrealized loss on available-for-sale securities
as of September 30, 1996, and net income for the year then ended by $843,750,
which is net of income taxes in the amount of $562,500. In addition, earnings
per common share was reduced from $0.48 to $0.25 for the year ended September
30, 1996.
F-15
<PAGE>
================================================================================
No person is authorized in connection with any offering made hereby 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 or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security other than the shares of Common Stock offered hereby, nor
does it constitute an offer to sell or a solicitation of any offer to buy any
of the securities offered hereby to any person in any jurisdiction in which it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstance create any
implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs
of the Company since such date.
-----------------------------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary ........................ 3
Risk Factors .............................. 7
Use of Proceeds ........................... 14
Dividend Policy ........................... 14
Dilution ................................. 15
Capitalization ........................... 16
Selected Consolidated Financial Data ...... 17
Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............................. 18
Business ................................. 22
Management ................................. 31
Certain Transactions ..................... 37
Principal Stockholders ..................... 38
Description of Capital Stock ............... 39
Shares Eligible for Future Sale ............ 41
Underwriting .............................. 42
Legal Matters .............................. 43
Experts .................................... 43
Additional Information ..................... 43
Index to Financial Statements ............ F-1
================================================================================
<PAGE>
================================================================================
1,500,000 Shares
SYSCOMM INTERNATIONAL
CORPORATION
Common Stock
-----------
PROSPECTUS
-----------
Commonwealth Associates
_____________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee and
the NASD filing fee.
SEC registration fee .................. $ 3,275.00
NASDAQ listing fee ..................... 28,853.00
NASD filing fee ........................ 2,125.60
Printing and engraving expenses ...... 100,000.00
Legal fees and expenses ............... 200,000.00
Accounting fees and expenses ......... 60,000.00
Transfer agent and registrar fee ...... 20,000.00
Miscellaneous ........................ 101,729.24
------------
Total .............................. $515,982.24
============
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate or limit the liability of a
directors (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) arising
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the Company'
By-Laws, any agreement, vote of shareholders or otherwise.
The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonably cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the applicable provisions, the Company has been informed 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.
Exhibits and Financial Statement Schedules
(a) Exhibits
#1.1 Form of Underwriting Agreement
#1.2 Form of Financial and Advisory Consulting Agreement
#3.1 Form of Amended and Restated Certificate of Incorporation
#3.2 Form of Amended and Restated By-Laws
4.1 Form of Common Stock Certificate
#4.2 Form of Representative's Warrant
5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
II-1
<PAGE>
<TABLE>
<S> <C>
#10.1 1988 Incentive Stock Option Plan
10.2 Inventory and Working Capital Financing Agreement, dated September 26, 1996, and amendment
thereto, dated October 31, 1996
10.3 Form of Employment Agreement between the Company and John H. Spielberger
10.4 Form of Employment Agreement between the Company and Thomas J. Baehr
10.5 Form of Employment Agreement between the Company and Dennis R. Wilson
10.6 Form of Employment Agreement between the Company and Norman Gaffney
10.7 Agreement for participation in the IBM Business Partner-PC, Authorized Assembler Program
(certain portions of this exhibit has been omitted. Confidential treatment has been
requested with respect to the omitted portions.)
#21.1 Subsidiaries of Registrant
23.1 Consent of Albrecht, Viggiano, Zureck & Company, P.C., Independent Auditors
*23.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
#24.1 Power of Attorney (included on signature page)
#27.1 Financial Statement Schedule
#99.1 Valuation and Qualifying Accounts Schedule (with consent)
</TABLE>
- ------------
# Previously filed.
Schedules other than the ones listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
Undertakings
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 the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issues.
The undersigned Registrant hereby undertakes to provide to the
Underwriter, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
The undersigned 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 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 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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to its Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in Hauppauge, New
York, on June 11, 1997.
SYSCOMM INTERNATIONAL CORPORATION
By: /s/ John H. Spielberger
-------------------------------------
John H. Spielberger, President
Dated: June 11, 1997
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on June 11, 1997.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ----------------------------------------------- -------------
<S> <C> <C>
/s/ John H. Spielberger Chairman of the Board of Directors, President June 11, 1997
- ------------------------- and Chief Executive Officer
John H. Spielberger
/s/ * Vice President and Director June 11, 1997
- -------------------------
Thomas J. Baehr
/s/ * Vice President, Chief Financial Officer, June 11, 1997
- ------------------------- Secretary and Director
Dennis R. Wilson
/s/ * Director June 11, 1997
- -------------------------
Norman Gaffney
/s/ * Director June 11, 1997
- -------------------------
John H. Spielberger
By /s/ John H. Spielberger
- -------------------------
John H. Spielberger
as attorney-in-fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- --------- -----------
<S> <C>
#1.1 Form of Underwriting Agreement
#1.2 Form of Financial and Advisory Consulting Agreement
#3.1 Form of Amended and Restated Certificate of Incorporation
#3.2 Form of Amended and Restated By-Laws
4.1 Form of Common Stock Certificate
#4.2 Form of Representative's Warrant
5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
#10.1 1988 Incentive Stock Option Plan
10.2 Inventory and Working Capital Financing Agreement, dated September 26, 1996, and amendment
thereto, dated October 31, 1996
10.3 Form of Employment Agreement between the Company and John H. Spielberger
10.4 Form of Employment Agreement between the Company and Thomas J. Baehr
10.5 Form of Employment Agreement between the Company and Dennis R. Wilson
10.6 Form of Employment Agreement between the Company and Norman Gaffney
10.7 Agreement for participation in the IBM Business Partner-PC, Authorized Assembler Program
(certain portions of this exhibit has been omitted. Confidential treatment has been
requested with respect to the omitted portions.)
#21.1 Subsidiaries of Registrant
23.1 Consent of Albrecht, Viggiano, Zureck & Company, P.C., Independent Auditors
23.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
#24.1 Power of Attorney (included on signature page)
#27.1 Financial Statement Schedule
#99.1 Valuation of Qualifying Accounts Schedule (with consent)
</TABLE>
- ------------
# Previously filed.
<PAGE>
Exhibit 4.1
To be filed manually
<PAGE>
Exhibit 4.1
To be filed manually
<PAGE>
Exhibit 5.1
June 9, 1997
Page 2
Writer's direct dial: (516) 663-6510
Writer's direct fax: (516) 663-6641
June 9, 1997
SysComm International Corporation
275 Marcus Boulevard
Hauppauge, NY 11788
Re: SysComm International Corporation
Gentlemen:
We have acted as counsel to SysComm International Corporation, a
Delaware corporation (the "Company"), in connection with its filing of a
Registration Statement (Registration No. 333-25593) (the "Registration
Statement") on Form S-1 with respect to: (i) 1,500,000 shares (the "Common
Shares") of Common Stock, $.01 par value of the Company, which are to be issued
and sold by the Company to a group of underwriters (the "Underwriters")
represented by Commonwealth Associates; and (ii) 225,000 shares of Common Stock
to be issued and sold by the Company upon exercise of an over-allotment option
(the "Over-Allotment Shares") granted to the Underwriters by the Company. Unless
otherwise defined herein, all capitalized terms used herein and not expressly
defined shall have the meaning given to them in the Registration Statement.
As counsel to the Company, we have examined the Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws and other
corporate records of the Company and have made such other investigations as we
have deemed necessary in connection with the opinion hereinafter set forth.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us.
Based solely upon and subject to the foregoing, we are of the opinion
that the Company's Common Shares and Over-Allotment Shares have been duly and
validly authorized and, when issued and paid for, will be duly and validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Prospectus constituting a part of said
Registration Statement.
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek, P.C.
--------------------------------------------
RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.
<PAGE>
Table of Contents
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
Section 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . .3
1.1. Special Definitions . . . . . . . . . . . . . . . . . .3
1.2. Other Defined Terms . . . . . . . . . . . . . . . . . . 11
1.3. Attachments . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES . . . . . . . 11
2.1. Credit Line . . . . . . . . . . . . . . . . . . . . . . 11
2.2. Product Advances . . . . . . . . . . . . . . . . . . . . 11
2.3. A/R Advances . . . . . . . . . . . . . . . . . . . . . . 13
2.4. Finance and Other Charges . . . . . . . . . . . . . . . 14
2.5. Statements Regarding Customer's Account. . . . . . . . . 15
2.6. Shortfall. . . . . . . . . . . . . . . . . . . . . . . . 15
2.7. Application of Payments. . . . . . . . . . . . . . . . . 15
2.8. Prepayment and Reborrowing By Customer . . . . . . . . . 16
Section 3. CREDIT LINE/ADDITIONAL PROVISIONS . . . . . . . . . . . 16
3.1. Ineligible Accounts. . . . . . . . . . . . . . . . . . . 16
3.2. Reimbursement for Charges. . . . . . . . . . . . . . . . 18
3.3. Lockbox and Special Account. . . . . . . . . . . . . . . 18
3.4. Collections. . . . . . . . . . . . . . . . . . . . . . . 18
3.5. Application of Remittances and Credits . . . . . . . . . 19
3.6. Power of Attorney. . . . . . . . . . . . . . . . . . . . 19
Section 4. SECURITY -- COLLATERAL. . . . . . . . . . . . . . . . . 20
4.1. Grant. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2. Further Assurances . . . . . . . . . . . . . . . . . . . 21
Section 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . 21
5.1. Conditions Precedent to the Effectiveness of
This Agreement . . . . . . . . . . . . . . . . . . . . 21
5.2. Conditions Precedent to Each Advance . . . . . . . . . . 22
Section 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 23
6.1. Organization and Qualifications. . . . . . . . . . . . . 23
<PAGE>
6.2. Rights in Collateral; Priority of Liens. . . . . . . . . 23
6.3. No Conflicts . . . . . . . . . . . . . . . . . . . . . . 23
6.4. Enforceability . . . . . . . . . . . . . . . . . . . . . 24
6.5. Locations of Offices, Records and Inventory. . . . . . . 24
6.6. Fictitious Business Names. . . . . . . . . . . . . . . . 24
6.7. Organization . . . . . . . . . . . . . . . . . . . . . . 24
6.8. No Judgments or Litigation . . . . . . . . . . . . . . . 24
6.9. No Defaults. . . . . . . . . . . . . . . . . . . . . . . 24
6.10. Labor Matters . . . . . . . . . . . . . . . . . . . . . 25
6.11. Compliance with Law . . . . . . . . . . . . . . . . . . 25
6.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.13. Compliance with Environmental Laws . . . . . . . . . . . 25
6.14. Intellectual Property . . . . . . . . . . . . . . . . . 26
6.15. Licenses and Permits . . . . . . . . . . . . . . . . . . 26
6.16. Investment Company . . . . . . . . . . . . . . . . . . . 26
6.17. Taxes and Tax Returns . . . . . . . . . . . . . . . . . 26
6.18. Status of Accounts . . . . . . . . . . . . . . . . . . . 27
6.19. Affiliate/Subsidiary Transactions . . . . . . . . . . . 27
6.20. Accuracy and Completeness of Information . . . . . . . . 27
6.21. Recording Taxes . . . . . . . . . . . . . . . . . . . . 27
6.22. Indebtedness . . . . . . . . . . . . . . . . . . . . . . 27
Section 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . 27
7.1. Financial and Other Information. . . . . . . . . . . . . 27
7.2. Location of Collateral . . . . . . . . . . . . . . . . . 30
7.3. Changes in Customer. . . . . . . . . . . . . . . . . . . 30
7.4. Corporate Existence . . . . . . . . . . . . . . . . . . 31
7.5. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6. Environmental Matters . . . . . . . . . . . . . . . . . 31
7.7. Collateral Books and Records/Collateral Audit . . . . . 32
7.8. Insurance; Casualty Loss . . . . . . . . . . . . . . . . 32
7.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10. Compliance With Laws . . . . . . . . . . . . . . . . . . 33
7.11. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 33
7.12. Intellectual Property . . . . . . . . . . . . . . . . . 33
7.13. Maintenance of Property . . . . . . . . . . . . . . . . 34
7.14. Collateral . . . . . . . . . . . . . . . . . . . . . . . 34
7.15. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 35
7.16 Financial Covenants; Additional Covenants . . . . . . . 35
Section 8. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 35
<PAGE>
8.1. Liens . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2. Disposition of Assets . . . . . . . . . . . . . . . . . 36
8.3. Corporate Changes . . . . . . . . . . . . . . . . . . . 36
8.4. Guaranties. . . . . . . . . . . . . . . . . . . . . . . 36
8.5. Restricted Payments . . . . . . . . . . . . . . . . . . 36
8.6. Investments . . . . . . . . . . . . . . . . . . . . . . 36
8.7. Affiliate/Subsidiary Transactions . . . . . . . . . . . 37
8.8. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.9. Additional Negative Pledges . . . . . . . . . . . . . . 37
8.10. Storage of Collateral with Bailees and Warehousemen . . 38
8.11. Use of Proceeds . . . . . . . . . . . . . . . . . . . . 38
8.12. Accounts . . . . . . . . . . . . . . . . . . . . . . . 38
8.13. Indebtedness. . . . . . . . . . . . . . . . . . . . . . 38
8.14. Loans . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1. Event of Default. . . . . . . . . . . . . . . . . . . . 38
9.2. Acceleration. . . . . . . . . . . . . . . . . . . . . . 40
9.3. Remedies. . . . . . . . . . . . . . . . . . . . . . . . 40
9.4. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 42
10.1. Term; Termination . . . . . . . . . . . . . . . . . . .42
10.2. Indemnification . . . . . . . . . . . . . . . . . . . . 43
10.3. Additional Obligations . . . . . . . . . . . . . . . . 43
10.4. Limitation of Liability . . . . . . . . . . . . . . . . 43
10.5. Alteration/Waiver . . . . . . . . . . . . . . . . . . . 44
10.6. Severability . . . . . . . . . . . . . . . . . . . . . 44
10.7. One Loan . . . . . . . . . . . . . . . . . . . . . . . 44
10.8. Additional Collateral . . . . . . . . . . . . . . . . . 44
10.9. No Merger or Novations. . . . . . . . . . . . . . . . . 45
10.10. Paragraph Titles . . . . . . . . . . . . . . . . . . . 45
10.11. Binding Effect; Assignment . . . . . . . . . . . . . . 45
10.12. Notices . . . . . . . . . . . . . . . . . . . . . . . . 45
10.13. Counterparts . . . . . . . . . . . . . . . . . . . . . 46
10.14. Attachment A modifications . . . . . . . . . . . . . . 46
10.15. Submission and Consent to Jurisdiction and
Choice of Law . . . . . . . . . . . . . . . . . . . . 46
10.16. Jury Trial Waiver . . . . . . . . . . . . . . . . . . . 47
<PAGE>
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented
or otherwise modified from time to time, this "Agreement") amends and restates
that Agreement for Wholesale Financing dated November 26, 1985 and May 7, 1992
(as amended from time to time, the "Financing Agreement") and is hereby made
this 24 day of September, 1996, by and between IBM Credit Corporation with a
place of business at 1500 RiverEdge Parkway, Atlanta GA 30328, a Delaware
corporation, ("IBM Credit"), and Information Technology Services, Inc. with a
place of business at 275 Marcus Blvd., Hauppauge, NY 11788-2022, a New York
corporation, ("Customer").
WITNESSETH
WHEREAS, IBM Credit and Customer are parties to that certain Financing
Agreement pursuant to which IBM Credit finances Customer's acquisition of
inventory and equipment;
WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers for distribution throughout the United States (the
"Products") (as of the date hereof the Authorized Suppliers are as set forth on
Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and its working capital requirements,
and IBM Credit is willing to provide such financing to Customer subject to the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
<PAGE>
acknowledged, the parties hereby agree that the Financing Agreement is hereby
amended and restated in its entirety as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1 Special Definitions. The following terms shall have the
following respective meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf
of Customer pursuant to Section 2.3 of this Agreement, including, as the context
may require, a WCO Advance, a PRO Advance and a Takeout Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Advance Term": shall be the collective or individual reference, as the
context may require, to a PRO Advance Term and a WCO Advance Term.
"A/R Finance Charges": as defined on Attachment A.
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to or on behalf
of Customer pursuant to this Agreement including, without limitation, (i)
Product Advances and (ii) A/R Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
<PAGE>
"Auditors": Albrecht, Viggiano, Zurech & Co., PC, or a nationally recognized
firm of independent certified public accountants selected by Customer and
satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
"Average Daily Balance": the sum of the Outstanding Product Advances or
Outstanding A/R Advances, as the case may be, as of the end of each day during a
calendar month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, in the form of Attachment F
hereto, detailing and certifying, among other items: a summary of Customer's
inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the
amounts and aging of all of Customer's Accounts, Customer's inventory on hand
financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice
price to Customer and the total of the line item values for all inventory listed
on the report, the amounts and aging of Customer's accounts payable as of a
specified date, all of Customer's IBM Credit borrowing activity during a
specified period and the total amount of
<PAGE>
Customer's Borrowing Base as well as Customer's Outstanding A/R Advances,
Outstanding Product Advances, Available Credit and any Shortfall Amount as of a
specified date.
"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or A/R Advance Term, whichever is applicable, expires on the
first through tenth of such calendar month; (2) the fifteenth day of a calendar
month if the Product Financing Period or A/R Advance Term, whichever is
applicable, expires on the eleventh through twentieth of such calendar month;
and (3) the twenty-fifth day of a calendar month if the Product Financing Period
or A/R Advance Term, whichever is applicable, expires on the twenty-first
through the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of
Attachment C.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Accounts": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
<PAGE>
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated and consolidating balance sheets,
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customer a financing charge. IBM Credit shall
calculate the Customer's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customer understands that IBM Credit may not offer or may cease to
offer a Free Financing Period for the Customer's purchases of Products.
"Free Financing Period Exclusion Fee": as defined in Attachment A.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
<PAGE>
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"IBM Credit": as defined in the caption.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases, (3) all obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations issued or created for the
account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the
<PAGE>
Collateral or the aggregate amount which IBM Credit would be likely to receive
(after giving consideration to reasonably likely delays in payment and
reasonable costs of enforcement) in the liquidation of such Collateral to
recover the Obligations in full, or (3) on the rights and remedies of IBM Credit
under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement, and
(2) any finance charge, fee, expense or other amount related to Advances charged
to Customer's account with IBM Credit.
<PAGE>
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Product Advances charged to Customer's account with IBM Credit.
"Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar
month.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) guaranties in favor of IBM Credit; and
(6) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate
<PAGE>
reserve or other appropriate provisions shall have been made therefor as
required to be in conformity with GAAP and an adverse determination in such
proceedings could not reasonably be expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of $50,000.00 (exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(7) extensions and renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness for which it secures, (B) such
Liens do not extend to any property other than property already previously
subject to the Lien and (C) such extended or renewed Liens are on terms and
conditions no more restrictive than the terms and conditions of the Liens being
extended or renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
<PAGE>
(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of
America National Trust & Savings Association as their prime or base rate, as of
the last Business Day of the calendar month immediately preceding the date of
determination, whether or not such announced rates are the actual rates charged
by such banking institutions to their most credit-worthy borrowers.
"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to
itself on behalf of Customer to repay all or a portion of a Product Advance that
is due and payable.
"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as
specified by Customer in the Request for A/R Advance with respect to such PRO
Advance, but in no event in excess of thirty days, commencing on the A/R Advance
Date for such PRO Advance.
"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered by such Authorized Supplier to IBM Credit describing Products
purchased by Customer, including any such advance made or committed to be made
as of the
<PAGE>
date hereof pursuant to the Financing Agreement.
"Product Financing Charge": as defined on Attachment A.
"Product Financing Period": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customer's business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.3.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.6.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
<PAGE>
"Takeout Advance": an A/R Advance made to existing creditors of Customer on
behalf of Customer, in an amount sufficient to discharge Customer's indebtedness
to such creditor.
"Termination Date": shall mean the date, after the first anniversary of the date
of this Agreement, specified in a written notice by IBM Credit to Customer that
IBM Credit intends to terminate thie Agreement which date shall be no less than
ninety (90) days following date of such notice.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
"WCO Advance": an A/R Advance, with a WCO Advance Term.
"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180)
days commencing on the A/R Advance Date for such WCO Advance.
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. Attachments. All attachments, exhibits, schedules and other addenda hereto,
including, without limitation, Attachment A and Attachment B, are specifically
incorporated herein and made a part of this Agreement.
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES
2.1. Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10. and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9., IBM Credit agrees to extend to the Customer a credit
line ("Credit Line") in the amount set forth in Attachment A pursuant to which
IBM Credit will make to the Customer, from time to time, Advances in an
aggregate amount
<PAGE>
at any one time outstanding not to exceed the Maximum Advance Amount.
Notwithstanding any other term or provision of this Agreement, IBM Credit may,
at any time and from time to time, in its sole discretion (x) temporarily
increase the amount of the Credit Line above the amount set forth in Attachment
A and decrease the amount of the Credit Line back to the amount of the Credit
Line set forth in Attachment A, in each case upon notice to the Customer and (y)
make Advances pursuant to this Agreement upon the request of Customer in an
aggregate amount at any one time outstanding in excess of the Credit Line.
2.2. Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customer's
purchase of Products from Authorized Suppliers. Customer hereby authorizes and
directs IBM Credit to pay the proceeds of Product Advances directly to the
applicable Authorized Supplier in respect of invoices delivered to IBM Credit
for such Products by such Authorized Supplier and acknowledges that each such
Product Advance constitutes a loan by IBM Credit to Customer pursuant to this
Agreement as if the Customer received the proceeds of the Product Advance
directly from IBM Credit.
(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Customer shall
repay each Product Advance no later than the Common Due Date for such Product
Advance. Customer may, at its option, repay each Product Advance by requesting
IBM Credit to apply all or any part of the principal amount of an A/R Advance to
the Outstanding Product Advances. Customer's request for such application shall
be made in accordance with Section 2. When so requested and subject to the terms
and conditions of this Agreement, IBM Credit shall apply the amount so requested
to the amounts due in respect of the Outstanding Product Advances. Nothing
contained herein shall relieve Customer of its obligation to repay Product
Advances when due. Each Product Advance shall accrue a finance charge on the
Average Daily Balance thereof from the end of the Free Financing Period, if any,
for such Product Advance, or if no such Free Financing Period shall be in
effect, from the date of invoice for such Product Advance, in each case,
<PAGE>
until such Product Advance shall become due and payable in accordance with the
terms of this Agreement, at a per annum rate equal to the lesser of (a) the
finance charge set forth in Attachment A to this Agreement as the "Product
Financing Charge" and (b) the highest rate from time to time permitted by
applicable law.
In addition, for any Product Advance with respect to which a Free Financing
Period shall not be in effect, Customer shall pay a Free Financing Period
Exclusion Fee. Such fee shall be due and payable on the Common Due Date for such
Product Advance. If it is determined that amounts received from Customer were in
excess of the highest rate permitted by law, then the amount representing such
excess shall be considered reductions to principal of Advances.
(C) Customer acknowledges that IBM Credit does not warrant the Collateral.
Customer shall be obligated to pay IBM Credit in full even if the Collateral is
defective or fails to conform to the warranties extended by the Authorized
Supplier. The Obligations of Customer shall not be affected by any dispute
Customer may have with any manufacturer, distributor or Authorized Supplier.
Customer will not assert any claim or defense which it may have against any
manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's
debt to IBM Credit in respect of the Outstanding Advances until such Supplier
Credits are applied by IBM Credit. Nothing in the Agreement affects Customer's
right to negotiate and resolve issues concerning Supplier Credits with
Authorized Sellers.
(E) IBM Credit may apply any payments and Supplier Credits received by IBM
Credit to reduce finance charges first and then to principal amounts of Advances
owed by Customer. IBM Credit may apply principal payments to the oldest
(earliest) invoices (and related Product Advances) first, but, in any case, all
principal payments will be applied in respect of the Outstanding
<PAGE>
Product Advances made for Products which have been sold, lost, stolen,
destroyed, damaged or otherwise disposed of prior to any other application
thereof.
(F) Customer will indemnify and hold IBM Credit harmless from and against
any claims or demands asserted by any Person relating to or arising from the
Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of Customer, or any act or failure to act by Customer except
to the extent such claims or demands are directly attributable to IBM Credit's
gross negligence or willful misconduct. Nothing contained in the foregoing shall
impair any rights or claims which the Customer may have against any
manufacturer, distributor or Authorized Supplier.
2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an
A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's
request for such an Advance ("Request for A/R Advance"). For any requested A/R
Advance pursuant to which monies will be disbursed to Customer or any Person
other than IBM Credit, a Request for A/R Advance shall be delivered to IBM
Credit on or prior to 1:00 p.m. (Stamford, CT time) one Business Day prior to
the requested A/R Advance Date. The Request for A/R Advance shall specify (i)
the requested A/R Advance Date;
(ii) the amount of the requested A/R Advance; (iii) whether such A/R Advance is
a WCO Advance or a PRO Advance; (iv) if applicable, the PRO Advance Term for
such A/R Advance; (v) for each PRO Advance, the month, day and year of the
Common Due Date, as set forth in Customer's applicable billing statement from
IBM Credit, for the Product Advance to which the PRO Advance is to be applied;
and (vi) if applicable, the amount of the requested A/R Advance that should be
applied to the Outstanding Product Advances (provided that all PRO Advances
shall be applied to Outstanding Product Advances). Customer may deliver a
Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to
IBM Credit shall be irrevocable. Notwithstanding any other provision of this
Agreement, Customer shall not (i)
<PAGE>
request more than one PRO Advance in respect of any Product Advance; and (ii)
request a PRO Advance for any Common Due Date on which Customer will take a
discount offered by IBM Credit for invoice amounts paid in full within fifteen
days of the invoice date under IBM Credit's High Turnover Option ("HTO")
Program.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to the Customer in immediately
available funds to an account maintained by Customer (or in the case of a
Takeout Advance, as directed by Customer). If IBM Credit is making an A/R
Advance hereunder on a day on which Customer is to repay all or any part of an
Outstanding Advance (or any other amount owing hereunder), IBM Credit shall
apply the proceeds of the A/R Advance to such repayment and only an amount equal
to the difference, if any, between the amount of the A/R Advance and the amount
being repaid shall be made available to Customer as provided in the immediately
preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "A/R
Finance Charge" for such type of A/R Advance, and (b) the highest rate from time
to time permitted by applicable law. If it is determined that amounts received
from the Customer were in excess of such highest rate, then the amount
representing such excess shall be considered reductions to principal of
Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance, other than a Takeout Advance, shall be due
and payable on the applicable Common Due Date. Unless otherwise notified by
Customer in writing prior to the day the principal amount of any WCO Advance
becomes due and payable, the Customer shall be deemed to have provided IBM
Credit with a Request for A/R Advance requesting a WCO Advance on the day such
principal amount is due and payable in an amount equal to the unpaid principal
amount of the WCO Advance so due. Subject to the terms and conditions of this
<PAGE>
Agreement, the principal amount of such WCO Advance shall automatically renew
for an additional WCO Advance Term. Notwithstanding any other provision of this
Agreement, a Takeout Advance may only be requested on the Closing Date and such
Takeout Advance shall be limited to an amount sufficient to discharge the
indebtedness that is the subject of a Takeout Advance.
Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to
the Schedule of Repayments in Attachment D to this Agreement.
2.4. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Financing Charge or A/R
Finance Charge provided for in this Agreement by Customer's applicable Average
Daily Balance. The Delinquency Fee Rate, the Product Financing Charge and the
various A/R Finance Charges provided for in this Agreement are each computed on
the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by Customer. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customer's
outstanding Advances.
(D) If any amount owed under this Agreement, including, without limitation,
any Advance, is not paid when due (whether at maturity, by acceleration or
otherwise), the unpaid amount thereof will bear a late charge from and including
its due date to but not including the date IBM Credit receives payment
<PAGE>
thereof, at a per annum rate equal to the lesser of (a) the amount set forth in
Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest
rate from time to time permitted by applicable law. In addition, if any
Shortfall Amount shall not be paid when due pursuant to Section 2.6 hereof,
Customer shall pay IBM Credit a Shortfall Transaction Fee. If it is determined
that amounts received from Customer were in excess of such highest rate, then
the amount representing such excess shall be considered reductions to principal
of Advances.
2.5. Statements Regarding Customer's Account. IBM Credit will send statements of
each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) calendar days after such statement of transaction or billing
statement is received by Customer, Customer provides IBM Credit written notice
objecting that such amount or transaction is incorrectly described therein and
specifying the error(s), if any, contained therein. IBM Credit may at any time
adjust such statements of transaction or billing statements to comply with
applicable law and this Agreement.
2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall Amount.
2.7. Application of Payments. (A) The Customer hereby agrees that IBM Credit may
from time to time (x) apply any and all monies, reserves and proceeds received
or collected by IBM Credit with respect to Accounts and other Goods or property
of Customer in the possession of IBM Credit at any time or times hereafter,
including without limitation any and all funds collected from the lockboxes, to
pay or prepay, as the case may be, in the following order (i) any Finance
Charges or fees, (ii) any
<PAGE>
Takeout Advance due and payable, (iii) any WCO and PRO Advances outstanding, in
order of maturity, whether or not such advantages are then due and payable, (iv)
any Product Advances outstanding, in order of maturity, whether or not such
advances are then due and payable, including prior to the conclusion of any
applicable No-Charge Financing Days and (v) any other amounts owing by Customer
to IBM Credit or (y) in IBM Credit's sole and absolute discretion, disburse any
and all such monies, reserves and proceeds to Customer.
(B) Customer agrees that IBM Credit may, but shall not be obligated to,
cause funds collected from the lockboxes to be swept on a daily basis; provided,
however, that such funds shall be swept no less than once each week.
2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customer or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of services
on non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services, except for those
<PAGE>
Accounts agreed to in writing by IBM Credit;
(B) Accounts unpaid more than ninety (90) days from date of invoice, except
for those Accounts agreed to in writing by IBM Credit;
(C) Accounts payable by an Account debtor if fifty percent (50%) or more of
the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
(D) Accounts payable by an Account debtor that is an Affiliate of Customer,
or an officer, employee, agent, guarantor, stockholder of Customer or an
Affiliate of Customer, or is related to or has common shareholders, officers or
directors with Customer;
(E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which the payment by
the Account debtor is or may be conditional;
(G) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which:
(i) the Account debtor is not a commercial entity, or
(ii) the Account debtor is not a resident of the United
States;
(H) Accounts payable by any Account debtor to which Customer is or may
become liable for goods sold or services rendered by such Account debtor to
Customer;
(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that has
been used for demonstration purposes or loaned or
<PAGE>
leased by the Customer to another party, except for those Accounts agreed to in
writing by IBM Credit;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest;
(M) Accounts payable by an Account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person, other than IBM Credit, who pays
the proceeds of such financing directly to Customer on behalf of such debtor;
(P) Accounts arising from the sale or lease of goods which are billed to
any Account debtor but have not yet been shipped by Customer;
(Q) Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto, except for those Accounts agreed to in writing by IBM
Credit;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its account debtors, or for any longer
period of time;
<PAGE>
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that are billed
in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits,
and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts".
3.2. Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution(s) listed in Attachment A (each, a "Bank")
pursuant to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also establish and maintain
a deposit account which shall contain only proceeds of Customer's Accounts
("Special Account") with each Bank. Customer shall enter into and maintain a
blocked account agreement with each Bank for the benefit of IBM Credit in form
and substance satisfactory to IBM Credit pursuant to which, among other things,
such Bank shall agree that, upon notice from IBM Credit, disbursements from the
Special Account shall be made only as IBM Credit shall direct.
3.4. Collections. Customer shall instruct all Account debtors to remit payments
directly to a Lockbox. In addition, Customer
<PAGE>
shall have such instruction printed in conspicuous type on all invoices.
Customer shall instruct such Bank to deposit all remittances to such Bank's
Lockbox into its Special Account. Customer further agrees that it shall not
deposit or permit any deposits of funds other than remittances paid in respect
of the Accounts into the Special Account(s) or permit any commingling of funds
with such remittances in any Lockbox or Special Account. Without limiting the
Customer's foregoing obligations, if, at any time, Customer receives a
remittance directly from an account debtor, then Customer shall make entries on
its books and records in a manner that shall reasonably identify such
remittances and shall keep a separate account on its record books of all
remittances so received and deposit the same into a Special Account. Until so
deposited into the Special Account, Customer shall keep all remittances received
in respect of Accounts separate and apart from Customer's other property so that
they are capable of identification as the proceeds of Accounts in which IBM
Credit has a security interest.
3.5. Application of Remittances and Credits. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited into
the Special Account. Customer also agrees to apply each remittance against its
respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition, Customer shall
promptly apply any credits owing in respect to any Account when due.
3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;
<PAGE>
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any
Accounts;
(E) settle, adjust or compromise any legal proceedings
brought to collect any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation;
<PAGE>
(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
(M) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to enforce any and all remedies it may have
under this Agreement, at law or otherwise; and
(N) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(O) take control in any manner of any term of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1. Grant. To secure Customer's full and punctual payment and performance of
the Obligations when due (whether at the stated maturity, by acceleration or
otherwise), Customer hereby grants IBM Credit a security interest in all of
Customer's right, title and interest in and to the following property, whether
now owned or hereafter acquired or existing and wherever located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to
<PAGE>
Customer, whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services and all books, invoices, documents and
other records in any form evidencing or relating to any of the foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral".
Customer covenants and agrees with IBM Credit that: (a) the security constituted
to by this Agreement is in addition to any other security from time to time held
by IBM Credit and (b) the security hereby created is a continuing security
interest and will cover and secure the payment of all Obligations both present
and future of Customer to IBM Credit.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.
<PAGE>
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of This Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by Customer and
IBM Credit;
(B) (i) copies of the resolutions of the Board of Directors of Customer
certified by the secretary or assistant secretary of Customer authorizing the
execution, delivery and performance of this Agreement and each Other Document
executed and delivered in connection herewith, (ii) a certificate of the
secretary or an assistant secretary of Customer, in form and substance
satisfactory to IBM Credit, certifying the names and true signatures of the
officers of Customer authorized to sign this Agreement and the Other Documents
and (iii) copies of the articles of incorporation and by-laws of Customer
certified by the secretary or assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(D) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Documents, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Documents;
(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each
Bank in form and substance satisfactory to IBM Credit;
<PAGE>
(G) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;
(H) a favorable opinion of counsel for Customer in substantially the form
of Attachment I;
(I) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets;
(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(K) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2. Conditions Precedent to Each Advance. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection herewith, are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result which would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
<PAGE>
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.3 (D)) for
an Advance hereunder and the receipt (or deemed receipt) by the Customer of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Customer that, as of and on the date of such Advance, the statements
set forth in (A) through (D) above are true statements. No such disclosures by
Customer to IBM Credit shall in any manner be deemed to satisfy the conditions
precedent to each Advance that are set forth in this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i)
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and authority
to own its properties and assets and to transact the businesses in which it
presently is engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the
Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties
and the Other Documents in the Collateral constitute the valid and enforceable
first, prior and perfected Liens on the Collateral, except to the extent any
<PAGE>
Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Documents (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location. There is no jurisdiction in which Customer has any assets, equipment
or inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
<PAGE>
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.
6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to which
it is a party or by which it, or any of its properties are bound. Customer has
no knowledge of any dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment. No Default or Event of Default has
occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could reasonably
be expected to have a Material Adverse Effect.
<PAGE>
6.11. Compliance with Law. Customer has not violated or failed
to comply with any Requirement of Law or any requirement of any
self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan. Customer
has no "multi-employer benefit plan". As used in this Agreement the terms
"employee benefit plan", "employee pension benefit plan", "defined benefit
plan", and "multi-employer benefit plan" have the respective meanings assigned
to them in Section 3 of ERISA and any applicable rules and regulations
thereunder. The Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC") in connection with a Plan (other than for
premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer has no
knowledge that (a) any of its real property (whether owned, leased, or otherwise
directly or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substances; (iv)
the Customer and its respective assets are not subject to any Environmental
Liability and, to the best of the Customer's knowledge, any threatened
<PAGE>
Environmental Liability; (v) the Customer has not received any notice of or
otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substances for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law;
(vii) there are no proceedings or investigations pending against Customer with
respect to any violation or alleged violation of any Environmental Law; provided
however, that the parties acknowledge that any generation, transportation, use,
storage and disposal of certain such Hazardous Substances in Customer's or its
Subsidiaries' business shall be excluded from representations (i) and (ii)
above, provided, further, that Customer is at all times generating,
transporting, utilizing, storing and disposing such Hazardous Substances in
accordance with all applicable Environmental Laws and in a manner designed to
minimize the risk of any spill, contamination, release or discharge of Hazardous
Substances other than as authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses, patents,
patent applications, copyrights, service marks, trademarks, trade names and
trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
<PAGE>
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.
6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and
local tax returns and other reports which it is required by law to file, and has
either duly paid all taxes, fees and other governmental charges indicated to be
due on the basis of such reports and returns or pursuant to any assessment
received by the Customer, or made provision for the payment thereof in
accordance with GAAP. The charges and reserves on the books of the Customer in
respect of taxes or other governmental charges are in accordance with GAAP. No
tax liens have been filed against Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide sale
and delivery of goods or rendition of services to customers, made by Customer,
in the ordinary course of its business; the goods and inventory being sold and
the Accounts created are its exclusive property and are not and shall not be
subject to any Lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever (other than Permitted Liens). The Customer's
customers have accepted goods or services and owe and are obligated to pay the
full amounts stated in the invoices according to their terms. There are no
proceedings or actions known to Customer which are pending or threatened against
any Material Account Obligor (as defined in Section 7.14(B) of this Agreement)
of any of the Accounts which could reasonably be expected to result in a
material adverse effect on the debtor's ability to pay the full amounts due to
Customer.
6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
<PAGE>
Subsidiary of the Customer is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of Customer's business and (ii) upon
fair and reasonable terms no less favorable to Customer than it could obtain in
a comparable arm's-length transaction with an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Document, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after the
end of each fiscal year of Customer (i) audited Financial Statements (provided
<PAGE>
that, to the extent not otherwise audited by the Auditors, the consolidating
Financial Statements may be unaudited) as of the close of the fiscal year and
for the fiscal year, together with a comparison to the Financial Statements for
the prior year, in each case accompanied by (a) either an opinion of the
Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) such Auditors' "Management Letter" to Customer, if any, (c) a
written statement signed by the Auditors stating that in the course of the
regular audit of the business of Customer and its consolidated Subsidiaries,
which audit was conducted by the Auditors in accordance with generally accepted
auditing standards, the Auditors have not obtained any knowledge of the
existence of any Default under any provision of this Agreement, or, if such
Auditors shall have obtained from such examination any such knowledge, they
shall disclose in such written statement the existence of the Default and the
nature thereof, it being understood that such Auditors shall have no liability,
directly or indirectly, to anyone for failure to obtain knowledge of any such
Default; (ii) if composed, a narrative discussion of the consolidated financial
condition and results of operations and the consolidated liquidity and capital
resources of Customer and its Subsidiaries for such fiscal year prepared by the
chief executive officer or chief financial officer of Customer; and (iii) a
Compliance Certificate along with a schedule, in substantially the form of
Attachment C hereto, of the calculations used in determining, as of the end of
such fiscal year, whether Customer is in compliance with the financial covenants
set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter of Customer (i) Financial Statements as of the
end of such period and for the fiscal year to date, together with a comparison
to the Financial Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance with GAAP; (ii) if composed, a narrative discussion of the
<PAGE>
consolidated financial condition and results of operations and the consolidated
liquidity and capital resources of Customer and its Subsidiaries for such period
and for the fiscal year to date prepared by the chief executive officer or chief
financial officer of Customer; and (iii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal quarter, whether Customer is
in compliance with the financial covenants set forth in Attachment A;
(C) as soon as available and in any event within thirty (30) days after the
end of each fiscal month of Customer (i) Financial Statements as of the end of
such period and for the fiscal year to date, together with a comparison to the
Financial Statements for the same periods in the prior year, all in reasonable
detail and duly certified (subject to normal year-end audit adjustments and
except for the absence of footnotes) by the chief executive officer or chief
financial officer of Customer as having been prepared in accordance with GAAP;
(ii) if composed, a narrative discussion of the consolidated financial condition
and results of operations and the consolidated liquidity and capital resources
of Customer and its Subsidiaries for such period and for the fiscal year to date
prepared by the chief executive officer or chief financial officer of Customer;
and (iii) a Compliance Certificate along with a schedule, in substantially the
form of Attachment C hereto, of the calculations used in determining, as of the
end of such fiscal month, whether Customer is in compliance with the financial
covenants set forth in Attachment A;
(D) as soon as available and in any event within sixty (60) days after the
end of each fiscal year of Customer (i) projected Financial Statements, broken
down by quarter, for the then current fiscal year; and (ii) if composed, a
narrative discussion relating to such projected Financial Statements;
(E) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of the chief executive officer
<PAGE>
or chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(F) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
the chief executive officer or chief financial officer of Customer specifying
the nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
(G) promptly after Customer obtains knowledge that (i) any order, judgment
or decree in excess of $50,000.00 shall have been entered against Customer or
any of its properties or assets, or (ii) it has received any notification of a
material violation of any Requirement of Law from any Governmental Authority, a
certificate of the chief executive officer or chief financial officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(H) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of the chief
executive officer or chief financial officer of Customer specifying the nature
thereof and the Customer's proposed response thereto, each in reasonable detail;
(I) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any guarantor's business affairs and financial condition;
(J) by the fifth (5th) day of each month, or as otherwise agreed in
<PAGE>
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month;
(K) along with the Financial Statements set forth in Section 7.1(A) and
(B), the name, address and phone number of each of its account debtors' primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and
(L) within five (5) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders, and within five
(5) days after the same are filed, copies of all financial statements and
reports which Customer may make to, or file with, the Securities and Exchange
Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, and which signature shall be
deemed a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading at such time. Each financial statement
delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
7.3. Changes in Customer. Customer shall provide thirty (30) days prior written
notice to IBM Credit of any change in Customer's name, chief executive office
and principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
<PAGE>
under this Agreement or any Other Document limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns
of the occurrence of any event which would constitute a "reportable event" under
ERISA or any regulations thereunder with respect to any Plan, or that the PBGC
has instituted or will institute proceedings to terminate any Plan.
Notwithstanding the foregoing, the Customer shall have no obligation to notify
IBM Credit as to any "reportable event" as to which the 30-day notice
requirement of Section 4043(b) has been waived by the PBGC, until such time as
such Customer is required to notify the PBGC of such reportable event. Such
notification shall include a certificate of the chief financial officer of
Customer setting forth details as to such "reportable event" and the action
which Customer proposes to take with respect thereto, together with a copy of
any notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
<PAGE>
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge
of (i) any non-routine proceeding or investigation by any Governmental Authority
with respect to the presence of any Hazardous Substances on or in any property
now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, and (iv) any
occurrence or condition which could constitute a violation of any Environmental
Law.
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, (iii)
discussing the affairs, finances and business of Customer with any officers,
employees and directors of Customer or with the Auditors and (iv) verifying
Eligible Accounts and other Collateral. Customer also agrees to provide IBM
Credit with such reasonable information and documentation that IBM Credit deems
necessary to conduct the foregoing activities, including, without limitation,
reasonably requested samplings of purchase orders, invoices and evidences of
<PAGE>
delivery or other performance.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice of
any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient
detail, of any substantial change relating to the type, quantity or quality of
the Collateral, or any event which could reasonably be expected to have a
Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance; Casualty Loss. (A) Customer agrees to maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In addition,
all Policies so maintained are to name IBM Credit as an additional insured as
its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall keep
and maintain, at its sole expense, the Collateral insured for an amount not less
<PAGE>
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy with companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit. Upon
receipt of proceeds by IBM Credit the same shall be applied on account of the
Customer's Outstanding Product Advances first, then to the Outstanding A/R
Advances. Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent instruments furnished
to IBM Credit, at least ten (10) days written notice before any Policy shall be
altered or cancelled and that no act or default of Customer or any other person
shall affect the right of IBM Credit to recover under the Policies. Customer
hereby agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit.
If Customer fails to pay any cost, charges or premiums, or if Customer fails to
insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any
amounts paid by IBM Credit hereunder shall be considered an additional debt owed
by Customer to IBM Credit and are due and payable immediately upon receipt of an
invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all
Requirements of Law applicable to the Collateral or any part
thereof, or to the operation of its business.
<PAGE>
7.11. Fiscal Year. Customer agrees to maintain its fiscal year ending September
30 unless Customer provides IBM Credit at least thirty (30) days prior written
notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. Collateral. Customer shall:
(A) from time to time upon request of IBM Credit, provide IBM Credit with
access to copies of all invoices, delivery evidences and other such documents
relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account debtor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account Debtor");
(C) promptly upon Customer's learning thereof, notify IBM Credit in writing
of any event which could reasonably be expected to cause any obligation of a
Material Account Debtor to become an Ineligible Account;
(D) keep all goods rejected or returned by any Account debtor and all goods
repossessed or stopped in transit by Customer from any account debtor segregated
from other property of Customer, holding the same in trust for IBM Credit until
<PAGE>
Customer applies a credit against such Account debtor's outstanding obligations
to Customer or sells such goods in the ordinary course of business, whichever
occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
<PAGE>
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith.
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Customer will comply, and cause
all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement,
as if such sections applied directly to such Subsidiaries.
7.16. Financial Covenants; Additional Covenants. Customer acknowledges
and agrees that Customer shall at all times maintain the financial
covenants and other covenants set forth in the attachments, exhibits and
other addenda incorporated in this Agreement.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of any assets other than (i) sales
of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
<PAGE>
voluntary dispositions of individual assets and obsolete or worn out property in
the ordinary course of business, provided, that the aggregate book value of all
such assets and property so sold or disposed of under this section 8.2 (ii) in
any fiscal year shall not exceed 5% of the consolidated assets of the Customer
as of the beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the prior written consent
of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve
or enter into or engage in any operation or activity materially different from
that presently being conducted by Customer, or Syscomm International
Corporation, other than the initial public offering contemplated by Customer, or
Syscomm International Corporation, and anticipated to occur prior to December
31, 1996.
8.4. Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any other
Person, except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities in connection with the sale of inventory or other
asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM
Credit.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any distribution, if such declaration or payment would cause
Customer to be in violation of its financial covenants or reasonably be expected
to have a Material Adverse Effect with IBM Credit, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of, any shares
of any class of capital stock of Customer or any warrants, options or rights to
purchase any such capital stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Customer; or (ii) make any
optional payment or prepayment on or redemption (including, without limitation,
<PAGE>
by making payments to a sinking or analogous fund) or repurchase of any
Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make, maintain
or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to principal
and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims against
others by reason of an event of bankruptcy or a composition or the readjustment
of debt or a reorganization of any debtor of Customer; and
(D) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation.
Investments that do not have a Material Adverse Effect on Customer's financial
condition, and do not cause a violation of the financial covenants established
by IBM Credit for Customer, will be considered by IBM Credit when presented in
writing by Customer.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
<PAGE>
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited transactions"
under the Code or ERISA, (C) fail to pay to any Plan any contribution which they
are obligated to pay under the terms of such Plan, if such failure would result
in a material "accumulated funding deficiency", whether or not waived, (D) allow
or suffer to exist any occurrence and during the continuance of a "reportable
event" or any other event or condition, which presents a material risk of
termination by the PBGC of any Plan (other than a "multi-employer benefit
plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in
this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA. For purposes of this Section 8.8, the terms material liability, tax,
penalty, accumulated funding deficiency and risk of termination shall mean a
liability, tax, penalty, accumulated funding deficiency or risk of termination
which could reasonably be expected to have a Material Adverse Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
<PAGE>
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral. Inventory stored in a location controlled by International
Business Machines Corporation shall not be a violation of this Negative
Covenant.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of
any Advances other than to acquire Products from Authorized Suppliers and for
its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would adversely affect IBM Credit's ability to collect payment on any
Account in whole or in part, except for such extensions, compromises or
settlements made by Customer in the ordinary course of its business, provided,
however, that the aggregate amount of such extensions, compromises or
settlements does not exceed five percent (5%) of the Customer's Accounts at any
time.
8.13. Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events
shall constitute an Event of Default by the Customer under this
Agreement and the Other Documents:
(A) The failure to make timely payment of the Obligations or
any part thereof when due and payable;
<PAGE>
(B) Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement or any Other Documents which could
reasonably be expected to have a Material Adverse Effect;
(C) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made which could reasonably be
expected to have a Material Adverse Effect;
(D) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
(E) Customer, any Subsidiary or any guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any guarantor or any of its respective properties or
have any of its respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that Customer, any Subsidiary or any guarantor shall have a period of forty-five
(45) days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any guarantor in an
amount in excess of $50,000.00 and such judgment is not satisfied, dismissed,
stayed or superseded by bond within thirty (30) days after the day of entry
thereof (and in the event of a stay or supersedeas bond, such judgment is not
discharged within thirty (30) days after termination of any such stay or bond)
<PAGE>
or such judgment is not fully covered by insurance as to which the insurance
company has acknowledged its obligation to pay such judgment in full;
(H) The dissolution or liquidation of Customer or any guarantor, or
Customer or any guarantor or its directors or stockholders shall take any action
to dissolve or liquidate Customer or any guarantor;
(I) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of his opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
(J) There issues a warrant of distress for any rent or taxes with respect
to any premises occupied by Customer in or upon which the Collateral, or any
part thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition which enables the holder of
any Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity thereof or the failure of Customer to pay when due any
such Indebtedness;
(M) Any guaranty of any or all of the Customer's Obligations executed by
any guarantor in favor of IBM Credit, shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void by a court
of competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(N) Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;
<PAGE>
(O) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customer: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(E) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and
(b) immediately terminate the Credit Line hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts, or IBM Credit may use (at
the expense of the Customer) such of the supplies or space of the Customer at
Customer's place of business or otherwise, as may be necessary to properly
<PAGE>
administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
procedure, or to take possession of any or all of the Collateral without
judicial process and to enter any premises where any Collateral may be located
for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion determines that
any of the Collateral requires rebuilding, repairing, maintenance or
preparation, IBM Credit shall have the right, at its option, to do such of the
aforesaid as it deems necessary for the purpose of putting such Collateral in
such saleable form as IBM Credit shall deem appropriate. The Customer hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and in
accordance with the terms of a repurchase agreement between IBM Credit and the
manufacturer or any supplier (including any Authorized Supplier) of such
<PAGE>
Collateral constitutes a commercially reasonable sale. The Customer agrees, at
the request of IBM Credit, to assemble the Collateral and to make it available
to IBM Credit at places which IBM Credit shall select, whether at the premises
of the Customer or elsewhere, and to make available to IBM Credit the premises
and facilities of the Customer for the purpose of IBM Credit's taking possession
of, removing or putting such Collateral in saleable form. If notice of intended
disposition of any Collateral is required by law, it is agreed that ten (10)
Business Days notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit
is hereby granted, upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, an irrevocable,
non-exclusive license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by the Customer in
its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by
any court process Customer hereby irrevocably waives to the extent permitted by
applicable law any bonds, surety and security relating thereto required by any
statute, court rule or otherwise as an incident to such possession and any
<PAGE>
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the extent
permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that Customer intends to terminate this Agreement which date
shall be no less than ninety (90) days following the receipt by IBM Credit of
such written notice, and (iii) termination by IBM Credit after the occurrence
and during the continuance of an Event of Default. Upon the date that this
Agreement is terminated, all of Customer's Obligations shall be immediately due
and payable in their entirety, even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to such
termination, or (ii) IBM Credit's rights hereunder, including, without
limitation IBM Credit's security interest in the Collateral.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless
IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
<PAGE>
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated to
indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of
IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM Credit
in performing in satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other charges relating
thereto, shall be a part of the Obligations, payable on demand and secured by
the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
<PAGE>
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Document shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Documents shall not waive or affect any
other Default by the Customer under this Agreement or any of the Other
Documents, whether such Default is prior or subsequent to such other Default and
whether of the same or a different type. None of the undertakings, agreements,
warranties, covenants, and representations of the Customer contained in this
Agreement or the Other Documents and no Default by the Customer shall be deemed
waived by IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
<PAGE>
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as IBM Credit may
from time to time determine, in its sole discretion.
10.9. No Merger or Novations. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customer and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customer under the Financing Agreement and any Other Document. Customer
acknowledges and agrees that such Obligations outstanding as of the date hereof
have not been satisfied or discharged and that this Agreement is not intended to
effect a novation of the Customer's Obligations under the Financing Agreement or
any Other Document.
(B) Neither the obtaining of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the Obligations of the Customer to
IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall
<PAGE>
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns; provided, that the Customer shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
1500 RiverEdge Parkway
Atlanta, GA 30328
Attention: Remarketer Finance Center Manager
Telecopy: (770) 644-4826
(ii) If to Information Technology Services, Inc. at:
Information Technology Services, Inc.
275 Marcus Blvd.
Hauppauge, NY 11788-2022
Attention: Chief Financial Officer
Telecopy: (516) 273-3681
or to such other address or number as each party designates to the other in the
manner prescribed herein.
<PAGE>
10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing
Period set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing Customer with a new Attachment A. Any such
new Attachment A shall be effective as of the date specified in the new
Attachment A.
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY DELIVERING SUCH PROCESS BY A PROCESS SERVER OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS
ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
<PAGE>
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO
ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.
INFORMATION TECHNOLOGY SERVICES, INC.
By: /s/ Dennis Wilson
----------------------------
Print Name: Dennis Wilson
--------------------
Title: Vice President
-------------------------
ACCEPTED this 31st day of October, 1996.
IBM CREDIT CORPORATION
By: /s/ Robert J. Halapin
--------------------------
Print Name: Robert J. Halapin
------------------
Title: Account Executive
-----------------------
<PAGE>
ATTACHMENT A, EFFECTIVE DATE September 24, 1996 ("IWCF ATTACHMENT A") TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED
SEPTEMBER 24, 1996
Customer: Information Technology Services, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line:Twenty Seven Million Five Hundred Thousand
($27,500,000.00);
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts as of the date
of determination as reflected in the Customer's most recent Collateral
Management Report, including A/R from Chase Manhattan Bank aged 90-120
days old; plus
(ii) Upon verification to IBM Credit's satisfaction and Notwithstanding
Section 3.1 of the IWCF, 85% on amounts of Deutsche Bank Accounts over 90
days, through 12/31/96; s to
(iii)100% of the Customer's inventory in the Customer's possession as of
the date of determination as reflected in the Customer's most recent
Collateral Management Report constituting Products (other than service
parts) financed through a Product Advance by IBM Credit. The value to be
assigned to such inventory shall be based upon the Authorized Supplier's
invoice price to Customer for Financed Products net of all applicable
price reduction credits.
<PAGE>
(C) Product Financing Charge: Prime Rate plus 1.375%
(D) Product Financing Period: 90 days
(E) Collateral Insurance Amount: Seven Million Dollars ($7,000,000.00)
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 1.625%
(ii) WCO Advance Charge: Prime Rate plus 1.625%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Free Financing Period Exclusion Fee: Product Advance multiplied by
0.40%
(J) Other Charges:
(i) Application Processing Fee: N/A
(ii) Monthly Service Fee: $1,500.00
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: ___________________________________________________________
Address: ________________________________________________________________
<PAGE>
_________________________________________________________________________
Phone: __________________________________________________________________
Lockbox Address: ________________________________________________________
Special Account #: ______________________________________________________
Name of Bank: ___________________________________________________________
Address: ________________________________________________________________
_________________________________________________________________________
Phone: __________________________________________________________________
Lockbox Address: ________________________________________________________
Special Account #: ______________________________________________________
Name of Bank: ___________________________________________________________
Address: ________________________________________________________________
_________________________________________________________________________
Phone: __________________________________________________________________
Lockbox Address: ________________________________________________________
Special Account #: ______________________________________________________
Name of Bank: ___________________________________________________________
Address: ________________________________________________________________
_________________________________________________________________________
Phone: __________________________________________________________________
<PAGE>
Lockbox Address: ________________________________________________________
Special Account #: ______________________________________________________
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
<PAGE>
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to officers or owners
as evidenced by an executed Notes Payable Subordination Agreement in favor
of IBM Credit.
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses, software
development costs, leasehold expenses, trademarks, trade
names, copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other
similar intangibles (but not including contract rights) and
other current and non-current assets;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term Assets.
<PAGE>
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions, that
require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial
ratios and amounts "AT ALL TIMES:"
a) Revenue on an annual basis (i.e., the current fiscal
year-to-date Revenue annualized) to Working Capital ratio
greater than zero and equal to or less than 37.00:1.0;
b) Net Profit after Tax to Revenue ratio equal to or
greater than 0.50 Percent;
d) Total Liabilities to Tangible Net Worth ratio greater
than zero and equal to or less than 9.8:1.0;
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
<PAGE>
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement:
. Executed Contingent Blocked Account Amendment;
. Executed Blocked Account Amendment;
. Executed Collateralized Guaranty of Syscom International, Inc.;
. Executed Notarized Personal Guaranty of John Spielberger;
. Executed Notarized Agreement from Non-Guaranteeing Spouse,
Catherine Spielberger;
. Executed guaranty of any shareholder(s) owning ten (10) percent
or more of the equity of Customer;
. Listing of all creditors providing accounts receivable financing
to Customer;
. A Collateral Management Report in the form of Attachment F as of
the Closing Date;
. A Compliance Certificate as to Customer's compliance with the financial
covenants set forth in Attachment A as of the last fiscal month of Customer
for which financial statements have been published;
. A Certificate of Location of Collateral whereby the Customer
certifies where Customer presently keeps or sells inventory,
equipment and other tangible Collateral;
. An Opinion of Counsel whereby the Customer's counsel states his or
her opinion about the execution, delivery and performance of the
Agreement and other documents by the Customer;
. Subordination or Intercreditor Agreements from all creditors having a lien
which is superior to IBM Credit in any assets that IBM Credit relies on to
satisfy Customer's obligations to IBM Credit;
<PAGE>
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement (continued):
A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement.
IWCF ATTACHMENT B TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
I. Liens. IBM Credit Corporation Pitney Bowes Credit
Pride Equipment Corporation
Microage Computer Centers, Inc.
II. Locations of Offices, Records and Inventory.
(A) Principal Place of Business and Chief Executive Office
275 Marcus Blvd.
Hauppauge, NY 11788
(B) Locations of Assets, Inventory and Equipment (including warehouses)
Location Leased (Y/N)
275 Marcus Blvd. Hauppauge NY Y
410 Levington Ave., NY NY Y
101 First Ave. Waltham, MA Y
<PAGE>
III. Fictitious Names.
Info-Tech
IV. Organization.
(A) Subsidiaries
Name Jurisdiction Owner Percent
None Owned
IWCF ATTACHMENT B TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF
AGREEMENT")
(B) Affiliates
Name Capacity
Syscomm International Corp. Parent (owns 100% of voting stock)
V. Judgments or Litigation.
Diggle vs. Syscomm International Corp. filed of record Nov. 1992
in Suffolk County Supreme Court.
<PAGE>
VI. Environmental Matters.
None
VII. Indebtedness.
IBM Credit Corporation
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
(INSERT RFC ADDRESS)
The undersigned authorized officers of Information Technology Services,
Inc. ("Info Tech"), hereby certify on behalf of the Customer, with respect to
the Inventory and Working Capital Financing Agreement executed by and between
Info Tech and IBM Credit Corporation ("IBM Credit") on September 24, 1996, as
amended from time to time (the "Agreement"), that (A) Info Tech has been in
compliance for the period from June 1, 1996 to August 31, 1996 with the
financial covenants set forth in Attachment A to the Agreement, as demonstrated
below, and (B) no Default has occurred and is continuing as of the date hereof,
except, in either case, as set forth below. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to them in the
Agreement.
I. Financial Covenants.
FINANCIAL COVENANTS REQUIRED ACTUAL
<PAGE>
Annualized Revenue 37 31.5
to Working Capital
Current Assets to -- 1.08
Current Liabilities
Net Profit After 0.5% 1.7%
Tax to Revenue
Total Liabilities 9.8 12.01
to Tangible Net
Worth
Tangible Net Worth -- 3,447,414
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Calculation of Tangible Net Worth.
Total Assets MINUS Total Liabilities 3,843,113
-----------------------
LESS:
goodwill -----------------------
organizational expenses -----------------------
<PAGE>
pre-paid expenses 215,253
-----------------------
deferred charges, etc. -----------------------
leasehold expenses 57,944
-----------------------
all other 87,479
-----------------------
callable/redeemable preferred stock -----------------------
officer, employee, director, stockholder 35,023
and affiliate receivables -----------------------
Total Tangible Net Worth 3,447,414
=======================
Attached hereto are Financial Statements as of and for the month of
August 31, 1996 ended on the applicable date, as required by Section 7.1 of
the Inventory and Working Capital Financing Agreement.
Submitted by:
Info Tech
- -----------------------------------------
(Customer Name)
By: /s/ Dennis Wilson
-------------------------------------
Print Name: Dennis Wilson
-----------------------------
Title: Vice President
----------------------------------
IWCF ATTACHMENT E TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
<PAGE>
AUTHORIZED SUPPLIERS
Ingram Alliance
Ingram Micro
Lexmark International
Merisel
Microage
IBM Marketing eps
PIA Technology
PCC (IBM)
Pennant (IBM)
IWCF ATTACHMENT F TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT')
(Customer Name)
COLLATERAL MANAGEMENT REPORT
FOR THE MONTH ENDING ______________
GROSS NET
COLLATERAL ADVANCE COLLATERAL
VALUE RATE VALUE
--------- ------- ----------
1. TOTAL INVENTORY
- IBM Credit Financed Attach. A $0.00
- In-Transit 0.00
(Obtain from IBM Credit)
- Returned Inventory 0.00
---------
TOTAL INVENTORY $0.00 ___% $0.00
(Attach Inventory Report (A))
<PAGE>
2. ELIGIBLE A/R Attach. B
- Gross Receivables $0.00
- Less Ineligibles:
A/R over 90 days 0.00
50% over 90 days 0.00
Other 0.00
---------
ELIGIBLE A/R $0.00 ___% $0.00
(Attach A/R Aging Report (B)) __________
3. TOTAL IBM CREDIT COLLATERAL $0.00
4. LESS NET IBM CREDIT OUTSTANDINGS $0.00
(Obtain from IBM Credit) __________
5. EXCESS COLLATERAL $0.00
(Total Collateral - Net Outstanding (greater) 0)
6. SHORTFALL $0.00
(Total Collateral - Net Outstanding (less than) 0)
(Attach Payment & Remittance Advice)
Signature _________________________________________ Date ___________
Title _________________________________________
IWCF ATTACHMENT G TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT')
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the (insert title of office held) of (insert Customer's
Name) ("insert abbreviated name"), hereby certifies with reference to the
Inventory and Working Capital Financing Agreement, dated (insert date Agreement
<PAGE>
signed), between (insert Customer's abbreviated name) and IBM Credit Corporation
as follows:
(a) The following are all the locations where (insert abbreviated name)
presently keeps or sells inventory, equipment or other tangible Collateral:
LOCATION LEASE (YES/NO)
IN WITNESS WHEREOF, I have hereunto set my hand this day of_________
_____________, 19__ .
_____________________________
(Customer Name)
By:__________________________
Title:_______________________
ATTACHMENT I
{LETTERHEAD OF CUSTOMER'S COUNSEL}
{DATE}
IBM Credit Corporation
_______________________
_______________________
<PAGE>
Re: ___________________________
Ladies and Gentlemen:
We have acted as counsel for __________________________, a
____________ corporation (the "Borrower") in connection with (A) the execution
and delivery of that certain Inventory and Working Capital Financing Agreement,
dated as of ________________, 19___ (the "Financing Agreement"), by and among
the Borrower and IBM Credit Corporation ("IBM Credit"), and the other
agreements, instruments, and documents executed and delivered by the Borrower in
connection with the Financing Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to such terms in
the Financing Agreement.
In this connection, we have examined the following documents:
(i) The Certificate of Incorporation and the By-laws of the
Borrower, each as amended to date;
(ii) The records of the proceedings taken by the Board of Directors of the
Borrower in connection with the execution, delivery, and performance of the
Financing Documents to which they are a party (as defined below);
(iii) The Financing Agreement;
(iv) The Contingent Blocked Account Amendment;
(v) Acknowledgement copies of the UCC-1 Financing Statements listed on
Exhibit A hereto (the "Financing Statements") executed by the Borrower naming it
as Debtor and IBM Credit as Secured Party and filed in the offices set forth on
Exhibit A;
(vi) {Additional Documents if necessary}
The documents referred to in clauses (iii) through (vi) above are
hereinafter referred to as the Financing Documents.
<PAGE>
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents, and, regarding documents
executed by parties other than the Borrower, that those parties had the power
and the capacity to enter into, execute, deliver and perform all obligations
under such documents, the due authorization of all requisite action with respect
to such documents, and the validity and binding effect of such documents upon
such other parties.
As to any facts material to this opinion, we have relied upon the
representations and warranties of the Borrower contained in each of of the
Financing Documents, and in certificates delivered by the Borrower pursuant to
each of the Financing Documents, statements, and representations of officers and
other representatives of the Borrower, and, as to the matters addressed therein,
certificates or correspondence from public officials. For purposes of the
opinion set forth in Paragraph 4, the term "Material Contracts" means the
agreements and instruments to which the Borrower is subject which have been
identified to us by officers of the Borrower and set forth on Exhibit B hereto
as the agreements and instruments which are material to the business or
financial condition of the Borrower; and the term "Material Orders" means those
orders and decrees to which the Borrower is subject which have been identified
to us by officers of the Borrower and set forth in Exhibit C hereto as the
orders and decrees, agreements, and instruments which are material to the
business or financial condition of the Borrower.
As used herein, the term "UCC" refers to the Uniform commercial Code
as in effect in the State of New York.
We are members of the bar in the State of ______________ and express
no opinion as to the laws of any other jurisdiction except the General
Corporation Law of the State of ____________ and the federal laws of the United
States of America.
Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
<PAGE>
1. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and is
duly qualified and authorized to do business and in good standing as a foreign
corporation in each jurisdiction where, to our knowledge, it presently is
engaged in business and is required to be qualified.
2. Borrower has all requisite corporate power and authority (a) to
own, lease, and operate its properties and assets and to carry on its business
as now being conducted; and (b) to execute, delivery, and performance of the
Financing Documents to which it is a party.
3. All corporate action on the part of the Borrower requisite for the
execution, delivery, and performance of the Financing Documents to which it is a
party has been duly taken.
4. The execution, delivery, and performance by the Borrower of the
Financing Documents to which it is a party will not (a) violate, be in conflict
with, result in the breach of, or constitute (with due notice or lapse of time,
or both) a default under (i) the Certificate of Incorporation or By-laws of
Borrower or any resolution of its Board Directors or any committee thereof, (ii)
any Material Contract, or (iii) any federal or state law (including, without
limitation, environmental or occupational health, and safety law), regulation,
rule, Material Order, or legal requirement of any federal, state, or public
authority or agency applicable to Borrower; or (b) result in the creation or
imposition of a lien of any nature whatsoever upon any of the Borrower's
property or assets other than as represented by the Financing Documents.
5. Borrower has obtained any and all consents, approvals, or other
authorizations required to be obtained pursuant to its Certificate of
Incorporation and By-laws in connection with the execution, delivery, and
performance of the Financing Documents. No consent, approval, or authorization
of or by any court, administrative agency, other governmental authority, or any
other Person is required in connection with the execution, delivery, and
performance by the Borrower of the Financing Documents that has not already been
obtained.
6. To our knowledge, there are no actions, proceedings, or
investigations pending or threatened against the Borrower which question the
validity of the
<PAGE>
Financing Documents to which it is a party or relating the transactions
contemplated thereby.
7. Each of the Financing Documents has been duly executed and delivered by
duly authorized officer of the Borrower and constitutes the legal, valid, and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except that, in each case, (i) enforcement may be
subject to and limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws now or hereafter in effect relating to creditors'
rights generally, (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought, and
(iii) certain of the remedial provisions including waivers with respect to the
exercise of remedies against the Collateral contained in the Financing Documents
may be unenforceable in whole or in part, but the inclusion of such provisions
does not affect the validity of the Financing Documents, each taken as a whole
and, the Financing Documents, each taken as a whole, contain adequate remedial
provisions for the practical realization of the security purported to be
afforded thereby.
8. The Financing Agreement is effective to create in favor of IBM Credit a
valid security interest within the meaning of the UCC in the Collateral as
security for the obligations purported to be secured thereby; and (ii) the
Financing Statements are in appropriate form and have been duly filed resulting
in a perfected security interest (as such term is defined in Section 9-303 of
the UCC) of IBM Credit in the Collateral in which security interests to which
Article 9 of the UCC applies.
9. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
This opinion is rendered solely to and for the benefit of IBM Credit in
connection with the execution and delivery of the Financing Documents and may
not be relied upon by any other person, firm, or corporation without our prior
written consent, except that it may be furnished to any prospective purchaser of
a participation in the rights of IBM Credit and may be furnished to and relied
upon by any Person which hereafter acquires such a participation.
<PAGE>
This opinion is limited to laws as currently in effect on the date hereto
and to the facts as they currently exist. We assume no obligation to revise,
supplement or otherwise update this opinion.
Very truly yours,
EXHIBIT A
UCC-1 FINANCING STATEMENT
EXHIBIT B
MATERIAL CONTRACTS
EXHIBIT C
MATERIAL ORDERS
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
PRIVATE EMPLOYMENT AGREEMENT
AGREEMENT dated as of the ___ day of June, 1997 by and between SysComm
International Corporation, a Delaware corporation with its principal office at
275 Marcus Avenue, Hauppauge, New York 11788 (hereinafter "SysComm" or the
"Company") and John H.
Spielberger (hereinafter the "Executive").
W I T N E S S E T H:
WHEREAS, SysComm, through its wholly owned subsidiary, Information
Technology Services, Inc. ("InfoTech"), is a supplier and systems integrator of
a broad range of computer and related products and provides professional
services ranging from basis equipment selection and procurement to complex
network design, integration and system support; and
WHEREAS, the Executive is currently employed by SysComm as its
President and Chief Executive Officer and by InfoTech as its Chief Executive
Officer; and
WHEREAS, SysComm and Executive wish to enter into an employment
agreement in order to assure the continued employment of the Executive by
SysComm for the period provided herein; and
WHEREAS, the Executive is willing to serve in the full-time employ of
SysComm for said period, and upon such other terms and conditions hereinafter
provided.
NOW, THEREFORE, SysComm and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive will continue to be employed as President
and Chief Executive Officer of SysComm and InfoTech for the term commencing on
the closing of the initial public offering by SysComm (the "Commencement Date")
and ending September 30, 1999 or on such earlier or later date as herein
provided (the "Term"). This Agreement shall automatically self renew thereafter
for one year unless at least thirty days prior to expiration of the existing
term either party gives written notice of cancellation to the other effective at
the end of the existing term.
2. Extent of Services The Executive shall devote his entire time,
attention and energies to his position and shall not, without the prior written
consent of SysComm, during the Term hereof, be engaged in any other business
activity, whether or not such business activity is competitive with the business
of SysComm; provided, that the Executive may continue to act as a consultant to
Ameriquest Technologies, Inc. and further provided that Executive may engage in
personal investment activities consistent with SysComm's Conflict of Interest
Policy then in existence. Except for periodic travel assignments, Executive
shall not, without his consent, be required to perform services at any place
other than on Long Island, New York. Services required to be performed for
SysComm hereunder shall also include any of its subsidiaries.
3. Compensation.
A. Base Salary. As full compensation for all services to be rendered
by the Executive to SysComm hereunder (including services on the Board of
Directors of SysComm and any subsidiary), SysComm will pay, or cause to be paid,
to him an annual base salary which, for the first year of this Agreement, shall
be One Hundred Forty Thousand ($140,000) Dollars (the "Base Salary"). The Base
Salary will be paid in equal monthly installments or such other normal periodic
payment schedule as SysComm may establish for its employees. Within ninety (90)
days following the end of SysComm's fiscal year, the Board of Directors (or a
Compensation Committee thereof) shall review the Executive's performance
hereunder and make any increases in the Executive's Base Salary as it shall deem
appropriate (and such adjusted amount shall be deemed to be the Base Salary),
taking into consideration such factors, without limitation, as the performance
of SysComm and the quality and extent of Executive's services.
<PAGE>
B. Performance Incentive Plan. The Executive will be eligible to
receive a bonus (the "Bonus") for the first year of this Agreement of 3% of all
of SysComm's pre-tax earnings (as defined herein). The Bonus will be paid
quarterly, based on the yield to date results as of the end of each fiscal
quarter. Within ninety (90) days following the end of SysComm's fiscal year, the
Board of Directors (or a Compensation Committee thereof) shall review the
Executive's performance hereunder and make any increases or decreases in the
Executive's Bonus for the fiscal year as it shall deem appropriate (and such
adjusted amount shall be deemed to be the Base Salary), taking into
consideration such factors, without limitation, as the performance of SysComm
and the quality and extent of Executive's services. As used herein, the term
"pre-tax earnings" shall mean gross profits (as defined herein) less selling and
administrative expenses and interest expense. As used herein, the term "gross
profits" shall mean net sales less cost of sales.
C. Benefits. The Executive will be eligible to participate, on the
same basis as other executives of SysComm, in its employee benefit programs, if
any, including without limitation, group life, health, accident, hospitalization
and disability insurance programs.
D. Reimbursement of Expenses. SysComm shall reimburse or cause to be
reimbursed to the Executive, all reasonable out-of-pocket expenses incurred by
him in the performance of his duties hereunder or in furtherance of the business
and/or interests of SysComm; provided that Executive shall furnish to SysComm a
satisfactory itemized account thereof.
E. Perquisites. SysComm shall allow the Executive to utilize a
Company automobile for which SysComm pays lease, insurance, repairs, gas, oil,
and fees.
4.seq level2 \h \r0 SysComm Policies. Executive agrees to be bound by
all of SysComm' policies in effect from time to time applicable to its
employees, including but not limited to, policies related to business ethics,
conflicts of interest, proprietary information and antitrust compliance, and
Executive agrees to sign any documents that SysComm requests evidencing such
agreement.
5. Indemnification. SysComm undertakes, to the extent permitted by law,
to indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of SysComm's business and within the scope of his
employment.
6. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs except, however, the Executive shall be
entitled to receive a Bonus if the Plan so provides. For purposes of this
Agreement, the Executive shall be deemed "disabled" if he has been unable to
perform his duties for six (6) consecutive months or an aggregate of nine (9)
months in any consecutive twelve (12) month period, all as determined in good
faith by the Board of Directors of SysComm.
B. If the Executive dies during the Term, the Corporation shall pay
to his estate, the Executive's then current Base Salary for a period of one year
from the date of death.
<PAGE>
C. SysComm shall, in the manner described in Section 6.D, have the
right to terminate the employment of the Executive under this Agreement for
"cause" and the Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to the Executive pursuant to Section 3 hereof through the date of
termination. "Cause" shall be deemed to be the commission of any of the
following acts by the Executive:
(i) The Executive shall have committed any material breach of any
of the provisions or covenants of this Agreement;
(ii) The Executive shall have wilfully refused or habitually
neglected to perform his duties or obligations, in all material respects, under
this Agreement;
(iii) The Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which, directly or indirectly,
causes SysComm or any of its subsidiaries to suffer any loss, fine, civil
penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or shall have
plead guilty or nolo contendere to, a felony or indictable offense (unless
committed in the reasonable, good faith belief that the Executive's actions were
in the best interests of SysComm and its stockholders and would not violate
criminal law).
D. If SysComm elects to terminate the Executive's employment for
cause as set forth in Section 6.C, above, it shall deliver written notice (the
"Termination Notice") thereof to the Executive, describing with reasonable
detail the "cause" giving rise to termination, and thereupon no further payments
of any type shall be made or shall be due or payable to Executive hereunder,
except as provided in the first sentence of Section 6.C; provided, however, that
with respect to any act of default set forth in clauses (i) and (ii) of Section
6.C, prior to termination by SysComm, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
E. Either party shall have the right to terminate this Agreement and
the Executive's employment hereunder without cause upon thirty (30) days prior
written notice.
F. If SysComm terminates the Executive's employment during the Term
hereof without cause, it shall pay to the Executive an amount equal to the sum
of (i) and (ii) below at the rate and on the terms specified therein: (i) his
total Base Salary for the remainder of the existing Term in the amount and at
the times required by Paragraph 3.A hereof or one year, whichever is greater;
and (ii) the value of incentive compensation under the plans and policies then
in effect (including, but not limited to, the right to participate in the Plan)
and to receive bonuses and performance awards and similar incentive compensation
benefits to which he would have been entitled hereunder at the time or times it
would otherwise have been payable, under the terms of such plans had he remained
in the employ of SysComm for the remainder of the remainder of the quarter in
which the termination without cause accrued. The term "without cause" includes
reasons other than the acts of default enumerated in Section 6.C. (i) through
(iv) above, and does not include the failure by the Company to set a bonus for
the Executive at any particular pay level, pursuant to Section 3.B., above.
7. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The Executive
covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than SysComm or
its subsidiaries), or use for his own account any customer lists, trade secrets,
or any secret or confidential information of any kind used by SysComm during his
employment, and made known (whether or not with the knowledge and permission of
SysComm, whether or not developed, devised, or otherwise created in whole or in
part by the efforts of the Executive, and whether or not a matter of public
knowledge unless as a result of authorized disclosure) to the Executive by
reason of his employment by SysComm. The Executive further covenants and agrees
that the knowledge and information which he has acquired or hereafter shall
acquire during his employment respecting such customer lists, trade secrets, and
secret or confidential information shall be held by him in trust for the sole
benefit of SysComm, its successors and assigns.
<PAGE>
B. Covenant Not to Compete. The Executive covenants and agrees that,
during the Term hereof and for one (1) year thereafter, he will not, without the
prior written consent of SysComm, directly or indirectly, and whether as
principal, agent, officer, director, employee, consultant, or otherwise, alone
or in association with any other person, firm, corporation, or other business
organization, carry on, or be engaged, concerned, or take part in, or render
services to, or own, share in the earnings of, or invest in the stock, bonds, or
other securities of any person, firm, corporation, or other business
organization (other than SysComm) engaged in a business in the Continental
United States which is similar to or in competition with any of the businesses
carried on by SysComm (a "Similar Business") except in the course of his
employment hereunder; provided, however, that the Executive may invest in stock,
bonds, or other securities of any Similar Business (but without otherwise
participating in the activities of such Similar Business) if (i) such stock,
bonds, or other securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934; and (ii) his investment does not exceed, in the case of any class
of the capital stock of any one issuer, 5% of the issued and outstanding shares,
or in the case of bonds or other securities, 5% of the aggregate principal
amount thereof issued and outstanding.
C. Covenant of Non-Interference. The Executive covenants and agrees
that during the Term hereof and for one (1) year thereafter he will not, whether
for his own account or for the account of any other person, firm, corporation or
other business organization, interfere with SysComm's relationship with, or
endeavor to entice away from SysComm, any person, firm, corporation or other
business organization who or which at any time during the term of the
Executive's employment with SysComm was an employee, consultant, agent, or
supplier, or a customer of, or in the habit of dealing with, SysComm.
D. Covenant Modification. If any provision of this Article 7 is held
by any court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent such court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
E. Covenant to Report. The Executive shall promptly communicate and
disclose to SysComm all inventions, discoveries improvements and new writings,
in any form whatsoever (hereinafter "Inventions"), including, without
limitation, all software, programs, routines, techniques, procedures, training
aides and instructional manuals conceived, developed or made by him during his
employment by SysComm, whether solely or jointly with others, and whether or not
patentable or copyrightable, (i) which relate to any matters or business of the
type carried on or being developed by SysComm, or (ii) which result from or are
suggested by any work done by him in the course of his employment by SysComm.
The Executive shall also promptly communicate and disclose to SysComm all other
data obtained by him concerning the business or affairs of SysComm in the course
of his employment by SysComm.
All written materials, records and documents made by the Executive
or coming into his possession during the Term concerning the business or affairs
of SysComm shall be the sole property of SysComm; and, upon expiration of the
Term or upon the request of SysComm during the Term, the Executive shall
promptly deliver the same to SysComm. The Executive agrees to render to SysComm
such reports of the activities undertaken by the Executive or conducted under
the Executive's direction pursuant hereto during the Term as SysComm may
request.
The Executive will assign to SysComm all right in the Inventions and
will assist SysComm or its designee during or subsequent to his employment, at
SysComm' sole expense, in filing patent and/or copyright applications on, and
obtaining for SysComm' benefit, patents and/or copyrights for, such Inventions
in any and all countries, and will assign to SysComm all such patent and/or
copyright applications, all patents and/or copyrights which may issue thereon,
said Inventions to be and remain the sole and exclusive property of SysComm or
its designee whether or not patented and/or copyrighted.
<PAGE>
8. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
SysComm, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and acknowledges that SysComm shall be
entitled to an injunction, without posting any bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in Article
7 hereof by the Executive or his associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other rights or remedies SysComm may possess. Nothing
contained in this Article 8 shall be construed to prevent SysComm from seeking
and recovering from the Executive damages sustained as a result of any breach or
violation by the Executive of any of the covenants or agreements contained in
this Agreement, and that in the event of any such breach, SysComm shall avail
itself of all remedies available both at law and in equity.
9. Executive's Representations. Executive represents to SysComm that to
the best of his knowledge he is under no obligation to any employer or third
party which would preclude the full, complete and unfettered discharge of his
duties under this Agreement.
10. Relationship to the Plan. Nothing herein contained shall be deemed
to modify the Plan in any respect except as specifically modified herein, and
except as so specifically modified the Plan shall in all respects be effective
according to its terms and conditions.
11. Notices.Any notice or other communication to a party under this
Agreement shall be in writing and delivered personally or by overnight mail,
with written receipt therefor, or by certified mail, return receipt requested,
and if delivered by certified mail, notice shall be considered given five (5)
days after it is mailed by certified mail, return receipt requested, to the
party at the following address or at such other address as the party may specify
by notice to the other:
If to the Executive:
31 Woodland Road
Miller Place, NY 11764
If to the Company:
SysComm International Corporation
275 Marcus Boulevard
Hauppauge, NY 11788
Attention: Chief Financial Officer
With a copy to:
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Managing Partner
12. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
13. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon SysComm, its successors and assigns. Executive may not
assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
14. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
15. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
<PAGE>
16. Conflicts of Interest. Annexed hereto as Schedule A, and made a
part hereof is a statement of SysComm' policy concerning conflicts of interest.
The Executive agrees to avoid any conflict between the Executive's own interests
and those of SysComm, including, without being limited thereto, the specific
situations and transactions set forth in Schedule A.
17. Business Ethics. Annexed hereto as Schedule B, and made a part
hereof is a statement of SysComm' policy on business ethics. The Executive
agrees to adhere to standards of business ethics set forth in Schedule B.
18. Breach of Executive's Obligations Set forth in Schedules A and B.
The failure by the Executive to observe and perform the obligations of the
Executive as set forth in Schedules A and B attached hereto shall be deemed a
material breach of this Agreement.
19. Entire Agreement. This Agreement, together with the attached
Schedules, constitutes the entire Agreement between the parties, and supersedes
all existing agreements between them with respect to the subject matter hereof.
It may only be changed or terminated by an instrument in writing signed by both
parties. Any covenants of the Executive contained in the Prior Agreement shall
survive the termination thereof.
20. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
SYSCOMM INTERNATIONAL CORPORATION
By:__________________________________________
Title:_______________________________________
---------------------------------------------
_______________________________, Executive
JOHN H. SPIELBERGER
<PAGE>
SCHEDULE A
SYSCOMM INTERNATIONAL CORPORATION
POLICY GOVERNING CONFLICTS OF INTEREST
The policy of SysComm International Corporation (including all
subsidiaries) (herein referred to as the "Company") with respect to conflicts of
interest requires that directors, officers and employees avoid any conflict
between their own interests and the interests of the Company, in dealing with
suppliers, customers and all other organizations or individuals doing or seeking
to do business with the Company. Moreover, the policy requires that all such
persons should avoid any conflict between their own interests and the interests
of the Company in the conduct of their personal affairs, including transactions
in securities of the Company or any affiliate or of any unaffiliated corporation
having a business relationship with the Company.
While it is not practicable to enumerate all situations which might
give rise to a violation of this policy, the examples given below indicate some
which should be avoided. Moreover, there will be situations which, while perhaps
justifiable, involve the appearance of a conflict of interest and they should be
carefully weighed.
It is considered to be in conflict with the Company's interest for a
director, officer or employee:
(a) or any dependent member of his or her family to have an interest in
any organization which has, or is seeking to have, business dealings with the
Company where there is an opportunity for preferential treatment to be given or
received, except (i) with the knowledge and written consent of a senior officer
(President or Corporate Vice President) of the Company, or (ii) in any case
where such an interest comprises securities in widely held corporations which
are quoted and sold on the open market [or in private corporation where the
interest in not material, [subject to paragraph (d)];
(b) or any dependent member of his or her family to buy, sell or lease
any kind of property, facilities or equipment from or to the Company or to any
company, firm or individual who is or is seeking to become a contractor,
supplier or customer, except with the knowledge and written consent of a senior
officer (President or Corporate Vice President) of the Company;
(c) to serve as an officer or director of any other company, or in any
management capacity for, or as a consultant to any individual, firm or other
company doing or seeking to do business with the Company, except with the
knowledge and written consent of a senior officer (President or Corporate Vice
President) of the Company;
(d) without proper authority to give or release to anyone not employed
by the Company any data or information of a confidential nature concerning the
Company such as that relating to decisions, plans, earnings, financial or
business forecasts, discoveries or competitive bids or otherwise use such
information which is not generally known to the public for personal advantage
and not in the best interests of the Company, as, for example, by acquiring or
selling, or inducing others to acquire or sell, any interest in securities of
the Company, or any other company involved in, or which may become involved, in
any transaction with the Company.
Notwithstanding the foregoing, the Company shall not unreasonably
withhold its consent to the release of such information as may have been
requested and reasonably needed by a prospective purchaser of the Executive's
stock.
(e) or any dependent member of his or her family to accept commissions;
a share in profits; gifts in cash; a gift certificate; travel or other payments;
loans or advances (other than form established banking or financial institutions
on normal commercial terms); materials, services, repairs or improvements at no
cost or at unreasonably low prices; excessive or extravagant entertainment; or
gifts of merchandise of more than nominal value from any organization, firm or
individual doing or seeking to do business with the Company, or for personal
advantage and not in the best interest of the Company, to provide any of the
foregoing to any such organization, firm or individual.
Date:__________________ ________________________________
Executive's Name (please print)
/s/______________________________
Executive's Signature
<PAGE>
SCHEDULE B
SYSCOMM INTERNATIONAL CORPORATION
POLICY STATEMENT ON BUSINESS ETHICS
The policy of SysComm International Corporation with respect to
business ethics is one of strict observance of all laws applicable to its
business.
Our policy does not stop there. Even where the law is permissive,
SysComm International Corporation chooses the course of the highest integrity.
Local customs, traditions and mores differ from place to place and those must be
recognized. But honesty is not subject to criticism in any culture. Shades of
dishonesty simply invite demoralizing and reprehensible judgments. A
well-founded reputation for scrupulous dealing is itself a priceless company
asset.
An overly ambitious employee might have the mistaken idea that we do
not care how results are obtained, as long as he gets results. He might think it
best not to tell higher management all that he is doing, not to record all
transactions accurately in his books and records, and to deceive the company's
internal and external auditors. He would be wrong on all counts.
We do care how we get results. We expect compliance with our standard
of integrity throughout the organization. We will not tolerate an employee who
achieves results at the cost of violation of laws or unscrupulous dealing. By
the same token, we will support, and we expect you to support, an employee who
passes up an opportunity or advantage which can only be secured at the sacrifice
of principle.
Equally important, we expect candor from managers at all levels, and
compliance with accounting rules and controls. We don't want liars for managers,
whether they are lying in a mistaken effort to protect us or to make themselves
look good. One of the kinds of harm which results when a manager conceals
information from higher management and the auditors is that subordinates within
his organization think they are being given a signal that company policies and
rules, including accounting and control rules, can be ignored whenever
inconvenient. This can result in corruption and demoralization of an
organization. Our system of management will not work without honesty, including
honest bookkeeping, honest budget proposals and honest economic evaluation of
projects.
It has been and continues to be SysComm International Corporation's
policy that all transactions shall be accurately reflected in its books and
records. This, of course, means that falsification of its books and records and
any off-the-record bank accounts are strictly prohibited.
Date:__________________ _______________________________
Executive's Name (please print)
/s/____________________________
Executive's Signature
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
PRIVATE - EMPLOYMENT AGREEMENT
AGREEMENT dated as of the ___ day of June, 1997 by and between SysComm
International Corporation, a Delaware corporation with its principal office at
275 Marcus Avenue, Hauppauge, New York 11788 (hereinafter "SysComm" or the
"Company") and Thomas J. Baehr (hereinafter the "Executive").
W I T N E S S E T H:
WHEREAS, SysComm, through its wholly owned subsidiary, Information
Technology Services, Inc. ("InfoTech"), is a supplier and systems integrator of
a broad range of computer and related products and provides professional
services ranging from basis equipment selection and procurement to complex
network design, integration and system support; and
WHEREAS, the Executive is currently employed by SysComm as its Vice
President and by InfoTech as its President and Chief Operating Officer; and
WHEREAS, SysComm and Executive wish to enter into an employment
agreement in order to assure the continued employment of the Executive by
SysComm for the period provided herein; and
WHEREAS, the Executive is willing to serve in the full-time employ of
SysComm for said period, and upon such other terms and conditions hereinafter
provided.
NOW, THEREFORE, SysComm and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive will continue to be employed as Vice President
of SysComm and President and Chief Operating Officer of InfoTech for the term
commencing on the closing of the initial public offering by SysComm (the
"Commencement Date") and ending September 30, 1999 or on such earlier or later
date as herein provided (the "Term"). This Agreement shall automatically self
renew thereafter for one year unless at least thirty days prior to expiration of
the existing term either party gives written notice of cancellation to the other
effective at the end of the existing term.
2. Extent of Services The Executive shall devote his entire time,
attention and energies to his position and shall not, without the prior written
consent of SysComm, during the Term hereof, be engaged in any other business
activity, whether or not such business activity is competitive with the business
of SysComm; provided, that the Executive may continue to act as a consultant to
Ameriquest Technologies, Inc. and further provided that Executive may engage in
personal investment activities consistent with SysComm's Conflict of Interest
Policy then in existence. Except for periodic travel assignments, Executive
shall not, without his consent, be required to perform services at any place
other than on Long Island, New York. Services required to be performed for
SysComm hereunder shall also include any of its subsidiaries.
<PAGE>
3. Compensation.
A. Base Salary. As full compensation for all services to be rendered
by the Executive to SysComm hereunder (including services on the Board of
Directors of SysComm and any subsidiary), SysComm will pay, or cause to be paid,
to him an annual base salary which, for the first year of this Agreement, shall
be One Hundred Fifty Thousand ($150,000) Dollars (the "Base Salary"). The Base
Salary will be paid in equal monthly installments or such other normal periodic
payment schedule as SysComm may establish for its employees. Within ninety (90)
days following the end of SysComm's fiscal year, the Board of Directors (or a
Compensation Committee thereof) shall review the Executive's performance
hereunder and make any increases in the Executive's Base Salary as it shall deem
appropriate (and such adjusted amount shall be deemed to be the Base Salary),
taking into consideration such factors, without limitation, as the performance
of SysComm and the quality and extent of Executive's services.
B. Performance Incentive Plan. The Executive will be eligible to
receive a bonus (the "Bonus") for the first year of this Agreement of 3.5% of
all of InfoTech's pre-tax earnings (as defined herein). The Bonus will be paid
quarterly, based on the yield to date results as of the end of each fiscal
quarter. Within ninety (90) days following the end of SysComm's fiscal year, the
Board of Directors (or a Compensation Committee thereof) shall review the
Executive's performance hereunder and make any increases or decreases in the
Executive's Bonus for the fiscal year as it shall deem appropriate (and such
adjusted amount shall be deemed to be the Base Salary), taking into
consideration such factors, without limitation, as the performance of SysComm
and the quality and extent of Executive's services. As used herein, the term
"pre-tax earnings" shall mean gross profits (as defined herein) less selling and
administrative expenses and interest expense. As used herein, the term "gross
profits" shall mean net sales less cost of sales.
C. Benefits. The Executive will be eligible to participate, on the
same basis as other executives of SysComm, in its employee benefit programs, if
any, including without limitation, group life, health, accident, hospitalization
and the disability insurance policy already available to the Executive.
D. Reimbursement of Expenses. SysComm shall reimburse or cause to be
reimbursed to the Executive, all reasonable out-of-pocket expenses incurred by
him in the performance of his duties hereunder or in furtherance of the business
and/or interests of SysComm; provided that Executive shall furnish to SysComm a
satisfactory itemized account thereof.
E. Perquisites. SysComm shall allow the Executive to utilize a
Company automobile for which SysComm pays lease, insurance, repairs, gas, oil,
and fees. In addition, SysComm will reimburse or cause to be reimbursed to the
Executive up to Seven Thousand ($7,000) Dollars of country club membership fees.
SysComm will continue to maintain the $1.1 million dollar term life insurance
policy on the Executive.
F. Stock Option Plan(s). The Executive is and will be eligible to
participate, on the same basis as other executives of SysComm, in its Stock
Option Plan(s).
4. SysComm Policies. Executive agrees to be bound by all of SysComm'
policies in effect from time to time applicable to its employees, including but
not limited to, policies related to business ethics, conflicts of interest,
proprietary information and antitrust compliance, and Executive agrees to sign
any documents that SysComm requests evidencing such agreement.
5. Indemnification. SysComm undertakes, to the extent permitted by law,
to indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of SysComm's business and within the scope of his
employment.
<PAGE>
6. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs except, however, the Executive shall be
entitled to receive a Bonus if the Plan so provides. For purposes of this
Agreement, the Executive shall be deemed "disabled" if he has been unable to
perform his duties for six (6) consecutive months or an aggregate of nine (9)
months in any consecutive twelve (12) month period, all as determined in good
faith by the Board of Directors of SysComm.
B. If the Executive dies during the Term, the Corporation shall pay
to his estate, the Executive's then current Base Salary for a period of one year
from the date of death.
C. SysComm shall, in the manner described in Section 6.D, have the
right to terminate the employment of the Executive under this Agreement for
"cause" and the Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to the Executive pursuant to Section 3 hereof through the date of
termination. "Cause" shall be deemed to be the commission of any of the
following acts by the Executive:
(i) The Executive shall have committed any material breach of any
of the provisions or covenants of this Agreement;
(ii) The Executive shall have wilfully refused or habitually
neglected to perform his duties or obligations, in all material respects, under
this Agreement;
(iii) The Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which, directly or indirectly,
causes SysComm or any of its subsidiaries to suffer any loss, fine, civil
penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or shall have
plead guilty or nolo contendere to, a felony or indictable offense (unless
committed in the reasonable, good faith belief that the Executive's actions were
in the best interests of SysComm and its stockholders and would not violate
criminal law).
D. If SysComm elects to terminate the Executive's employment for
cause as set forth in Section 6.C, above, it shall deliver written notice (the
"Termination Notice") thereof to the Executive, describing with reasonable
detail the "cause" giving rise to termination, and thereupon no further payments
of any type shall be made or shall be due or payable to Executive hereunder,
except as provided in the first sentence of Section 6.C; provided, however, that
with respect to any act of default set forth in clauses (i) and (ii) of Section
6.C, prior to termination by SysComm, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
E. Either party shall have the right to terminate this Agreement and
the Executive's employment hereunder without cause upon thirty (30) days prior
written notice.
F. If SysComm terminates the Executive's employment during the Term
hereof without cause, it shall pay to the Executive an amount equal to the sum
of (i) and (ii) below at the rate and on the terms specified therein: (i) his
total Base Salary for the remainder of the existing Term in the amount and at
the times required by Paragraph 3.A hereof or one year, whichever is greater;
and (ii) the value of incentive compensation under the plans and policies then
in effect (including, but not limited to, the right to participate in the Plan)
and to receive bonuses and performance awards and similar incentive compensation
benefits to which he would have been entitled hereunder at the time or times it
would otherwise have been payable, under the terms of such plans had he remained
in the employ of SysComm for the remainder of the remainder of the quarter in
which the termination without cause accrued. The term "without cause" includes
reasons other than the acts of default enumerated in Section 6.C. (i) through
(iv) above, and does not include the failure by the Company to set a bonus for
the Executive at any particular pay level, pursuant to Section 3.B., above.
<PAGE>
7. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The Executive
covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than SysComm or
its subsidiaries), or use for his own account any customer lists, trade secrets,
or any secret or confidential information of any kind used by SysComm during his
employment, and made known (whether or not with the knowledge and permission of
SysComm, whether or not developed, devised, or otherwise created in whole or in
part by the efforts of the Executive, and whether or not a matter of public
knowledge unless as a result of authorized disclosure) to the Executive by
reason of his employment by SysComm. The Executive further covenants and agrees
that the knowledge and information which he has acquired or hereafter shall
acquire during his employment respecting such customer lists, trade secrets, and
secret or confidential information shall be held by him in trust for the sole
benefit of SysComm, its successors and assigns.
B. Covenant Not to Compete.
(i) The Executive covenants and agrees that, during the Term
hereof and for the period during which the Executive is receiving payments
pursuant to Paragraph 6 hereof, he will not, without the prior written consent
of SysComm, directly or indirectly, and whether as principal, agent, officer,
director, employee, consultant, or otherwise, alone or in association with any
other person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in the
earnings of, or invest in the stock, bonds, or other securities of any person,
firm, corporation, or other business organization (other than SysComm) engaged
in a business in the Continental United States which is similar to or in
competition with any of the businesses carried on by SysComm (a "Similar
Business") except in the course of his employment hereunder; provided, however,
that the Executive may invest in stock, bonds, or other securities of any
Similar Business (but without otherwise participating in the activities of such
Similar Business) if (i) such stock, bonds, or other securities are listed on
any national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934; and (ii) his investment
does not exceed, in the case of any class of the capital stock of any one
issuer, 5% of the issued and outstanding shares, or in the case of bonds or
other securities, 5% of the aggregate principal amount thereof issued and
outstanding.
(ii) The Executive covenants and agrees that, during the Term
hereof, or if following the Term, the Executive is not receiving payments by
SysComm, then for a period of twelve months thereafter, with respect to any
person who was a SysComm customer during a period of twelve months prior to the
termination of Executive's employment, Executive will not, without the prior
written consent of SysComm, directly or indirectly, and whether as principal,
agent, officer, director, employee, consultant, or otherwise, do business with
such person (including, for compensation or otherwise, provide any consulting
advice to such person) which is of a nature that is (or which could be )
competitive to or similar to the business carried on by SysComm with such person
during such twelve month period. The foregoing non-competition provision shall
include any person for whom SysComm had (or has) an expectation of becoming a
customer during such twelve month period or the twelve month period following
the termination of the Executive's employment. The foregoing customers or
potential customers are called "Excluded Persons". The foregoing non-competition
provision shall not prevent the Executive from investing in stock, bonds, or
other securities of any Excluded Person but without otherwise participating in
the activities of such Excluded Person if (i) such stock, bonds, or other
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934; and
(ii) his investment does not exceed, in the case of any class of the capital
stock of any one issuer, 5% of the issued and outstanding shares, or in the case
of bonds or other securities, 5% of the aggregate principal amount thereof
issued and outstanding.
<PAGE>
C. Covenant of Non-Interference. The Executive covenants and agrees
that during the Term hereof and for one (1) year thereafter he will not, whether
for his own account or for the account of any other person, firm, corporation or
other business organization, interfere with SysComm' relationship with, or
endeavor to entice away from SysComm or diminish SysComm's business activities
with, any person, firm, corporation or other business organization who or which
at any time during the term of the Executive's employment with SysComm was an
employee, consultant, agent, supplier, or a customer of, or in the habit of
dealing with, SysComm.
D. Covenant Modification. If any provision of this Article 7 is held
by any court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent such court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
E. Covenant to Report. The Executive shall promptly communicate and
disclose to SysComm all inventions, discoveries improvements and new writings,
in any form whatsoever (hereinafter "Inventions"), including, without
limitation, all software, programs, routines, techniques, procedures, training
aides and instructional manuals conceived, developed or made by him during his
employment by SysComm, whether solely or jointly with others, and whether or not
patentable or copyrightable, (i) which relate to any matters or business of the
type carried on or being developed by SysComm, or (ii) which result from or are
suggested by any work done by him in the course of his employment by SysComm.
The Executive shall also promptly communicate and disclose to SysComm all other
data obtained by him concerning the business or affairs of SysComm in the course
of his employment by SysComm.
All written materials, records and documents made by the Executive
or coming into his possession during the Term concerning the business or affairs
of SysComm shall be the sole property of SysComm; and, upon expiration of the
Term or upon the request of SysComm during the Term, the Executive shall
promptly deliver the same to SysComm. The Executive agrees to render to SysComm
such reports of the activities undertaken by the Executive or conducted under
the Executive's direction pursuant hereto during the Term as SysComm may
request.
The Executive will assign to SysComm all right in the Inventions and
will assist SysComm or its designee during or subsequent to his employment, at
SysComm' sole expense, in filing patent and/or copyright applications on, and
obtaining for SysComm' benefit, patents and/or copyrights for, such Inventions
in any and all countries, and will assign to SysComm all such patent and/or
copyright applications, all patents and/or copyrights which may issue thereon,
said Inventions to be and remain the sole and exclusive property of SysComm or
its designee whether or not patented and/or copyrighted.
8. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
SysComm, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and acknowledges that SysComm shall be
entitled to an injunction, without posting any bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in Article
7 hereof by the Executive or his associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other rights or remedies SysComm may possess. Nothing
contained in this Article 8 shall be construed to prevent SysComm from seeking
and recovering from the Executive damages sustained as a result of any breach or
violation by the Executive of any of the covenants or agreements contained in
this Agreement, and that in the event of any such breach, SysComm shall avail
itself of all remedies available both at law and in equity.
<PAGE>
9. Executive's Representations. Executive represents to SysComm that to
the best of his knowledge he is under no obligation to any employer or third
party which would preclude the full, complete and unfettered discharge of his
duties under this Agreement.
10. Relationship to the Plan. Nothing herein contained shall be deemed
to modify the Plan in any respect except as specifically modified herein, and
except as so specifically modified the Plan shall in all respects be effective
according to its terms and conditions.
11. Notices.Any notice or other communication to a party under this
Agreement shall be in writing and delivered personally or by overnight mail,
with written receipt therefor, or by certified mail, return receipt requested,
and if delivered by certified mail, notice shall be considered given five (5)
days after it is mailed by certified mail, return receipt requested, to the
party at the following address or at such other address as the party may specify
by notice to the other:
If to the Executive:
11 Town Woods Road
Old Lyme, CT 06371
If to the Company:
SysComm International Corporation
275 Marcus Boulevard
Hauppauge, NY 11788
Attention: Chief Financial Officer
With a copy to:
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Managing Partner
12. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
13. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon SysComm, its successors and assigns. Executive may not
assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
14. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
15. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
16. Conflicts of Interest. Annexed hereto as Schedule A, and made a
part hereof is a statement of SysComm' policy concerning conflicts of interest.
The Executive agrees to avoid any conflict between the Executive's own interests
and those of SysComm, including, without being limited thereto, the specific
situations and transactions set forth in Schedule A.
17. Business Ethics. Annexed hereto as Schedule B, and made a part
hereof is a statement of SysComm' policy on business ethics. The Executive
agrees to adhere to standards of business ethics set forth in Schedule B.
<PAGE>
18. Breach of Executive's Obligations Set forth in Schedules A and B.
The failure by the Executive to observe and perform the obligations of the
Executive as set forth in Schedules A and B attached hereto shall be deemed a
material breach of this Agreement.
19. Entire Agreement. This Agreement, together with the attached
Schedules, constitutes the entire Agreement between the parties, and supersedes
all existing agreements between them with respect to the subject matter hereof.
It may only be changed or terminated by an instrument in writing signed by both
parties. Any covenants of the Executive contained in the Prior Agreement shall
survive the termination thereof.
20. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
SYSCOMM INTERNATIONAL CORPORATION
By:__________________________________________
Title:________________________________________
----------------------------------------------
/s/ Thomas J. Baehr
----------------------------------------------
THOMAS J. BAEHR, Executive
<PAGE>
SCHEDULE A
SYSCOMM INTERNATIONAL CORPORATION
POLICY GOVERNING CONFLICTS OF INTEREST
The policy of SysComm International Corporation (including all
subsidiaries) (herein referred to as the "Company") with respect to conflicts of
interest requires that directors, officers and employees avoid any conflict
between their own interests and the interests of the Company, in dealing with
suppliers, customers and all other organizations or individuals doing or seeking
to do business with the Company. Moreover, the policy requires that all such
persons should avoid any conflict between their own interests and the interests
of the Company in the conduct of their personal affairs, including transactions
in securities of the Company or any affiliate or of any unaffiliated corporation
having a business relationship with the Company.
While it is not practicable to enumerate all situations which might
give rise to a violation of this policy, the examples given below indicate some
which should be avoided. Moreover, there will be situations which, while perhaps
justifiable, involve the appearance of a conflict of interest and they should be
carefully weighed.
It is considered to be in conflict with the Company's interest for a
director, officer or employee:
(a) or any dependent member of his or her family to have an interest in
any organization which has, or is seeking to have, business dealings with the
Company where there is an opportunity for preferential treatment to be given or
received, except (i) with the knowledge and written consent of a senior officer
(President or Corporate Vice President) of the Company, or (ii) in any case
where such an interest comprises securities in widely held corporations which
are quoted and sold on the open market [or in private corporation where the
interest in not material, [subject to paragraph (d)];
(b) or any dependent member of his or her family to buy, sell or lease
any kind of property, facilities or equipment from or to the Company or to any
company, firm or individual who is or is seeking to become a contractor,
supplier or customer, except with the knowledge and written consent of a senior
officer (President or Corporate Vice President) of the Company;
(c) to serve as an officer or director of any other company, or in any
management capacity for, or as a consultant to any individual, firm or other
company doing or seeking to do business with the Company, except with the
knowledge and written consent of a senior officer (President or Corporate Vice
President) of the Company;
(d) without proper authority to give or release to anyone not employed
by the Company any data or information of a confidential nature concerning the
Company such as that relating to decisions, plans, earnings, financial or
business forecasts, discoveries or competitive bids or otherwise use such
information which is not generally known to the public for personal advantage
and not in the best interests of the Company, as, for example, by acquiring or
selling, or inducing others to acquire or sell, any interest in securities of
the Company, or any other company involved in, or which may become involved, in
any transaction with the Company.
Notwithstanding the foregoing, the Company shall not unreasonably
withhold its consent to the release of such information as may have been
requested and reasonably needed by a prospective purchaser of the Executive's
stock.
(e) or any dependent member of his or her family to accept commissions;
a share in profits; gifts in cash; a gift certificate; travel or other payments;
loans or advances (other than form established banking or financial institutions
on normal commercial terms); materials, services, repairs or improvements at no
cost or at unreasonably low prices; excessive or extravagant entertainment; or
gifts of merchandise of more than nominal value from any organization, firm or
individual doing or seeking to do business with the Company, or for personal
advantage and not in the best interest of the Company, to provide any of the
foregoing to any such organization, firm or individual.
Date:__________________ _________________________________
Executive's Name (please print)
/s/
------------------------------
Executive's Signature
<PAGE>
SCHEDULE B
SYSCOMM INTERNATIONAL CORPORATION
POLICY STATEMENT ON BUSINESS ETHICS
The policy of SysComm International Corporation with respect to
business ethics is one of strict observance of all laws applicable to its
business.
Our policy does not stop there. Even where the law is permissive,
SysComm International Corporation chooses the course of the highest integrity.
Local customs, traditions and mores differ from place to place and those must be
recognized. But honesty is not subject to criticism in any culture. Shades of
dishonesty simply invite demoralizing and reprehensible judgments.
A well-founded reputation for scrupulous dealing is itself a priceless company
asset.
An overly ambitious employee might have the mistaken idea that we do
not care how results are obtained, as long as he gets results. He might think it
best not to tell higher management all that he is doing, not to record all
transactions accurately in his books and records, and to deceive the company's
internal and external auditors. He would be wrong on all counts.
We do care how we get results. We expect compliance with our standard
of integrity throughout the organization. We will not tolerate an employee who
achieves results at the cost of violation of laws or unscrupulous dealing. By
the same token, we will support, and we expect you to support, an employee who
passes up an opportunity or advantage which can only be secured at the sacrifice
of principle.
Equally important, we expect candor from managers at all levels, and
compliance with accounting rules and controls. We don't want liars for managers,
whether they are lying in a mistaken effort to protect us or to make themselves
look good. One of the kinds of harm which results when a manager conceals
information from higher management and the auditors is that subordinates within
his organization think they are being given a signal that company policies and
rules, including accounting and control rules, can be ignored whenever
inconvenient. This can result in corruption and demoralization of an
organization. Our system of management will not work without honesty, including
honest bookkeeping, honest budget proposals and honest economic evaluation of
projects.
It has been and continues to be SysComm International Corporation's
policy that all transactions shall be accurately reflected in its books and
records. This, of course, means that falsification of its books and records and
any off-the-record bank accounts are strictly prohibited.
Date:__________________ ________________________________
Executive's Name (please print)
/s/
-------------------------------
Executive's Signature
<PAGE>
Exhibit 10.5
SYSCOMM INTERNATIONAL CORPORATION
PRIVATE - EMPLOYMENT AGREEMENT
AGREEMENT dated as of the ___ day of June, 1997 by and between SysComm
International Corporation, a Delaware corporation with its principal office at
275 Marcus Avenue, Hauppauge, New York 11788 (hereinafter "SysComm" or the
"Company") and Dennis R.
Wilson (hereinafter the "Executive").
W I T N E S S E T H:
WHEREAS, SysComm, through its wholly owned subsidiary, Information
Technology Services, Inc. ("InfoTech"), is a supplier and systems integrator of
a broad range of computer and related products and provides professional
services ranging from basis equipment selection and procurement to complex
network design, integration and system support; and
WHEREAS, the Executive is currently employed by SysComm and InfoTech as
their Vice President and Chief Financial Officer; and
WHEREAS, SysComm and Executive wish to enter into an employment
agreement in order to assure the continued employment of the Executive by
SysComm for the period provided herein; and
WHEREAS, the Executive is willing to serve in the full-time employ of
SysComm for said period, and upon such other terms and conditions hereinafter
provided.
NOW, THEREFORE, SysComm and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive will continue to be employed as Vice President
and Chief Financial Officer of SysComm and InfoTech for the term commencing on
the closing of the initial public offering by SysComm (the "Commencement Date")
and ending September 30, 1999 or thereafter as herein provided (the "Term").
This Agreement shall automatically self renew thereafter for one year unless at
least thirty days prior to expiration of the existing term either party gives
written notice of cancellation to the other effective at the end of the existing
term.
2. Extent of Services. The Executive shall devote his entire time,
attention and energies to his position and shall not, without the prior written
consent of SysComm, during the Term hereof, be engaged in any other business
activity, whether or not such business activity is competitive with the business
of SysComm; provided, that Executive may engage in personal investment
activities consistent, however, with SysComm's Conflict of Interest Policy then
in existence. Except for periodic travel assignments, Executive shall not,
without his consent, be required to perform services at any place other than on
Long Island, New York. Services required to be performed for SysComm hereunder
shall also include any of its subsidiaries.
<PAGE>
3. Compensation.
A. Base Salary. As full compensation for all services to be rendered
by the Executive to SysComm hereunder (including services on the Board of
Directors of SysComm and any subsidiary), SysComm will pay, or cause to be paid,
to him an annual base salary which, for the first year of this Agreement, shall
be One Hundred Twenty Thousand ($120,000) Dollars (the "Base Salary"). The Base
Salary will be paid in equal monthly installments or such other normal periodic
payment schedule as SysComm may establish for its employees. Within ninety (90)
days following the end of SysComm's fiscal year, the Board of Directors (or a
Compensation Committee thereof) shall review the Executive's performance
hereunder and make any increases in the Executive's Base Salary as it shall deem
appropriate (and such adjusted amount shall be deemed to be the Base Salary),
taking into consideration such factors, without limitation, as the performance
of SysComm and the quality and extent of Executive's services.
B. Performance Incentive Plan. The Executive will be eligible to
receive a bonus (the "Bonus") for the first year of this Agreement as determined
by the Compensation Committee. Within ninety (90) days following the end of
SysComm's fiscal year, the Board of Directors (or a Compensation Committee
thereof) shall review the Executive's performance hereunder and make any
increases or decreases in the Executive's Bonus for the fiscal year as it shall
deem appropriate (and such adjusted amount shall be deemed to be the Base
Salary), taking into consideration such factors, without limitation, as the
performance of SysComm and the quality and extent of Executive's services.
C. Benefits. The Executive will be eligible to participate, on the
same basis as other executives of SysComm, in its employee benefit programs, if
any, including without limitation, group life, health, accident, hospitalization
and disability insurance programs.
D. Reimbursement of Expenses. SysComm shall reimburse or cause to be
reimbursed to the Executive, all reasonable out-of-pocket expenses incurred by
him in the performance of his duties hereunder or in furtherance of the business
and/or interests of SysComm; provided that Executive shall furnish to SysComm a
satisfactory itemized account thereof.
E. Perquisites. SysComm shall reimburse or cause to be reimbursed to
the Executive up to $6,000 for the utilization of an automobile for company
business.
4. SysComm Policies. Executive agrees to be bound by all of SysComm'
policies in effect from time to time applicable to its employees, including but
not limited to, policies related to business ethics, conflicts of interest,
proprietary information and antitrust compliance, and Executive agrees to sign
any documents that SysComm requests evidencing such agreement.
5. Indemnification. SysComm undertakes, to the extent permitted by law,
to indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of SysComm's business and within the scope of his
employment.
<PAGE>
6. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs except, however, the Executive shall be
entitled to receive a Bonus if the Plan so provides. For purposes of this
Agreement, the Executive shall be deemed "disabled" if he has been unable to
perform his duties for six (6) consecutive months or an aggregate of nine (9)
months in any consecutive twelve (12) month period, all as determined in good
faith by the Board of Directors of SysComm.
B. If the Executive dies during the Term, the Corporation shall pay
to his estate, the Executive's then current Base Salary for a period of one year
from the date of death.
C. SysComm shall, in the manner described in Section 6.D, have the
right to terminate the employment of the Executive under this Agreement for
"cause" and the Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to the Executive pursuant to Section 3 hereof through the date of
termination. "Cause" shall be deemed to be the commission of any of the
following acts by the Executive:
(i) The Executive shall have committed any material breach of any
of the provisions or covenants of this Agreement;
(ii) The Executive shall have willfully refused or habitually
neglected to perform his duties or obligations under this Agreement;
(iii) The Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which directly or indirectly
causes SysComm or any of its subsidiaries to suffer any loss, fine, civil
penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or shall have
plead guilty or nolo contendere to, a felony or indictable offense (unless
committed in the reasonable, good faith belief that the Executive's actions were
in the best interests of SysComm and its stockholders and would not violate
criminal law).
D. If SysComm elects to terminate the Executive's employment for
cause as set forth in Section 6.C, above, it shall deliver written notice (the
"Termination Notice") thereof to the Executive, describing with reasonable
detail the "cause" giving rise to termination, and thereupon no further payments
of any type shall be made or shall be due or payable to Executive hereunder,
except as provided in the first sentence of Section 6.C; provided, however, that
with respect to any act of default set forth in clauses (i) and (ii) of Section
6.C, prior to termination by SysComm, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
E. Either party shall have the right to terminate this Agreement and
the Executive's employment hereunder without cause upon thirty (30) days prior
written notice.
F. If SysComm terminates the Executive's employment during the Term
hereof without cause, it shall pay to the Executive an amount equal to the sum
of (i) and (ii) below at the rate and on the terms specified therein: (i) his
total Base Salary for the remainder of the existing Term in the amount and at
the times required by Paragraph 3.A hereof or one year, whichever is greater;
and (ii) the value of incentive compensation under the plans and policies then
in effect (including, but not limited to, the right to participate in the Plan)
and to receive bonuses and performance awards and similar incentive compensation
benefits to which he would have been entitled hereunder at the time or times it
would otherwise have been payable, under the terms of such plans had he remained
in the employ of SysComm for the remainder of the remainder of the quarter in
which the termination without cause accrued. The term "without cause" includes
reasons other than the acts of default enumerated in Section 6.C. (i) through
(iv) above, and does not include the failure by the Company to set a bonus for
the Executive at any particular pay level, pursuant to Section 3.B., above.
<PAGE>
7. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The Executive
covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than SysComm or
its subsidiaries), or use for his own account any customer lists, trade secrets,
or any secret or confidential information of any kind used by SysComm during his
employment, and made known (whether or not with the knowledge and permission of
SysComm, whether or not developed, devised, or otherwise created in whole or in
part by the efforts of the Executive, and whether or not a matter of public
knowledge unless as a result of authorized disclosure) to the Executive by
reason of his employment by SysComm. The Executive further covenants and agrees
that the knowledge and information which he has acquired or hereafter shall
acquire during his employment respecting such customer lists, trade secrets, and
secret or confidential information shall be held by him in trust for the sole
benefit of SysComm, its successors and assigns.
B. Covenant Not to Compete.
(i) The Executive covenants and agrees that, during the Term
hereof and for the period during which the Executive is receiving payments
pursuant to Paragraph 6 hereof, he will not, without the prior written consent
of SysComm, directly or indirectly, and whether as principal, agent, officer,
director, employee, consultant, or otherwise, alone or in association with any
other person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in the
earnings of, or invest in the stock, bonds, or other securities of any person,
firm, corporation, or other business organization (other than SysComm) engaged
in a business in the Continental United States which is similar to or in
competition with any of the businesses carried on by SysComm (a "Similar
Business") except in the course of his employment hereunder; provided, however,
that the Executive may invest in stock, bonds, or other securities of any
Similar Business (but without otherwise participating in the activities of such
Similar Business) if (i) such stock, bonds, or other securities are listed on
any national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934; and (ii) his investment
does not exceed, in the case of any class of the capital stock of any one
issuer, 5% of the issued and outstanding shares, or in the case of bonds or
other securities, 5% of the aggregate principal amount thereof issued and
outstanding.
(ii) The Executive covenants and agrees that, during the Term
hereof, or if following the Term, the Executive is not receiving payments by
SysComm, then for a period of twelve months thereafter, with respect to any
person who was a SysComm customer during a period of twelve months prior to the
termination of Executive's employment, Executive will not, without the prior
written consent of SysComm, directly or indirectly, and whether as principal,
agent, officer, director, employee, consultant, or otherwise, do business with
such person (including, for compensation or otherwise, provide any consulting
advice to such person) which is of a nature that is (or which could be )
competitive to or similar to the business carried on by SysComm with such person
during such twelve month period. The foregoing non-competition provision shall
include any person for whom SysComm had (or has) an expectation of becoming a
customer during such twelve month period or the twelve month period following
the termination of the Executive's employment. The foregoing customers or
potential customers are called "Excluded Persons". The foregoing non-competition
provision shall not prevent the Executive from investing in stock, bonds, or
other securities of any Excluded Person but without otherwise participating in
the activities of such Excluded Person if (i) such stock, bonds, or other
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934; and
(ii) his investment does not exceed, in the case of any class of the capital
stock of any one issuer, 5% of the issued and outstanding shares, or in the case
of bonds or other securities, 5% of the aggregate principal amount thereof
issued and outstanding.
<PAGE>
C. Covenant of Non-Interference. The Executive covenants and agrees
that during the Term hereof and for one (1) year thereafter he will not, whether
for his own account or for the account of any other person, firm, corporation or
other business organization, interfere with SysComm' relationship with, or
endeavor to entice away from SysComm or diminish SysComm's business activities
with, any person, firm, corporation or other business organization who or which
at any time during the term of the Executive's employment with SysComm was an
employee, consultant, agent, supplier, or a customer of, or in the habit of
dealing with, SysComm.
D. Covenant Modification. If any provision of this Article 7 is held
by any court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent such court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
E. Covenant to Report. The Executive shall promptly communicate and
disclose to SysComm all inventions, discoveries improvements and new writings,
in any form whatsoever (hereinafter "Inventions"), including, without
limitation, all software, programs, routines, techniques, procedures, training
aides and instructional manuals conceived, developed or made by him during his
employment by SysComm, whether solely or jointly with others, and whether or not
patentable or copyrightable, (i) which relate to any matters or business of the
type carried on or being developed by SysComm, or (ii) which result from or are
suggested by any work done by him in the course of his employment by SysComm.
The Executive shall also promptly communicate and disclose to SysComm all other
data obtained by him concerning the business or affairs of SysComm in the course
of his employment by SysComm.
All written materials, records and documents made by the Executive
or coming into his possession during the Term concerning the business or affairs
of SysComm shall be the sole property of SysComm; and, upon expiration of the
Term or upon the request of SysComm during the Term, the Executive shall
promptly deliver the same to SysComm. The Executive agrees to render to SysComm
such reports of the activities undertaken by the Executive or conducted under
the Executive's direction pursuant hereto during the Term as SysComm may
request.
The Executive will assign to SysComm all right in the Inventions and
will assist SysComm or its designee during or subsequent to his employment, at
SysComm' sole expense, in filing patent and/or copyright applications on, and
obtaining for SysComm' benefit, patents and/or copyrights for, such Inventions
in any and all countries, and will assign to SysComm all such patent and/or
copyright applications, all patents and/or copyrights which may issue thereon,
said Inventions to be and remain the sole and exclusive property of SysComm or
its designee whether or not patented and/or copyrighted.
8. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
SysComm, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and acknowledges that SysComm shall be
entitled to an injunction, without posting any bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in Article
7 hereof by the Executive or his associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other rights or remedies SysComm may possess. Nothing
contained in this Article 8 shall be construed to prevent SysComm from seeking
and recovering from the Executive damages sustained as a result of any breach or
violation by the Executive of any of the covenants or agreements contained in
this Agreement, and that in the event of any such breach, SysComm shall avail
itself of all remedies available both at law and in equity.
<PAGE>
9. Executive's Representations. Executive represents to SysComm that to
the best of his knowledge he is under no obligation to any employer or third
party which would preclude the full, complete and unfettered discharge of his
duties under this Agreement.
10. Relationship to the Plan. Nothing herein contained shall be deemed
to modify the Plan in any respect except as specifically modified herein, and
except as so specifically modified the Plan shall in all respects be effective
according to its terms and conditions.
11. Notices.Any notice or other communication to a party under this
Agreement shall be in writing and delivered personally or by overnight mail,
with written receipt therefor, or by certified mail, return receipt requested,
and if delivered by certified mail, notice shall be considered given five (5)
days after it is mailed by certified mail, return receipt requested, to the
party at the following address or at such other address as the party may specify
by notice to the other:
If to the Executive:
62 Floral Drive West
Plainview, NY 11803
If to the Company:
SysComm International Corporation
275 Marcus Boulevard
Hauppauge, NY 11788
Attention: Chief Financial Officer
With a copy to:
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Managing Partner
12. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
13. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon SysComm, its successors and assigns. Executive may not
assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
14. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
15. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
16. Conflicts of Interest. Annexed hereto as Schedule A, and made a
part hereof is a statement of SysComm' policy concerning conflicts of interest.
The Executive agrees to avoid any conflict between the Executive's own interests
and those of SysComm, including, without being limited thereto, the specific
situations and transactions set forth in Schedule A.
17. Business Ethics. Annexed hereto as Schedule B, and made a part
hereof is a statement of SysComm's policy on business ethics. The Executive
agrees to adhere to standards of business ethics set forth in Schedule B.
<PAGE>
18. Breach of Executive's Obligations Set forth in Schedules A and B.
The failure by the Executive to observe and perform the obligations of the
Executive as set forth in Schedules A and B attached hereto shall be deemed a
material breach of this Agreement.
19. Entire Agreement. This Agreement, together with the attached
Schedules, constitutes the entire Agreement between the parties, and supersedes
all existing agreements between them with respect to the subject matter hereof.
It may only be changed or terminated by an instrument in writing signed by both
parties. Any covenants of the Executive contained in the Prior Agreement shall
survive the termination thereof.
20. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
SYSCOMM INTERNATIONAL CORPORATION
By:__________________________________________
Title:_______________________________________
--------------------------------------------
/s/ Dennis R. Wilson
--------------------------------------------
DENNIS R. WILSON, Executive
<PAGE>
SCHEDULE A
SYSCOMM INTERNATIONAL CORPORATION
POLICY GOVERNING CONFLICTS OF INTEREST
The policy of SysComm International Corporation (including all
subsidiaries) (herein referred to as the "Company") with respect to conflicts of
interest requires that directors, officers and employees avoid any conflict
between their own interests and the interests of the Company, in dealing with
suppliers, customers and all other organizations or individuals doing or seeking
to do business with the Company. Moreover, the policy requires that all such
persons should avoid any conflict between their own interests and the interests
of the Company in the conduct of their personal affairs, including transactions
in securities of the Company or any affiliate or of any unaffiliated corporation
having a business relationship with the Company.
While it is not practicable to enumerate all situations which might
give rise to a violation of this policy, the examples given below indicate some
which should be avoided. Moreover, there will be situations which, while perhaps
justifiable, involve the appearance of a conflict of interest and they should be
carefully weighed.
It is considered to be in conflict with the Company's interest for a
director, officer or employee:
(a) or any dependent member of his or her family to have an interest in
any organization which has, or is seeking to have, business dealings with the
Company where there is an opportunity for preferential treatment to be given or
received, except (i) with the knowledge and written consent of a senior officer
(President or Corporate Vice President) of the Company, or (ii) in any case
where such an interest comprises securities in widely held corporations which
are quoted and sold on the open market [or in private corporation where the
interest in not material, [subject to paragraph (d)];
(b) or any dependent member of his or her family to buy, sell or lease
any kind of property, facilities or equipment from or to the Company or to any
company, firm or individual who is or is seeking to become a contractor,
supplier or customer, except with the knowledge and written consent of a senior
officer (President or Corporate Vice President) of the Company;
(c) to serve as an officer or director of any other company, or in any
management capacity for, or as a consultant to any individual, firm or other
company doing or seeking to do business with the Company, except with the
knowledge and written consent of a senior officer (President or Corporate Vice
President) of the Company;
(d) without proper authority to give or release to anyone not employed
by the Company any data or information of a confidential nature concerning the
Company such as that relating to decisions, plans, earnings, financial or
business forecasts, discoveries or competitive bids or otherwise use such
information which is not generally known to the public for personal advantage
and not in the best interests of the Company, as, for example, by acquiring or
selling, or inducing others to acquire or sell, any interest in securities of
the Company, or any other company involved in, or which may become involved, in
any transaction with the Company.
Notwithstanding the foregoing, the Company shall not unreasonably
withhold its consent to the release of such information as may have been
requested and reasonably needed by a prospective purchaser of the Executive's
stock.
(e) or any dependent member of his or her family to accept commissions;
a share in profits; gifts in cash; a gift certificate; travel or other payments;
loans or advances (other than form established banking or financial institutions
on normal commercial terms); materials, services, repairs or improvements at no
cost or at unreasonably low prices; excessive or extravagant entertainment; or
gifts of merchandise of more than nominal value from any organization, firm or
individual doing or seeking to do business with the Company, or for personal
advantage and not in the best interest of the Company, to provide any of the
foregoing to any such organization, firm or individual.
Date:__________________ _______________________________
Executive's Name (please print)
/s/
-------------------------------
Executive's Signature
<PAGE>
SCHEDULE B
SYSCOMM INTERNATIONAL CORPORATION
POLICY STATEMENT ON BUSINESS ETHICS
The policy of SysComm International Corporation with respect to
business ethics is one of strict observance of all laws applicable to its
business.
Our policy does not stop there. Even where the law is permissive,
SysComm International Corporation chooses the course of the highest integrity.
Local customs, traditions and mores differ from place to place and those must be
recognized. But honesty is not subject to criticism in any culture. Shades of
dishonesty simply invite demoralizing and reprehensible judgments.
A well-founded reputation for scrupulous dealing is itself a priceless company
asset.
An overly ambitious employee might have the mistaken idea that we do
not care how results are obtained, as long as he gets results. He might think it
best not to tell higher management all that he is doing, not to record all
transactions accurately in his books and records, and to deceive the company's
internal and external auditors. He would be wrong on all counts.
We do care how we get results. We expect compliance with our standard
of integrity throughout the organization. We will not tolerate an employee who
achieves results at the cost of violation of laws or unscrupulous dealing. By
the same token, we will support, and we expect you to support, an employee who
passes up an opportunity or advantage which can only be secured at the sacrifice
of principle.
Equally important, we expect candor from managers at all levels, and
compliance with accounting rules and controls. We don't want liars for managers,
whether they are lying in a mistaken effort to protect us or to make themselves
look good. One of the kinds of harm which results when a manager conceals
information from higher management and the auditors is that subordinates within
his organization think they are being given a signal that company policies and
rules, including accounting and control rules, can be ignored whenever
inconvenient. This can result in corruption and demoralization of an
organization. Our system of management will not work without honesty, including
honest bookkeeping, honest budget proposals and honest economic evaluation of
projects.
It has been and continues to be SysComm International Corporation's
policy that all transactions shall be accurately reflected in its books and
records. This, of course, means that falsification of its books and records and
any off-the-record bank accounts are strictly prohibited.
Date:__________________ _______________________________
Executive's Name (please print)
/s/
------------------------------
Executive's Signature
<PAGE>
Exhibit 10.6
SYSCOMM INTERNATIONAL CORPORATION
PRIVATE - EMPLOYMENT AGREEMENT
AGREEMENT dated as of the ___ day of June, 1997 by and between SysComm
International Corporation, a Delaware corporation with its principal office at
275 Marcus Avenue, Hauppauge, New York 11788 (hereinafter "SysComm" or the
"Company") and Norman M. Gaffney (hereinafter the "Executive").
W I T N E S S E T H:
WHEREAS, SysComm, through its wholly owned subsidiary, Information
Technology Services, Inc. ("InfoTech"), is a supplier and systems integrator of
a broad range of computer and related products and provides professional
services ranging from basis equipment selection and procurement to complex
network design, integration and system support; and
WHEREAS, the Executive is currently employed by InfoTech as its Vice
President of Marketing and Sales; and
WHEREAS, SysComm and Executive wish to enter into an employment
agreement in order to assure the continued employment of the Executive by
SysComm for the period provided herein; and
WHEREAS, the Executive is willing to serve in the full-time employ of
SysComm for said period, and upon such other terms and conditions hereinafter
provided.
NOW, THEREFORE, SysComm and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive will continue to be employed as Vice President
of Marketing and Sales of InfoTech for the term commencing on the closing of the
initial public offering by SysComm (the "Commencement Date") and ending
September 30, 1999 or on such earlier or later date as herein provided (the
"Term"). This Agreement shall automatically self renew thereafter for one year
unless at least thirty days prior to expiration of the existing term either
party gives written notice of cancellation to the other effective at the end of
the existing term.
2. Extent of Services. The Executive shall devote his entire time,
attention and energies to his position and shall not, without the prior written
consent of SysComm, during the Term hereof, be engaged in any other business
activity, whether or not such business activity is competitive with the business
of SysComm; provided, that the Executive may continue to act as a consultant to
Ameriquest Technologies, Inc. and further provided that Executive may engage in
personal investment activities consistent with SysComm's Conflict of Interest
Policy then in existence. Except for periodic travel assignments, Executive
shall not, without his consent, be required to perform services at any place
other than on Long Island, New York. Services required to be performed for
SysComm hereunder shall also include any of its subsidiaries.
<PAGE>
3. Compensation.
A. Base Salary. As full compensation for all services to be rendered
by the Executive to SysComm hereunder (including services on the Board of
Directors of SysComm and any subsidiary), SysComm will pay, or cause to be paid,
to him an annual base salary which, for the first year of this Agreement, shall
be One Hundred Twenty-Five Thousand ($125,000) Dollars (the "Base Salary"). The
Base Salary will be paid in equal monthly installments or such other normal
periodic payment schedule as SysComm may establish for its employees. Within
ninety (90) days following the end of SysComm's fiscal year, the Board of
Directors (or a Compensation Committee thereof) shall review the Executive's
performance hereunder and make any increases in the Executive's Base Salary as
it shall deem appropriate (and such adjusted amount shall be deemed to be the
Base Salary), taking into consideration such factors, without limitation, as the
performance of SysComm and the quality and extent of Executive's services.
B. Performance Incentive Plan. The Executive will be eligible to
receive a bonus (the "Bonus") for the first year of this Agreement of 1.5% of
all of SysComm's gross profit dollars (as defined herein). The Bonus will be
paid quarterly, based on the yield to date results as of the end of each fiscal
quarter. Within ninety (90) days following the end of SysComm's fiscal year, the
Board of Directors (or a Compensation Committee thereof) shall review the
Executive's performance hereunder and make any increases or decreases in the
Executive's Bonus for the fiscal year as it shall deem appropriate (and such
adjusted amount shall be deemed to be the Base Salary), taking into
consideration such factors, without limitation, as the performance of SysComm
and the quality and extent of Executive's services. As used herein, the term
"gross profit dollars" shall mean net sales less cost of sales. This amount
shall include all soft dollars, including special bids and education rebates.
C. Benefits. The Executive will be eligible to participate, on the
same basis as other executives of SysComm, in its employee benefit programs, if
any, including without limitation, group life, health, accident, hospitalization
and disability insurance programs.
D. Reimbursement of Expenses. SysComm shall reimburse or cause to be
reimbursed to the Executive, all reasonable out-of-pocket expenses incurred by
him in the performance of his duties hereunder or in furtherance of the business
and/or interests of SysComm; provided that Executive shall furnish to SysComm a
satisfactory itemized account thereof.
E. Perquisites. SysComm shall allow the Executive to utilize a
Company automobile for Company business for which SysComm pays lease, insurance,
repairs, gas, oil, and fees up to Eight Thousand Four Hundred ($8,400) Dollars.
In addition, SysComm will reimburse or cause to be reimbursed to the Executive
up to Seven Thousand ($7,000) Dollars for country club membership fees. SysComm
shall continue to provide to the Executive monthly IBM medical premiums.
4. SysComm Policies. Executive agrees to be bound by all of SysComm'
policies in effect from time to time applicable to its employees, including but
not limited to, policies related to business ethics, conflicts of interest,
proprietary information and antitrust compliance, and Executive agrees to sign
any documents that SysComm requests evidencing such agreement.
5. Indemnification. SysComm undertakes, to the extent permitted by law,
to indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of SysComm's business and within the scope of his
employment.
<PAGE>
6. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs except, however, the Executive shall be
entitled to receive a Bonus if the Plan so provides. For purposes of this
Agreement, the Executive shall be deemed "disabled" if he has been unable to
perform his duties for six (6) consecutive months or an aggregate of nine (9)
months in any consecutive twelve (12) month period, all as determined in good
faith by the Board of Directors of SysComm.
B. If the Executive dies during the Term, the Corporation shall pay
to his estate, the Executive's then current Base Salary for a period of one year
from the date of death.
C. SysComm shall, in the manner described in Section 6.D, have the
right to terminate the employment of the Executive under this Agreement for
"cause" and the Executive shall forfeit the right to receive any and all further
payments hereunder, other than the right to receive any compensation then due
and payable to the Executive pursuant to Section 3 hereof through the date of
termination. "Cause" shall be deemed to be the commission of any of the
following acts by the Executive:
(i) The Executive shall have committed any material breach of any
of the provisions or covenants of this Agreement;
(ii) The Executive shall have willfully refused or habitually
neglected to perform his duties or obligations, in all material respects, under
this Agreement;
(iii) The Executive shall have committed any material act of
willful misconduct, dishonesty or breach of trust which, directly or indirectly,
causes SysComm or any of its subsidiaries to suffer any loss, fine, civil
penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or shall have
plead guilty or nolo contendere to, a felony or indictable offense (unless
committed in the reasonable, good faith belief that the Executive's actions were
in the best interests of SysComm and its stockholders and would not violate
criminal law).
D. If SysComm elects to terminate the Executive's employment for
cause as set forth in Section 6.C, above, it shall deliver written notice (the
"Termination Notice") thereof to the Executive, describing with reasonable
detail the "cause" giving rise to termination, and thereupon no further payments
of any type shall be made or shall be due or payable to Executive hereunder,
except as provided in the first sentence of Section 6.C; provided, however, that
with respect to any act of default set forth in clauses (i) and (ii) of Section
6.C, prior to termination by SysComm, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
E. Either party shall have the right to terminate this Agreement and
the Executive's employment hereunder without cause upon thirty (30) days prior
written notice.
<PAGE>
F. If SysComm terminates the Executive's employment during the Term
hereof without cause, it shall pay to the Executive an amount equal to the sum
of (i) and (ii) below at the rate and on the terms specified therein: (i) his
total Base Salary for the remainder of the existing Term in the amount and at
the times required by Paragraph 3.A hereof or one year, whichever is greater;
and (ii) the value of incentive compensation under the plans and policies then
in effect (including, but not limited to, the right to participate in the Plan)
and to receive bonuses and performance awards and similar incentive compensation
benefits to which he would have been entitled hereunder at the time or times it
would otherwise have been payable, under the terms of such plans had he remained
in the employ of SysComm for the remainder of the remainder of the quarter in
which the termination without cause accrued. The term "without cause" includes
reasons other than the acts of default enumerated in Section 6.C. (i) through
(iv) above, and does not include the failure by the Company to set a bonus for
the Executive at any particular pay level, pursuant to Section 3.B., above.
7. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The Executive
covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than SysComm or
its subsidiaries), or use for his own account any customer lists, trade secrets,
or any secret or confidential information of any kind used by SysComm during his
employment, and made known (whether or not with the knowledge and permission of
SysComm, whether or not developed, devised, or otherwise created in whole or in
part by the efforts of the Executive, and whether or not a matter of public
knowledge unless as a result of authorized disclosure) to the Executive by
reason of his employment by SysComm. The Executive further covenants and agrees
that the knowledge and information which he has acquired or hereafter shall
acquire during his employment respecting such customer lists, trade secrets, and
secret or confidential information shall be held by him in trust for the sole
benefit of SysComm, its successors and assigns.
B. Covenant Not to Compete.
(i) The Executive covenants and agrees that, during the Term
hereof and for the period during which the Executive is receiving payments
pursuant to Paragraph 6 hereof, he will not, without the prior written consent
of SysComm, directly or indirectly, and whether as principal, agent, officer,
director, employee, consultant, or otherwise, alone or in association with any
other person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in the
earnings of, or invest in the stock, bonds, or other securities of any person,
firm, corporation, or other business organization (other than SysComm) engaged
in a business in the Continental United States which is similar to or in
competition with any of the businesses carried on by SysComm (a "Similar
Business") except in the course of his employment hereunder; provided, however,
that the Executive may invest in stock, bonds, or other securities of any
Similar Business (but without otherwise participating in the activities of such
Similar Business) if (i) such stock, bonds, or other securities are listed on
any national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934; and (ii) his investment
does not exceed, in the case of any class of the capital stock of any one
issuer, 5% of the issued and outstanding shares, or in the case of bonds or
other securities, 5% of the aggregate principal amount thereof issued and
outstanding.
<PAGE>
(ii) The Executive covenants and agrees that, during the Term
hereof, or if following the Term, the Executive is not receiving payments by
SysComm, then for a period of twelve months thereafter, with respect to any
person who was a SysComm customer during a period of twelve months prior to the
termination of Executive's employment, Executive will not, without the prior
written consent of SysComm, directly or indirectly, and whether as principal,
agent, officer, director, employee, consultant, or otherwise, do business with
such person (including, for compensation or otherwise, provide any consulting
advice to such person) which is of a nature that is (or which could be )
competitive to or similar to the business carried on by SysComm with such person
during such twelve month period. The foregoing non-competition provision shall
include any person for whom SysComm had (or has) an expectation of becoming a
customer during such twelve month period or the twelve month period following
the termination of the Executive's employment. The foregoing customers or
potential customers are called "Excluded Persons". The foregoing non-competition
provision shall not prevent the Executive from investing in stock, bonds, or
other securities of any Excluded Person but without otherwise participating in
the activities of such Excluded Person if (i) such stock, bonds, or other
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934; and
(ii) his investment does not exceed, in the case of any class of the capital
stock of any one issuer, 5% of the issued and outstanding shares, or in the case
of bonds or other securities, 5% of the aggregate principal amount thereof
issued and outstanding.
C. Covenant of Non-Interference. The Executive covenants and agrees
that during the Term hereof and for one (1) year thereafter he will not, whether
for his own account or for the account of any other person, firm, corporation or
other business organization, interfere with SysComm' relationship with, or
endeavor to entice away from SysComm or diminish SysComm's business activities
with, any person, firm, corporation or other business organization who or which
at any time during the term of the Executive's employment with SysComm was an
employee, consultant, agent, supplier, or a customer of, or in the habit of
dealing with, SysComm.
D. Covenant Modification. If any provision of this Article 7 is held
by any court of competent jurisdiction to be unenforceable because of the scope,
duration or area of applicability, such provision shall be deemed modified to
the extent such court modifies the scope, duration or area of applicability of
such provision to make it enforceable.
E. Covenant to Report. The Executive shall promptly communicate and
disclose to SysComm all inventions, discoveries improvements and new writings,
in any form whatsoever (hereinafter "Inventions"), including, without
limitation, all software, programs, routines, techniques, procedures, training
aides and instructional manuals conceived, developed or made by him during his
employment by SysComm, whether solely or jointly with others, and whether or not
patentable or copyrightable, (i) which relate to any matters or business of the
type carried on or being developed by SysComm, or (ii) which result from or are
suggested by any work done by him in the course of his employment by SysComm.
The Executive shall also promptly communicate and disclose to SysComm all other
data obtained by him concerning the business or affairs of SysComm in the course
of his employment by SysComm.
All written materials, records and documents made by the Executive
or coming into his possession during the Term concerning the business or affairs
of SysComm shall be the sole property of SysComm; and, upon expiration of the
Term or upon the request of SysComm during the Term, the Executive shall
promptly deliver the same to SysComm. The Executive agrees to render to SysComm
such reports of the activities undertaken by the Executive or conducted under
the Executive's direction pursuant hereto during the Term as SysComm may
request.
<PAGE>
The Executive will assign to SysComm all right in the Inventions and
will assist SysComm or its designee during or subsequent to his employment, at
SysComm' sole expense, in filing patent and/or copyright applications on, and
obtaining for SysComm' benefit, patents and/or copyrights for, such Inventions
in any and all countries, and will assign to SysComm all such patent and/or
copyright applications, all patents and/or copyrights which may issue thereon,
said Inventions to be and remain the sole and exclusive property of SysComm or
its designee whether or not patented and/or copyrighted.
8. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
SysComm, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and acknowledges that SysComm shall be
entitled to an injunction, without posting any bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in Article
7 hereof by the Executive or his associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other rights or remedies SysComm may possess. Nothing
contained in this Article 8 shall be construed to prevent SysComm from seeking
and recovering from the Executive damages sustained as a result of any breach or
violation by the Executive of any of the covenants or agreements contained in
this Agreement, and that in the event of any such breach, SysComm shall avail
itself of all remedies available both at law and in equity.
9. Executive's Representations. Executive represents to SysComm that to
the best of his knowledge he is under no obligation to any employer or third
party which would preclude the full, complete and unfettered discharge of his
duties under this Agreement.
10. Relationship to the Plan. Nothing herein contained shall be deemed
to modify the Plan in any respect except as specifically modified herein, and
except as so specifically modified the Plan shall in all respects be effective
according to its terms and conditions.
11. Notices.Any notice or other communication to a party under this
Agreement shall be in writing and delivered personally or by overnight mail,
with written receipt therefor, or by certified mail, return receipt requested,
and if delivered by certified mail, notice shall be considered given five (5)
days after it is mailed by certified mail, return receipt requested, to the
party at the following address or at such other address as the party may specify
by notice to the other:
If to the Executive:
600 Merwins Lane
Fairfield, CT 06430
If to the Company:
SysComm International Corporation
275 Marcus Boulevard
Hauppauge, NY 11788
Attention: Chief Financial Officer
With a copy to:
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Attention: Managing Partner
<PAGE>
12. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
13. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon SysComm, its successors and assigns. Executive may not
assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
14. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
15. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
16. Conflicts of Interest. Annexed hereto as Schedule A, and made a
part hereof is a statement of SysComm' policy concerning conflicts of interest.
The Executive agrees to avoid any conflict between the Executive's own interests
and those of SysComm, including, without being limited thereto, the specific
situations and transactions set forth in Schedule A.
17. Business Ethics. Annexed hereto as Schedule B, and made a part
hereof is a statement of SysComm' policy on business ethics. The Executive
agrees to adhere to standards of business ethics set forth in Schedule B.
18. Breach of Executive's Obligations Set forth in Schedules A and B.
The failure by the Executive to observe and perform the obligations of the
Executive as set forth in Schedules A and B attached hereto shall be deemed a
material breach of this Agreement.
19. Entire Agreement. This Agreement, together with the attached
Schedules, constitutes the entire Agreement between the parties, and supersedes
all existing agreements between them with respect to the subject matter hereof.
It may only be changed or terminated by an instrument in writing signed by both
parties. Any covenants of the Executive contained in the Prior Agreement shall
survive the termination thereof.
20. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
SYSCOMM INTERNATIONAL CORPORATION
By:___________________________________________
Title:________________________________________
---------------------------------------------
/s/ Norman M. Gaffney
---------------------------------------------
NORMAN M. GAFFNEY, Executive
<PAGE>
SCHEDULE A
SYSCOMM INTERNATIONAL CORPORATION
POLICY GOVERNING CONFLICTS OF INTEREST
The policy of SysComm International Corporation (including all
subsidiaries) (herein referred to as the "Company") with respect to conflicts of
interest requires that directors, officers and employees avoid any conflict
between their own interests and the interests of the Company, in dealing with
suppliers, customers and all other organizations or individuals doing or seeking
to do business with the Company. Moreover, the policy requires that all such
persons should avoid any conflict between their own interests and the interests
of the Company in the conduct of their personal affairs, including transactions
in securities of the Company or any affiliate or of any unaffiliated corporation
having a business relationship with the Company.
While it is not practicable to enumerate all situations which might
give rise to a violation of this policy, the examples given below indicate some
which should be avoided. Moreover, there will be situations which, while perhaps
justifiable, involve the appearance of a conflict of interest and they should be
carefully weighed.
It is considered to be in conflict with the Company's interest for a
director, officer or employee:
(a) or any dependent member of his or her family to have an interest in
any organization which has, or is seeking to have, business dealings with the
Company where there is an opportunity for preferential treatment to be given or
received, except (i) with the knowledge and written consent of a senior officer
(President or Corporate Vice President) of the Company, or (ii) in any case
where such an interest comprises securities in widely held corporations which
are quoted and sold on the open market [or in private corporation where the
interest in not material, [subject to paragraph (d)];
(b) or any dependent member of his or her family to buy, sell or lease
any kind of property, facilities or equipment from or to the Company or to any
company, firm or individual who is or is seeking to become a contractor,
supplier or customer, except with the knowledge and written consent of a senior
officer (President or Corporate Vice President) of the Company;
(c) to serve as an officer or director of any other company, or in any
management capacity for, or as a consultant to any individual, firm or other
company doing or seeking to do business with the Company, except with the
knowledge and written consent of a senior officer (President or Corporate Vice
President) of the Company;
(d) without proper authority to give or release to anyone not employed
by the Company any data or information of a confidential nature concerning the
Company such as that relating to decisions, plans, earnings, financial or
business forecasts, discoveries or competitive bids or otherwise use such
information which is not generally known to the public for personal advantage
and not in the best interests of the Company, as, for example, by acquiring or
selling, or inducing others to acquire or sell, any interest in securities of
the Company, or any other company involved in, or which may become involved, in
any transaction with the Company.
Notwithstanding the foregoing, the Company shall not unreasonably
withhold its consent to the release of such information as may have been
requested and reasonably needed by a prospective purchaser of the Executive's
stock.
(e) or any dependent member of his or her family to accept commissions;
a share in profits; gifts in cash; a gift certificate; travel or other payments;
loans or advances (other than form established banking or financial institutions
on normal commercial terms); materials, services, repairs or improvements at no
cost or at unreasonably low prices; excessive or extravagant entertainment; or
gifts of merchandise of more than nominal value from any organization, firm or
individual doing or seeking to do business with the Company, or for personal
advantage and not in the best interest of the Company, to provide any of the
foregoing to any such organization, firm or individual.
Date:__________________ _______________________________
Executive's Name (please print)
/s/
-------------------------------
Executive's Signature
<PAGE>
SCHEDULE B
SYSCOMM INTERNATIONAL CORPORATION
POLICY STATEMENT ON BUSINESS ETHICS
The policy of SysComm International Corporation with respect to
business ethics is one of strict observance of all laws applicable to its
business.
Our policy does not stop there. Even where the law is permissive,
SysComm International Corporation chooses the course of the highest integrity.
Local customs, traditions and mores differ from place to place and those must be
recognized. But honesty is not subject to criticism in any culture. Shades of
dishonesty simply invite demoralizing and reprehensible judgments.
A well-founded reputation for scrupulous dealing is itself a priceless company
asset.
An overly ambitious employee might have the mistaken idea that we do
not care how results are obtained, as long as he gets results. He might think it
best not to tell higher management all that he is doing, not to record all
transactions accurately in his books and records, and to deceive the company's
internal and external auditors. He would be wrong on all counts.
We do care how we get results. We expect compliance with our standard
of integrity throughout the organization. We will not tolerate an employee who
achieves results at the cost of violation of laws or unscrupulous dealing. By
the same token, we will support, and we expect you to support, an employee who
passes up an opportunity or advantage which can only be secured at the sacrifice
of principle.
Equally important, we expect candor from managers at all levels, and
compliance with accounting rules and controls. We don't want liars for managers,
whether they are lying in a mistaken effort to protect us or to make themselves
look good. One of the kinds of harm which results when a manager conceals
information from higher management and the auditors is that subordinates within
his organization think they are being given a signal that company policies and
rules, including accounting and control rules, can be ignored whenever
inconvenient. This can result in corruption and demoralization of an
organization. Our system of management will not work without honesty, including
honest bookkeeping, honest budget proposals and honest economic evaluation of
projects.
It has been and continues to be SysComm International Corporation's
policy that all transactions shall be accurately reflected in its books and
records. This, of course, means that falsification of its books and records and
any off-the-record bank accounts are strictly prohibited.
Date:__________________ _______________________________
Executive's Name (please print)
/s/
-------------------------------
Executive's Signature
<PAGE>
AGREEMENT FOR PARTICIPATION IN THE
IBM BUSINESS PARTNER - PC, AUTHORIZED ASSEMBLER PROGRAM
THIS AGREEMENT ("Agreement") is entered into by and between International
Business Machines Corporation, a New York corporation maintaining a place of
business at Route 100, Somers, New York 10589 ("IBM"), and Information
Technology Services, Inc., a state of New York corporation maintaining a place
of business at 275 Marcus Blvd.; Hauppauge, New York 11788 ("You"), effective as
of the day of , 1996.
WHEREAS, IBM desires to expand its personal computer fulfillment capabilities by
authorizing a number of integrators to assemble and test IBM personal computer
products for sale to Resellers and End Users (as defined below); and
WHEREAS, these IBM authorized integrators ("Authorized Assemblers") must meet
and maintain qualifications established by IBM as set forth more fully herein to
protect IBM's goodwill and long-standing reputation for high quality personal
computer products; and
WHEREAS, You desire to become an Authorized Assembler subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in exchange for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT. Except as expressly provided herein, this Agreement constitutes
the complete and exclusive statement of the agreement and understanding
between the parties governing the IBM Business Partner - PC, Authorized
Assembler Program ("Authorized Assembler Program"). Neither party is
relying upon any representations, promises, commitments or guarantees of
the other party about the financial benefits or profitability of this
program other than that which is expressly set forth herein. This
Agreement supersedes all other proposals, prior agreements, and other
communications, oral or written, between the parties regarding the
Authorized Assembler Program and any predecessor program(s). Except as
expressly provided herein, this Agreement does not modify or alter the IBM
Business Partner Agreement in effect between You and IBM. All other terms
and conditions of your IBM Business Partner Agreement not expressly
modified by this Agreement shall continue to apply to You while performing
as an Authorized Assembler.
2. DEFINITIONS. For purposes of this Agreement, the following definitions
shall apply:
(a) "Agreement" includes this Agreement, all exhibits, appendices, attachments
and amendments hereto, which are hereby incorporated by reference,
including those that may become effective in the future.
<PAGE>
(b) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
(c) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
(d) "Approved Component" [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed separately with the
Commission.]
(e) "Approved Location" is a site controlled and operated by You in the
United States at which we authorize You to perform your responsibilities
under this Agreement. Certain Authorized Assembler Program requirements,
including, but not limited to, minimum number of trained personnel and
pre-assembly certification, must be met at each Approved Location.
(f) "Approved Product" is any IBM personal computer product that You are
authorized to configure under the Authorized Assembler Program. An
Approved Product is assembled and tested by You from a Base System Unit
and Approved Components according to the specifications set forth in
Appendix A or Appendix B, as appropriate. Except as otherwise provided in
this Agreement, Approved Products assembled by You in full and complete
compliance with the terms of this Agreement shall be governed as
"Products" under the terms of the IBM Business Partner Agreement.
(g) "Base System Unit" [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
(h) "End User" is anyone unaffiliated with You who acquires Approved Products
for its own use and not for resale.
(i) "IBM Business Partner Agreement" includes the IBM Business Partner
Agreement Remarketer General Terms, its profiles, appendices, exhibits,
and transaction documents, as amended from time-to-time, entered into
between You and IBM.
(j) "Other Software" [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
<PAGE>
(k) "Preload" [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
(l) "Removed Parts" refers to parts removed by You from a Base System Unit
when assembling certain Approved Products pursuant to this Agreement.
(m) "Reseller" includes any personal computer system remarketer to whom You
are authorized to resell personal computer products under the terms of
your IBM Business Partner Agreement.
(n) "Software Image" [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
(o) "Subsidiary" means a corporation, company or other entity for which a
party to this Agreement now or hereafter owns or controls, directly or
indirectly:
(1) more than fifty percent (50%) of the outstanding shares or
securities representing the right to vote for the election of
directors or other managing authority, but such Corporation, company
or other entity shall only be deemed to be a Subsidiary only for so
long as such ownership or control exists; or
(2) more than fifty percent (50%) of the ownership interest representing
the right to make decisions for such corporation, company or other
entity if such corporation, company or other entity does not have
outstanding shares or securities, as may be the case in a
partnership, joint venture or unincorporated association, but such
corporation, company or other entity shall only be deemed to be a
Subsidiary only for so long as such ownership or control exists.
(p) "Test Software" [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
<PAGE>
3. AUTHORIZATION. Provided that You comply fully with the terms of this
Agreement, You are hereby authorized by IBM to assemble and test Approved
Products bearing the IBM logo for sale under the terms of the IBM
Business Partner Agreement to Resellers and End Users. With prior written
approval from IBM, which approval may be withheld in IBM's sole
discretion, You may authorize your Subsidiaries located in the United
States to assemble and test Approved Products at Approved Locations
pursuant to the terms of this Agreement provided that You hereby
unconditionally guarantee each of your authorized Subsidiaries' full and
complete compliance with the terms of this Agreement. Pursuant to this
guarantee, IBM shall not be required to make demand upon your authorized
Subsidiary as a condition to making demand upon You. Each authorized
Subsidiary shall co-execute this Agreement, and the term "You" as used
herein shall include all authorized Subsidiaries who co-execute this
Agreement and are approved in writing by IBM to assemble and test Approved
Products hereunder.
4. MINIMUM PARTICIPATION COVENANT. You agree to use your best efforts to
purchase a sufficient number of Base System Units and Approved Components
to enable You to assemble and test Approved Products listed in Appendix A
[This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
5. ALLOCATION AND ORDERING. You agree to provide IBM with forecasts of your
requirements for and current on-hand inventory of Base System Units and
Approved Components weekly or otherwise upon request from IBM. IBM will
allocate Base System Units and Approved Components to You in IBM's sole
discretion upon consideration of your forecasts, your current on-hand
inventory, your actual sales, availability and other business factors
deemed relevant by IBM. You agree to use your best efforts to purchase the
total number of Base System Units and Approved Components that are
allocated to You, up to the greater of the amount of your forecast or your
minimum order replenishment requirements, if any. [This information has
been omitted in accordance with a Confidential Treatment Request and has
been filed separately with the Commission.] Except as otherwise provided
in this Agreement, your orders for Base System Units and Approved
Components will be governed as "Products" under the IBM Business Partner
Agreement.
6. TITLE AND RISK OF LOSS.
(a) Hardware. From the point and time of shipment to You by IBM, You shall
hold title and all ownership interest and bear all risk of loss in all
Base System Units and Approved Components purchased by You, subject to any
applicable IBM financing terms.
<PAGE>
(b) Software. Title to Software Images, Test Software and Other Software is
not transferred by IBM. Except as expressly provided herein, this
Agreement does not grant You any rights of any kind under any IBM or
third-party patents, copyrights, trademarks, service marks or other
intellectual property and does not authorize You to use, copy, sublicense,
sell, distribute or prepare derivative works based upon any Software
Images, Test Software, Other Software or publications provided by IBM
under this Agreement.
7. ASSEMBLY AND TESTING.
(a) IBM'S Responsibilites. IBM will provide initial training for your
personnel in the IBM assembly and testing processes described in Appendix
A and Appendix B. IBM must certify your initial compliance with the
assembly and test processes, including your handling of any [This
information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.] Software
Images, Test Software and Other Software, at each location before You will
be authorized by IBM to assemble and test Approved Products under this
Agreement at such location.
(b) Your Responsibilities. You represent, warrant and agree to:
(1) assemble and test Approved Products in full and complete compliance
with Appendix A or Appendix B, as applicable, using only IBM-
approved tools, equipment, Test Software and Other Software, and
that the Approved Products will be free from defects in your
workmanship under normal use and operation;
(2) assemble Approved Products using only Base System Units and Approved
Components that are new and unused unless the Approved Product, all
related packaging, all marketing materials, bid documents, and
invoices are conspicuously and permanently marked to identify the
Approved Product as containing "used" parts;
(3) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(4) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(5) comply with all packaging and labeling requirements for the Approved
Product as provided in Appendix A or Appendix B, as appropriate;
(6) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
<PAGE>
(7) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(8) use Appendices A and B only in a manner that is consistent with
participation in the Authorized Assembler Program and not to
distribute copies of such Appendices (in any form) outside of your
organization;
(9) make only such copies of Appendices A and B as are necessary for the
performance of your obligations under this Agreement, restrict
access to such necessary copies only to your employees with a need
to know for purposes of fulfilling your responsibilities under this
Agreement, and destroy all superseded copies of Appendices A and B
except for no more than two (2) file copies;
(10) assemble and test Approved Products only at Approved Locations;
(11) document your plan for obtaining ISO 9002 certification, or such
higher level certification specified by IBM, and obtain and maintain
such certification as described more fully in Appendix A;
(12) maintain a sufficient number (but not less than two (2)) of
IBM-trained assembly technicians at each Approved Location to enable
You to satisfy your responsibilities under this Agreement;
(13) provide ongoing assembly and testing training to your personnel;
(14) return to IBM pursuant to a valid IBM returns authorization any
parts that fail in the assembly and testing process along with
failure documentation specified by IBM in Appendix A and Appendix B,
as appropriate;
(15) acquire and maintain any tools and equipment necessary to perform
the assembly and testing processes described in Appendix A and
Appendix B, as appropriate;
(16) use, to the extent not otherwise expressly required by this
Agreement, a reasonable and workmanlike manner in assembling and
testing Approved Products pursuant to this Agreement; and
(17) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
<PAGE>
8. PRELOADING.
(a) IBM's Responsibilities. IBM shall provide You the master media containing
the Software Image, if any, specified for the Approved Products that you
are authorized to Preload. Subject to your compliance with the terms of
this Section 8, IBM grants You a revocable, non-exclusive,
non-transferable right and license to Preload onto an Approved Product a
single copy of the Software Image designated for such Approved Product in
the bill of materials in Appendix A or otherwise approved by IBM in
writing as provided in Appendix B. [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed
separately with the Commission.] IBM may revoke these grants and
authorizations in whole or in Part any time in its sole discretion.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to use the master media, and the Software Images obtained therefrom,
only at an Approved Location and only to Preload, or otherwise have
IBM install, in a manner expressly permitted by IBM, a single copy
of the Software Image designated for each Approved Product in the
bill of materials in Appendix A or otherwise approved by IBM in
writing as provided in Appendix B onto the Approved Product, and for
no other purpose whatsoever;
(2) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(3) to ensure that the End User has an opportunity to review the IBM
Program License Agreement and the license agreements covering
third-party software programs and code, if any, before purchasing
<PAGE>
the Approved Product and accepts such license agreements as a
condition to such purchase, and to otherwise distribute Approved
Products in full compliance with the terms and conditions of this
Agreement and the IBM Business Partner Agreement;
(4) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(5) to maintain adequate business controls for the master media, and the
Software Images obtained therefrom, to prevent unauthorized use or
copies of any Software Image;
(6) not to copy or permit the copying (including back-up copies) of all
or any part of any Software Image, except as expressly authorized by
this Agreement;
(7) not to sublicense, rent, lease, distribute, assign or otherwise
transfer (including distributing back-up copies of) all or any part
of any Software Image, except as expressly authorized by this
Agreement;
(8) not to reverse engineer, disassemble, or decompile all or any part
of any Software Image provided by IBM;
(9) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(10) not co add to, delete from, or otherwise modify any software program
or other code included in the Software Image, or create any
derivative work therefrom;
(11) to make all payments due, if any, for any additional software
programs or other code You add to the Software Image;
(12) to comply with any additional requirements related to the Software
Image as set forth in Appendix A or Appendix B, as appropriate; and
(13) not to export Approved Products containing any Software Image to a
country where the associated license agreement is not valid.
(c) Third-Party Rights. IBM's authority to authorize YOU to Preload certain
software programs and other code included in the Software Images derives
from license agreements between IBM and third-party software vendors. You
agree that each software vendor is a third-party beneficiary of the terms
of this Section 8 with respect to the software programs and other code
that such vendor owns which is included in any Software Image included on
an Approved Product. The software vendor shall have a right to enforce
<PAGE>
such terms against You to the same extent that IBM may enforce such terms
against You. You shall notify IBM immediately if a third-party software
vendor seeks to enforce any terms under this Agreement.
9. TEST SOFTWARE AND OTHER SOFTWARE.
(a) IBM's Responsibilities. IBM will provide You with a copy of the applicable
Test Software and Other Software. Subject to your compliance with the
terms of this Section 9, IBM grants You a revocable, non-exclusive,
non-transferable right and license to the extent expressly described in
Appendix A or Appendix B, as appropriate: [This information has been
omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.] (ii) to use the Test Software to
assemble and test Approved Products, and (iii) to use and install Other
Software where appropriate on Approved Products. Provided You comply with
all of the terms of this Agreement, IBM authorizes You to distribute Other
Software installed by You on the Approved Product. IBM may revoke theses
grants and authorizations in whole or in part at any time in its sole
discretion.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with
the Commission.] use the Test Software [This information has been
omitted in accordance with a Confidential Treatment Request and has
been filed separately with the Commission.] only for assembling and
testing Approved Products in the manner and to the extent expressly
permitted in Appendix A or Appendix B, as appropriate;
(2) to use and install the Other Software only on Approved Products in
the manner and to the extent expressly permitted in Appendix A or
Appendix B, as appropriate;
(3) to maintain adequate business controls for the Test Software and
Other Software provided by IBM co prevent unauthorized use or
copies;
(4) not to copy or permit the copying (including back-up copies) of all
or any part of any Test Software or Other Software, except as
expressly authorized by this Agreement;
(5) not to sublicense, rent, lease, distribute, assign or otherwise
transfer (including distributing back-up copies of) all or any part
of any Test Software or Other Software, except as expressly
authorized by this Agreement;
(6) not to reverse engineer, disassemble, or decompile all or any part
of any Test Software or Other Software provided by IBM;
(7) not to add to, delete from, or otherwise modify the Test Software or
Other Software, or create any derivative work therefrom; and
<PAGE>
(8) not to export Approved Products containing any Other Software to
countries where the associated license agreement, is not valid.
1O. QUALITY, RELIABILITY AND SAFETY.
(a) IBM's Rights. IBM reserves the right to immediately suspend your authority
to assemble Approved Products if IBM determines, in its sole discretion,
that Approved Products assembled and tested by You fail to meet required
specifications, whether or not, You are at fault.
(b) IBM's Responsibilities. [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with
the Commission.]
(c) Your Responsibilities. You represent, warrant and agree that:
(1) all Approved Products which You assemble and resell will comply
fully and completely with all functional, quality, reliability, and
other specifications identified in Appendix A or Appendix B, as
appropriate, including all FCC, UL, consumer product safety, and
other applicable agency specifications and requirements;
(2) to the extent not otherwise expressly required by this Agreement,
the functional, quality, reliability and other specifications that
You utilize for an Approved Product will exceed industry
requirements;
(3) You will immediately stop assembling Approved Products upon the
request of IBM due to any quality, reliability, safety, or other
reasons;
(4) You will comply with any Approved Product recall process established
by IBM;
(5) You will only assemble Approved Products pursuant to the assembly
and test processes set forth in Appendix A or Appendix B as
appropriate, and You will not modify or alter the subassemblies of
any Base System Units or Approved Components, including, but not
limited to, the power supplies, processors, planars or mechanical
subassemblies;
(6) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
<PAGE>
(7) You will not use any ozone-depleting substances in your assembly and
test processes for Approved Products, and You will comply with all
environmental laws and regulations regarding the disposal of
materials used in the assembly and test processes;
(8) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(9) You will cooperate fully with IBM during periodic audits of quality,
reliability, FCC and UL certification, and your compliance with the
terms of this Agreement, and You agree to make any changes and
improvements required by IBM in a timely manner;
(10) You will be warranty service capable on each type of Approved
Product You assemble and test under this Agreement, or You will have
procedures in place to provide warranty service for such Approved
Products through IBM-SERV or the IBM Authorized Servicers Program;
(11) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(12) You will comply with all applicable laws, ordinances, rules and
regulations in the performance of your obligations under this
Agreement (in particular, as such relate co workplace safety);
(13) You will periodically assess and continuously improve your quality
as an Authorized Assembler in accordance with procedures under ISO
9002, or such higher level certification specified by IBM; and
(14) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
<PAGE>
11. DISTRIBUTION AND RESALE.
(a) IBM's Responsibilities. IBM's sole responsibilities regarding distribution
and resale of the Approved Products are set forth in the IBM Business
Partner Agreement.
(b) Your Responsibilities. You represent, warrant and agree:
(1) to sell and distribute Approved Products according to the terms of
the IBM Business Partner Agreement;
(2) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(3) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the
Commission.]
(4) that, if You have not compiled with the terms of this Agreement in
assembling and testing a personal computer system, You will not: (i)
represent that such personal computer system was assembled by You
under the Authorized Assembler Program; or (ii) use an
IBM-designated machine type model number to identify such personal
computer system.
(5) that You will comply with all applicable laws in marketing or
transshipping any Base System Units, Approved Components, or
Approved Products that are used or that contain used parts,
including, but not limited to, conspicuously and permanently marking
the Base System Unit, Approved Component, and/or Approved Product,
all related packaging, all marketing materials and point of sale
displays, and the associated sales invoice to identify it as used or
as containing used parts;
<PAGE>
(6) that You will only represent that the Approved Products assembled by
You were assembled pursuant to an ISO 9002 (or higher level)
certified process if You have obtained such certification; and
(7) that You will not export Approved Products unless: (i) exporting of
such Approved Products is permitted by the IBM Business Partner
Agreement; and (ii) You comply with all applicable laws and
regulations of the United States and any other applicable
jurisdiction.
12. IBM INTELLECTUAL PROPERTY; GRANT OF LIMITED RIGHTS AND LICENSE.
(a) It is acknowledged by the parties that the design of the Approved Products
and all unique IBM tooling was developed under IBM's direction and at
IBM's expense. Those features and processes, as well as any other features
and processes which may be subsequently developed under IBM's direction
and at IBM's expense, are the proprietary and confidential designs of IBM
and are the sole and exclusive property of IBM. You agree that all right,
title and interest therein shall at all times vest and remain in IBM. You
recognize that IBM has invested considerable time and money in developing
and protecting its proprietary and intellectual property rights and in
creating goodwill and a reputation for excellence with respect to the
Approved Products.
(b) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
(c) Further, IBM grants You a revocable, non-exclusive, non-transferrable,
royalty-free limited right and license to use, in connection with the
assembly, testing, sale or distribution of Approved Products solely in
accordance with this Agreement, the Approved Product name(s) and
trademark(s) used by IBM to identify the Approved Products, including any
portion thereof; provided, however, that IBM reserves the right to review
and disapprove any references to "IBM" or any of IBM's trademarks. IBM has
ownership and title to the trademark "IBM", all other trademarks and trade
names of IBM, and the goodwill attaching thereto, and You agree that any
goodwill which accrues because of your use of the trade name "IBM" or any
other trademarks or trade names of IBM shall vest in and become the
property of IBM.
<PAGE>
(d) Except as otherwise provided in this Section 12 or in Sections 8 and 9 of
this Agreement, You shall not have any rights, interest or license in,
whether by implication, estoppel or otherwise, any US or foreign
copyrights, trademarks, trade names, trade secrets and/or patents
applicable in the Approved Products. IBM may revoke any of these grants at
any time in its sole discretion.
13. CREDITS AND ADJUSTMENTS.
(a) Standard Machine Type Models. Provided that YOU comply with all the terms
and conditions of this Agreement in assembling and testing Approved
Products under Appendix A, unless expressly provided otherwise herein and
to the extent permitted and/or required by law, [This information has been
omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.]
(b) Custom and Rework Models. Provided that You comply with all the terms and
conditions of this Agreement in assembling and testing Approved Products
under Appendix B, unless expressly provided otherwise herein and to the
extent permitted and/or required by law, [This information has been
omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.]
(c) Marketing Funds and Promotional Offerings. Additionally, [This information
has been omitted in accordance with a Confidential Treatment Request and
has been filed separately with the Commission.] any marketing funds and
promotional offerings (e.g., ProPlan and HQ Funds) allocated to You shall
be adjusted, if necessary, to reflect the purchase by You of the Approved
Product rather than the purchase of the Base System Unit and Approved
Components. For example, if the marketing funds associated with the
Approved Product are less than the sum of the funds allocated to You for
the Base System Unit and the Approved Components purchased by You to
assemble the Approved Product, IBM will reduce the amount of the marketing
funds allocated to You to equal the amount that would have been allocated
to You for purchase of the Approved Product. Conversely, if the marketing
funds associated with the Approved Product are greater than the sum of the
marketing funds allocated to You for the Base System Unit and the Approved
Components purchased by You to assemble the Approved Product, IBM will
<PAGE>
allocate to You an additional amount of marketing funds equal to the
difference. For the purpose of determining the marketing funds and
promotional offerings associated with Approved Products You are authorized
to assemble under Appendix B, the marketing funds and promotional
offerings associated with the highest IBM standard machine type model
inherent in the Approved Product and with any Approved Components above
those required to assemble the inherent model will be added together.
14. RETURNS. All Base System Units, Approved Components and Removed Parts that
You return to IBM must be new and unused, and by returning such items to
IBM, You represent and warrant that they are new and unused. [This
information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.] Further, all
returns of Base System Units and Approved Components are subject to the
then-current inventory adjustment terms and conditions of the IBM Business
Partner Agreement, including but not limited to, returns caps and handling
fees.
15. WARRANTY.
(a) The IBM Statement of Limited Warranty included in the Approved Product's
designated ship group applies as provided in Appendices A and B to an
Approved Product assembled and tested by You and purchased by an End User
provided that such Approved Product was assembled and tested by You in
full and complete compliance with this Agreement and is otherwise free
from defects in your workmanship under normal use and operation during the
limited warranty period specified for such product in the applicable IBM
Statement of Limited Warranty. [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed
separately with the Commission.] TO THE MAXIMUM EXTENT ALLOWED BY
APPLICABLE LAW, IBM EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES FLOWING TO
YOU OR TO ANY END USERS RELATING TO ANY APPROVED PRODUCT, INCLUDING
WITHOUT LIMITATION, WARRANTIES AND CONDITIONS OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. IN ADDITION, TO THE MAXIMUM EXTENT
ALLOWED BY APPLICABLE LAW, IBM EXPRESSLY DISCLAIMS ALL EXPRESS WARRANTIES
AND CONDITIONS FLOWING TO YOU OR TO ANY END USERS WITH RESPECT TO ANY
APPROVED PRODUCT THAT IS NOT ASSEMBLED AND TESTED BY YOU IN FULL AND
COMPLETE COMPLIANCE WITH THIS AGREEMENT, [THIS INFORMATION HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL TREATMENT REQUEST AND HAS BEEN
FILED SEPARATELY WITH THE COMMISSION.] OR THAT IS NOT FREE FROM DEFECTS IN
YOUR WORKMANSHIP.
<PAGE>
(b) ALL SOFTWARE IMAGES, TEST SOFTWARE AND OTHER SOFTWARE PROVIDED TO YOU
UNDER THE AUTHORIZED ASSEMBLER PROGRAM ARE PROVIDED "AS IS," WITHOUT
WARRANTY OF ANY KIND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
IBM EXPRESSLY DISCLAIMS ALL WARRANTIES AND CONDITIONS FLOWING TO YOU OR TO
ANY END USER, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
WARRANTIES AND CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO SUCH SOFTWARE IMAGES, TEST SOFTWARE AND OTHER
SOFTWARE.
16. INDEMNIFICATION. You will defend, indemnify and hold harmless, IBM, its
Subsidiaries, employees, and directors from all fines, claims, and
expenses of any kind (including reasonable attorneys' fees and expenses)
arising from or connected with (a) allegations that You have violated or
otherwise failed to comply with any applicable law, ordinance, rule or
regulation in the performance of your obligations under this Agreement,
(b) any breach, default, or non-compliance by You related to your
representations, warranties or obligations under this Agreement, (c)
alteration or modification by You of any Software Image, Test Software or
Other Software, whether IBM approved of such alteration or modification or
not, (d) unauthorized use, reproduction or distribution of Software
Images, Test Software and Other Software by You or your employees or
agents, and (e) modification by You of any assembly or test process,
agency compliance requirement, or other specifications contained in
Appendix A or Appendix B, as appropriate.
17. LIMITATION OF LIABILITY. Circumstances may arise where, because of a
default or other liability on IBM's part, You are entitled to recover
damages from IBM. In each such instance, regardless of the basis on which
damages can be claimed, IBM shall be responsible only for: (a) bodily
injury (including death) and damage to real property and tangible personal
property caused by an Approved Product assembled in accordance with the
terms of this Agreement; and (b) the amount of any other actual loss or
damage up to the greater of $ 100,000 or the amount You paid for the
Approved Product that is the subject of the claim. Under no circumstances
will IBM be liable for any of the following; (i) third-party claims
against You for losses or damages (other than those under the first item
above); (ii) loss of or damage to your records or data; or (iii) economic
consequential damages (including lost profits or savings) or incidental
damages, even If IBM was informed of their possibility.
18. MODIFICATIONS AND AMENDMENTS. Except as otherwise provided in this Section
18, this Agreement can only be modified or amended in a writing signed by
both parties. [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
<PAGE>
19. CONTRACT PERIOD AND RENEWAL. This Agreement shall become effective as of
the date first above written when it is executed by You and accepted by
IBM and shall automatically expire as of December 31, 1997, unless sooner
terminated. This Agreement can be renewed for successive one-year terms by
mutual agreement of the parties. Neither party is obligated to renew, and
no cause need be given for non-renewal.
20. TERMINATION AND END OF AGREEMENT.
(a) Either party may terminate this Agreement with or without cause upon
thirty (30) days prior written notice to the other party.
(b) In addition, IBM may consider certain actions so serious a threat to the
integrity of the Authorized Assembler Program and/or IBM's goodwill as to
warrant immediate termination. Accordingly, IBM may terminate this
Agreement immediately upon written notice to You if You repudiate this
Agreement, if You materially breach its terms and/or conditions, or if You
engage in a course of conduct that has, in IBM's sole judgment, injured
IBM's reputation or the reputation of IBM's products.
(c) In the event that your IBM Business Partner Agreement is terminated for
any reason or otherwise expires, or in the event that You are no longer
eligible to purchase IBM personal computer products directly from IBM,
this Agreement shall be terminated concurrently with no separate notice
required.
(d) In the event that notice of termination of this Agreement is given for any
reason or for no reason, IBM shall be entitled to reject all or any orders
received from You after notice and prior to the effective date of
termination, or IBM may elect to limit shipments to You during such
period. Further, as of the date notice of termination is given, IBM in its
sole discretion may discontinue extension of any credit terms previously
made available to You.
(e) This Agreement shall end on the effective date of termination as provided
in this Section 20 or when the contract period expires without renewal as
provided in Section 19. When this Agreement ends, your right to receive
any credits or adjustments for assembling Approved Products from your
remaining inventory immediately ceases.
<PAGE>
(f) [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
(g) All obligations and duties of the parties, including, but not limited to,
your representations and warranties hereunder, that by their nature
survive the expiration or termination of this Agreement shall remain in
effect after expiration or termination and shall bind the parties and
their legal representatives, successors and assigns.
21. GENERAL TERMS.
(a) Neither party may assign, delegate, or otherwise transfer its rights or
obligations under this Agreement without the prior written approval of the
other party which may be withheld in that party's sole discretion. Any
attempted assignment, delegation or transfer without such approval shall
be void.
(b) Each parry is free to enter into similar agreements with others, to market
competitive products and to conduct its business in whatever way it
chooses, provided that there is no conflict with this Agreement.
(c) You agree to keep the terms and conditions of this Agreement confidential
and not to disclose the terms or conditions to any third party without the
prior written approval of IBM.
(d) You are an independent contractor of IBM, and You are not IBM's employee
or franchisee. Neither of us is a legal representative or agent of the
other. Neither of us is legally a partner or joint venturer of the other
(for example, neither of us is responsible for the debts incurred by the
other).
(e) IBM may periodically review your performance under this Agreement. You
agree to provide IBM with relevant records upon request and otherwise
cooperate with IBM's review. IBM has the right to reproduce the records,
retain the copies, and audit your compliance with this Agreement on your
premises during normal business hours. IBM may use an independent auditor
for this purpose.
<PAGE>
(f) You will provide IBM with sufficient, free, and safe access to your
facilities at mutually-convenient times. [This information has been
omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.] You will assign a management level
employee to interact with the IBM representative(s) and to coordinate your
activities in response to requirements identified by the IBM
representative(s). If You become aware of any unsafe conditions or
hazardous materials to which IBM personnel may be exposed at any of your
facilities, You agree to notify IBM immediately.
(g) Failure by either of the parties to insist upon strict performance or to
exercise a right when entitled does not prevent that party from doing so
at a later time, either in relation to that default or any subsequent one.
All waivers must be in writing and signed by an authorized representative
of the waiving party.
(h) If either party requires the exchange of confidential information, it will
be made under a signed confidential disclosure agreement, the terms of
which will be incorporated by reference herein.
(i) The laws of the State of New York, excluding its conflict of laws
principles shall govern this Agreement. EACH PARTY EXPRESSLY WAIVES ANY
RIGHT IT MAY HAVE TO A JURY TRIAL. IN ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, YOU AGREE TO BRING ANY ACTION OR
PROCEEDING OVER SUCH DISPUTE SOLELY IN THE UNITED STATES DISTRICT COURT
LOCATED IN WESTCHESTER COUNTY, NEW YORK (OR, IF SUBJECT MATTER
JURISDICTION IN THAT COURT IS NOT AVAILABLE, IN ANY STATE COURT LOCATED
WITHIN THE COUNTY OF WESTCHESTER, NEW YORK).
(j) If the event of any inconsistency in the various documents which govern
the parties' performance under this Agreement, the order of precedence
shall be:
(i) this Agreement, excluding its exhibits, appendices and other
attachments (unless an exhibit, appendix or attachment specifically
supersedes a term of this Agreement, in which case the terms of such
exhibit, appendix or attachment shall govern);
(ii) the Installation Agreement attached as Exhibit 1;
(iii) Appendices A and B, as appropriate; and
(iv) any other exhibits, appendices or other attachments in the order in
which they are attached unless a subsequent exhibit, appendix, or
other attachment specifically supersedes a term of a prior exhibit,
appendix, or other attachment.
<PAGE>
(k) The parties agree that:
(1) an identification code (called a "USERID") contained in an
electronic document is legally sufficient to verify the sender's
identity and the document's authenticity;
(ii) an electronic document that contains a USERID is a signed writing;
and
(iii) an electronic document, or any computer printout of it, is an
original when maintained in the normal course of business.
(l) If any section or subsection of this Agreement is found by competent
judicial authority to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of any such section or
subsection in every other respect and the remainder of this Agreement
shall continue in full force and effect.
(m) All of your rights and all of our obligations under this Agreement are
only valid in the United States and Puerto Rico.
<PAGE>
IN WITNESS WHEREOF, the parties execute "this Agreement for Participation in the
IBM Business Partner - PC, Authorized Assembler Program effective as of the date
first above written.
Received by IBM BBH 96 Nov 13 A9:54
------------------- --------------------
Office No. Date
Agreed and Accepted By:
<TABLE>
<CAPTION>
International Business Machines Corporation Information Technology Services, Inc.
<S> <C>
By: /s/ By: /s/
-------------------------------- -----------------------------------
Authorized Signature Authorized Signature
- ----------------------------------- -----------------------------------
Name (Print or Type) Name (Print or Type)
</TABLE>
Agreed and Accepted By
Authorized Subsidiary:
Name of Authorized Subsidiary:
---------------------------------
By:
---------------------------------
Authorized Signature
----------------------------------
Name (Print or Type)
Address of Authorized Subsidiary:
- -------------------------------------------
- -------------------------------------------
Authorized Subsidiary Approved:
International Business Machines Corporation Effective Date:
-------------------
By:
--------------------------------------
Authorized Signature
--------------------------------------
Name (Print or Type)
<PAGE>
[A total of 16 pages have been omitted in accordance with a Confidential
Treatment Request.]
<PAGE>
To the Board of Directors
SysComm International Corporation and Subsidiaries
Hauppauge, New York
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
June 12, 1997
