<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PC CONNECTION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
5961
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
NEW HAMPSHIRE 02-0372768
------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
528 ROUTE 13
MILFORD, NEW HAMPSHIRE 03055
(603) 423-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
PATRICIA GALLUP
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PC CONNECTION, INC.
528 ROUTE 13
MILFORD, NEW HAMPSHIRE 03055
(603) 423-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
PAUL P. BROUNTAS, ESQ. PHILIP E. COVIELLO, JR., ESQ.
JAY E. BOTHWICK, ESQ. LATHAM & WATKINS
HALE AND DORR LLP 885 THIRD AVENUE
60 STATE STREET SUITE 1000
BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10022-4802
(617) 526-6000 (212) 906-1200
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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, check the following box and
list the Securities Act registration statement number of 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE (1)(2) FEE
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<S> <C> <C>
Common Stock, $.01 par value per share..... $57,500,000 $17,425
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</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase from the
Company and certain stockholders of the Company to cover over-allotments,
if any.
(2) Estimated solely for the purpose of calculating the registration fee.
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<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 NOVEMBER 26, 1997
PROSPECTUS
, 1998
SHARES
PC CONNECTION, INC.
COMMON STOCK
All the shares of Common Stock, $0.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by PC Connection, Inc.
("PC Connection" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial price to the public
will be between $ and $ per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial price to
the public.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "PCCC."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting" for indemnification arrangements with the
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and certain stockholders (the "Selling Stockholders") of the
Company have granted to the Underwriters a 30-day option to purchase up to
an aggregate of additional shares at the Price to the Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions, Proceeds to the Company and the
Proceeds to the Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Principal Stockholders" and "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if issued and accepted by them, subject to
certain prior conditions, including the right of the Underwriters to reject any
order in whole or in part. It is expected that delivery of the shares of Common
Stock will be made in New York, New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES, INC.
WILLIAM BLAIR & COMPANY
<PAGE>
[ART WORK TO BE SUPPLIED OF COMPANY
CATALOGS, FACILITIES AND PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
PC Connection(R), MacConnection(R) and Everything Overnight(R) are
registered trademarks of the Company. This Prospectus also includes product
and company names, trademarks and trade names of companies other than the
Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
PC Connection is a leading direct marketer of brand-name personal computers
and related peripherals, software, accessories and networking products. The
Company's primary target customers are small and medium-sized organizations
("SMORGS") comprised of 20 to 1,000 employees. PC Connection sells its products
through a combination of targeted direct mail catalogs, outbound telemarketing,
its Internet Web site and advertisements on the Internet and in selected
computer magazines. The Company offers a broad selection of approximately
15,000 products targeted for business use at competitive prices, including
products from Compaq, Hewlett-Packard, Toshiba, IBM, Microsoft, Sony, Hitachi
and Apple. The Company's most frequently ordered products are carried in
inventory and are typically shipped to customers the same day that the order is
received.
The Company has experienced rapid growth in sales, profitability, number of
orders and average order size as a result of: (i) a substantial increase in the
number and assortment of products carried by the Company; (ii) increases in
outbound telemarketing personnel and improvements in productivity; (iii)
increases in catalog circulation; and (iv) improvements in inbound
telemarketing productivity. The Company recorded net sales of $333.3 million
and income from operations of $7.5 million in 1996, representing increases of
32.2% and 193.4%, respectively, over 1995. In the nine months ended September
30, 1997, the Company recorded net sales of $383.5 million and income from
operations of $12.5 million, representing increases of 70.4% and 182.2%,
respectively, over the comparable period in 1996. Net sales of Microsoft
Windows or MS-DOS based personal computers ("PCs") and compatible products were
approximately 77% of net sales for the nine months ended September 30, 1997.
According to industry data published by Merrin Information Services, Inc.
("Merrin") in May 1997, domestic sales of personal computers and related
products were $77.8 billion in 1996 and are projected to be $138.2 billion in
2000, representing a compound annual growth rate of 15.4%. The Company believes
that the direct marketing channel will be among the fastest growing
distribution channels for the domestic personal computer and related products
industry. As a leading participant in the direct marketing channel, the Company
believes it is well positioned to capitalize on the expected growth in the
industry.
The Company's growth strategies are to: (i) increase penetration of its
existing customer base; (ii) broaden its product offerings to include higher
margin products such as network servers and communications equipment; and (iii)
expand its customer base. The Company plans to target a greater number of its
existing customers with outbound telemarketing, more aggressively pursue first-
to-market product offerings, provide specialized offerings to targeted segments
of its customer base and increase its investments in electronic commerce and
Internet related marketing opportunities.
Since its founding in 1982, the Company has focused on serving customer needs
by providing innovative, reliable and timely customer service and technical
support, and offering an extensive assortment of branded products, through
knowledgeable, well-trained sales and support teams. The effectiveness of this
strategy is reflected in the recognition accorded the Company, including the
Company's receipt of the PC World "World Class Award for Best Mail-Order
Company" in 1997, as voted by its readers, for the seventh time in the past
eight years, and receipt of the highest ranking of only two direct resellers
included in the first-ever ranking of the "100 Most Influential Companies in
the Computer Industry" by PC Magazine in July 1997.
3
<PAGE>
The Company believes that its consistent customer focus has also resulted in
the development of strong brand name recognition and a broad and loyal customer
base. At September 30, 1997, the Company's mailing list consisted of
approximately 2,000,000 customers and potential customers, of which
approximately 500,000 had purchased products from the Company within the last
twelve months. Approximately 65% of the Company's orders in the nine months
ended September 30, 1997 and in the year ended December 31, 1996 were placed by
customers who had previously purchased products from the Company. The Company
believes it has also developed strong relationships with vendors, resulting in
favorable product allocations and marketing assistance.
Commencing in late 1995, the Company significantly increased its business-to-
business marketing efforts targeting SMORGS, a rapidly growing sector of the
personal computer market that the Company believes is particularly receptive to
purchases from direct marketers. To serve this growing part of its business
more effectively, the Company has increased the number of its outbound
telemarketing account managers from 48 at December 31, 1995 to 156 at September
30, 1997, including 86 new account managers with less than 12 months of
outbound telemarketing experience with the Company. Historically, outbound
account managers become significantly more productive in their second year with
the Company. In addition, in late 1995 the Company initiated programs to
increase training of inbound telemarketing personnel and to provide incentive
compensation based upon sales productivity.
The Company's two major catalogs are PC Connection(R), focused on PCs and
compatible products, and MacConnection(R), focused on Apple Macintosh personal
computers ("Macs") and compatible products. With colorful illustrations,
concise product descriptions, relevant technical information, along with
customer service benefits and toll-free telephone numbers for ordering, the
Company's catalogs are recognized as a leading source for personal computer
hardware, software and other related products. The Company distributed
approximately 24 million catalogs during the nine months ended September 30,
1997.
The Company also markets its products and services through its Internet Web
site, www.pcconnection.com, which provides customers and prospective customers
with Company and product information and enables customers to place electronic
orders for all of the Company's products. The Company believes that as the
Internet becomes a more important commercial medium, it will be well positioned
to capitalize on growth through this emerging channel.
The Company has a 102,000-square foot, full-service distribution and order
fulfillment center in Wilmington, Ohio and a related 25,700-square foot
warehouse in Xenia, Ohio. The Company also operates telemarketing centers in
Hudson, Keene and Milford, New Hampshire.
----------------
The Company's principal executive offices are located at 528 Route 13,
Milford, New Hampshire 03055, and its telephone number is (603) 423-2000. The
Company's Internet Web site is located at www.pcconnection.com. Neither the
information contained in the Company's Internet Web site nor Internet Web sites
linked to the Company's Internet Web site shall be deemed to be a part of this
Prospectus.
4
<PAGE>
REORGANIZATION OF THE COMPANY
The Company was incorporated in New Hampshire in September 1983 and expects
to amend and restate its Articles of Incorporation immediately prior to
consummation of the Offering. Pursuant to this amendment the Company will
convert all of the issued and outstanding shares of Series A Non-Voting Common
Stock, $.01 par value per share, (the "Non-Voting Common Stock") and Series B
Voting Common Stock, $.01 par value per share (the "Voting Common Stock" and
together with the Non-Voting Common Stock, the "Company Common Stock"), into a
single series of Voting Common Stock, $0.01 par value per share, on a -for-
one basis (the "Recapitalization").
For all periods described in the Prospectus, the Company has elected to be
treated as an S Corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and applicable state tax laws. As a result of
the S Corporation status of the Company, the stockholders of the Company were
taxed directly on the earnings of the Company. Upon the consummation of the
Offering, the status of the Company as an S Corporation will terminate and the
Company will be subject to federal and state income taxes at applicable
corporate tax rates (the "S Corporation Termination," and together with the
Recapitalization, the "Reorganization"). Prior to the consummation of the
Offering, the Company will declare a dividend (the "S Corporation Dividend") to
its then existing stockholders (the "S Corporation Stockholders") in the
aggregate amount of approximately $ million, which amount is equal to
substantially all previously taxed, but undistributed, S Corporation earnings.
After the consummation of the Offering, the Company will use a portion of the
net proceeds from the Offering to pay the S Corporation Dividend to the S
Corporation Stockholders. See "Use of Proceeds."
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the
Company............................ shares
Common Stock to be outstanding after
the Offering....................... shares(1)
Use of Proceeds..................... Repayment of debt; payment of the S
Corporation Dividend; and working capital
and other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. PCCC
</TABLE>
- --------------------
(1) Does not include (a) shares of Common Stock issuable upon the exercise
of stock options outstanding as of November , 1997 with a weighted average
exercise price of $ per share and (b) an additional shares of Common
Stock reserved for future issuance under the Company's 1993 Incentive and
Non-Statutory Stock Option Plan, 1997 Stock Incentive Plan and 1997
Employee Stock Purchase Plan.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------ -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 147,627 $ 163,390 $ 196,659 $ 252,217 $ 333,322 $ 225,074 $ 383,460
Gross profit........... 25,748 26,124 30,702 40,918 51,205 35,430 53,452
Income (loss) from
operations............ 1,242 (3,478) (1,951) 2,545 7,466 4,425 12,487
Net income (loss)...... 124 (3,385) (2,341) 1,273 4,756 2,101 2,452
PRO FORMA DATA(1):
Net income............................................................ $ 3,750 $ 6,967
Net income per share.................................................. $ $
=========== ===========
Weighted average number of common and common equivalent shares
outstanding(2).......................................................
=========== ===========
SELECTED OPERATING DATA:
Active customers(3).... 246,000 258,000 295,000 353,000 424,000 401,000 492,000
Catalogs distributed... 6,000,000 10,000,000 16,900,000 16,800,000 18,600,000 11,200,000 24,000,000
Orders entered(4)...... 661,000 695,000 803,000 854,000 910,000 628,000 891,000
Average order size..... $ 248 $ 264 $ 282 $ 346 $ 453 $ 445 $ 512
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(6) AS ADJUSTED(5)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $16,477 $(9,523)
Total assets............................... 95,549 95,549
Short-term debt............................ 9,380 9,380
Long-term debt (less current portion)...... 3,500 3,500
Total stockholders' equity................. 21,280 (4,720)
</TABLE>
- --------------------
(1) The pro forma adjustments give effect to (i) the elimination of additional
stockholder/officer compensation expense of $1,139 and $8,540 for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, representing amounts in excess of aggregate annual base
salaries of $600 to be in effect as of the closing date of the Offering and
(ii) the Reorganization, including the provision for income taxes at an
assumed rate of 39% based upon pro forma income of the Company as if it had
not elected to be treated as an S Corporation. Increases in taxes amounted
to $2,145 and $4,025 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
(2) The pro forma weighted average number of common and common equivalent
shares outstanding assumes that (i) all shares of stock issuable upon
exercise of all stock options granted in 1997 were outstanding and (ii) a
number of shares determined by dividing (x) the S Corporation Dividend
(which if made at September 30, 1997 would have approximated $26,000) by
(y) the mid-point of the range set forth on the cover page of this
Prospectus, were outstanding.
(3) All customers included in the Company's mailing list who have made a
purchase within the last twelve-month period.
(4) Does not reflect cancellations or returns.
(5) Adjusted to give effect to the Reorganization, the Offering and the
application of the estimated net proceeds therefrom.
(6) Reflects the declaration of the S Corporation Dividend estimated to be in
the amount of $26,000 at September 30, 1997.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered by prospective investors when
evaluating an investment in the Common Stock offered hereby.
MANAGING RAPID GROWTH
Net sales have grown from $147.6 million for the year ended December 31,
1992 to $383.5 million for the nine months ended September 30, 1997. This
growth has placed increasing demands on the Company's management resources and
facilities. The Company's business strategy is to pursue additional growth and
expand its customer base, which is likely to result in additional demands on
the Company's resources. The Company's future success will depend in part on
the ability of the Company to manage its growth effectively. See "Business--
Growth Strategy."
RISKS RELATED TO TRANSITION OR EXPANSION OF FACILITIES
In November 1997, the Company entered into a fifteen-year lease for a new
103,000 square foot corporate headquarters facility in Merrimack, New
Hampshire with a company controlled by the Company's principal stockholders.
Significant renovation to this facility is required prior to occupancy by the
Company. The Company expects to relocate its operations to this new facility
and vacate its current leased facility in Milford, New Hampshire in the summer
of 1998. The Company will likely incur certain moving and other costs, not
expected to exceed $500,000, relating to this relocation which would be
charged to operating results in the period incurred. Any significant delay in
the renovation of the new facility, or unanticipated expense, capital cost or
disruption of the Company's business or operations caused by the relocation to
the new facility, could have a material adverse effect on the Company's
financial position, results of operations and cash flows. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions--Leases."
While the Company believes that its existing distribution, fulfillment and
warehouse facilities in Wilmington and Xenia, Ohio will be sufficient to
support the Company's anticipated needs through the next 12 months, additional
and/or alternative facilities for distribution and inventory may be required
to support significant future growth beyond 1998. There can be no assurance
that suitable facilities will be available, and in the absence of such
facilities, future growth could be impaired. See "Business--Distribution" and
"Business--Facilities."
If the Company is unable to generate increased sales and gross profit
sufficient to absorb increased overhead and other costs associated with its
relocation and potential expansion, the Company would likely experience lower
profit margins which could have a material adverse effect on the Company's
financial position, results of operations and cash flows.
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's success is dependent on the accuracy, reliability and proper
use of its management information systems, including its telephone system, and
the information generated by its management information systems. Although the
Company has some redundant systems for data backup, the Company does not
currently have redundant systems for all functions or a redundant or back-up
telephone system. Any interruption in these systems or in telephone service
could have a material adverse effect on the Company's financial position,
results of operations and cash flows.
The Company recognizes the need to continually upgrade its management
information systems to most effectively manage its operations and customer
data base. The Company plans to convert its order management and fulfillment
systems to new software by the end of the second quarter of 1998. While the
Company will maintain its existing systems in place as a backup if the
conversion is not successful, there can be no assurance that the transition to
the new software will be accomplished without interrupting the Company's
business. This new software is designed to be Year 2000 compliant, however,
there can be no assurance that the software
7
<PAGE>
contains all necessary data code changes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Management Information Systems."
RAPID TECHNOLOGICAL CHANGE AND EXPOSURE TO INVENTORY OBSOLESCENCE
The market for personal computer products is characterized by rapid
technological change and the frequent introduction of new products and product
enhancements. The Company's success depends in part on its ability to identify
and market products that meet the needs of the marketplace. In order to
satisfy customer demand and to obtain favorable purchasing discounts, the
Company expects to carry increased inventory levels of certain products in the
future, which will subject it to increased risk of inventory obsolescence. In
the implementation of its business strategy, the Company intends, among other
things, to place larger than typical inventory stocking orders, increase its
participation in first-to-market purchase opportunities, and may in the future
participate in end-of-life-cycle purchase opportunities and market products on
a private-label basis, all of which will further increase the risk of
inventory obsolescence. While the Company seeks to reduce its inventory
exposure through a variety of inventory control procedures and policies,
including vendor price protection and product return programs where available,
special purchase products are sometimes acquired without return privileges and
there can be no assurance that the Company will be able to avoid losses
related to obsolete inventory. In addition, some manufacturers provide the
Company with co-op advertising support in the form of products, for which
there may be no return privileges. Finally, certain build-to-order programs
currently being implemented by some computer systems manufactures will likely
include reductions in the levels of price protection and product returns made
available by such manufacturers. See "Business--Products and Merchandising."
AVAILABILITY AND ALLOCATION OF GOODS; RELIANCE ON VENDOR SUPPORT AND
RELATIONSHIPS
The Company acquires products for resale from manufacturers as well as from
distributors. Purchases of products from the five vendors supplying the
greatest amount of goods to the Company constituted 48.0% and 47.2%,
respectively, of the Company's total product purchases in the year ended
December 31, 1996 and the nine months ended September 30, 1997. Among these
five vendors, purchases from Ingram Micro, Inc. ("Ingram Micro") represented
28.4% and 29.5%, respectively, of the Company's total product purchases in the
year ended December 31, 1996, and the nine months ended September 30, 1997. No
other vendor supplied more than 10% of the Company's total product purchases
in the year ended December 31, 1996 or the nine months ended September 30,
1997. Although the loss of Ingram Micro could cause a short-term disruption in
the availability of products and could have a material adverse effect on the
Company's financial position, results of operations and cash flows, the
Company believes that alternative sources for products are available.
Sales of products dependent on the Mac platform, including products
manufactured by Apple Computer, Inc. ("Apple"), represented 23.0% and 22.6% of
the Company's net sales in the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively. Apple has been experiencing a
decline in revenues and in its share of the worldwide and domestic personal
computer markets, as well as operating losses. In November 1997, Apple
announced that it will sell built-to-order computers directly to customers
over the Internet. However, it also indicated that it is not abandoning
traditional retail and direct marketing outlets. The Company cannot predict
whether this action by Apple will affect the future supply of Macs to the
Company. The Company's sales of personal computers and other products
manufactured by Apple may be limited if the Company's reseller agreement with
Apple is curtailed or terminated or if product availability or financing is
otherwise restricted. Any decline in the availability of, or demand for, Macs
may have a material adverse effect on the Company's financial position,
results of operations and cash flows. See "Business--Products and
Merchandising."
Substantially all of the Company's contracts and arrangements with its
vendors that supply significant quantities of products are terminable by such
vendors or the Company without notice or upon short notice. Most of the
Company's product vendors provide the Company with trade credit, of which the
net amount outstanding at September 30, 1997 was $39.1 million. Termination,
interruption or contraction of the Company's relationships with its vendors,
including a reduction in the level of trade credit provided to the Company,
could have a material adverse effect on the Company's financial position,
results of operations and cash flows. See "Business--Purchasing and Vendor
Relations."
8
<PAGE>
Certain product manufacturers either do not permit the Company to sell the
full line of their products or limit the number of product units available to
direct marketers such as the Company. An element of the Company's business
strategy is to increase its participation in first-to-market purchase
opportunities. In the past, availability of certain desired products,
especially in the direct marketing channel, has been constrained. The
inability to source first-to-market purchase or similar opportunities, or the
reemergence of significant availability constraints, could have a material
adverse effect on the Company's financial position, results of operations and
cash flows.
Some product manufacturers and distributors provide the Company with
substantial incentives in the form of payment discounts, supplier
reimbursements, price protections and rebates. No assurance can be given that
the Company will continue to receive such incentives or that it will be able
to collect outstanding amounts relating to these incentives in a timely manner
or at all.
Most product manufacturers provide the Company with co-op advertising
support in exchange for product coverage in the Company's catalogs. This
support significantly defrays the expense of catalog production. The level of
co-op advertising support available to the Company from certain manufacturers
has declined. The level of support from some manufacturers may further decline
in the future. Such a decline could increase the Company's selling, general
and administrative expenses as a percentage of sales and have a material
adverse effect on the Company's financial position, results of operations and
cash flows. See "Business--Purchasing and Vendor Relations."
COMPETITIVE, PRICING AND ECONOMIC RISKS
The Company competes with many national and international direct marketers;
product manufacturers that sell directly to end users; specialty personal
computer retailers; personal computer and general merchandise superstores;
consumer electronic and office supply stores; and shopping services on
television, the Internet and commercial on-line networks. The Company competes
not only for customers, but also for co-op advertising support from personal
computer product manufacturers. Some of the Company's competitors are larger
and have substantially greater financial resources, superior operating
results, and larger catalog circulations and customer bases than the Company.
In addition, several direct marketers have recently been acquired by larger
competitors. This industry consolidation could result in short-term price-
cutting in certain markets. There can be no assurance that the Company will be
able to compete effectively with existing competitors or any new competitors
that may enter the market, or that the Company's financial position, results
of operations and cash flows will not be adversely affected by intensified
competition. See "Business--Competition."
In addition, the personal computer industry has experienced intense price
competition. The Company believes that price competition may increase in the
future and that such competition could result in a reduction of the Company's
profit margins. Also, the Company has recently increased its sales of personal
computer hardware products that generally produce lower profit margins than
those associated with software products. Significant margin decreases could
have a material adverse effect on the Company's financial position, results of
operations and cash flows. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The market for personal computers and related products has grown rapidly in
recent years. Recent statements by industry observers have indicated that
there may be a slowdown in the growth rate of the personal computing industry.
If the growth of this market or the direct marketing channel were to cease or
decrease, the Company's financial position, results of operations and cash
flows would be materially adversely affected. Demand for many of the products
carried by the Company may be subject to economic cycles. The Company's
business and growth could be affected by the spending patterns of existing or
prospective customers, a recession or prolonged economic slowdown, the
cyclical nature of capital expenditures of businesses, continued competition
and pricing pressures and other trends in the general economy, any one of
which could have a material adverse effect on the Company's financial
position, results of operations and cash flows.
9
<PAGE>
DEPENDENCE ON THIRD PARTY SHIPPERS; POTENTIAL INCREASES IN SHIPPING, PAPER AND
POSTAGE COSTS
The Company ships approximately 90% of its products to customers by Airborne
Freight Corporation D/B/A "Airborne Express" ("Airborne Express"), with the
remainder being shipped by United Parcel Service of America, Inc. and other
overnight delivery and surface services. Strikes or other service
interruptions by such shippers could adversely affect the Company's ability to
market or deliver product on a timely basis. Additionally, shipping costs are
a significant expense in the operation of the Company's business. The Company
generally invoices customers for shipping and handling charges. There can be
no assurance that the full cost, including any future increases in the cost,
of commercial delivery services can be passed on to the Company's customers,
which could have a material adverse effect on the Company's financial
position, results of operations and cash flows. See "Business--Distribution"
and "Business--Marketing and Sales."
The Company incurs substantial paper and postage costs related to its
marketing activities including its catalog production and mailings. Although
these costs are currently offset by cooperative advertising rebates from
vendors, any increases in postal or paper costs could have a material adverse
effect on the Company's financial position, results of operations and cash
flows.
HISTORICAL NET LOSSES; VARIABILITY OF QUARTERLY RESULTS
The Company has experienced significant fluctuations in its operating
results, and these fluctuations may continue in the future. The Company
incurred net losses in the years ended December 31, 1993 and 1994. The
Company's results of operations are significantly affected by many factors,
including seasonal and other fluctuations in demand for personal computer
products and in profit margins on products sold, catalog timing and
circulation, product availability, and timing of releases of new and upgraded
products. Many of these factors are outside the control of the Company. The
Company's operating results are heavily dependent upon its ability to predict
sales levels, monitor and control associated expenses, and carefully manage
all aspects of its operations, including product selection and pricing,
purchasing and payables practices, inventory management, and catalog funding,
production and circulation. If revenues do not meet expectations in any given
quarter, or if the Company experiences difficulty in monitoring or controlling
associated expenses, the Company's financial position, results of operations
and cash flows may be materially adversely affected. There can be no assurance
that the Company will be profitable on a quarterly or annual basis. It is
possible that in some future quarter the expectations of public market
analysts and investors will exceed the Company's operating results. In such
event, the price of the Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Selected Quarterly Financial Results."
CHANGING METHODS OF DISTRIBUTION
The manner in which personal computers and related products are distributed
and sold is changing, and new methods of distribution and sale, such as on-
line shopping services, have emerged. Hardware and software manufacturers have
sold, and may intensify their efforts to sell, their products directly to end
users. From time to time, certain manufacturers have instituted programs for
the direct sales of large order quantities of hardware and software to certain
major corporate accounts. These types of programs may continue to be developed
and used by various manufacturers. Certain of the Company's vendors, including
Apple, Compaq Computer Corporation ("Compaq") and International Business
Machine Corporation ("IBM"), currently sell some of their products directly to
end users. In addition, manufacturers may attempt to increase the volume of
software products distributed electronically to end users. An increase in the
volume of products sold through or used by consumers of any of these
competitive programs or distributed electronically to end users could have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
10
<PAGE>
STATE SALES OR USE TAX COLLECTION UNCERTAINTIES
The Company presently collects sales tax only on sales of products to
residents of the State of Ohio. Sales to customers located within the State of
Ohio were approximately 2% of the Company's net sales during the nine months
ended September 30, 1997. Various states have sought to impose on direct
marketers the burden of collecting state sales taxes on the sales of products
shipped to their residents. The United States Supreme Court recently affirmed
its position that it is unconstitutional for a state to impose sales or use
tax collection obligations on an out-of-state mail order company whose only
contacts with the state are limited to the distribution of catalogs and other
advertising materials through the mail and the subsequent delivery of
purchased goods by United States mail or by interstate common carrier.
However, legislation that would expand the ability of states to impose sales
tax collection obligations on direct marketers has been introduced in Congress
on many occasions. Due to its presence on various forms of electronic media
and other factors, the Company's contact with many states may exceed the
contact involved in the Supreme Court case. The Company cannot predict the
level of contact that is sufficient to permit a state to impose on the Company
a sales tax collection obligation. If the Supreme Court changes its position
or if legislation is passed to overturn the Supreme Court's recent decision,
the imposition of a sales or use tax collection obligation on the Company in
states to which it ships products would result in additional administrative
expenses to the Company, could result in price increases to the customer, and
could reduce demand for the Company's products or could otherwise have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance will depend to a significant extent upon
the efforts and abilities of its senior executives. Although the Company has
various programs in place to motivate, reward and retain its management team,
including annual incentive plans and stock option plans, the competition for
qualified management personnel in the personal computer products industry is
very intense, and the loss of service of one or more of these persons could
have an adverse effect on the Company's business. The Company's success and
plans for future growth will also depend on its ability to hire, train and
retain skilled personnel in all areas of its business, including account
managers and technical support personnel. There can be no assurance that the
Company will be able to attract, train and retain sufficient qualified
personnel to achieve its business objectives. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS
After consummation of the Offering, Patricia Gallup and David Hall, the
principal stockholders of the Company, will beneficially own or control, in
the aggregate, approximately % of the outstanding shares of Common Stock ( %
if the Underwriters' over-allotment option is exercised in full). Because of
their beneficial stock ownership, these stockholders will be able to continue
to elect the members of the Board of Directors and decide all matters
requiring stockholder approval. The Company has entered into various
transactions with the principal stockholders. See "Principal Stockholders" and
"Certain Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations between the Company and the Representatives of the Underwriters,
and may not be indicative of the market price for the Common Stock in the
future. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. There can be no assurance that
an active trading market for the Common Stock will develop or be sustained
after the Offering. If a trading market develops, the market price of the
Common Stock may fluctuate widely as a result of various factors, such as
period-to-period fluctuations in the Company's operating results, sales of
Common Stock by principal stockholders, developments in the personal computer
industry or the methods of distribution of personal computer products,
competitive factors, regulatory developments, economic and other external
factors, general market conditions, and market conditions affecting stocks of
personal computer
11
<PAGE>
products manufacturers and resellers in particular. The stock market in
general, and the stocks of personal computer product resellers in particular,
have in the past experienced extreme volatility in trading prices and volumes
that has often been unrelated to operating performance. Such market volatility
may have a significant adverse affect on the market price and marketability of
the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding. The shares of Common Stock sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless held by an
"affiliate" of the Company, as that term is defined under Rule 144 of the
Securities Act, which shares will be subject to the resale limitations of Rule
144. In connection with the Offering, the existing stockholders and holders of
stock options exercisable within 180 days after the date of this Prospectus
have agreed not to dispose of any shares for a period of 180 days from the
date of this Prospectus, and the Company has agreed not to dispose of any
shares (other than shares sold by the Company in the Offering or issuances by
the Company of certain employee stock options and shares covered thereby) for
a period of 180 days from the date of this Prospectus, without the prior
written consent of Donaldson, Lufkin and Jenrette Securities Corporation. Upon
expiration of such 180-day period, all shares of Common Stock held by the
existing stockholders ( shares) will be eligible for sale subject to
certain volume and other limitations of Rule 144 under the Securities Act
applicable to "affiliates" of the Company and all shares of stock acquired
upon exercise of stock options may be sold pursuant to a registration
statement to be filed by the Company. No prediction can be made as to the
effect, if any, that market sales of shares of Common Stock or the
availability of shares of Common Stock for sale will have on the market price
of the Common Stock from time to time. The sale of a substantial number of
shares held by the existing stockholders, whether pursuant to a subsequent
public offering or otherwise, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock and could
materially impair the Company's future ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale" and
"Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in the Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their shares. Assuming
an initial public offering price of $ per share, dilution to new investors
would be $ per share. Additional dilution will occur upon exercise of
outstanding stock options. If the Company seeks additional capital in the
future, the issuance of shares or convertible debt to obtain such capital may
lead to further dilution. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately $ ($
if the Underwriters' over-allotment option is exercised in full), after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, based on an assumed initial price to the public of $ per
share (the mid-point of the range set forth on the cover page of this
Prospectus).
The Company plans to use approximately $ of the net proceeds from the
Offering to repay bank indebtedness comprising $ million of term debt and
$ million of short-term borrowings, each having a maturity date of March
31, 2002, and bearing interest at the prime rate (8.0% per annum at the date
of this Prospectus), and approximately $ of the net proceeds from the
Offering to pay the S Corporation Dividend.
The Company intends to use any remaining net proceeds for general corporate
purposes, including working capital. Pending such uses, the net proceeds of
the Offering will be invested in interest-bearing or dividend-bearing,
investment grade securities.
DIVIDEND POLICY
The Company currently intends to retain its future earnings and has no plans
to pay cash dividends in the foreseeable future, other than the declaration of
the S Corporation Dividend (estimated to be approximately $ million) prior
to the consummation of the Offering. The payment of future dividends will be
determined by the Board of Directors of the Company in light of conditions
then existing, including the Company's financial condition and requirements,
future prospects, restrictions in financing agreements, business conditions
and other factors deemed relevant by the Board of Directors. There can be no
assurance that the Company will determine to pay any cash dividends in the
future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the cash, debt and capitalization of the
Company as of September 30, 1997 (i) on an actual basis, (ii) on a pro forma
basis reflecting the S Corporation Dividend and (iii) on a pro forma as
adjusted basis reflecting the sale of shares of Common Stock offered hereby
and the application of the estimated net proceeds from the Offering based on
an assumed initial price to the public of $ per share (the mid-point of the
range set forth on the cover page of this Prospectus).
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(1) ADJUSTED(2)
------------ -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash.................................................... $ 723 $ 723 $
============ ============== =========
Short-term borrowings................................... $ 8,130 $ 8,130 $
Long-term debt (including current portion).............. 4,750 4,750
------------ -------------- ---------
Total debt.......................................... 12,880 12,880
------------ -------------- ---------
Stockholders' equity (deficiency):
Common stock, $.01 par value: 7,500,000 shares of Non-
Voting Common Stock and 2,500,000 shares of Voting
Common Stock authorized, and 6,750,000 shares of Non-
Voting Common Stock and 2,250,000 shares of Voting
Common Stock issued and outstanding, actual and pro
forma; shares of Common Stock authorized, and
shares of Common Stock issued and outstanding,
pro forma as adjusted(2)............................. 90 90
Preferred stock, $.01 par value: shares authorized
and none issued and outstanding pro forma as
adjusted(2)..........................................
Additional paid in-capital............................ 4,037 4,037
Retained earnings (deficit)........................... 17,153 (8,847)
------------ -------------- ---------
Total stockholders' equity.......................... 21,280 (4,720)
------------ -------------- ---------
Total capitalization.................................... $ 34,160 $ 8,160 $
============ ============== =========
</TABLE>
- ---------------------
(1) Reflects the declaration of the S Corporation Dividend estimated to be in
the amount of $26,000 at September 30, 1997.
(2) Gives effect to the Reorganization, the Offering and the application of
the estimated net proceeds therefrom. Excludes (a) shares of Common
Stock issuable upon the exercise of stock options outstanding as of
November , 1997 with a weighted average exercise price of $ per share
and (b) an additional shares of Common Stock reserved for future
issuance under the Company's 1993 Incentive and Non-Statutory Stock Option
Plan, 1997 Stock Incentive Plan and 1997 Employee Stock Purchase Plan.
14
<PAGE>
DILUTION
At September 30, 1997, after giving effect to (i) the Reorganization and
(ii) payments of the S Corporation Dividend the Company had a pro forma net
tangible book value of approximately $ or $ per share of Common Stock.
"Net tangible book value" represents the amount of total assets less total
liabilities divided by the number of shares of Common Stock outstanding.
Without taking into account any other changes in the net tangible book value
after September 30, 1997, other than to give effect to the sale of the
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $ per share (the mid-point of the range set forth
on the cover page of this Prospectus) after deducting estimated underwriting
discounts and offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of September 30, 1997 would have been
approximately $ or $ per share. This represents an immediate increase in
net tangible book value of $ per share to the existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value as of September 30,
1997..................................................... $
Increase in net tangible book value attributable to new
investors................................................
Pro forma net tangible book value after the Offering........
------
Dilution to new investors................................... $
======
</TABLE>
The following table summarizes on a pro forma basis, as of September 30,
1997, the differences between existing stockholders and new investors in the
Offering (at an assumed initial public offering price of $ per share) with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------------AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. % $ % $
New investors.......... % % $
--------- --- ------------- ------
Total................ 100% $ 100%
========= === ============= ======
</TABLE>
As of September 30, 1997, options to purchase shares of Common Stock
were outstanding with a weighted average exercise price of $ per share and
are not reflected in the above tables. See "Capitalization," "Management--
Stock Option Plans" and Notes 7 and 12 of the Financial Statements.
15
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial and operating data should be read in
conjunction with the Company's Financial Statements and the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein. The selected data presented below
under the captions "Statement of Operations Data" and "Balance Sheet Data" for
each of the years in the five-year period ended December 31, 1996 and the nine
months ended September 30, 1997 are derived from the audited financial
statements of the Company. The financial statements as of December 31, 1995
and 1996 and September 30, 1997, and for each of the years in the three-year
period ended December 31, 1996 and for the nine months ended September 30,
1997, and the independent auditors' report thereon, are included elsewhere in
this Prospectus. The selected data presented below for the nine months ended
September 30, 1996 are derived from the unaudited financial statements of the
Company appearing elsewhere in the Prospectus. In the opinion of management,
the unaudited financial statements for the nine months ended September 30,
1996 include all adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair presentation of the results
for such period. The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
year ended December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 147,627 $ 163,390 $ 196,659 $ 252,217 $ 333,322 $ 225,074 $ 383,460
Cost of sales.......... 121,879 137,266 165,957 211,299 282,117 189,644 330,008
---------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 25,748 26,124 30,702 40,918 51,205 35,430 53,452
Selling, general and
administrative
expenses.............. 24,506 29,602 32,653 38,373 43,739 31,005 40,965
---------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............ 1,242 (3,478) (1,951) 2,545 7,466 4,425 12,487
Interest expense....... (76) (274) (594) (1,296) (1,269) (803) (933)
Other, net............. 90 367 80 62 70 20 (43)
Income taxes(1)........ (32) -- 124 (38) (252) (134) (429)
Additional
stockholder/officer
compensation(2)....... (1,100) -- -- -- (1,259) (1,407) (8,630)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 124 $ (3,385) $ (2,341) $ 1,273 $ 4,756 $ 2,101 $ 2,452
========== =========== =========== =========== =========== =========== ===========
PRO FORMA DATA(3):
Net income ........................................................... $ 3,750 $ 6,967
Net income per share.................................................. $ $
=========== ===========
Weighted average number of common and
common equivalent shares outstanding(4)..............................
=========== ===========
SELECTED OPERATING DATA:
Active customers(5).... 246,000 258,000 295,000 353,000 424,000 401,000 492,000
Catalogs distributed... 6,000,000 10,000,000 16,900,000 16,800,000 18,600,000 11,200,000 24,000,000
Orders entered(6)...... 661,000 695,000 803,000 854,000 910,000 628,000 891,000
Average order size..... $ 248 $ 264 $ 282 $ 346 $ 453 $ 445 $ 512
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
---------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital........ $ 10,790 $ 7,383 $ 2,770 $ 10,994 $ 14,622 $ 16,477
Total assets........... 33,404 38,313 52,911 48,615 75,238 95,549
Short-term debt........ 3,367 6,905 6,106 4,933 13,057 9,380
Long-term debt (less
current maturities)... -- -- -- 5,000 4,250 3,500
Total stockholders'
equity................ 17,088 13,702 11,687 13,057 18,043 21,280
</TABLE>
16
<PAGE>
- ---------------------
(1) For all periods presented, the Company has been an S Corporation and
accordingly has not been subject to federal income taxes.
(2) Represents amounts accrued or distributed in excess of aggregate annual
base salaries approved by the Board of Directors and primarily represent
Company-related federal income tax obligations payable by the
stockholders.
(3) The pro forma adjustments give effect to (i) the elimination of additional
stockholder/officer compensation expense of $1,139 and $8,540 for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, representing amounts in excess of aggregate annual base
salaries of $600 to be in effect as of the closing date of the Offering
and (ii) the Reorganization, including the provision for income taxes at
an assumed rate of 39% based upon pro forma income of the Company as if it
had not elected to be treated as an S Corporation. Increases in taxes
amounted to $2,145 and $4,025 for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively.
(4) The pro forma weighted average number of common and common equivalent
shares outstanding assumes that (i) all shares of stock issuable upon
exercise of all stock options granted in 1997 were outstanding and (ii) a
number of shares determined by dividing (x) the S Corporation Dividend
(which if made at September 30, 1997 would have approximated $26,000) by
(y) the mid-point of the range set forth on the cover page of this
Prospectus, were outstanding.
(5) All customers included in the Company's mailing list who have made a
purchase within the last twelve-month period.
(6) Does not reflect cancellations or returns.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and unaudited pro forma financial statements included
elsewhere herein.
GENERAL
The Company was founded in 1982 as a mail order business offering a broad
range of software and accessories for IBM and IBM-compatible personal
computers. The founders' goal was to provide consumers with superior service
and high quality branded products at competitive prices. The Company initially
sought customers through advertising in magazines and the use of inbound toll
free telemarketing. Currently, the Company seeks to generate sales through (i)
outbound telemarketing by account managers focused on the business, education
and government markets and (ii) inbound calls from customers responding to the
Company's catalogs and other advertising. The Company also advertises in
selected computer industry publications and in 1996 commenced selling products
through its Internet Web site.
The Company offers both PC compatible products and Mac compatible products.
Reliance on Mac product sales has decreased over the last two years, from
26.7% of net sales in 1995 to 22.6% of net sales for the nine months ended
September 30, 1997. Although sales of Mac products represent a smaller portion
of net sales, the dollar volume of sales of these products increased in the
nine months ended September 30, 1997, as compared to the comparable period in
1996.
All of the Company's product categories experienced strong growth in the
year ended December 31, 1996 and the nine months ended September 30, 1997,
with sales of computer systems representing the fastest growing category.
Sales of computer systems result in a relatively high dollar sales order, as
reflected in the increase in the Company's average order size from $346 in the
year ended December 31, 1995 to $512 for the nine months ended September 30,
1997. Computer system sales generally provide the largest gross profit dollar
contribution per order of all of the Company's products, although they
generally yield the lowest gross margin percentage. Partially as a result of
higher system sales, the Company's gross margin has declined over the last two
years while the operating income margin has increased due to the leveraging of
selling, general and administrative expenses over a larger sales base.
The Company's profit margins are also influenced by, among other things,
industry pricing and the relative mix of inbound versus outbound sales.
Generally, pricing in the computer and related products market is very
aggressive and the Company intends to maintain prices at competitive levels.
Since outbound sales are typically to corporate accounts that purchase at
volume discounts, the gross margin on such sales is generally lower than
inbound sales, although the gross profit dollar contribution per order is
generally higher as average order sizes to corporate accounts are usually
larger. The Company believes that outbound sales will continue to represent a
larger portion of its business mix in future periods.
In connection with the Offering, the Company expects to report the following
non-recurring, non-cash items in the quarter ending March 31, 1998: (i) a
$665,000 charge to income from operations resulting from the acceleration of
the amortization of certain stock option compensation expense from seven years
to four years and (ii) an estimated $2.5 million credit to its income tax
provision resulting from the S Corporation Termination.
In connection with the planned relocation of its headquarters facility in
the summer of 1998, the Company will likely incur certain one-time moving and
other costs, not expected to exceed $500,000, which would be charged to
operating results in the periods incurred.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information derived
from the Company's statements of operations expressed as a percentage of net
sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
------- ------- ------- -------- --------
Net sales (in millions)........ $ 196.7 $ 252.2 $ 333.3 $ 225.1 $ 383.5
======= ======= ======= ======== ========
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................... 15.6 16.2 15.4 15.7 13.9
Selling, general and
administrative expenses....... 16.6 15.2 13.1 13.8 10.7
Income (loss) from operations.. (1.0) 1.0 2.2 2.0 3.3
Interest expense............... (0.3) (0.5) (0.4) (0.4) (0.2)
Income taxes................... 0.1 (0.0) (0.1) (0.1) (0.1)
Additional stockholder/officer
compensation.................. 0.0 0.0 (0.4) (0.6) (2.2)
Net income (loss).............. (1.2) 0.5 1.4 0.9 0.6
Pro forma net income........... 1.1 1.8
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales increased $158.4 million, or 70.4%, to $383.5 million for the nine
months ended September 30, 1997 from $225.1 million for the nine months ended
September 30, 1996. Growth in net sales, which included a 15.1% increase in
average order size, was primarily attributable to: (i) improvements in
merchandising and product mix, especially a greater emphasis on the stocking
and sale of computer systems; (ii) continued expansion and increased
productivity of the Company's outbound telemarketing group; (iii) an increase
in the number of catalog mailings; and (iv) improved inbound sales conversion
ratios. System/memory sales increased to 41.1% of net sales for the nine
months ended September 30, 1997 from 33.1% for the comparable period in 1996.
Outbound sales increased $92.1 million, or 112.2%, to $174.2 million for the
nine months ended September 30, 1997 from $82.1 million for the nine months
ended September 30, 1996. The number of catalogs mailed increased by 114.3%,
from 11.2 million catalogs for the nine months ended September 30, 1996 to
24.0 million catalogs for the comparable period in 1997.
Gross profit increased $18.1 million, or 50.9%, to $53.5 million for the
nine months ended September 30, 1997 from $35.4 million for the nine months
ended September 30, 1996. The increase in gross profit dollars was primarily
attributable to the increase in sales described above. Gross profit margin
decreased from 15.7% for the nine months ended September 30, 1996 to 13.9% for
the comparable period in 1997 due primarily to a higher rate of growth in
sales of lower margin computer systems, increased price competition and
decreases in average unit selling prices. However, the Company generated
higher gross profit dollars per order, enabling it to leverage its operating
expenses, as described below.
Selling, general and administrative expenses (excluding additional
stockholder/officer compensation) increased $10.0 million, or 32.1%, to $41.0
million for the nine months ended September 30, 1997 from $31.0 million for
the nine months ended September 30, 1996, but decreased as a percentage of
sales to 10.7% for the nine months ended September 30, 1997 from 13.8% for the
nine months ended September 30, 1996. The increase in expenses was primarily
attributable to increases in volume-sensitive costs such as sales personnel
and credit card fees. The decrease as a percentage of net sales was primarily
attributable to improved expense control and the leveraging of selling,
general and administrative expenses over a larger sales base.
Prior to the closing of the Offering, selling, general and administrative
expenses excluded additional stockholder/officer compensation paid to the
Company's two stockholders who also serve as officers and directors,
representing amounts accrued or distributed in excess of aggregate annual base
salaries ($360,000 base salaries for each of the nine-month periods) approved
by the Board of Directors of the Company and primarily
19
<PAGE>
represent Company-related federal income tax obligations payable by the
stockholders. Effective upon the closing of the Offering, these
stockholder/officers will be paid annual base salaries aggregating $600,000.
Selling, general and administrative expenses on a pro forma basis were $41.1
million (or 10.7% of net sales) for the nine months ended September 30, 1997,
and $31.1 million for the nine months ended September 30, 1996 as adjusted to
give effect to $450,000 of aggregate base salaries payable to the Company's
two stockholder/officers.
Income from operations increased by $8.1 million, or 182.2%, to $12.5
million for the nine months ended September 30, 1997 from $4.4 million for the
nine months ended September 30, 1996. Income from operations as a percentage
of net sales increased from 2.0% to 3.3% for the reasons discussed above.
Additional stockholder/officer compensation represents amounts accrued or
distributed to stockholders for Company-related federal income tax obligations
payable by the stockholders. Additional stockholder/officer compensation
increased $7.2 million, or 513.4%, to $8.6 million for the nine months ended
September 30, 1997 from $1.4 million for the nine months ended September 30,
1996. This increase is attributable to increases in net income.
Interest expense for the nine months ended September 30, 1997 increased by
$130,000, or 16.2%, to $933,000 from $803,000 for the nine months ended
September 30, 1996, primarily due to higher average outstanding borrowings
under the Company's line of credit.
Net income increased $351,000, or 16.7%, to $2.5 million for the nine months
ended September 30, 1997 from $2.1 million for the comparable period in 1996
principally as a result of the increase in income from operations.
Pro forma net income is determined by (i) eliminating stockholder/officer
compensation in excess of the aggregate base salaries described above under
"selling, general and administrative expenses" and (ii) adding a provision for
federal income taxes that would be payable by the Company if taxed under
Subchapter C of the Code. Net income on a pro forma basis as described above
would have been $7.0 million for the nine months ended September 30, 1997. The
difference in pro forma net income compared to historical net income
represents the elimination of $8.5 million in additional stockholder/officer
compensation offset by a $4.0 million higher provision for federal income
taxes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased $81.1 million, or 32.2%, to $333.3 million in 1996 from
$252.2 million in 1995. Growth in net sales, which included a 30.9% increase
in average order size, was primarily attributable to improvements in
merchandising and product mix and a significant expansion of the Company's
outbound telemarketing group from 40 to 100 account managers, together with an
increase in outbound sales per account manager for those account managers with
more than 12 months of service. Outbound sales increased $72.2 million, or
132.6%, to $126.7 million in 1996 from $54.5 million in 1995.
Gross profit increased $10.3 million, or 25.1%, to $51.2 million in 1996
from $40.9 million in 1995. Gross profit margin decreased from 16.2% in 1995
to 15.4% in 1996 due to more competitive pricing of the Company's products and
significant growth in sales of computer systems, which carry lower gross
margins. These decreases were partially offset by the Company's ability, as a
result of its increased volume and financial position, to take advantage of
vendor discounts, rebates and bulk purchasing opportunities.
Selling, general and administrative expenses (excluding additional
stockholder/officer compensation) increased $5.4 million, or 14.0%, to $43.7
million in 1996 from $38.4 million in 1995, but decreased as a percentage of
sales to 13.1% in 1996 from 15.2% in 1995. The increase in expense was
attributable to an increase in volume-sensitive costs such as sales personnel
and credit card fees. The decrease as a percentage of net sales was primarily
attributable to management attention to expense control and the leveraging of
selling, general and administrative expenses over a larger sales base.
20
<PAGE>
Selling, general and administrative expenses on a pro forma basis were $43.9
million (or 13.2% of net sales) in 1996 as adjusted to give effect to $600,000
of aggregate annual base salaries payable to the Company's two
stockholder/officers.
Income from operations increased by $5.0 million, or 193.4%, to $7.5 million
in 1996 from $2.5 million in 1995. Income from operations as a percentage of
net sales increased from 1.0% to 2.2% for the reasons discussed above.
Additional stockholder/officer compensation increased $1.3 million in 1996
from $0 in 1995. This increase is primarily attributable to distributions to
stockholders representing Company-related federal income tax obligations
payable by stockholders.
Interest expense remained unchanged at $1.3 million in 1996 and 1995. Lower
interest rates and average short-term borrowings in 1996 were offset by the
increased interest expense associated with the $5.0 million term loan obtained
in late 1995.
Net income increased $3.5 million, or 273.6%, to $4.8 million in 1996 from
$1.3 million in 1995, principally as a result of the increase in income from
operations.
Pro forma net income as described above would have been $3.8 million. The
difference in pro forma net income compared to historical net income
represents the elimination of $1.1 million in additional stockholder/officer
compensation offset by a $2.1 million higher provision for federal income
taxes.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales increased $55.5 million, or 28.3%, to $252.2 million in 1995 from
$196.7 million in 1994. Growth in net sales, which included a 22.7% increase
in average order size, was primarily attributable to expanded marketing
efforts and product lines, particularly in computer systems, and the
development and growth of the Company's outbound telemarketing group. Outbound
sales increased $40.8 million, or 298.9%, to $54.4 million in 1995 from $13.6
million in 1994.
Gross profit increased $10.2 million, or 33.3%, to $40.9 million in 1995
from $30.7 million in 1994. Gross margin increased from 15.6% in 1994 to 16.2%
in 1995 primarily as a result of a change in the Company's freight policy
which passed a larger percentage of the out-of-pocket freight charges to
customers.
Selling, general and administrative expenses increased $5.7 million, or
17.5%, to $38.4 million in 1995 from $32.7 million in 1994, but decreased as a
percent of sales to 15.2% in 1995 from 16.6% in 1994. The increase in expenses
was attributable primarily to increased volume-sensitive personnel and other
costs consistent with the growth in the outbound sales group. Selling, general
and administrative expenses in 1995 also included approximately $800,000 in
non-recurring charges, including $473,000 of costs related to an uncompleted
equity financing and $275,000 of costs associated with the termination of
certain employees. The decline as a percentage of sales was attributable to
increased economies of scale through a significant reduction in the number of
inbound sales representatives coupled with an improvement in productivity, the
leveraging of costs over a higher sales base and the reduction of more
expensive advertising in computer publications.
Income (loss) from operations increased by $4.5 million to income of $2.5
million in 1995 from a loss of $2.0 million in 1994. Income (loss) from
operations as a percentage of net sales increased from a loss of 1.0% to
income of 1.0% for the reasons discussed above.
21
<PAGE>
Interest expense in 1995 increased $702,000, or 118.2%, to $1.3 million from
$594,000 in 1994, primarily as a result of increased borrowings under the
Company's line of credit.
Net income (loss) increased $3.6 million, to net income of $1.3 million in
1995 from a net loss of $2.3 million in 1994 principally as a result of the
increase in income from operations described above.
SELECTED QUARTERLY FINANCIAL RESULTS
The following table sets forth certain unaudited quarterly data of the
Company for each of the quarters since January 1, 1995. This information has
been prepared on the same basis as the audited Financial Statements and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the selected
quarterly information when read in conjunction with the audited Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
quarterly operating results are not necessarily indicative of future results
of operations. See "Risk Factors--Historical Net Losses; Variability of
Quarterly Results."
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................... $ 62,856 $ 60,434 $ 59,802 $ 69,125
Gross profit............................ 10,247 9,736 9,737 11,198
Income (loss) from operations(1)........ (112) 130 281 2,246
<CAPTION>
QUARTERS ENDED
--------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................... $ 70,108 $ 72,014 $ 82,952 $108,248
Gross profit............................ 10,995 11,381 13,054 15,775
Income from operations(1)............... 1,108 1,341 1,976 3,041
<CAPTION>
QUARTERS ENDED
-----------------------------
MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................... $122,823 $121,500 $139,137
Gross profit............................ 17,379 16,777 19,296
Income from operations(1) .............. 3,742 3,986 4,759
</TABLE>
- ---------------------
(1) Income from operations excludes stockholder/officer compensation in excess
of aggregate base salaries of $120,000 in each quarter ($80,000 in the
quarter ended December 31, 1995).
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital
expenditures through cash flow from operations and bank borrowings. The
Company believes that funds generated from operations, together with the net
proceeds from the Offering and available credit under its bank line of credit,
will be sufficient to finance its working capital and capital expenditure
requirements at least through 1998. The Company's ability to continue funding
its planned growth is dependent upon its ability to generate sufficient cash
flow from operations or to obtain additional funds through equity or debt
financing, or from other sources of financing, as may be required.
At September 30, 1997, the Company had cash of $723,000 and working capital
of $16.5 million. At December 31, 1996, the Company had working capital of
$14.6 million.
Net cash provided by operating activities was $8.4 million for the nine
months ended September 30, 1997. The Company's net cash used in operating
activities was $4.5 million for the year ended December 31, 1996 as compared
to $2.8 million used in operating activities for the year ended December 31,
1995. Net cash provided by operating activities was $5.8 million for 1994. The
primary factors historically affecting cash flows from operations are the
Company's net income and changes in the levels of accounts receivable,
inventories and accounts payable. Historically, inventories and accounts
payable have increased as a result of the sales growth of the Company.
Accounts receivable have increased primarily due to an increase in open
account purchases by commercial customers resulting from the Company's
continued efforts to increase its sales to such customers.
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<PAGE>
Capital expenditures were $3.4 million in the nine months ended September
30, 1997 and in the year ended December 31, 1996. The Company expects capital
expenditures, primarily for the purchase of computer hardware and software and
other fixed assets, to be approximately $1.6 million and $4.0 million, for the
quarter ending December 31, 1997 and the year ending December 31, 1998,
respectively.
As of September 30, 1997, the Company had a credit agreement with a bank
providing for short-term borrowings equal to the lesser of $30 million or an
amount determined by a formula based on accounts receivable and inventory
balances, and a term loan for $5 million, due in quarterly installments of
$250,000 through March 31, 2002. Short-term borrowings which totalled $8.1
million at September 30, 1997, are collateralized by the Company's accounts
receivable and inventories (other than inventories pledged to secure trade
credit arrangements) and bear interest at the bank's prime rate plus 0.5%
(8.5% at September 30, 1997) or LIBOR plus 2.5% at the Company's option. The
term loan is collateralized by all other assets of the Company and bears
interest at the prime rate plus 1.0% (9.0% at September 30, 1997). The credit
agreement includes various customary financial and operating covenants,
including restrictions on the payment of dividends, except for dividends to
stockholders in respect of income taxes, none of which the Company believes
significantly restricts the Company's operations. At September 30, 1997, the
Company had $53.7 million in outstanding accounts payable. Such accounts are
generally paid within 30 days of incurrence and will be financed by cash flows
from operations or short-term borrowings under the line of credit.
As of November 19, 1997, the Company and its banks amended the agreement to
increase the maximum level of borrowings from $30.0 million to $45.0 million
and to reduce the interest rate on borrowings under both loans to the prime
rate or LIBOR plus 2.0% at the Company's option.
INFLATION
The Company has historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
The Company does not expect inflation to have a significant impact on its
business in the future.
YEAR 2000 COMPLIANT INFORMATION SYSTEMS
The Company uses software and related technologies throughout its business
that will be affected by the Year 2000 problem, which is common to most
corporations, and concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information as the year 2000 approaches. The Company's order management and
fulfillment software system is not currently Year 2000 compliant. However, the
Company plans to replace this system in 1998 with new software that is better
suited to the Company's expected scale of operations and is designed to be
Year 2000 compliant. See "Business--Management Information Systems." The
Company currently believes it will be able to modify or replace any other
affected systems in time to minimize any detrimental effects on operations.
While it is not possible, at present, to give an accurate estimate of the cost
of this work, the Company expects that such costs will not be material to the
Company's results of operations. System maintenance or software modification
costs will be expensed as incurred, while the costs of new software (such as
the new order management and fulfillment software) will be capitalized and
amortized over the software's expected useful life.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at September 30, 1997, include the
following Statements of Financial Accounting Standards ("SFAS"):
SFAS No. 128, "Earnings Per Share," which will be required to be adopted by
the Company for the fiscal year ending December 31, 1997, specifies the
computation, presentation, and disclosure requirements for earnings per share
for entities with publicly-held common stock. This new accounting standard
will require presentation of basic earnings per share and diluted earnings per
share. The effect of adopting this standard would be to report unaudited pro
forma basic net income per share of $0.38 and $0.71, and unaudited pro forma
diluted net income per share of $0.36 and $0.68, for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.
23
<PAGE>
SFAS No. 129, "Disclosure of Information about Capital Structure," which
will be effective for the Company for the year ending December 31, 1997,
consolidates existing disclosure requirements. This new standard contains no
change in disclosure requirements for the Company.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income (all changes in equity during a
period except those resulting from investments by and distributions to owners)
and its components in the financial statements. This new standard, which will
be effective for the Company for the year ending December 31, 1998, is not
currently anticipated to have a significant impact on the Company's financial
statements based on the current financial structure and operations of the
Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the year ending
December 31, 1998, establishes standards for reporting information about
operating segments in the annual financial statements, selected information
about operating segments in interim financial reports and disclosures about
products and services, geographic areas and major customers. This new standard
may require the Company to report financial information on the basis that is
used internally for evaluating segment performance and deciding how to
allocate resources to segments, which may result in more detailed information
in the notes to the Company's financial statements than is currently required
and provided.
24
<PAGE>
BUSINESS
GENERAL
PC Connection is a leading direct marketer of brand-name personal computers
and related peripherals, software, accessories and networking products. The
Company's primary target customers are SMORGS comprised of 20 to 1,000
employees. PC Connection sells its products through a combination of targeted
direct mail catalogs, outbound telemarketing, its Internet Web site and
advertisements on the Internet and in selected computer magazines. The Company
offers a broad selection of approximately 15,000 products targeted for
business use at competitive prices, including products from Compaq, Hewlett-
Packard Company, Toshiba Corporation, IBM, Microsoft Corporation
("Microsoft"), Sony Corporation, Hitachi Ltd. and Apple. The Company's most
frequently ordered products are carried in inventory and are typically shipped
to customers the same day that the order is received.
The Company has experienced rapid growth in sales, profitability, number of
orders and average order size as a result of: (i) a substantial increase in
the number and assortment of products carried by the Company; (ii) increases
in outbound telemarketing personnel and improvements in productivity; (iii)
increases in catalog circulation; and (iv) improvements in inbound
telemarketing productivity. The Company recorded net sales of $333.3 million
and income from operations of $7.5 million in the year ended December 31,
1996, representing increases of 32.2% and 193.4%, respectively, over the year
ended December 31, 1995. In the nine months ended September 30, 1997, the
Company recorded net sales of $383.5 million and income from operations of
$12.5 million, representing increases of 70.4% and 182.2%, respectively, over
the comparable period in 1996. Net sales of PCs and compatible products were
approximately 77% of net sales for the nine months ended September 30, 1997.
Since its founding in 1982, the Company has focused on serving customer
needs by providing innovative, reliable and timely customer service and
technical support, and offering an extensive assortment of branded products,
through knowledgeable and well-trained sales and support teams. The
effectiveness of this strategy is reflected in the recognition accorded the
Company, including the Company's receipt of the PC World "World Class Award
for Best Mail-Order Company" in 1997, as voted by its readers, for the seventh
time in the past eight years, and receipt of the highest ranking of only two
direct resellers included in the first-ever ranking of the "100 Most
Influential Companies in the Computer Industry" by PC Magazine in July 1997.
The Company believes that its consistent customer focus has resulted in the
development of strong brand name recognition and a broad and loyal customer
base. At September 30, 1997, the Company's mailing list consisted of
approximately 2,000,000 customers and potential customers, of which
approximately 500,000 had purchased products from the Company within the last
twelve months. Approximately 65% of the Company's orders in each of the nine
months ended September 30, 1997 and the year ended December 31, 1996 were
placed by customers who had previously purchased products from the Company.
The Company believes it has also developed strong relationships with vendors,
resulting in favorable product allocations and marketing assistance.
Commencing in late 1995, the Company significantly increased its business-
to-business marketing efforts targeting SMORGS, a rapidly growing sector of
the personal computer market that the Company believes is particularly
receptive to purchases from direct marketers. To serve this growing part of
its business more effectively, the Company has increased the number of its
outbound telemarketing account managers from 48 at December 31, 1995 to 156 at
September 30, 1997, including 86 new account managers with less than 12 months
of outbound telemarketing experience with the Company. Historically, outbound
account managers become significantly more productive in their second year
with the Company. In addition, in late 1995 the Company initiated programs to
increase training of inbound telemarketing personnel and to provide incentive
compensation based upon sales productivity.
The Company's two major catalogs are PC Connection(R), focused on PCs and
compatible products, and MacConnection(R), focused on Macs and compatible
products. With colorful illustrations, concise product descriptions, relevant
technical information, along with customer service benefits and toll-free
telephone numbers for ordering, the Company's catalogs are recognized as a
leading source for personal computer hardware,
25
<PAGE>
software and other related products. The Company distributed approximately 24
million catalogs during the nine months ended September 30, 1997.
The Company also markets its products and services through its Internet Web
site, www.pcconnection.com, which provides customers and prospective customers
with Company and product information and enables customers to place electronic
orders for all of the Company's products. The Company believes that as the
Internet becomes a more important commercial medium, it will be well
positioned to capitalize on growth through this emerging channel.
INDUSTRY BACKGROUND
According to industry data published by Merrin in May 1997, United States
sales of personal computers and related products were $77.8 billion in 1996
and are expected to be $138.2 billion in 2000, representing a compound annual
growth rate of 15.4%. The Company believes that the direct marketing channel
will be among the fastest growing distribution channels for the domestic
personal computer and related products industry. As a leading participant in
the direct marketing channel, the Company believes it is well positioned to
capitalize on the expected growth in the industry.
The Company believes that the sales of personal computers and related
products have increased principally as a result of (i) technological advances
leading to significant improvements in performance, functionality and ease of
use; (ii) lower prices and improved price/performance made possible by
technological advances and driven by intense competition among manufacturers,
retailers and resellers; (iii) increased dependence upon PCs by businesses,
educational institutions and governments; and (iv) the emergence of industry
standards and component commonality. The Company believes that the higher
projected growth for the direct marketing channel is primarily based on (i)
increased user familiarity with PCs, coupled with the emergence of industry
standards and component commonality, and the resultant increase in customer
comfort with purchasing products without the need to "touch and feel" them,
and (ii) broader product offerings, lower prices and greater purchasing
convenience that direct marketers generally provide over traditional retail
stores and local dealers.
Users of personal computers range from large corporate entities focused on
business applications to individual consumers focused primarily on personal
productivity, education and entertainment applications. Historically, large
corporate resellers have served the needs of FORTUNE 1000 companies and
retailers have competed to serve the consumer market. SMORGS, the Company's
core target customers, are being served by a wide range of suppliers,
including direct marketers, large retailers, and small, independent value
added resellers ("VARs") and local dealerships. The Company believes that the
direct field sales model used by large resellers is not an efficient method of
reaching SMORGS, and that VARs, local dealerships and retailers are unable to
match the high level of customer service, extensive array of products, low
prices and efficiencies afforded to SMORGS by direct marketers. Intense
competition for market share has led manufacturers of PCs and related products
to use all available channels to distribute products, including direct
marketers. Although certain manufacturers that have traditionally used
resellers to distribute their products have established or attempted to
establish their own direct marketing operations, to the Company's knowledge
only one has replaced its traditional indirect selling channels as the
principal means of distribution. Accordingly, the Company believes these
manufacturers will continue to provide favorable product allocations and
marketing support to third-party direct marketers.
The Company believes new entrants to the direct marketing channel must
overcome a number of significant barriers to entry, including the time and
resources required to build a customer base of meaningful size, quality and
responsiveness for cost-effective circulation; costs of developing the
information and operating infrastructure required by direct marketers; the
advantages enjoyed by larger and more established competitors in terms of
purchasing and operating efficiencies; the difficulty of building
relationships with manufacturers to achieve favorable product allocations,
attractive pricing terms and cooperative advertising funds; and the difficulty
of identifying and recruiting management personnel with significant direct
marketing experience in the industry.
26
<PAGE>
BUSINESS STRATEGIES
The Company's objective is to become the leading supplier of personal
computers and related products and services to its customers. The key elements
of the Company's business strategies include:
. AWARD-WINNING CUSTOMER SERVICE BEFORE, DURING AND AFTER THE SALE. The
Company believes that it has earned a reputation for providing superior
customer service by consistently focusing on customer needs and service
innovation. The Company has won PC World's "World Class Award for Best
Mail Order Company" in seven out of the last eight years. The Company
delivers value to its customers through high quality service and
technical support provided by knowledgeable, well-trained personnel;
efficient and innovative delivery programs; in-house service
capabilities; competitive prices; and reasonable return policies.
. STRONG BRAND NAME AND CUSTOMER FRANCHISE. Since its founding in 1982,
the Company has built a strong brand name and customer franchise. In
July 1997, the Company was one of only two direct resellers included in
the "100 Most Influential Companies in the Computer Industry" by PC
Magazine. Its mailing list includes approximately 2,000,000 names, of
which approximately 500,000 have purchased products from the Company
during the last 12 months.
. BROAD PRODUCT SELECTION AT COMPETITIVE PRICES. The Company offers its
customers a wide assortment of personal computers and related products
at competitive price points. The Company's merchandising programs
feature products that provide customers with aggressive
price/performance and the convenience of one-stop shopping for their
personal computer and related needs.
. LONG-STANDING VENDOR RELATIONSHIPS. The Company has a history of strong
relationships with vendors, being among the first direct marketers
qualified by manufacturers to market systems to end users. The Company
provides its vendors with information concerning customer preferences
and an efficient channel for the advertising and distribution of their
products.
GROWTH STRATEGIES
The Company's growth strategies are to increase penetration of its existing
customer base, broaden its product offerings and expand its customer base. The
key elements of its strategies include:
. INCREASE OUTBOUND TELEMARKETING. The Company plans to increase
significantly the number of its corporate outbound account managers and
assign them to a higher percentage of the Company's customers. Outbound
account managers focus exclusively on serving specifically assigned
customers and seek to develop a close relationship with those customers
by identifying and responding to their needs for personal computers and
related products.
. EXPAND PRODUCT OFFERINGS. The Company continually evaluates personal
computers and related products focused on business users, adding new
products as they become available or in response to customer demand. The
Company is also expanding the breadth of offered products to include
items such as network servers, telecopiers and telephone equipment. It
works closely with vendors to identify and source first-to-market
product offerings at aggressive price points, and believes that
expansion of its corporate outbound marketing program will enhance its
access to such product offerings.
. TARGET CUSTOMER SEGMENTS. Through targeted mailings, the Company seeks
to expand the number of its active customers and generate additional
sales from its existing customers on a cost-effective basis. The Company
has developed specialty catalogs, as well as standard catalogs with
special cover pages, featuring product offerings designed to address the
needs of specific customer segments. The Company plans to further focus
its product mix and catalogs to better service the needs of its existing
and prospective business customers, including new product inserts
targeted to purchasers of graphics, server and networking products.
27
<PAGE>
. DEVELOP ELECTRONIC COMMERCE CHANNEL. The Company's Internet Web-based
catalog provides detailed product descriptions, product search
capabilities and on-line order processing. The Company believes that an
increasing number of customers and potential new customers will elect to
shop electronically in the future and therefore it plans additional
investments to further improve the on-line sales capabilities, customer
service and product information and support available on its Internet
Web site.
SERVICE AND SUPPORT
Since its founding in 1982, the Company's primary objective has been to
provide products that meet the demands and needs of customers and to
supplement those products with up-to-date product information and excellent
customer service and support. The Company believes that offering its customers
superior value, through a combination of product knowledge, consistent and
reliable service and leading products at competitive prices, differentiates it
from other direct marketers and has become the foundation for developing a
broad and loyal customer base. The Company has introduced programs such as
Toll-Free Technical Support in 1982, the Everything Overnight(R) delivery
program in 1988, Money Back Guarantees in 1989, One-Minute Mail Order(R) in
1991 and its On-line Superstore in 1997.
The Company invests heavily in training programs for its service and support
personnel, with an emphasis on putting customer needs and service first.
Customer service representatives are available 24 hours a day, seven days a
week to handle orders, product information and general inquiries (including
the most frequently asked technical support questions).
The effectiveness of the Company's strategy is reflected in the recognition
accorded the Company, including the Company's receipt of PC World's "World
Class Award for Best Mail Order Company" in 1997, as voted by its readers, for
seven of the last eight years and receipt of the highest ranking of only two
direct resellers included in the first-ever ranking of the "100 Most
Influential Companies in the Computer Industry" by PC Magazine in July 1997.
Technical Support. The Company provides toll-free technical support from 9
a.m. through 5 p.m. Monday through Friday. Product support technicians assist
callers with questions concerning compatibility, installation, determination
of defects and more difficult questions of product use. The product support
technicians authorize customers to return defective or incompatible products
to either the manufacturer or to the Company for warranty service. In house
technicians are authorized for both warranty and non-warranty repair on most
major systems and hardware products.
Innovative Delivery Programs. Using the Company's customized information
system, the Company, upon receipt of customer orders, sends them to its
distribution center for processing immediately after they are credit approved.
Through its Everything Overnight(R) service, the Company guarantees that all
orders accepted up until 2:45 a.m. (until midnight on most custom-configured
systems) will be shipped for overnight delivery via Airborne Express.
MARKETING AND SALES
The Company sells its products through the direct marketing channel,
primarily to SMORGS. The Company's marketing objectives are to be the primary
supplier of personal computers and related products to its existing customers
and to expand its customer base. The Company employs multiple marketing
approaches to reach existing and prospective customers, including outbound
telemarketing, catalogs and inbound telesales, Web and print media
advertising, and specialty marketing programs. All of its marketing approaches
emphasize the Company's broad product offerings, fast delivery, customer
support, competitive pricing and multiple payment options.
28
<PAGE>
The Company believes that its ability to establish and maintain long-term
customer relationships and to encourage repeat purchases is largely dependent
on the strength of its telemarketing personnel and programs. Because its
customers' primary contact with the Company is through its telemarketers, the
Company is committed to maintaining a qualified, knowledgeable and motivated
sales staff with its principal focus on customer service.
Outbound Telemarketing. The Company seeks to build loyal relationships with
its potential high-volume customers by assigning them to individual account
managers. The Company believes that customers respond favorably to a one-on-
one relationship with personalized, well-trained account managers. Once
established, these one-on-one relationships are maintained and enhanced
through frequent telecommunications and targeted catalogs and other marketing
materials designed to meet each customer's specific computing needs.
Account managers focus exclusively on their managed accounts and on outbound
sales calls to prospective customers. The Company generally recruits account
managers from its inbound telemarketing staff and from other sales
organizations. All account managers must successfully complete a one-month
training program, which includes instruction in the Company's product
offerings and order management systems, as well as selling skills and account
management. Thereafter, new account managers are assigned to sales teams where
they receive intensive coaching and supervision by experienced supervisors,
and periodic refresher training from the sales training staff. Additional
training and product education programs are provided continuously through
vendor supported programs. The Company pays its account managers a base annual
salary plus incentive compensation which is tied to sales volume and gross
profit dollars produced. The Company imposes specific increases in sales
targets for incentive pay. Account managers historically have significantly
increased productivity after approximately 12 months of training and
experience. At September 30, 1997, the Company employed 156 account managers,
including 86 with less than 12 months of outbound telemarketing experience
with the Company.
Catalogs and Inbound Telesales. The Company's two principal catalogs are PC
Connection(R) for the PC market and MacConnection(R) for the Mac market. The
Company publishes twelve editions of each of these catalogs annually. The
Company distributes catalogs to purchasers on its in-house mailing list as
well as to other prospective customers. It sends its two principal catalogs to
its best customers twice each month. The initial mailing each month, labeled
an "early edition," is sent simultaneously to the best customers throughout
the United States and features special offers, such as first-to-market product
offerings, highlighted on the cover. The Company also includes a catalog with
each order shipped.
In addition, the Company mails specialty catalogs or customized versions of
its catalogs to selected customers. The Company distributes specialty catalogs
to educational customers and prospects on a periodic basis. The Company also
distributes its monthly catalogs customized with special covers and inserts,
offering a wider assortment of special offers on products in specific areas
(such as graphics, server/netcom and mobile computing) or for specific
customers (such as developers). These customized catalogs are distributed to
targeted customers included in the Company's customer database using past
identification or purchase history, as well as to outside mailing lists.
Each catalog is printed with full-color photographs, detailed product
descriptions and manufacturer specifications. The catalogs are primarily
created by in-house designers and production artists on a computer-based
desktop publishing system. The in-house preparation of most portions of the
catalog expedites the production process, providing for greater flexibility
and creativity in catalog production, allowing for last-minute changes in
pricing and format, and resulting in significant cost savings. After
completion of the design and preparation, the catalogs are outsourced for
printing by commercial printers.
The Company employs inbound sales representatives to answer customer
telephone calls generated by the Company's catalog, magazine and other
advertising programs and to assist customers in purchasing decisions, process
product orders and respond to customer inquiries on order status, product
pricing and availability. In late 1995, the Company initiated programs to
increase training of inbound telemarketing personnel and to provide incentive
compensation based upon sales productivity. The Company employs a flexible
staffing model which
29
<PAGE>
allows it to maintain excellent customer service during periods of peak demand
while maintaining an efficient cost structure. The Company regularly monitors
calls for quality assurance purposes. It has been a pioneer in using caller
identification for the instant retrieval of customer records. Employing
proprietary information systems, sales representatives can quickly access
customer records which detail purchase history and billing and shipping
information, expediting the ordering process. In addition to receiving orders
through the Company's toll-free numbers, orders are also received via fax,
mail, and electronic mail.
Advertising. The Company advertises in selected personal computer and trade
magazines, such as PC Magazine, PC World and Macworld. These advertisements
provide product descriptions, manufacturers' specifications and pricing
information, and emphasize the Company's service and support features.
Additionally, the PC Connection(R) logo and telephone number are included in
promotions by selected manufacturers. The Company also advertises its Internet
Web site through independent content providers on commercial on-line services
such as Yahoo.
www.pcconnection.com. In November 1996, the Company launched an Internet Web
site, including a complete product catalog. In July 1997, the Company began
accepting electronic orders through its Internet Web site. Product
descriptions and prices of all products are provided on-line, with full,
updated information for over 6,200 items and on screen images available for
over 1,100 items. The Company offers, and continuously updates, selected
product offerings and other special buys. The Company believes that in the
future its Internet Web site will be an important sales source and
communication tool for improving customer service.
Specialty Marketing. The Company's specialty marketing activities include
direct mail, other inbound and outbound telemarketing services, bulletin board
services, "fax on demand" services, package inserts, fax broadcasts and
electronic mail. The Company also markets call-answering and fulfillment
services to certain of its product vendors such as Iomega Corporation.
Customers. The Company currently maintains an extensive database of
customers and prospects aggregating approximately 2,000,000 names. During the
twelve months ended September 30, 1997, the Company received orders from
approximately 500,000 customers. Approximately 65% of the Company's orders in
the nine months ended September 30, 1997 and in the year ended December 31,
1996 were placed by customers who had previously purchased products from the
Company.
PRODUCTS AND MERCHANDISING
The Company continuously focuses on expanding the breadth of its product
offerings. The Company currently offers approximately 15,000 personal computer
products designed for business applications from over 1,000 manufacturers,
including hardware and peripherals, accessories, networking products and
software. The Company offers both PCs and Macs and related products. In the
nine months ended September 30, 1997, sales of PCs and related products were
approximately 77% of the Company's net sales. The Company selects the products
that it sells based upon their technology and effectiveness, market demand,
product features, quality, price, margins and warranties. As part of its
merchandising strategy, the Company also offers new types of products related
to PCs, such as digital cameras.
Computer systems/memory are the fastest growing product category,
representing 41.1% of net sales in the nine months ended September 30, 1997,
up from 25.4% and 34.8% of net sales in the years ended December 31, 1995 and
1996, respectively. The growth in system sales has been driven primarily by
increased outbound sales efforts to business customers and the aggressive
sourcing and merchandising of new computer systems lines and products.
30
<PAGE>
The following table sets forth the Company's percentage of net sales (in
dollars) of computer systems/memory, peripherals, software, and networking and
communications products during the years ended December 31, 1995 and 1996 and
nine months ended September 30, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
PRODUCT CATEGORIES 1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Computer Systems/Memory................. 25.4% 34.8% 41.1%
Peripherals............................. 39.4% 38.0% 34.8%
Software................................ 23.4% 17.6% 16.6%
Networking and Communications........... 11.8% 9.6% 7.5%
</TABLE>
The Company offers a limited 30-day money back guarantee for most unopened
products and selected opened products, although selected products are subject
to restocking fees. Substantially all of the products marketed by the Company
are warranted by the manufacturer. The Company generally accepts returns
directly from the customer and then either credits the customer's account or
ships the customer a similar product from the Company's inventory.
PURCHASING AND VENDOR RELATIONS
For the nine months ended September 30, 1997, the Company purchased
approximately 50% of its products directly from manufacturers and the balance
from distributors and aggregators, all of which shipped products directly to
the Company's distribution facility in Wilmington, Ohio. During the year ended
December 31, 1996 and the nine months ended September 30, 1997, product
purchases from Ingram Micro, the Company's largest vendor, accounted for
approximately 28.4% and 29.5%, respectively, of the Company's total product
purchases. No other vendor accounted for more than 10% of the Company's total
product purchases. The Company believes that alternative sources for products
obtained from Ingram Micro are available.
Many product suppliers reimburse the Company for advertisements or other
cooperative marketing programs in the Company's catalogs or Company
advertisements in personal computer magazines that feature a manufacturer's
product. Reimbursements may be in the form of discounts, advertising
allowances and/or rebates. The Company also receives reimbursements from
certain vendors based upon the volume of purchases or sales of the vendors'
products by the Company. Historically, the Company received price protection
from its vendors on a majority of the products it sold. Protection takes the
form of rebates or credits against future purchases. The Company may
participate in the future in end-of-life-cycle and other special purchases
which may not be eligible for price protection.
The Company believes that it has excellent relationships with vendors, pays
vendors within stated terms and takes advantage of all appropriate discounts.
The Company believes that because of its volume purchases it is able to obtain
product pricing and terms that are competitive with those available to other
major direct marketers. Although brand names and individual product offerings
are important to the Company's business, the Company believes that competitive
sources of supply are available in substantially all of the merchandise
categories carried by the Company.
DISTRIBUTION
At its approximately 102,000 square foot distribution and fulfillment center
in Wilmington, Ohio, the Company receives and ships inventory, configures
computer systems and processes returned products. The Company also maintains a
related 25,700 square foot warehouse for inventory in nearby Xenia, Ohio.
Orders are transmitted electronically from the Company's New Hampshire sales
facilities to its Wilmington distribution center after credit approval, where
packing documentation is printed automatically and order fulfillment takes
place. The Company guarantees that all orders accepted up until 2:45 a.m.
(until midnight on custom-configured systems) will be shipped for overnight
delivery via Airborne Express. It ships approximately 90% of its orders
through Airborne Express. Upon request, orders may also be shipped by other
common carriers.
31
<PAGE>
The Company configures approximately half of the computer systems it sells.
Configuration typically consists of the installation of memory, accessories
and/or software.
While the Company believes that its existing distribution facilities in
Wilmington and Xenia, Ohio will be sufficient to support the Company's
anticipated needs through the next 12 months, it is evaluating additional
and/or alternative facilities for distribution and inventory to support future
growth.
MANAGEMENT INFORMATION SYSTEMS
The Company uses management information systems, principally comprised of
applications software running on IBM AS/400 and RS6000 computers and Microsoft
NT-based servers, which the Company has customized for its use. These systems
permit centralized management of key functions, including order taking and
processing, inventory and accounts receivable management, purchasing, sales
and distribution, and the preparation of daily operating control reports on
key aspects of the business. The Company also operates advanced
telecommunications equipment to support its sales and customer service
operations. Key elements of the telecommunications systems are integrated with
the Company's computer systems to provide timely customer information to sales
and service representatives, and to facilitate the preparation of operating
and performance data. The Company believes that its customized information
systems enable the Company to improve its productivity, ship customer orders
on a same-day basis, respond quickly to changes in its industry and provide
high levels of customer service.
The Company's success is dependent in large part on the accuracy and proper
use of its information systems, including its telephone systems, to manage its
inventory and accounts receivable collections, to purchase, sell and ship its
products efficiently and on a timely basis, and to maintain cost-efficient
operations. The Company expects to continually upgrade its information systems
to more effectively manage its operations and customer database, including to
be Year 2000 compliant. In that regard, it is in the process of converting to
new software for its order management and fulfillment systems designed to be
Year 2000 compliant, which is expected to be completed by the first half of
1998.
COMPETITION
The direct marketing and sale of personal computers and related products is
highly competitive. PC Connection competes with other direct marketers of
personal computers and related products, including CDW Computer Centers, Inc.,
Insight Enterprises, Inc. and Micro Warehouse, Inc. The Company also competes
with certain product manufacturers that sell directly to customers, such as
Dell Computer Corporation and Gateway 2000, Inc., and more recently Compaq,
IBM and Apple; distributors that sell directly to certain customers, such as
MicroAge, Inc. and Vanstar Corporation; various cost-plus aggregators,
franchisers, and national computer retailers, such as CompUSA, Inc. and
Computer City; and companies with an Internet Web site and commercial on-line
networks. Additional competition may arise if other new methods of
distribution, such as broadband electronic software distribution, emerge in
the future.
The Company competes not only for customers, but also for favorable product
allocations and cooperative advertising support from product manufacturers.
Several of the Company's competitors are larger and have substantially greater
financial resources than the Company.
The Company believes that price, product selection and availability, and
service and support are the most important competitive factors in its
industry.
INTELLECTUAL PROPERTY RIGHTS
The Company conducts its business under the marks PC Connection(R) and
MacConnection(R) and their related logos. Other Company trademarks and service
marks include Everything Overnight(R), One-Minute Mail Order(R), PC & Mac
Connection(R), Systems Connection(R), The Connection(R), Raccoon Character(R),
Service Connection(TM), Graphics Connection(TM), and Memory Connection(TM).
The Company intends to use and protect these
32
<PAGE>
and its other marks, as it deems necessary. The Company believes its
trademarks and service marks have significant value and are an important
factor in the marketing of its products. The Company does not maintain a
traditional research and development group, but works closely with computer
product manufacturers and other technology developers to stay abreast of the
latest developments in computer technology, both with respect to the products
it sells and the products it uses to conduct its business.
EMPLOYEES
As of September 30, 1997, the Company employed 824 persons, of whom 378 were
engaged in sales related activities, 75 were engaged in providing customer
service and support, 188 were engaged in purchasing and distribution related
activities, 52 were engaged in the operation and development of management
information systems, and 131 were engaged in administrative and accounting
functions. The Company considers its employee relations to be good. The
Company's employees are not represented by a labor union, and it has
experienced no work stoppages since inception.
FACILITIES
The Company's principal facilities, all of which are leased, are as follows:
<TABLE>
<CAPTION>
Approx.
Facility Location Sq. Ft. Expiration of Lease
-------- -------------- ------- -------------------
<S> <C> <C> <C>
Corporate Headquarters............... Milford, NH 84,000 July 1998(1)
Sales and Service Facility........... Keene, NH 22,000 July 2008
Sales Facility....................... Hudson, NH 8,300 August 1998(2)
Conference Center.................... Marlow, NH 15,800 May 2007
Distribution Center.................. Wilmington, OH 102,000 December 2000
Distribution Facility................ Xenia, OH 25,700 September 1998(3)
</TABLE>
- ---------------------
(1) The Company has entered into a fifteen year lease for a new corporate
headquarters which the Company plans to occupy in the summer of 1998.
(2) The Company has the option to renew the lease for this facility annually
for one-year periods through August 2002.
(3) The Company has the option to renew the lease for this facility annually
for one-year periods through September 2000.
Several of these facilities are leased from affiliated entities. See
"Certain Transactions."
While the Company believes that its existing facilities in Wilmington and
Xenia, Ohio will be sufficient to support the Company's anticipated needs
through the next 12 months, it is evaluating additional and/or alternative
facilities for distribution and inventory to support future growth.
REGULATORY AND LEGAL MATTERS
The direct response business conducted by the Company is subject to the Mail
or Telephone Order Merchandise Rule and related regulations promulgated by the
Federal Trade Commission. While the Company believes it is in compliance with
such regulations, no assurance can be given that new laws or regulations will
not be enacted or adopted that might adversely affect the Company's
operations. There are no material legal proceedings pending against the
Company.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
October 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Patricia Gallup................ 43 Chairman of the Board, President and Chief
Executive Officer
David Hall..................... 48 Vice Chairman of the Board, Executive Vice
President and Treasurer
Wayne L. Wilson................ 48 Senior Vice President, Chief Operating
Officer and Chief Financial Officer
Robert F. Wilkins.............. 35 Vice President of Merchandising and Product
Management
R. Wayne Roland................ 49 Vice President of Fulfillment Operations
John L. Bomba, Jr. ............ 44 Vice President of Information Systems and
Chief Information Officer
David B. Beffa-Negrini......... 43 Director
Martin C. Murrer(1)............ 40 Director
Peter J. Baxter(1)............. 46 Director
</TABLE>
- ---------------------
(1) Member of Compensation Committee and Audit Committee.
Patricia Gallup is a co-founder of the Company and has served as Chairman of
the Board, President and Chief Executive Officer of the Company since
September 1995. From September 1994 to September 1995, Ms. Gallup served as
Chairman of the Board and Chief Executive Officer of the Company. From August
1990 to September 1994, she served as the Company's President and Chief
Executive Officer.
David Hall is a co-founder of the Company and has served as Vice Chairman of
the Board, Executive Vice President and Treasurer of the Company since June
1997. From February 1995 to June 1997, Mr. Hall served as the Company's Vice
Chairman of the Board and Executive Vice President. From March 1991 to
February 1995, he served as the Executive Vice President of the Company.
Effective November 21, 1997, Mr. Hall resigned his positions as Executive Vice
President and Treasurer of the Company.
Wayne L. Wilson has served as Senior Vice President, Chief Operating Officer
and Chief Financial Officer of the Company since January 1996. From August
1995 to January 1996, he served as Senior Vice President of Finance and Chief
Financial Officer of the Company. Prior to joining the Company, Mr. Wilson was
a partner in the accounting and consulting firm of Deloitte & Touche LLP from
June 1986 to August 1995.
Robert F. Wilkins has served as Vice President of Merchandising and Product
Management of the Company since December 1995. From September 1994 to December
1995, Mr. Wilkins was a consultant to the Company and certain of its
affiliates. From February 1990 to September 1994, Mr. Wilkins served as
President of Mac's Place.
R. Wayne Roland has served as Vice President of Fulfillment Operations of
the Company since March 1996. From June 1995 to March 1996, he was a
consultant to the Company. From July 1990 to June 1995, Mr. Roland served as
controller and then as Director of Strategic Projects for Brookstone, Inc.
John L. Bomba, Jr. has served as Vice President of Information Systems and
Chief Information Officer of the Company since May 1997. From May 1994 to
April 1997, Mr. Bomba served as Director of Worldwide Information Systems for
Micro Warehouse, Inc. Prior to May 1994, he served as Director of Professional
Services for Innovative Information Systems, Inc.
34
<PAGE>
David B. Beffa-Negrini has served on the Company's Board of Directors since
September 1994 and as the Director of Merchandising of the Company since
January 1992.
Martin C. Murrer has served on the Company's Board of Directors since April
1995. Since January 1997, Mr. Murrer has been a managing director of
Donaldson, Lufkin & Jenrette Securities Corporation. From June 1995 to January
1997, Mr. Murrer was a Senior Vice President of Donaldson, Lufkin & Jenrette
Securities Corporation. From June 1990 to June 1995, Mr. Murrer was a Vice
President of Goldman, Sachs & Co.
Peter J. Baxter has served on the Company's Board of Directors since
September 1997. Mr. Baxter has been the President, Chief Executive Officer and
a director of CFX Corporation, a bank holding company, since January 1989.
There are no family relationships among any of the directors and executive
officers of the Company. Officers serve at the discretion of the Board of
Directors of the Company (the "Board").
COMMITTEES OF THE BOARD
The Board has established a Compensation Committee and an Audit Committee,
each comprised of Messrs. Murrer and Baxter. The Compensation Committee makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company and administers the Company's incentive
plans. The Audit Committee reviews the results and scope of the audit and
other services provided by the Company's independent public accountants.
COMPENSATION OF DIRECTORS
Non-employee members of the Board and Mr. Beffa-Negrini, an employee
director of the Company, receive a $15,000 annual retainer and fees of $1,000
for each Board meeting attended and $500 for each Board committee meeting
attended on a day other than the day of the Board meeting, as well as
reimbursement for all reasonable expenses incurred in attending Board and
committee meetings. Mr. Murrer has waived payment of his director's fees and
in lieu thereof the Company has established a grant program pursuant to which
a donee selected by Mr. Murrer can purchase products having a value equal to
the amount of the waived fees.
35
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth compensation paid to
the Chief Executive Officer and each of the four other most highly compensated
individuals who served as executive officers on December 31, 1996 and who
received over $100,000 in compensation for services rendered to the Company in
all capacities during the fiscal year ended December 31, 1996 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL COMPENSATION LONG-TERM
------------------------------------ COMPENSATION
AWARDS
---------------------
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS (#) COMPENSATION($)
- ------------------ --------- -------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Patricia Gallup ........ $240,000 -- $629,500(1) -- $2,250(3)
Chairman of the Board, 408(4)
President and Chief
Executive Officer
David Hall.............. 240,000 -- 629,500(1) -- 2,250(3)
Vice Chairman of the 696(4)
Board, Executive Vice
President and Treasurer
Wayne L. Wilson......... 230,000 70,000(2) -- 50,000 696(4)
Senior Vice President,
Chief Operating Officer
and Chief Financial
Officer
Robert F. Wilkins....... 140,000 60,385(2) -- 20,000 216(4)
Vice President of
Merchandising and
Product Management
R. Wayne Roland......... 104,167 94,800(2) -- -- 25,360(5)
Vice President of 464(4)
Fulfillment Operations
</TABLE>
- ---------------------
(1) Represents amounts accrued or distributed for Company-related federal
income tax obligations payable by the stockholders.
(2) Includes amounts paid in 1997 to Named Executive Officer earned in 1996.
(3) Represents the Company's 401(k) profit-sharing plan matching contribution.
(4) Represents premiums paid by the Company on life insurance with policy
amounts in excess of $50,000 for the Named Executive Officer.
(5) Represents consultant fees paid between January 1, 1996 and March 1, 1996.
Employment and Severance Agreements.
In August 1995, the Company entered into an employment agreement with Wayne
L. Wilson, pursuant to which he is currently serving as Senior Vice President,
Chief Operating Officer and Chief Financial Officer, providing for an initial
annual base salary of $230,000. In addition, the agreement provided for (i)
deferred incentive compensation up to $70,000 a year; (ii) additional
compensation up to $12,500 in each of the first two fiscal quarters of his
employment; and (iii) the grant of options to acquire 50,000 shares of Non-
Voting Common Stock under the Company's 1993 Incentive and Non-Statutory Stock
Option Plan. See "Stock Plans." Upon termination of his employment by the
Company without cause, Mr. Wilson shall be entitled to severance payments
totaling his annual base salary as of the date of the termination of his
employment.
36
<PAGE>
In December 1995, the Company entered into an employment agreement with
Robert F. Wilkins, pursuant to which he is currently serving as Vice President
of Merchandising and Product Management. The agreement provides for an annual
base salary of $140,000 and annual incentive compensation of up to $60,000,
based upon the achievement of certain performance goals. If Mr. Wilkins is
terminated by the Company without cause, he is entitled to severance payments
equal to one-half of his annual base salary as of the date of the termination
of his employment.
In March 1997, the Company entered into a letter agreement with R. Wayne
Roland, providing for a severance payment equal to one-half of his then
applicable annual base salary if the Company terminates his employment for any
reason other than for cause. Mr. Roland currently holds the position of Vice
President of Fulfillment Operations.
Option Grants. The following table sets forth information concerning stock
options granted in the year ended December 31, 1996 to the Named Executive
Officers.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------ -----------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE(1) 0%($) 5%($) 10%($)
- ---- ----------- ---------- -------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Patricia Gallup......... -- -- -- -- -- -- --
David Hall.............. -- -- -- -- -- -- --
Wayne L. Wilson......... 50,000 55.6 1.00 1/1/2006 200,000 325,779 518,748
Robert F. Wilkins....... 20,000 22.2 1.00 1/1/2006 80,000 130,312 207,500
R. Wayne Roland......... -- -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Options may terminate before their expiration date if the optionee's
status as an employee or consultant is terminated or upon optionee's
death.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimated projection of future prices of its
securities. In calculating the potential realizable value the Company used
fair market value of $5.00 per share at the date of grant as determined by
the Board.
Option Exercises and Options Outstanding. The following table sets forth the
number of shares covered by both exercisable and unexercisable stock options
as of December 31, 1996 for the Named Executive Officers. Also reported are
the values for "in the money" options, which represent the positive spread
between the exercise prices of any such existing stock options and the fair
market value of the Company's Common Stock as of December 31, 1996.
37
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1996
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996 DECEMBER 31, 1996($)(1)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patricia Gallup......... -- -- -- -- -- --
David Hall.............. -- -- -- -- -- --
Wayne L. Wilson......... -- -- -- 100,000 -- 200,000
Robert F. Wilkins....... -- -- -- 40,000 -- 80,000
R. Wayne Roland......... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1996 ($5.00 per share
as determined by the Board of Directors) and the exercise price of the
options.
STOCK PLANS
1993 Incentive and Non-Statutory Stock Option Plan.
The Company's 1993 Incentive and Non-Statutory Stock Option Plan (the "1993
Option Plan") was approved by the Board of Directors and the stockholders in
December 1993. At October 31, 1997, options to purchase a total of 799,000
shares of Company Common Stock were outstanding at a weighted average exercise
price of $3.60 per share under the 1993 Option Plan, and 1,450,000 shares of
Company Common Stock were reserved for issuance under the 1993 Option Plan.
The 1993 Option Plan provides for the grant of incentive stock options and
non-statutory stock options to employees, consultants, directors and officers.
The exercise price of all incentive stock options granted under the 1993
Option Plan must be at least equal to the fair market value per share of
Company Common Stock on the date of grant or 110% of the fair market value for
stockholders holding greater than 10% of the Company's Common Stock. The terms
of options granted under the 1993 Option Plan may not exceed ten years and
options granted to stockholders holding greater than 10% of the Voting Common
Stock may not exceed five years. In the event of termination of an optionee's
employment or consulting arrangement, options may only be exercised, to the
extent vested as of the date of termination, for a period not to exceed 30
days (180 days, in the case of termination as a result of death) following the
date of termination. Options may not be sold or transferred other than by will
or the laws of descent and distribution, and may be exercised during the life
of the optionee only by the optionee. Effective upon the consummation of the
Offering, the Company does not intend to grant any further options under the
1993 Option Plan.
1997 Stock Incentive Plan.
The Company's 1997 Stock Incentive Plan (the "1997 Stock Plan") provides for
the grant of incentive stock options, non-statutory stock options, stock
appreciation rights, performance shares and awards of restricted stock and
unrestricted stock ("Awards"). An aggregate of shares of Common Stock may
be issued pursuant to the 1997 Stock Plan (subject to adjustment for certain
changes in the Company's capitalization).
The 1997 Stock Plan is administered by the Board and the Compensation
Committee. The Board has the authority to grant Awards under the 1997 Stock
Plan and to accelerate, waive or amend certain provisions of outstanding
Awards. The Board has authorized the Compensation Committee to administer
certain aspects of the 1997 Stock Plan and has authorized the Chief Executive
Officer of the Company to grant Awards to non-executive officer employees. The
maximum number of shares represented by such Awards may not exceed shares
in the aggregate or shares to any one employee.
38
<PAGE>
Incentive Stock Options and Nonstatutory Options. Optionees receive the
right to purchase a specified number of shares of Common Stock at some time in
the future at an option price and subject to such terms and conditions as are
specified at the time of the grant. Incentive stock options and options that
the Board or Compensation Committee intends to qualify as performance-based
compensation under Section 162(m) of the Code may not be granted at an
exercise price less than the fair market value of the Common Stock on the date
of grant (or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding 10% or more of the voting stock of
the Company). All other options may be granted at an exercise price that may
be less than, equal to or greater than the fair market value of the Common
Stock on the date of grant.
Stock Appreciation Rights and Performance Shares. A stock appreciation right
("SAR") is based on the value of Common Stock and entitles the SAR holder to
receive consideration to the extent that the fair market value on the date of
exercise of the shares of Common Stock underlying the SAR exceeds the fair
market value of the underlying shares on the date the SAR was granted. A
performance share award entitles the recipient to acquire shares of Common
Stock upon the attainment of specified performance goals.
Restricted and Unrestricted Stock. Restricted stock awards entitle
recipients to acquire shares of Common Stock, subject to the right of the
Company to repurchase all or part of such shares at their purchase price from
the recipient in the event that the conditions specified in the applicable
stock award are not satisfied prior to the end of the applicable restriction
period established for such award. The Company may also grant (or sell at a
purchase price not less than 85% of the fair market value on the date of such
sale) to participants shares of Common Stock free of any restrictions under
the 1997 Stock Plan.
All of the employees, officers, directors, consultants and advisors of the
Company who are expected to contribute to the Company's future growth and
success are eligible to participate in the 1997 Stock Plan.
Section 162(m) of the Code disallows a tax deduction to public companies for
certain compensation in excess of $1 million paid to the company's chief
executive officer or to any of the four other most highly compensated
executive officers. Certain compensation, including "performance-based
compensation," is not included in compensation subject to the $1 million
limitation. The 1997 Stock Plan limits to the maximum number of shares of
Common Stock with respect to which Awards may be granted to any employee in
any calender year. This limitation is intended to preserve the tax deductions
to the Company that might otherwise be unavailable under Section 162(m) with
respect to certain Awards.
1997 Employee Stock Purchase Plan.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to an aggregate of shares of Common Stock to
participating employees. The Company will make one or more offerings ("Plan
Offerings") to employees to purchase Common Stock under the Purchase Plan.
Plan Offerings may be six months or one year in duration and will commence on
June 1 and December 1, commencing on June 1 or December 1 immediately
following the consummation of the Offering. During each Plan Offering, the
maximum number of shares which may be purchased by a participating employee is
determined on the first day of the Plan Offering period under a formula
whereby 85% of the market value of a share of Common Stock on the first day of
the Plan Offering period is divided into an amount equal to 10% of the
employee's annualized compensation (or such lower percentage as may be
established by the Compensation Committee) for the immediately preceding
period equivalent in length to the Plan Offering. An employee may elect to
have up to 10% deducted from his or her regular salary (or such lower
percentage as may be established by the Compensation Committee for this
purpose. The price at which an employee's option is exercised is the lower of
(i) 85% of the closing price of the Common Stock on the Nasdaq National Market
on the day that the Plan Offering commences or (ii) 85% of the closing price
on the Nasdaq National Market on the day that the Plan Offering terminates.
The Purchase Plan is administered by the Board and the Compensation
Committee. With certain exceptions, all eligible employees, including
directors and officers, regularly employed by the Company for at least six
months on the applicable Plan Offering commencement date are eligible to
participate in the Purchase Plan. The
39
<PAGE>
Purchase Plan is intended to qualify as an "employee stock purchase plan" as
defined in Section 423 of the Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee reviews and approves compensation and benefits
for the Company's executive officers, and grants options to executive officers
under the 1997 Stock Plan. No interlocking relationship exists between any
member of the Compensation Committee and any member of any other company's
board of directors or compensation committee.
40
<PAGE>
CERTAIN TRANSACTIONS
Since inception, the Company has been privately held by the two principal
stockholders and, in all periods described in the Prospectus, has elected to
be treated as an S Corporation for federal and applicable state tax laws. As a
result, the principal stockholders have conducted activities and acquired
properties through other entities owned directly by them rather than through
the Company and such entities have entered into transactions with the Company.
The following description is a summary of the material portions of such
transactions. Following the consummation of the Offering, all transactions
described below, other than the leases of facilities, will terminate.
LEASES
The Company currently has leases for a facility in Marlow, New Hampshire and
two facilities in Keene, New Hampshire with Gallup & Hall, a partnership
("G&H") owned solely by Patricia Gallup and David Hall, the Company's
principal stockholders. Rent expense under all such leases aggregated
$260,000, $236,000 and $236,000 for the years ended December 31, 1994, 1995
and 1996, respectively, and $176,000 and $192,000 for the nine months ended
September 30, 1996 and 1997, respectively. The Company also leased an
additional facility in Marlow, New Hampshire from an entity owned 20% by David
Hall, which was terminated in 1996. Lease payments for such facility were
$44,000, $25,000, ($171,000) (net of a $200,000 lease termination payment
received by the Company) and $20,000, for the years ended December 31, 1994,
1995 and 1996, and the nine months ended September 30, 1996, respectively.
The Company also leases several other buildings from G&H on a month-to-month
basis. Rent expense under all such leases aggregated $37,000, $37,000 and
$46,000 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $35,000 and $35,000 for the nine months ended September 30, 1996 and 1997,
respectively.
In November 1997, the Company entered into a fifteen-year lease for a new
103,000 square foot corporate headquarters in Merrimack, New Hampshire with
G&H Post, L.L.C., an entity owned solely by Patricia Gallup and David Hall.
The Company expects to occupy the new facility in the summer of 1998. Annual
rental expense under the terms of the lease will be $720,000, or approximately
$7.00 per square foot.
While the Company believes the terms of each of these leases are fair to the
Company, their terms were not negotiated on an arms-length basis and,
accordingly, there can be no assurance that the terms of each of the leases
are as favorable to the Company as those which could have been obtained from
independent third parties.
CERTAIN STOCKHOLDER LOANS
Prior to the Offering, Patricia Gallup and David Hall made loans to the
Company to fund working capital requirements. Such indebtedness bore interest
at 6% and was payable on demand. The maximum aggregate amount owed to Patricia
Gallup and David Hall at any time during the years ended December 31, 1994 and
1995 was $1.6 million. Such indebtedness was repaid in full during 1995.
Interest payments on such indebtedness were approximately $74,000 and $4,000
for the years ended December 31, 1994 and 1995, respectively.
TRANSFER OF PATENTS, PATENT APPLICATION RIGHTS AND RELATED PROPRIETARY
MATERIALS
During 1994, the Company transferred to Patricia Gallup and David Hall
certain patents, patent application rights and related proprietary materials
to certain technologies then under development by the Company. The carrying
value of these assets at the time of transfer was nil as all related costs
were expensed by the Company as incurred. Research and development costs
related to these technologies and charged to expense during the year ended
December 31, 1994 totaled approximately $1.1 million. All development
activities related to these technologies were assumed, effective January 1,
1995, by a new company organized and owned solely by Patricia Gallup and David
Hall. None of the transferred intellectual property related to the Company's
business as presently conducted or as proposed to be conducted.
41
<PAGE>
OTHER TRANSACTIONS WITH AFFILIATED COMPANIES
The Company purchased administrative support services from an affiliated
company owned solely by Patricia Gallup and David Hall. Amounts paid to such
company totaled $736,000 for the year ended December 31, 1996 and $377,000 and
$671,000 for the nine months ended September 30, 1996 and 1997, respectively.
Subsequent to the Offering, the Company will not purchase any services from
such affiliate.
The Company purchased television advertising from an affiliated company
owned solely by Patricia Gallup and David Hall. Amounts paid to such company
totaled $223,000, $77,000 and $0 for the years ended December 31, 1994 , 1995
and 1996, respectively, and $492,000 for the nine months ended September 30,
1997. The Company does not expect to purchase any advertising from such
affiliate subsequent to the Offering. During 1994, the Company recorded income
from the rental of certain equipment to such affiliate of $186,000. The
Company recorded no income for the use of certain equipment from such
affiliate for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1997. The Company also made advances of funds to such
affiliate during the year ended December 31, 1994 totalling $544,000. The
Company determined that collection of such advances was uncertain, and
recorded a $544,000 expense representing an allowance for uncollectible
receivables from affiliates during the year ended December 31, 1994. The
Company subsequently wrote off the related receivable during the year ended
December 31, 1996.
The Company also purchased services from other affiliated entities
aggregating $55,000, $3,000 and $27,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
The Company provided various management-related services to entities owned
solely by Patricia Gallup and David Hall, for which the Company received
$46,000 and $78,000 during the years ended December 31, 1994 and 1995. The
Company received no payments for these services during the year ended December
31, 1996 and the nine months ended September 30, 1997. The Company does not
anticipate providing such services subsequent to the Offering.
The Company sold certain property and equipment having net book values of
$77,000, $30,000, $0 and $14,000 during the years ended December 31, 1994,
1995, 1996, and the nine months ended September 30, 1997 respectively, to
affiliated companies owned solely by Patricia Gallup and David Hall. Proceeds
received with respect to these sales totaled $102,000, $33,000, $19,000 and
$1,000 in 1994, 1995, 1996 and the nine months ended September 30, 1997,
respectively.
S CORPORATION DISTRIBUTIONS AND RELATED DIVIDEND PAYABLE
The Company has made accruals or distributions of S Corporation earnings,
accounted for as additional compensation expense, to its stockholders. Such
accruals aggregated $1.3 million for the year ended December 31, 1996 and $1.4
million and $8.6 million for the nine months ended September 30, 1996 and
1997, respectively. Subsequent to September 30, 1997, the Company expects to
declare a dividend to its stockholders representing cumulative undistributed S
Corporation earnings through the date of the closing of the Offering (at which
time the Company's election to be treated as an S Corporation will terminate).
At September 30, 1997, the amount of such cumulative undistributed S
Corporation earnings was approximately $26 million. The Company expects to pay
the dividend from the net proceeds of the Offering. See "Use of Proceeds" and
Note 12 to the Financial Statements.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities as of October 31, 1997, assuming
exercise of options that are vested and would be exercisable, assuming
consummation of the Offering, within 60 days of October 31, 1997, (i) by each
person who, to the knowledge of the Company, beneficially owns more than 5% of
any class of the Company's voting securities; (ii) by each director of the
Company; (iii) by each Named Executive Officer of the Company named under
"Management--Executive Compensation--Summary Compensation Table," and (iv) by
all directors and officers of the Company as a group. The address for all
executive officers and directors is c/o PC Connection, Inc., 528 Route 13,
Milford, New Hampshire 03055.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING OFFERING (1)
- ---- ------------ ---------- ------------
<S> <C> <C> <C>
Patricia Gallup(2)....................... 4,500,000 50.0%
David Hall(3)............................ 4,500,000 50.0%
Wayne L. Wilson(4)....................... 112,500 1.2%
Robert F. Wilkins(5)..................... 65,000 *
R. Wayne Roland(6)....................... 10,000 *
David Beffa-Negrini(7)................... 175,000 1.9%
Martin C. Murrer(8)...................... 50,000 *
All executive officers and directors as a
group (nine persons).................... 9,412,500 100.0%
</TABLE>
- ---------------------
* Less than one percent
(1) Does not reflect the Reorganization. If the Underwriters' over-allotment
options are exercised in full, the Company will sell shares of Common
Stock and Selling Stockholders will sell an aggregate of shares of
Common Stock. In such event, upon completion of the Offering, Patricia
Gallup will sell shares and beneficially own shares, or % of the
Company's outstanding Common Stock, and David Hall will sell shares
and beneficially own shares, or % of the Company's outstanding
Common Stock.
(2) Includes 1,125,000 shares held of record by Gallup PC Connection Stock
Trust FOB Patricia Gallup.
(3) Includes 1,125,000 shares held of record by Hall PC Connection Stock Trust
FOB David Hall.
(4) Includes 112,500 shares issuable upon exercise of stock options that are
vested and would be exercisable, assuming consummation of the Offering,
within 60 days of October 31, 1997.
(5) Includes 65,000 shares issuable upon exercise of stock options that are
vested and would be exercisable, assuming consummation of the Offering,
within 60 days of October 31, 1997.
(6) Includes 10,000 shares issuable upon exercise of stock options that are
vested and would be exercisable, assuming consummation of the Offering,
within 60 days of October 31, 1997.
(7) Includes 175,000 shares issuable upon exercise of stock options that are
vested and would be exercisable, assuming consummation of the Offering,
within 60 days of October 31, 1997.
(8) Includes 50,000 shares issuable upon exercise of stock options that are
vested and would be exercisable, assuming consummation of the Offering,
within 60 days of October 31, 1997.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of October 31, 1997 (after giving effect to the Reorganization), there
were outstanding an aggregate of shares of Company Common Stock held of
record by four stockholders.
COMMON STOCK
The Company's Amended and Restated Articles of Incorporation ("the Restated
Articles") authorize the issuance of up to shares of Company Common
Stock, $.01 par value per share. Holders of Voting Common Stock are entitled
to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of Voting Common Stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of Company Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board out of funds legally
available therefore, subject to any preferential dividend rights of
outstanding shares of preferred stock. Upon the liquidation, dissolution or
winding up of the Company, the holders of Company Common Stock are entitled to
receive ratably the net assets of the Company available after the payment of
all debts and other liabilities and subject to the prior rights of any
outstanding shares of preferred stock. Holders of Company Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Company Common Stock are, and the shares of Common Stock offered by
the Company in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Restated Articles authorize the issuance of up to 7,500,000 shares of
preferred stock, $.01 par value per share (the "Preferred Stock"). Under the
terms of the Restated Articles, the Board is authorized, subject to any
limitations prescribed by law, without stockholder approval, to issue such
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board.
The purpose of authorizing the Board to issue Preferred Stock and determine
its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
NEW HAMPSHIRE LAW AND CERTAIN PROVISIONS OF THE RESTATED ARTICLES AND BYLAWS
Under the Restated Articles, any vacancy on the Board, however occurring,
including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The Restated
Articles also provide that any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Restated
Articles further provide that special meetings of the stockholders may only be
called by a Chairman of the Board, the Board or the holders of shares
representing at least ten percent of all the votes enabled to be cast on any
issue proposed to be considered at the special meeting. Under the Company's
Bylaws, in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain requirements regarding advance
notice to the Company. The foregoing provisions could have the effect of
delaying stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company and may also discourage
another person or entity from making a tender offer for the Company's Common
Stock, because such
44
<PAGE>
person or entity, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
The Restated Articles contain certain provisions permitted under the New
Hampshire Business Corporation Act relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach
of fiduciary duty, except in certain circumstances involving wrongful acts,
such as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. Further, the
Restated Articles contain provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the New Hampshire Business
Corporation Act. The Company believes that these provisions will assist the
Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
Upon completion of the Offering (based on shares outstanding at October 31,
1997), the Company will have outstanding an aggregate of shares of Common
Stock, assuming no exercise of the Underwriters' over-allotment option and no
exercise of outstanding options. The shares sold in the Offering will be
freely tradeable without restrictions or further registration under the
Securities Act, unless such shares are purchased by an existing "affiliate" of
the Company as that term is defined in Rule 144 under the Securities Act (an
"Affiliate"). The remaining shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act ("Restricted Shares"). Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption
from registration, including the exemption provided by Rule 144 promulgated
under the Securities Act, which rule is summarized below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after the
Offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to 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. Under Rule
144(k), a person who is not deemed to have been an Affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an Affiliate), is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Accordingly, unless otherwise
restricted, "144(k) shares" may therefore be sold immediately upon the
completion of the Offering.
All Company officers, directors and existing stockholders and holders of
stock options exercisable within 180 days after the date of this Prospectus
have entered into agreements (the "Lock-up Agreements") pursuant to which they
have agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer, lend
45
<PAGE>
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock
for a period of 180 days after the date of this Prospectus, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), subject to certain limited exceptions.
Following the Offering, the Company intends to file registration statements
under the Securities Act covering all shares of Common Stock subject to
outstanding options or reserved for issuance under the Company's 1993 Option
Plan, 1997 Stock Plan and 1997 Purchase Plan. See "Management--Stock Plans."
Accordingly, shares registered under such registration statements will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market following the expiration of the Lock-up
Agreements.
The Company has agreed not to offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer, lend or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of the Common Stock, for a period of 180
days after the date of this Prospectus, without the prior written consent of
DLJ, subject to certain limited exceptions.
46
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom DLJ, NationsBanc Montgomery Securities, Inc. and William Blair &
Company, L.L.C. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company the number of shares of Common
Stock that each Underwriter has agreed to purchase as set forth opposite its
name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......
NationsBanc Montgomery Securities, Inc....................
William Blair & Company, L.L.C. ..........................
----
Total.....................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered are subject to approval of certain legal matters by counsel and
certain other conditions. If any shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all such shares (other
than shares covered by the over-allotment option described below) must be
purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the price set
forth on the cover page of this Prospectus, and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
discounts not in excess of $ per share to any other Underwriter and certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholders have granted an option to the
Underwriters exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
net of underwriting discounts and commissions. Such option may be exercised at
any time until 30 days after the date of this Prospectus. See "Principal
Stockholders." To the extent that the Representatives exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
At the Company's request, the Underwriters have reserved up to shares
for sale at the initial public offering price to certain of the Company's
employees, members of their immediate families and other individuals who are
business associates of the Company in each case as such parties have expressed
an interest in purchasing such shares. The number of shares available for sale
to the general public will be reduced to the extent these
47
<PAGE>
individuals purchase such reserved shares. Any reserved shares not purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares offered hereby.
The Company, its officers, directors, stockholders and certain employees of
the Company have agreed, subject to certain exceptions, not to directly or
indirectly sell, offer to sell, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, without the prior written
consent of DLJ, on behalf of the Underwriters, for a period of 180 days after
the date of this Prospectus. See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, are price-earnings ratios of publicly traded
companies that the Representatives believe to be comparable to the Company,
certain financial information of the Company, the history of, and the
prospects for, the Company and the industry in which it competes, and
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the initial
public offering price.
The Company has applied to have the Common Stock quoted on the Nasdaq
National Market under the symbol "PCCC."
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Martin C. Murrer, a managing director of DLJ, is a director of the Company.
See "Management-- Executive Officers and Directors."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Hale and Dorr LLP, Boston,
Massachusetts. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996 and
September 30, 1997 and for each of the three years in the period ended
December 31, 1996 and for the nine months ended September 30, 1997, included
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the
48
<PAGE>
Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected and copied at prescribed rates at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. In addition, the Company is required to
file electronic versions to these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system. The Commission maintains a World Wide Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company intends to distribute annual reports to its stockholders
containing audited financial statements. The Company also intends to make
available to its stockholders, within 45 days after the end of each fiscal
quarter, reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
49
<PAGE>
PC CONNECTION, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997.... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 (unaudited) and
1997..................................................................... F-4
Statements of Changes in Stockholders' Equity for the years ended December
31, 1994, 1995 and 1996 and for the nine months ended September 30,
1997..................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 (unaudited) and
1997..................................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PC Connection, Inc.:
We have audited the accompanying balance sheets of PC Connection, Inc. as of
December 31, 1995 and 1996 and September 30, 1997, and the related statements
of operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996 and for the nine months
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of PC Connection, Inc. as of December 31,
1995 and 1996 and September 30, 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 and for the nine months ended September 30, 1997, in conformity with
generally accepted accounting principles.
Deloitte & Touche llp
Boston, Massachusetts
November 4, 1997
(November 21, 1997 as to Note 12)
F-2
<PAGE>
PC CONNECTION, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
ASSETS ------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash............................. $ 674 $ 162 $ 723 $ 723
Accounts receivable, net......... 16,096 21,043 24,541 24,541
Inventories--merchandise......... 22,262 44,419 60,745 60,745
Prepaid expenses and other
current assets.................. 2,520 1,943 1,237 1,237
------- ------- ------- -------
Total current assets........... 41,552 67,567 87,246 87,246
Property and equipment, net........ 7,063 7,671 8,303 8,303
------- ------- ------- -------
Total.......................... $48,615 $75,238 $95,549 $95,549
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Short-term borrowings............ $ 4,933 $12,307 $ 8,130 $ 8,130
Current maturities of long-term
debt............................ -- 750 1,250 1,250
Dividend payable................. -- -- -- 26,000
Amounts payable to stockholders.. -- -- 2,958 2,958
Accounts payable................. 22,140 36,568 53,711 53,711
Accrued expenses and other
liabilities..................... 3,485 3,320 4,720 4,720
------- ------- ------- -------
Total current liabilities...... 30,558 52,945 70,769 96,769
Term Loan, less current maturities
.................................. 5,000 4,250 3,500 3,500
------- ------- ------- -------
Total liabilities.............. 35,558 57,195 74,269 100,269
------- ------- ------- -------
Commitments and Contingencies (Note
10)
Stockholders' Equity:
Common stock:
Series A Non-Voting, $.01 par
value, 7,500,000 shares
authorized, 6,750,000 shares
issued and outstanding in 1995,
1996 and 1997................... 68 68 68 68
Series B Voting, $.01 par value,
2,500,000 shares authorized,
2,250,000 shares issued and
outstanding in 1995, 1996 and
1997............................ 22 22 22 22
Additional paid-in capital....... 3,022 3,252 4,037 4,037
Retained earnings................ 9,945 14,701 17,153 (8,847)
------- ------- ------- -------
Total stockholders' equity..... 13,057 18,043 21,280 (4,720)
------- ------- ------- -------
Total.......................... $48,615 $75,238 $95,549 $95,549
======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PC CONNECTION, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $196,659 $252,217 $ 333,322 $225,074 $ 383,460
Cost of sales........... 165,957 211,299 282,117 189,644 330,008
-------- -------- ---------- -------- ----------
Gross profit.......... 30,702 40,918 51,205 35,430 53,452
Selling, general and
administrative
expenses............... 32,653 38,373 43,739 31,005 40,965
-------- -------- ---------- -------- ----------
Income (loss) from
operations........... (1,951) 2,545 7,466 4,425 12,487
Interest expense........ (594) (1,296) (1,269) (803) (933)
Other, net.............. 80 62 70 20 (43)
Income taxes............ 124 (38) (252) (134) (429)
Additional
stockholder/officer
compensation........... -- -- (1,259) (1,407) (8,630)
-------- -------- ---------- -------- ----------
Net income (loss)..... $ (2,341) $ 1,273 $ 4,756 $ 2,101 $ 2,452
======== ======== ========== ======== ==========
Pro forma data
(unaudited):
Historical income
before income taxes.. $ 5,008 $ 2,881
Pro forma other
adjustments.......... 1,139 8,540
---------- ----------
Pro forma income
before income taxes.. 6,147 11,421
Pro forma income
taxes................ 2,397 4,454
---------- ----------
Pro forma net income.. $ 3,750 $ 6,967
========== ==========
Pro forma net income
per common share..... $ 0.35 $ 0.66
========== ==========
Pro forma weighted
average common shares
outstanding.......... 10,597,141 10,595,625
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PC CONNECTION, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NO PAR
SERIES A SERIES B VALUE ADDITIONAL
COMMON COMMON COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
-------- -------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994................... $-- $-- $ 299 $2,390 $11,013 $13,702
Net loss................ -- -- -- -- (2,341) (2,341)
Compensation under non-
statutory stock option
agreements............. -- -- -- 325 -- 325
---- ---- ----- ------ ------- -------
Balance, December 31,
1994................... -- -- 299 2,715 8,672 11,686
---- ---- ----- ------ ------- -------
Recapitalization........ 68 22 (299) 209 -- --
Net income.............. -- -- -- -- 1,273 1,273
Compensation under non-
statutory stock option
agreements............. -- -- -- 98 -- 98
---- ---- ----- ------ ------- -------
Balance, December 31,
1995................... 68 22 -- 3,022 9,945 13,057
---- ---- ----- ------ ------- -------
Net income.............. -- -- -- -- 4,756 4,756
Compensation under non-
statutory stock option
agreements............. -- -- -- 230 -- 230
---- ---- ----- ------ ------- -------
Balance, December 31,
1996................... 68 22 -- 3,252 14,701 18,043
---- ---- ----- ------ ------- -------
Net income.............. -- -- -- -- 2,452 2,452
Compensation under non-
statutory stock option
agreements............. -- -- -- 785 -- 785
---- ---- ----- ------ ------- -------
Balance, September 30,
1997................... $ 68 $ 22 $ -- $4,037 $17,153 $21,280
==== ==== ===== ====== ======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PC CONNECTION, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......... $ (2,341) $ 1,273 $ 4,756 $ 2,101 $ 2,452
Adjustments to reconcile
net income to net cash
provided by (used for)
operating activities:
Depreciation and
amortization........... 2,143 2,795 2,815 1,976 2,713
Deferred state income
taxes.................. (169) (100) 48 -- (53)
Compensation under
nonstatutory stock
option agreements...... 325 98 230 162 785
Provision for doubtful
accounts............... 580 997 1,297 900 1,577
Gain (loss) on sales of
assets................. (22) (37) (53) -- 54
Changes in assets and
liabilities:
Accounts receivable..... (2,685) (5,840) (6,244) (1,437) (5,075)
Inventories --
merchandise............ (8,494) 7,993 (22,157) (12,254) (16,326)
Prepaid expenses and
other current assets... (974) (479) 529 1,063 759
Accounts payable........ 16,836 (10,501) 14,428 3,544 17,143
Amounts payable to
stockholders........... -- -- -- -- 2,958
Accrued expenses and
other liabilities...... 577 1,007 (165) 579 1,400
-------- -------- -------- ------- --------
Net cash provided by
(used for) operating
activities......... 5,776 (2,794) (4,516) (3,366) 8,387
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment................ (4,875) (945) (3,433) (2,036) (3,421)
Proceeds from sale of
property and equipment... 112 40 63 -- 22
-------- -------- -------- ------- --------
Net cash used for
investing
activities......... (4,763) (905) (3,370) (2,036) (3,399)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from short-term
borrowings............... 45,356 64,882 84,484 56,560 112,476
Repayment of short-term
borrowings............... (45,142) (65,482) (77,110) (51,308) (116,653)
Proceeds from (repayment
of) term loan............ -- 5,000 -- -- (250)
Repayment of notes
payable-- stockholders... (1,013) (573) -- -- --
-------- -------- -------- ------- --------
Net cash provided by
(used for)
financing
activities......... (799) 3,827 7,374 5,252 (4,427)
-------- -------- -------- ------- --------
Increase (decrease) in
cash..................... 214 128 (512) (150) 561
Cash, beginning of
period................... 332 546 674 674 162
-------- -------- -------- ------- --------
Cash, end of period....... $ 546 $ 674 $ 162 $ 524 $ 723
======== ======== ======== ======= ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid............. $ 547 $ 1,197 $ 1,247 $ 782 $ 1,021
Income taxes paid......... 84 31 96 51 175
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996, IS
UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PC Connection, Inc. (the "Company") is one of the leading direct marketers of
brand-name personal computers and related peripherals, software, and networking
products to business, education, government, and consumer end users located
primarily in the United States. The following is a summary of significant
accounting policies.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the amounts reported in the accompanying
financial statements. Actual results could differ from those estimates.
Interim Results for the Nine Months Ended September 30, 1996 (unaudited)
In the opinion of management, the accompanying unaudited interim financial
statements for the nine months ended September 30, 1996 have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim period.
Revenue Recognition
Revenue on product sales is recognized at the time of shipment. A reserve for
product returns is established based upon historical trends.
Inventories--Merchandise
Inventories (all finished goods) consisting of software packages, computer
systems and peripheral equipment, are stated at cost (determined under the
first-in, first-out method) or market, whichever is lower.
Prepaid Catalog Costs and Deferred Revenue
Costs of producing and distributing catalogs are deferred and charged to
expense over the period that each catalog remains the most current selling
vehicle (generally one to two months). Vendors have the ability to place
advertisements in the catalogs for which the Company receives advertising
allowances and incentives. These revenues are recognized on the same basis as
the catalog costs.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for both
financial and income tax reporting purposes over the estimated useful lives of
the assets ranging from 3 to 7 years. For property acquired prior to 1996,
depreciation was provided using accelerated methods. On January 1, 1996, the
Company changed its accounting policy to provide depreciation on all property
and equipment acquired after that date using the straight-line method. The
effect of this change in accounting policy was to increase 1996 income before
income taxes by approximately $330. Amortization of leasehold improvements is
provided for by the straight-line method for both financial and income tax
reporting purposes. For financial reporting purposes, leasehold improvements
are amortized over the terms of the related leases or their useful lives,
whichever is shorter, whereas for income tax reporting purposes, they are
amortized over the applicable tax lives. The Company periodically evaluates the
carrying value of property and equipment based upon current and anticipated net
income and undiscounted cash flows, and recognizes an impairment when it is
probable that such estimated future net income and/or cash flows will be less
than the asset carrying value.
F-7
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Tax Status and Income Taxes
The stockholders of the Company have elected S Corporation tax status. As a
result of this election, the taxable income of the Company is reported in the
individual federal income tax returns of the stockholders, and no provision
for federal income taxes is included in the accompanying financial statements.
The Company and certain of its affiliates (entities under common control)
file their New Hampshire business profits tax returns on a unitary basis. Each
company calculates its tax provision on a separate company basis as if it
filed a separate tax return.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income taxes comprise the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.
Effective with the closing of the Company's proposed initial public offering
("the Offering," see Note 12), the Company's S Corporation election will
automatically be terminated, and the Company will be subject to federal and
state income taxes as a C Corporation from that date forward.
Additional Stockholder/Officer Compensation
Additional stockholder/officer compensation represents amounts accrued or
distributed in excess of aggregate annual base salaries approved by the Board
of Directors and generally represents Company-related federal income tax
obligations payable by the stockholders.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments, consisting of
accounts receivable, accounts payable and bank borrowings, approximates
carrying value.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade account receivables are
limited due to the large number of customers comprising the Company's customer
base. Ongoing credit evaluations of customer's financial condition are
performed.
Stock-Based Compensation
Compensation expense associated with awards of stock or options to employees
is measured using the intrinsic value method. The Company's Board of Directors
estimates fair value using market valuations of comparable publicly traded
companies.
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which are not required to be adopted at September 30, 1997, include the
following Statements of Financial Accounting Standards ("SFAS"):
SFAS No. 128, "Earnings Per Share," which will be required to be adopted
by the Company for the fiscal year ending December 31, 1997, specifies the
computation, presentation, and disclosure requirements for earning per
share for entities with publicly-held common stock. This new accounting
standard will require presentation of basic earnings per share and diluted
earnings per share. The effect of adopting this standard would be to report
unaudited pro forma basic net income per share of $0.38 and $0.71, and
unaudited pro forma diluted net income per share of $0.36 and $0.68, for
the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
F-8
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SFAS No. 129, "Disclosure of Information about Capital Structure," which
will be effective for the Company for the year ending December 31, 1997,
consolidates existing disclosure requirements. This new standard contains
no change in disclosure requirements for the Company.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income (all changes in equity during
a period except those resulting from investments by and distributions to
owners) and its components in the financial statements. This new standard,
which will be effective for the Company for the year ending December 31,
1998, is not currently anticipated to have a significant impact on the
Company's financial statements based on the current financial structure and
operations of the Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the year ending
December 31, 1998, establishes standards for reporting information about
operating segments in the annual financial statements, selected information
about operating segments in interim financial reports and disclosures about
products and services, geographic areas and major customers. This new
standard may require the Company to report financial information on the
basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments, which may result in more
detailed information in the notes to the Company's financial statements
than is currently required and provided.
2. UNAUDITED PRO FORMA INFORMATION
The following pro forma adjustments have been made to the historical results
of operations and financial position to make the presentation comparable to
what would have been reported had the Company operated as a C Corporation:
(i) Elimination of stockholder/officer compensation expense in excess of
aggregate annual base salaries of $600 to be in effect as of the closing
date of the Offering.
(ii) Computation of income tax expense assuming an effective tax rate of
39% (see Note 8) and after adjusting stockholder/officer compensation
expense described in (i) above.
(iii) Declaration of a stockholder dividend representing cumulative
undistributed S Corporation earnings through September 30, 1997 (see Note
12).
Pro forma net income per share is based upon the weighted average number of
common and common equivalent shares outstanding. The pro forma weighted
average number of common shares outstanding assumes that all stock options
granted in January 1997, February 1997 and July 1997 were outstanding for all
periods presented. Common equivalent shares are not included in the per share
calculations where the effect of their inclusion would be anti-dilutive,
except in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83. The Bulletin requires that all common shares issued and
options to purchase shares of common stock granted by the Company during the
twelve-month period prior to filing of a proposed initial public offering be
included in the calculation as if they were outstanding for all periods. The
pro forma weighted average number of common shares outstanding for 1996 and
for the nine months ended September 30, 1997 also assumes that shares required
to pay the stockholder dividend totalling approximately $26,000 (assuming a
price per share equal to the mid-point of the expected filing range of the
Offering) were outstanding for all of 1996 and for the nine months ended
September 30, 1997.
Pro forma supplemental net income per share of $ 0.39 and $0.65 for 1996 and
the nine months ended September 30, 1997, respectively, assumes that the net
proceeds from the Offering, after payment of the $26,000 stockholder dividend,
are used to retire debt.
F-9
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Trade........................................ $10,334 $16,125 $24,889
Co-op advertising............................ 3,922 3,880 3,028
Vendor returns, rebates and other............ 4,010 5,309 4,198
------- ------- -------
Total.................................... 18,266 25,314 32,115
Less allowances for:
Sales returns.............................. (1,250) (2,650) (3,800)
Doubtful accounts.......................... (920) (1,621) (3,774)
------- ------- -------
Accounts receivable, net..................... $16,096 $21,043 $24,541
======= ======= =======
</TABLE>
Changes in the allowances for sales returns and doubtful accounts consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1994 1995 1996 1996 1997
------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beginning balance............ $1,410 $ 2,144 $ 2,170 $ 2,170 $ 4,271
Provision for doubtful
accounts charged to
expense..................... 580 997 1,297 900 1,577
Provisions charged to other
operating accounts (i.e.,
cost of sales, advertising). 929 525 1,856 605 3,448
Write-off of uncollectible
accounts.................... (775) (1,496) (1,052) (577) (1,722)
------ ------- ------- -------- ---------
Ending balance............... $2,144 $ 2,170 $ 4,271 $ 3,098 $ 7,574
====== ======= ======= ======== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Leasehold improvements................... $ 4,326 $ 4,093 $ 3,764
Furniture and equipment.................. 15,762 18,087 20,191
Software licenses........................ 1,007 1,060 1,415
Automobiles.............................. 271 278 175
-------- -------- --------
Total.................................. 21,366 23,518 25,545
Less accumulated depreciation and amorti-
zation.................................. (14,303) (15,847) (17,242)
-------- -------- --------
Property and equipment, net.............. $ 7,063 $ 7,671 $ 8,303
======== ======== ========
</TABLE>
5. BANK BORROWINGS
At September 30, 1997, the Company had a revolving credit agreement with a
bank providing for short-term borrowings equal to the lesser of $30,000 or an
amount determined by a formula based on accounts receivable and inventory
balances, and a term loan for $5,000, due in quarterly installments of $250
through March 31, 2002. Short-term borrowings were collateralized by all
accounts receivable and inventories (other than inventories pledged to secure
trade credit arrangements) and bear interest at the prime rate plus 0.5% (8.5%
at September 30, 1997). The term loan is collateralized by all other assets of
the Company and bears interest at the prime rate plus 1.0% (9.0% at September
30, 1997). The revolving credit agreement includes various customary financial
and operating covenants, including working capital requirements, debt-to-net-
worth ratios, minimum net income requirements and restrictions on the payment
of dividends, except for distributions in respect of income taxes, none of
which, in the opinion of management, significantly restricts the Company's
operations.
F-10
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Certain information with respect to short-term borrowings was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE MAXIMUM AMOUNT AVERAGE AMOUNT
INTEREST RATE OUTSTANDING OUTSTANDING
---------------- -------------- --------------
<S> <C> <C> <C>
Year ended December 31,
1994...................... 7.9% $11,349 $6,215
1995...................... 10.0% 12,000 9,613
1996...................... 9.0% 18,999 7,921
Nine months ended September
30,
1996...................... 9.0% 10,543 5,816
1997...................... 8.6% 16,770 7,929
</TABLE>
6. TRADE CREDIT ARRANGEMENTS
At September 30, 1997, the Company had security agreements with two
financial institutions to facilitate the purchase of inventory from various
suppliers under certain terms and conditions. The agreements allow a
collateralized position in inventory financed by the financial institutions up
to an aggregate amount of $24,900 (with seasonal increases to $37,350 from
October 22, 1997 through January 31, 1998). The cost of such financing under
these agreements is borne by the suppliers. At September 30, 1997, accounts
payable included $10,572 owed to these financial institutions.
7. STOCKHOLDERS' EQUITY
Common Stock
On March 28, 1995, the Company amended its Articles of Incorporation to
change the par value of its stock to $.01 per share. Additionally, the Company
reclassified the 10,000,000 authorized shares of common stock to 7,500,000
shares of Series A Non-Voting Common Stock, par value $.01 per share, and
2,500,000 shares of Series B Voting Common Stock, par value $.01 per share,
with one vote per share.
1993 Incentive and Non-Statutory Stock Option Plan
In December 1993, the Board of Directors adopted and the stockholders
approved the 1993 Incentive and Non-Statutory Stock Option Plan (the "Plan").
Under the terms of the Plan, the Company is authorized to make awards of
restricted stock and to grant incentive and non-statutory options to employees
of, and consultants and advisors to, the Company to purchase shares of the
Company's common stock. A total of 1,450,000 shares of the Company's common
stock may be issued upon exercise of options granted or awards made under the
Plan. Options vest over varying periods up to four years and are restricted as
to exercise except upon the occurrence of certain events, including an initial
public offering of the Company's common stock (see Note 12). All restrictions
on options expire no more than seven years from the date of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation expense
for options awarded under the Plan in 1994, 1995, 1996, and the nine months
ended September 30, 1996 and 1997, has been recognized using the intrinsic
value method. The effect of recording compensation expense under the
provisions of SFAS No. 123 would have had no effect on unaudited pro forma net
income per share in any of the periods presented.
F-11
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information regarding the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
OPTION EXERCISE AVERAGE
SHARES PRICE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
Outstanding, January 1, 1994................... --
Granted...................................... 560,000 $2.86 $5.62
--------
Outstanding, December 31, 1994................. 560,000 2.86
Granted...................................... 240,000 3.98 2.38
Forfeited.................................... (300,000) 3.17
--------
Outstanding, December 31, 1995................. 500,000 3.21
Granted...................................... 90,000 1.89 3.76
Forfeited.................................... (140,000) 4.71
--------
Outstanding, December 31, 1996................. 450,000 2.48
Granted...................................... 349,000 5.05 3.35
--------
Outstanding, September 30, 1997................ 799,000 3.60
========
</TABLE>
At September 30, 1997, no options were exercisable under the Plan. The
following table summarizes the status of outstanding stock options as of
September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS REMAINING
EXERCISE PRICE OUTSTANDING LIFE (YEARS)
-------------- ----------- ------------
<S> <C> <C>
$1.00 427,500 6.8
$5.00 135,000 9.2
$7.50 236,500 9.1
</TABLE>
The fair value of options at the date of grant was estimated using the
minimum value method. Risk-free interest rates and expected lives of option
grants used in applying this pricing model were 6% and seven years,
respectively, in 1994, 1995, 1996 and the nine months ended September 30,
1997.
The minimum value pricing method was designed to value readily tradable
stock options with relatively short lives. The options granted to employees
are not tradable and have contractual lives of up to ten years. Management
believes that the assumptions used and the model applied to value the awards
yields a reasonable estimate of the fair value of the grants made under the
circumstances, given the alternatives available under SFAS No. 123.
Aggregate compensation expense, related to options granted at exercise
prices less than fair value on the dates of grant, is being charged to expense
ratably over seven years from the dates of grant (see Note 12). Compensation
expense charged to operations totaled $325, $98, $230, $162, and $785 in 1994,
1995, 1996, and the nine months ended September 30, 1996 and 1997,
respectively (net of expense reversals related to forfeitures by terminated
employees aggregating $139 and $49 in 1995 and 1996, respectively).
8. INCOME TAXES
The provision (benefit) for income taxes was ($124), $38 and $252 for the
years ended December 31, 1994, 1995 and 1996, respectively, and $134 and $429
for the nine months ended September 30, 1996 and 1997, respectively. These
provisions are based on the state income tax obligations of the Company as an
S Corporation. Certain items of income are recognized in different years for
financial reporting and income tax purposes, and the Company has recorded
deferred tax assets for the state income tax effect of these differences.
Deferred tax assets were $269, $221 and $274 at December 31, 1995 and 1996 and
September 30, 1997, respectively, and were included in prepaid expenses and
other current assets.
F-12
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective with the closing of the Company's proposed initial public offering
(see Note 12), the Company's S Corporation election will automatically be
terminated and the Company will then record the provision for income taxes as
a C Corporation. The provision (benefit) for income taxes on a pro forma basis
consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Currently payable:
Federal............................. $2,988 $5,360
State............................... 349 625
------ ------
3,337 5,985
------ ------
Deferred:
Federal............................. (842) (1,372)
State............................... (98) (159)
------ ------
(940) (1,531)
------ ------
$2,397 $4,454
====== ======
The components of the pro forma net deferred tax asset are as follows:
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------- ------------------
<S> <C> <C>
Provisions for bad debts.............. $ 632 $1,472
Inventory costs capitalized for tax
purposes............................. 371 503
Inventory reserve..................... 471 879
Accumulated depreciation.............. 379 618
Compensation under non-statutory stock
option agreements.................... 255 561
Deductible expenses, primarily
employee-benefit related............. 369 466
Additional stockholder/officer
compensation......................... 491 --
------ ------
Deferred tax asset--net............... $2,968 $4,499
====== ======
The reconciliation of the Company's pro forma income tax provision to the
statutory federal tax rate is as follows:
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------- ------------------
<S> <C> <C>
Statutory tax rate.................... 35.0% 35.0%
State income taxes, net of federal
benefit.............................. 2.6 2.6
Nondeductible expenses................ 0.2 0.2
Other--net............................ 1.2 1.2
------ ------
Effective income tax rate............. 39.0% 39.0%
====== ======
</TABLE>
As of September 30, 1997, the Company had no net operating loss carry
forwards or other tax benefits available to offset future taxable income.
F-13
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLANS
The Company has a contributory profit-sharing plan covering all qualified
employees. No contributions to the profit-sharing plan were made in 1994,
1995, 1996, or the nine months ended September 30, 1997 by the Company. The
Company made matching contributions to an employee savings plan of
approximately $103, $102, $177, $143, and $148 in 1994, 1995, 1996, and the
nine months ended September 30, 1996 and 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office facilities from its principal stockholders
under 20-year noncancelable operating leases. The lease agreement for one
facility requires the Company to pay all real estate taxes and insurance
premiums related thereto. The Company also leases several other buildings from
the its principal stockholders on a month-to-month basis.
In addition, the Company leases office and warehouse facilities from
unrelated parties with remaining terms of one to four years.
Future aggregate minimum annual lease payments under these leases at
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 RELATED PARTIES OTHERS TOTAL
----------------------- --------------- ------ ------
<S> <C> <C> <C>
1997 (3 months)............................... $ 63 $ 264 $ 327
1998.......................................... 251 774 1,025
1999.......................................... 251 447 698
2000.......................................... 251 447 698
2001.......................................... 251 -- 251
2002 and thereafter........................... 1,238 -- 1,238
------ ------ ------
$2,305 $1,932 $4,237
====== ====== ======
</TABLE>
Total rent expense aggregated $852, $1,072, $1,057, $889, and $1,029 for the
years ended December 31, 1994, 1995, 1996, and the nine months ended September
30, 1996 and 1997, respectively, under the terms of the leases described
above. Such amounts included $341, $298, $111 (net of a $200 lease termination
payment received), $231 and $227 in 1994, 1995, 1996, and the nine months
ended September 30, 1996 and 1997, respectively, paid to related parties.
Contingencies
The Company is subject to various legal proceedings and claims which have
arisen during the ordinary course of business. In the opinion of management,
the outcome of such matters will not have a material effect on the Company's
financial position, results of operations and cash flows.
11. OTHER RELATED-PARTY TRANSACTIONS
Other related-party transactions include the transactions summarized below.
Related parties consist primarily of affiliated companies related to the
Company through common ownership.
F-14
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- --------------
1994 1995 1996 1996 1997
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Revenue:
Provision of management and other
services to various affiliated
companies.............................. $49 $78 $-- $ -- $ --
Sales of various products............... 39 48 37 25 9
Rental of property and equipment to
affiliated company..................... 186 -- -- -- --
Sales of property and equipment:
Net book value........................ (77) (30) -- -- (14)
Proceeds.............................. 102 33 19 -- 1
Costs:
Purchase of services from affiliated
companies.............................. 278 80 763 377 1,163
Interest paid to stockholders........... 74 4 -- -- --
</TABLE>
During 1994, the Company transferred to its stockholders certain patents,
patent application rights and related proprietary materials related to certain
technologies then under development by the Company. The carrying value of
these assets at the time of transfer was nil as all related costs had been
expensed as incurred. Research and development costs related to these
activities and expensed by the Company during the year ended December 31,
1994, aggregated approximately $1,065. All development activities related to
these technologies were assumed, effective January 1, 1995, by a new affiliate
organized by the Company's stockholders. The Company did not incur any
research and development costs during the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1996 and 1997.
12. SUBSEQUENT EVENTS (UNAUDITED)
Initial Public Offering
The Company is pursuing an initial public offering of its common stock. The
Company plans to use a portion of the net proceeds of the Offering to repay
certain of the Company's bank borrowings under its revolving credit agreement
and term note payable (Note 5) and to make a distribution to current
stockholders in an amount equal to the Company's cumulative undistributed tax
basis S Corporation retained earnings at the closing date of the Offering. Had
the closing date of the Offering occurred on September 30, 1997, the dividend
payable to the stockholders would have been approximately $26,000. Such
dividend payable has been reflected in the pro forma balance sheet as of
September 30, 1997.
Amendment of Revolving Credit Agreement
As of November 19, 1997, the Company and its banks amended its revolving
credit agreement to increase the maximum level of borrowings under the
agreement from $30,000 to $45,000 and to reduce the interest rate on
borrowings under both loans to the prime rate.
F-15
<PAGE>
PC CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Operating Lease Commitment
In November 1997, the Company entered into a fifteen-year operating lease
for a new corporate headquarters with an affiliated company related to the
Company through common ownership. The Company expects to occupy the facility
in the Summer of 1998, and the lease will be effective upon the date of
occupancy. Annual rent expense under the terms of the lease will be
approximately $720.
Recapitalization of the Company
The Company expects to amend and restate its Articles of Incorporation
immediately prior to the consummation of the Offering. Pursuant to this
amendment, the Company will convert all of the issued and outstanding shares
of Series A Non-Voting Common Stock, $.01 par value per share, and Series B
Voting Common Stock, $.01 par value per share into shares of a single series
of voting Common Stock, $.01 par value.
Compensation Under Non-Statutory Stock Option Agreements
Upon consummation of the Offering, certain restrictions as to the exercise
of options granted under the Company's 1993 Incentive and Non-Statutory Stock
Option Plan will expire. The Company is currently recording compensation
expense for certain options granted at prices less than their fair value
ratably over seven years from the dates granted, since such options are not
exercisable except upon occurrence of certain events (see Note 7). Effective
with the consummation of the Offering, the Company will record an additional
one-time charge for stock-option compensation expense of approximately $665,
representing the cumulative effect of recording compensation expense relating
to these options over their vesting periods.
Termination of S Corporation Election
Effective with the consummation of the Offering, the Company's S Corporation
election will automatically terminate and the Company expects to record a
credit to its income tax provision of approximately $2,500.
1997 Employee Stock Purchase Plan
On November 21, 1997, the Board of Directors adopted and the stockholders
approved the 1997 Employee Stock Purchase Plan ("the Purchase Plan"), which
becomes effective on the closing of the Offering. The Purchase Plan authorizes
the issuance of Common Stock to participating employees. Under the terms of
the Purchase Plan, the option price is an amount equal to 85% of the fair
market value per share of the Common Stock on either the first day or the last
day of the offering period, whichever is lower.
1997 Stock Incentive Plan
On November 21, 1997, the Board of Directors adopted and the stockholders
approved the 1997 Stock Incentive Plan, providing for the grant of incentive
stock options, non-statutory stock options, stock appreciation rights,
performance shares and awards of restricted stock and unrestricted stock.
* * * * *
F-16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 34
Certain Transactions..................................................... 41
Principal Stockholders................................................... 43
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 47
Legal Matters............................................................ 48
Experts.................................................................. 48
Additional Information................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
PC CONNECTION, INC.
COMMON STOCK
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY
SECURITIES, INC.
WILLIAM BLAIR & COMPANY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------
PROSPECTUS
----------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale
of Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
<S> <C>
SEC registration fee.......................................... $17,425
NASD filing fee............................................... $ 6,250
Nasdaq National Market Listing Fee............................ $ *
Blue Sky fees and expenses.................................... $ *
Printing and engraving expenses............................... $ *
Legal fees and expenses....................................... $ *
Accounting fees and expenses.................................. $ *
Transfer agent and registrar fees............................. $ *
Miscellaneous expenses........................................ $ *
-------
Total....................................................... $
=======
</TABLE>
---------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article ELEVENTH of the Registrant's Amended and Restated Articles of
Incorporation (the "Restated Articles") provides that no director or officer
of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for any action taken, or any failure to take
any action, as a director or an officer, except with respect to: (a) the
amount of a financial benefit received by the director or officer to which he
is not entitled; (b) an intentional infliction of harm on the Registrant or
its stockholders; (c) a violation of New Hampshire Revised Statutes Annotated
("RSA") 293-A:8.33 (providing for liability for the approval of payment of
certain unlawful dividends to stockholders); or (d) an intentional violation
of criminal law.
RSA 293-A:8.51 and 8.56 empower a corporation, subject to certain
limitations, to indemnify its directors and officers against expenses
(including attorney's fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by them in connection with any civil or
criminal suit or proceeding (other than a derivative action) to which they are
parties or threatened to be made parties by reason of being directors or
officers, if they acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the corporation (and with
respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful). The power to indemnify in connection with
an action or suit by or in the right of the corporation (a derivative action)
is more limited. Indemnification against expenses actually and reasonably
incurred is required if a director or officer is wholly successful in defense
of an action, suit or proceeding of the type where indemnity is permitted by
the statute. Unless ordered by a court, indemnification under the statute,
other than mandatory indemnification against expenses, may be made only if a
determination that indemnification is proper has been made by a prescribed
vote of the board of directors, special legal counsel in certain cases, by the
stockholders or by the prescribed vote of a committee duly designated by the
board of directors, in certain cases. Indemnification provided for by RSA 293-
A:8.50-8.58 is not exclusive and a corporation is empowered to maintain
insurance on behalf of its directors and officers against any liability
asserted against them in that capacity, whether or not the corporation would
have the power under the RSA to indemnify them.
Article TWELFTH of the Restated Articles provides that the Registrant shall
indemnify any director or officer to the fullest extent permitted by RSA 293-
A:8.50-8.58. The Company maintains insurance on behalf of its directors and
officers against liability asserted against them in that capacity.
II-1
<PAGE>
Under Section of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify the directors and
officers of the Registrant against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). Reference
is made to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant as currently in
effect.
*3.2 Form of Restated Articles of Incorporation of Registrant to be filed
on or immediately subsequent to the date of the closing of the
Offering contemplated by this Registration Statement.
3.3 Bylaws of Registrant, as amended to date.
*3.4 Form of Bylaws of Registrant to be effective on or immediately
subsequent to the date of the closing of the Offering contemplated
by this Registration Statement.
*4.1 Form of Registrant's Stock Certificate.
*5.1 Opinion of Hale and Dorr LLP
10.1 1993 Incentive and Non-statutory Stock Option Plan, as amended.
*10.2 1997 Stock Incentive Plan.
10.3 Lease between the Registrant and Miller-Valentine Partners, dated
September 24, 1990, as amended, for property located at 2870 Old
State Route 73, Wilmington, Ohio.
10.4 Lease between the Registrant and Lower Bellbrook Company, dated
September 26, 1997, for property located at 643-651 Lower Bellbrook
Avenue, Xenia, Ohio.
10.5 Lease between the Registrant and Gallup & Hall partnership, dated
May 1, 1997, for property located at 442 Marlboro Street, Keene, New
Hampshire.
10.6 Lease between the Registrant and Gallup & Hall partnership, dated
June 1, 1987, as amended, for property located in Marlow, New
Hampshire.
10.7 Lease between the Registrant and Gallup & Hall partnership, dated
July 22, 1988, for property located at 450 Marlboro Street, Keene,
New Hampshire.
10.8 Lease between the Registrant and Dataproducts Corporation, dated
June 22, 1993, as amended, for property located at 582 Route 13
South, Milford, New Hampshire.
10.9 Lease between the Registrant and Century Park, LLC, dated October 1,
1997 for property located at Route 111, Hudson, New Hampshire.
*10.10 Lease between the Registrant and G&H Post, LLC, dated November 21,
1997 for property located at Route 101A, Merrimack, New Hampshire.
10.11 Sublease between the Registrant and ABX Air Inc., dated June 7,
1995, for property located at 2870 Old State Route 73, Wilmington,
Ohio.
10.12 Employment Agreement between the Registrant and Wayne L. Wilson,
dated August 16, 1995.
10.13 Employment Agreement between the Registrant and Robert F. Wilkins,
dated December 23, 1995.
10.14 Letter Agreement between the Registrant and R. Wayne Roland, dated
March 4, 1997.
+10.15 Letter Agreement between the Registrant and Airborne Freight
Corporation D/B/A "Airborne Express", dated April 30, 1990, as
amended.
II-2
<PAGE>
+10.16 Agreement between the Registrant and Ingram Micro, Inc., dated
October 30, 1997, as amended.
*10.17 State Street Bank and Trust Company Revolving Line of Credit and
Term Loan, dated March 31, 1997, as amended.
*11.1 Statement regarding weighted average share computation.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule
- ---------------------
* To be filed by amendment.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
Not applicable.
Schedules not listed have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 17. 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 provisions contained in the Restated Articles of
Incorporation or the RSA 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 issue.
The Registrant undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, PC Connection, Inc., a corporation organized and existing under
the laws of the State of New Hampshire, has duly caused this Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milford, State of New Hampshire, on this 26th
day of November, 1997.
PC Connection, Inc.
/s/ Patricia Gallup
By __________________________________
Patricia Gallup
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Patricia Gallup, Wayne L. Wilson and
Paul P. Brountas, and each of them, their true and lawful attorneys and
agents, with full power of substitution, each with power to act alone, to sign
and execute on behalf of the undersigned any amendment or amendments to this
Registration Statement on Form S-1 and to perform any acts necessary in order
to file such amendments, and each of the undersigned does hereby ratify and
confirm all that said attorneys and agents, or their or his or her
substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Patricia Gallup Chairman of the Board, November 26,
_________________________________ President and Chief 1997
Patricia Gallup Executive Officer
(principal executive
officer)
/s/ Wayne L. Wilson Senior Vice President, November 26,
_________________________________ Chief Operating Officer 1997
Wayne L. Wilson and Chief Financial
Officer (principal
financial and accounting
officer)
/s/ David Hall Vice Chairman of the Board November 26,
_________________________________ 1997
David Hall
/s/ David Beffa-Negrini Director November 26,
_________________________________ 1997
David Beffa-Negrini
/s/ Martin C. Murrer Director November 26,
_________________________________ 1997
Martin C. Murrer
/s/ Peter J. Baxter Director November 26,
_________________________________ 1997
Peter J. Baxter
II-4
<PAGE>
EXHIBIT INDEX
EXHIBITS PAGE
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant as currently in
effect.
*3.2 Form of Restated Articles of Incorporation of Registrant to be
filed on or immediately subsequent to the date of the closing of
the Offering contemplated by this Registration Statement.
3.3 Bylaws of Registrant, as amended to date.
*3.4 Form of Bylaws of Registrant to be effective on or immediately
subsequent to the date of the closing of the Offering contemplated
by this Registration Statement.
*4.1 Form of Registrant's Stock Certificate.
*5.1 Opinion of Hale and Dorr LLP
10.1 1993 Incentive and Non-statutory Stock Option Plan, as amended.
*10.2 1997 Stock Incentive Plan.
10.3 Lease between the Registrant and Miller-Valentine Partners, dated
September 24, 1990, as amended, for property located at 2870 Old
State Route 73, Wilmington, Ohio.
10.4 Lease between the Registrant and Lower Bellbrook Company, dated
September 26, 1997, for property located at 643-651 Lower Bellbrook
Avenue, Xenia, Ohio.
10.5 Lease between the Registrant and Gallup & Hall partnership, dated
May 1, 1997, for property located at 442 Marlboro Street, Keene,
New Hampshire.
10.6 Lease between the Registrant and Gallup & Hall partnership, dated
June 1, 1987, as amended, for property located in Marlow, New
Hampshire.
10.7 Lease between the Registrant and Gallup & Hall partnership, dated
July 22, 1988, for property located at 450 Marlboro Street, Keene,
New Hampshire.
10.8 Lease between the Registrant and Dataproducts Corporation, dated
June 22, 1993, as amended, for property located at 582 Route 13
South, Milford, New Hampshire.
10.9 Lease between the Registrant and Century Park, LLC, dated October
1, 1997 for property located at Route 111, Hudson, New Hampshire.
*10.10 Lease between the Registrant and G&H Post, LLC, dated November 21,
1997 for property located at Route 101A, Merrimack, New Hampshire.
10.11 Sublease between the Registrant and ABX Air Inc., dated June 7,
1995, for property located at 2870 Old State Route 73, Wilmington,
Ohio.
10.12 Employment Agreement between the Registrant and Wayne L. Wilson,
dated August 16, 1995.
10.13 Employment Agreement between the Registrant and Robert F. Wilkins,
dated December 23, 1995.
10.14 Letter Agreement between the Registrant and R. Wayne Roland, dated
March 4, 1997.
+10.15 Letter Agreement between the Registrant and Airborne Freight
Corporation D/B/A "Airborne Express", dated April 30, 1990, as
amended.
+10.16 Agreement between the Registrant and Ingram Micro, Inc., dated
October 30, 1997, as amended.
*10.17 State Street Bank and Trust Company Revolving Line of Credit and
Term Loan, dated March 31, 1997, as amended.
*11.1 Statement regarding weighted average share computation.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule
- ---------------------
* To be filed by amendment.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 3.1
STATE OF NEW HAMPSHIRE
Filing fee: $35.00 Form No. 16-A
Use black print or type. RSA 293-A:10.07
Leave 1" margins both sides.
RESTATED
ARTICLES OF INCORPORATION
INCLUDING DESIGNATED AMENDMENT(S)
PURSUANT TO THE PROVISIONS OF THE NEW HAMPSHIRE BUSINESS CORPORATION ACT, THE
UNDERSIGNED CORPORATION, PURSUANT TO A RESOLUTION DULY ADOPTED BY ITS BOARD OF
DIRECTORS, HEREBY ADOPTS THE FOLLOWING RESTATED ARTICLES OF INCORPORATION,
INCLUDING DESIGNATED AMENDMENT(S):
(Here insert the Restated Articles of Incorporation, as amended including the
Designated Amendments.)
FIRST: The name of the corporation is PC Connection, Inc.
SECOND: The period of its duration is perpetual.
THIRD: The principal purposes for which the corporation is organized are
the manufacture, purchase, sale, and service of computer hardware and software
and all other business not forbidden by law.
FOURTH: The total number of shares of all classes of capital stock that the
corporation shall have the authority to issue shall be 10 million (10,000,000)
shares of common stock, consisting of 7.5 million (7,500,000) shares of Series A
Non-Voting Common Stock, par value $.01 per share (the "Series A Stock") and 2.5
million (2,500,000) shares of Series B Voting Common Stock, par value $.01 per
share (the "Series B Stock"), amounting to an aggregate par value of $100,000.
The powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class shall be identical with the
exception of the following:
(a) Holders of Series A Stock shall not be entitled to vote on any matter
presented for shareholder vote except as required by the New Hampshire Business
Corporation Act.
(b) Holders of Series B Stock shall have one vote per share of Series B
Stock held by them.
page 1 of 5
<PAGE>
RESTATED ARTICLES OF INCORPORATION Form No. 16-A
INCLUDING DESIGNATED AMENDMENT(S) (Cont.)
OF PC CONNECTION, INC.
FIFTH: The capital stock will be sold or offered for sale within the
meaning of New Hampshire RSA 421-B.
SIXTH: There is no limitation or denial of preemptive rights.
SEVENTH: Provision for the regulation of the internal affairs of the
corporation are: Bylaws adopted by the Board of Directors pursuant to RSA
293-A:2.06.
EIGHTH: The address of the initial registered office of the corporation is
P.O. Box 666, 50 Washington Street, Keene, New Hampshire, and the name of its
initial registered agent at such address is Rand S. Burnett.
NINTH: The number of directors constituting the initial board of directors
of the corporation is two and the names and addresses of the persons who are to
serve as directors until the first annual meeting of shareholders or until their
successors are elected and shall qualify are:
Name Address
- ---- -------
David M. Hall Route 10, Gilsum, NH 03448
Patricia Gallup Route 10, Gilsum, NH 03448
TENTH: The name and address of each incorporator is:
Name Address
- ---- -------
David M. Hall Route 10, Gilsum, NH 03448
Patricia Gallup Route 10, Gilsum, NH 03448
ELEVENTH: To the maximum extent permitted by law, the directors and
officers of the corporation shall not be held personally liable to the
corporation or its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director or an officer, except with respect
to (a) the amount of a financial benefit received by the director or officer to
which he is not entitled, (b) an intentional infliction of harm on the
corporation or the shareholders, (c) a violation of RSA 293-A:8.33, or (d) an
intentional violation of criminal law.
RESTATED ARTICLES OF INCORPORATION Form No. 16-A
page 2 of 5
<PAGE>
INCLUDING DESIGNATED AMENDMENT(S) (Cont.)
OF PC CONNECTION, INC.
TWELFTH: The following matters shall require an affirmative vote of
two-thirds of the shares of Series B Stock then issued and outstanding, in
addition to whatever action must be taken by the directors of the corporation
under relevant provisions of the New Hampshire Business Corporation Act:
(a) dissolution, liquidation or winding up of the corporation;
(b) authorization or issuance of stock, options or other securities,
including without limitation, options or securities exercisable or convertible
into capital stock;
(c) amendment of the Articles of Incorporation or Bylaws;
(d) declarations of dividends and redemptions of capital stock, except as
provided in relevant provisions of a certain Shareholders Agreement dated March
28, 1995;
(e) sale or other disposition of the assets of the corporation other than
in the regular course of business; and
(f) merger into or share exchange with another corporation.
If the amendment(s) provides for an exchange, reclassification, or cancellation
of issued shares, the provisions for implementing the amendment if not contained
in the amendment(s) are:
Immediately upon the effectiveness of Article FOURTH (the "Article") each
share of common stock, no par value per share, of the corporation issued and
outstanding before the effectiveness of the Article automatically will be
reclassified as and changed into one share of Series A Stock par value $.01 per
share, of the corporation. Simultaneously with the effectiveness of the Article,
2,250,000 shares of Series A Stock, par value $.01 per share, of the corporation
will be exchanged for an equal number of shares of Series B Stock par value $.01
per share, of the corporation.
Except for the Designated Amendment(s) to Articles(s) (Note 1) THIRD, FOURTH,
--------------
FIFTH, SIXTH, SEVENTH and TWELFTH, the Restated Articles of Incorporation
- ----------------------------------
correctly set forth without change the corresponding provisions of the Articles
of Incorporation as previously amended, and the Restated Articles of
Incorporation together with the Amendment(s) designated herein supersede the
original Articles of Incorporation and all amendments to the Articles.
page 3 of 5
<PAGE>
RESTATED ARTICLES OF INCORPORATION Form No. 16-A
INCLUDING DESIGNATED AMENDMENT(S) (Cont.)
OF PC CONNECTION, INC.
FIRST: (Check one)
______ The restated articles contain amendment(s) adopted by the board
of directors and did not require shareholder approval.
X The restated articles contain amendment(s) which require
------
shareholder approval.
SECOND: The amendment(s) were adopted on (date) 3/28/95
---------------
THIRD: The amendment(s) were approved by the shareholders. (Note 2)
<TABLE>
<CAPTION>
Number of votes
Designation Number of indisputably
(class or series) Number of votes entitled represented at
of voting group shares outstanding to be cast the meeting
--------------- ------------------ ---------- -----------
<S> <C> <C> <C>
Common Stock 9,000,000 9,000,000 9,000,000
<CAPTION>
<S> <C> <C> <C>
Designation Total number of un-
(class or series) Total number of votes cast: OR disputed
--
of voting group FOR AGAINST votes cast FOR
--------------- --- ------- --------------
Common Stock 9,000,000
</TABLE>
FOURTH: The number cast for the amendment(s) by each voting group was
sufficient for approval.
Dated 3/28/95 , 1995
--------------
PC Connection, Inc. (Note 3)
------------------------------
By: /s/ Patricia Gallup (Note 4)
---------------------------
Signature of its CEO
Patricia Gallup
------------------------------
Print or type name
page 4 of 5
<PAGE>
RESTATED ARTICLES OF INCORPORATION FORM No.16-A
INCLUDING DESIGNATED AMENDMENT(S) (Cont.)
OF PC CONNECTION, INC.
Notes: 1. Here insert Restated Article NUMBERS(S) which are being
----------
amended at this time.
2. All sections under "THIRD" must be completed. If any voting
group is entitled to vote separately, give respective
----------
information for each voting group, (See RSA 293-A: 1.40 for
definition of voting group.)
3. Exact corporate name of corporation adopting the restated
articles of incorporation.
4. Signature and title of person signing for the corporation.
Must be signed by the chairman of the board of directors,
president or another officer; or see RSA 293-A: 1.20(f) for
alternative signatures.
Mail fee and ORIGINAL and ONE EXACT OR CONFORMED COPY to: Secretary of State,
----------------------------------------
State House, Room 204, 107 North Main Street, Concord, NH 03301-4989
Page 5 of 5
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
PC CONNECTION, INC.
ARTICLE I.
SHAREHOLDERS' MEETINGS
TIME AND PLACE: Meetings of shareholders may be held at a place within or
without the State of New Hampshire as determined by the Board of Directors and
stated in the notice of the meeting. Unless otherwise determined by the Board
of Directors and stated in the notice of the meeting, meetings shall be held at
the registered office of the corporation.
An annual meeting of the shareholders shall be held on the first Monday of
March.
Special meetings of the shareholders may be called by the Board of
Directors, the holders of not less than 1/10 of all of the shares entitled to
vote at the meeting, the President, or the Secretary. No business shall be in
order at a special meeting except as shall have been indicated in the notice of
such meeting.
In the event that the annual meeting, by mistake or otherwise, shall not be
called and held as herein provided, the President or the Board of Directors may
order a special meeting to be called and held in lieu of and for the purposes of
the annual meeting. Any election or business transacted at such substitute
annual meeting shall be as valid and effectual as if done at a meeting called as
an annual meeting and duly held on the prescribed date.
<PAGE>
-2-
NOTICES: Written notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than 10 nor more than 50 days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at the meeting. If mailed, the notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage prepaid.
WAIVER OF NOTICE: Whenever any notice is required to be given to any
shareholder or Director, a waiver of the notice in writing signed by the person
or persons entitled to the notice, whether before or after the time stated in
the notice, shall be equivalent to giving the notice.
QUORUM: A majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders, but in no
event shall a quorum consist of less than 1/3 of the shares entitled to vote at
the meeting. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law.
PROXIES: A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. No proxy
shall
<PAGE>
-3-
be valid after 11 months from the date of its execution, unless otherwise
provided in the proxy.
VOTING: Each outstanding share, regardless of class, shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders, unless
otherwise provided in the articles of incorporation. The term "vote" shall
include, without limitation, votes, waivers, releases, consents, writings signed
by shareholders in lieu of taking action at a meeting of shareholders, and
objections or dissents to such action.
ACTION BY SHAREHOLDERS WITHOUT A MEETING: Any action to be taken at a
meeting of shareholders may be taken without a meeting if a consent in writing,
which may be contained in a single document or may be contained in more than one
document so long as the documents in the aggregate contain the required
signatures, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter. The consent
shall have the same effect as a unanimous vote of shareholders, and may be
stated as such in any articles or document filed with the Secretary of State.
ARTICLE II.
DIRECTORS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of the
<PAGE>
-4-
Board of Directors. Directors need not be residents of the State of New
Hampshire nor shareholders of the corporation.
The Board of Directors shall have authority to fix the compensation of all
officers and Directors of the corporation.
NUMBER AND ELECTION OF DIRECTORS: Initially the Board of Directors shall
consist of the number fixed by the articles of incorporation, but the number of
Directors may be increased or decreased from time to time by vote of the
shareholders. The first Board of Directors shall be elected by the
incorporator(s) and the names and addresses of the members of the Board of
Directors stated in the articles of incorporation. At the first annual meeting
of shareholders and at each annual meeting thereafter, the shareholders shall
elect Directors to hold office until the next succeeding annual meeting. Each
Director shall hold office for the term for which he is elected and until his
successor shall have been elected and qualified.
At each election for Directors, every shareholder entitled to vote at the
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are Directors to be elected and
for whose election he has a right to vote, or to cumulate his votes by giving
one candidate as many votes as the number of the Directors multiplied by the
number of his shares shall equal, or by distributing his votes on the same
principle among any number of candidates.
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the
<PAGE>
-5-
Board of Directors. A Director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office.
REMOVAL: At a meeting of shareholders called expressly for that purpose,
Directors may be removed as provided in RSA 293-A:39. Any Director or the
entire Board of Directors may be removed, with or without cause, by a vote of
the holders of a majority of the shares then entitled to vote at an election of
Directors.
ARTICLE III.
DIRECTORS' MEETINGS
Meetings of the Board of Directors, regular or special, may be held either
within or without the State of New Hampshire.
The Board of Directors may establish a time and place for regular meetings
which may be held without notice. Special meetings of the Board of Directors
may be held at anytime and place upon 24 hours' written notice given by any
Director or the President or the Secretary. Attendance of a Director at a
meeting shall constitute a waiver of notice of the meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting has not been lawfully called or
convened. The purpose of any regular or special meeting of the Board of
Directors need not be specified in the notice of the meeting.
A Director who is present at a meeting of the Board of Directors shall be
presumed to have assented to any action taken unless his dissent is entered in
the minutes of the meeting, or he files his written dissent to the action with
the Secretary
<PAGE>
-6-
of the meeting before the adjournment of the meeting, or forwards his dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting.
QUORUM OF DIRECTORS: A majority of the number of Directors shall constitute
a quorum for the transaction of business. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
ACTION WITHOUT A MEETING: Any action required by law to be taken at a
meeting of the Directors may be taken without a meeting if a consent in writing
shall be signed by all of the Directors. Such consent shall have the same
effect as a unanimous vote.
ARTICLE IV.
OFFICERS
The officers of the corporation shall consist of a President, a Secretary
who shall be the resident agent, and a Treasurer, each of whom shall be elected
by majority vote of the Board of Directors at the organizational meeting of the
Directors. The Board of Directors may elect or appoint such other officers and
assistant officers and agents as the Directors see fit. Any two or more offices
may be held by the same person.
<PAGE>
-7-
Officers and Directors shall not be elected for any definite term but shall
serve at the pleasure of the Board of Directors, subject to be removed at any
time without cause.
All officers and agents of the corporation shall have the authority and
perform the duties in the management of the corporation as prescribed in these
by-laws, and such additional duties as may be determined by resolution of the
Board of Directors not inconsistent with these by-laws.
REMOVAL OF OFFICERS: Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served by such action. Removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights in any officer or agent.
ARTICLE V.
PRESIDENT
The President, when present, shall preside at all meetings of the
shareholders and of the Directors. He shall exercise general supervision of the
corporation's affairs, and perform all the duties of his office prescribed by
law or by vote of the Directors.
ARTICLE VI.
VICE PRESIDENT
<PAGE>
-8-
The Vice President, if any, shall have and exercise the rights and powers,
and shall perform the duties usually incident to the office of Vice President
and in the absence or disability of the President, shall have and exercise the
rights and powers and perform the duties usually incident to the office of
President.
ARTICLE VII.
TREASURER
The Treasurer shall give a bond for the faithful discharge of his duties if
and when required by the Directors. He shall deposit all funds of the company
in such depositaries as may be selected by the Board of Directors, pay all its
bills and collect all moneys due to the company. He shall keep or cause to be
kept full and accurate books of account containing a record of all purchases and
sales, of all money received and paid out for the corporation, which books and
accounts shall be constantly open to the inspection of each officer and Director
of the corporation, and shall render to the Board of Directors at least once in
each year a trial balance showing the assets and liabilities of the corporation;
and in general shall perform all the duties incident to the office of a
Treasurer of a corporation, and such other duties as may be assigned to him by
the Board of Directors.
ARTICLE VIII.
ASSISTANT TREASURER
The Assistant Treasurer, if any, shall at all times assist the Treasurer in
the performance of his duties, and shall perform such duties of the Treasurer as
shall be
<PAGE>
-9-
assigned to him from time to time by the Treasurer. In the absence or
inability of the Treasurer to act, the Assistant Treasurer shall perform all of
the duties and may exercise any of the powers of the Treasurer, subject to the
control of the Board of Directors.
ARTICLE IX.
SECRETARY
The Secretary shall be a resident of the State of New Hampshire. He shall
have charge of the corporate seal of the corporation, shall attend all meetings
of the shareholders and Directors and shall keep full, and true and accurate
records of all business transacted at such meetings, and shall discharge all
other duties properly appertaining to his office and which may be attached
thereto by the Board of Directors. He shall have the custody of the record
books of the corporation. He shall give notice of meetings of the shareholders
and Board of Directors in the manner prescribed by these by-laws. The Secretary
shall be duly sworn to the faithful and impartial discharge of his duties. In
the absence, incapacity or inability of the Secretary, the Board of Directors
may appoint a Secretary, pro tem. to act with the same powers, duties and
--- ----
authority.
ARTICLE X.
CERTIFICATES OF STOCK
The shares of the corporation shall be represented by certificates, the
design of which shall be chosen by the Board of Directors. Certificates shall
be signed by the
<PAGE>
-10-
President and the Secretary and shall be sealed with the seal of the corporation
or a facsimile of the seal. The signatures of the President or Secretary upon a
certificate may be a facsimile. In case any officer whose facsimile signature
has been placed upon certificates of the corporation shall have ceased to be an
officer before the certificate is issued, the certificate may be issued by the
corporation with the same effect as if he were the officer at the date of its
issue.
Each certificate representing shares in this corporation shall state upon
its face (a) that the corporation is organized under the laws of the State of
New Hampshire; (b) the name of the person or persons to whom the certificate is
issued; (c) the number and class of shares, and the designation of the series,
if any, which the certificate represents; and restrictions, if any, affecting
the transfer of the certificate.
Certificates may be transferred by assignment thereof in writing,
accompanied by delivery of the certificate; but no such transfer of shares in
the corporation shall affect the right of the corporation to pay any dividend
thereon until the transfer has been recorded upon the books of the corporation
or a new certificate has been issued to the person to whom the shares have been
transferred. The Secretary of the corporation shall act as transfer agent.
In case of the loss of a certificate, a duplicate certificate may be issued
to the holder of record on such reasonable terms as the Board of Directors may
prescribe.
ARTICLE XI.
AMENDMENT
<PAGE>
-11-
The power to alter, amend or repeal these by-laws or to adopt new by-laws,
is vested in the Board of Directors; subject, however, to repeal or change by
action of a majority of the shareholders at any annual meeting without previous
notice or at any special meeting provided the notice of the special meeting
states the substance of the proposed amendment.
<PAGE>
EXHIBIT 10.1
PC CONNECTION, INC.
1993 Incentive and Non-Statutory Stock Option Plan
--------------------------------------------------
SECTION 1. PURPOSE
This 1993 Incentive and Non-Statutory Stock Option Plan (the "Plan") is
intended as a performance incentive for officers and employees of PC Connection,
Inc., a New Hampshire corporation (the "Company"), or its Subsidiaries, (as
hereinafter defined) and for certain other individuals providing services to or
acting as directors of the Company or its Subsidiaries, to enable the persons to
whom options are granted (an "Optionee" or "Optionees") to acquire or increase a
proprietary interest in the Company and its success. The Company intends that
this purpose will be effected by the granting of incentive stock options
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and other stock options ("Non-Statutory Options")
under the Plan. The term "Subsidiaries" means any corporations in which stock
possessing 50% or more of the total combined voting power of all classes of
stock of such corporation or corporations is owned directly or indirectly by the
Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 Options to be Granted. Options granted under the Plan may be either
----------------------
Incentive Options or Non-Statutory Options.
2.2 Administration by the Board. This Plan shall be administered by the
----------------------------
Board of Directors of the Company (the "Board"). The Board shall have full and
final authority to operate, manage and administer the Plan on behalf of the
Company. This authority includes but is not limited to: (i) the power to grant
options conditionally or unconditionally; (ii) the power to prescribe the form
or forms of the instruments evidencing options granted under this Plan; (iii)
the power to interpret the Plan; (iv) the power to provide regulations for the
operation of the incentive features of the Plan, and otherwise to prescribe
regulations for interpretation, management and administration of the Plan; (v)
the power to delegate responsibility for Plan operation, management and
administration on such terms, consistent with the Plan, as the Board may
establish; (vi) the power to delegate to other persons the responsibility for
performing ministerial acts in furtherance of the Plans purpose; (vii) the power
to make, in its sole discretion, changes to any outstanding option granted under
the Plan, including the power to reduce the exercise price, to accelerate the
vesting schedule, or to extend the expiration date; and (viii) the power to
engage the services of persons or organizations in furtherance of the Plan's
purpose, including but not limited to banks, insurance companies, brokerage
firms and consultants.
<PAGE>
In addition, as to each option, the Board shall have full and final
authority in its sole discretion: (i) to determine the number of shares subject
to each option; (ii) to determine the time or times at which options will be
granted; (iii) to determine the option price for the shares subject to each
option, which price shall be subject to the applicable requirements, if any, of
Section 5.1(c) hereof; (iv) to determine the time or times when each option
shall become exercisable and the duration of the exercise period, which shall
not exceed the limitations specified in Section 5.1(a).
2.3 Appointment and Proceedings of Committee. The Board may appoint a
-----------------------------------------
Stock Option Committee (the "Committee") which shall consist of at least two
members of the Board. The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed,
and may fill vacancies, however caused, in the Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members shall
constitute a quorum, and all actions of the Committee shall require the
affirmative vote of a majority of its members. Any action may be taken by a
written instrument signed by all of the members, and any action so taken shall
be as fully effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held.
2.4 Powers of Committee. Subject to the provisions of this Plan and the
--------------------
approval of the Board, the Committee shall have the power to make
recommendations to the Board as to whom options should be granted, the number of
shares to be covered by each option, the time or times of option grants, and the
terms and conditions of each option. In addition, the Committee shall have
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to exercise the administrative and
ministerial powers of the Board with regard to aspects of the Plan other than
the granting of options. The interpretation and construction by the Committee of
any provisions of the Plan or of any option granted hereunder and the exercise
of any power delegated to it hereunder shall be final, unless otherwise
determined by the Board. No member of the Board or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted hereunder.
SECTION 3. STOCK
3.1 Shares Subject to Plan. The stock subject to the options granted
-----------------------
under the Plan shall be shares of the Company's authorized but unissued common
stock, no par value ("Common Stock"). The total number of shares that may be
issued pursuant to options granted under the Plan shall not exceed an aggregate
of 400,000 shares of Common Stock. Such number of shares shall be subject to
adjustment as provided in Section 7 hereof.
-2-
<PAGE>
3.2 Lapsed or Unexercised Options. Whenever any outstanding option under
------------------------------
the Plan expires, is canceled or is otherwise terminated (other than by
exercise), the shares of Common Stock allocable to the unexercised portion of
such option shall be restored to the Plan and shall again become available for
the grant of other options under the Plan.
SECTION 4. ELIGIBILITY
4.1 Eligible Optionees. Incentive Options may be granted only to officers
-------------------
and other employees of the Company or its Subsidiaries, including members of the
Board who are also employees of the Company or a Subsidiary. Non-Statutory
Options may be granted to officers or other employees of the Company or its
Subsidiaries, to members of the Board or the board of directors of any
Subsidiary whether or not employees of the Company or such Subsidiary, and to
certain other individuals providing services to the Company or its Subsidiaries.
4.2 Limitations on 10% Stockholders. No Incentive Option shall be granted
--------------------------------
to an individual who, at the time the Incentive Option is granted, owns
(including ownership attributed pursuant to Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or Subsidiary of the Company (a "greater-than-10%
stockholder"), unless such Incentive Option provides that (i) the purchase price
per share shall not be less than 110% of the fair market value of the Common
Stock at the time such Incentive Option is granted, and (ii) that such Incentive
Option shall not be exercisable to any extent after the expiration of five years
from the date on which it is granted.
4.3 Limitation on Exercisable Options. The aggregate fair market value
----------------------------------
(determined at the time the Incentive Option is granted) of the Common Stock
with respect to which Incentive Options are exercisable for the first time by
any person during any calendar year under the Plan and under any other option
plan of the Company (or a parent or subsidiary as defined in Section 424 of the
Code) shall not exceed $100,000. Any option granted in excess of the foregoing
limitation shall be specifically designated as being a Non-Statutory Option.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
5.1 Mandatory Terms. Each option agreement shall contain such provisions
----------------
as the Board or the Committee shall from time to time deem appropriate. Option
agreements need not be identical, but each option agreement by appropriate
language shall include the substance of all of the following provisions:
(a) Expiration. Notwithstanding any other provision of the Plan or of
-----------
any option agreement, each option shall expire on the date specified in the
option agreement, which date shall not be later than the tenth anniversary of
the date on
-3-
<PAGE>
which the option was granted (fifth anniversary in the case of an Incentive
Option granted to a greater-than-10% stockholder).
(b) Exercise. Each option shall be exercisable in full or in installments
---------
(which need not be equal) and at such times as designated by the Board or the
Committee. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(c) Purchase Price. The purchase price per share of the Common Stock
---------------
under each Incentive Option shall be not less than the fair market value of the
Common Stock on the date the option is granted (110% of the fair market value in
the case of a greater-than-10% stockholder). For the purpose of the Plan the
fair market value of the Common Stock shall be determined by the Board or the
Committee. The price at which shares may be purchased pursuant to Non-Statutory
Options shall be specified by the Board or the Committee at the time the option
is granted, and may be less than, equal to or greater than the fair market value
of the shares of Common Stock on the date such Non-Statutory Option is granted,
but shall not be less than the par value of shares of Common Stock.
(d) Transferability of Options. Options granted under the Plan and the
---------------------------
rights and privileges conferred thereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon any attempt so
to transfer, assign, pledge, hypothecate or otherwise dispose of any option
under the Plan or any right or privilege conferred hereby, contrary to the
provisions of the Plan, or upon the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby, such option shall
thereupon terminate and become null and void.
(e) Termination of Employment or Death of Optionee. Except as may be
-----------------------------------------------
otherwise expressly provided in the terms and conditions of the option granted
to an Optionee, options granted hereunder shall terminate on the earliest to
occur of:
(i) the date of expiration thereof;
(ii) if the Optionee is employed by the Company and such employment is
terminated by the Optionee for any reason or is terminated by the Company for
cause as hereinafter defined, on the date of such termination; or
(iii) if the Optionee is employed by the Company and such employment is
terminated for any reason other than death or a reason set forth in the
foregoing clause (ii), on the earlier of the date of expiration thereof or 30
days following the date of such termination. Until the date on which the option
so expires,
-4-
<PAGE>
the Optionee may exercise that portion of his option which is exercisable at the
time of termination of such relationship.
An employment relationship between the Company and the Optionee shall be
deemed to exist during any period during which the Optionee is employed by the
Company or by any Subsidiary. Whether authorized leave of absence or absence on
military government service shall constitute termination of the employment
relationship between the Company and the Optionee shall be determined by the
Board or the Committee at the time thereof. For purposes of this Section
5.1(e), the term "cause" shall mean (a) any material breach by the Optionee of
any agreement to which the Optionee and the Company are both parties, (b) any
act (other than retirement) or omission to act by the Optionee which may have a
material and adverse effect on the Company's business or on the Optionee's
ability to perform services for the Company, including, without limitation, the
commission of any crime (other than minor traffic violations), or (c) any
material misconduct or material neglect of duties by the Optionee in connection
with the business or affairs of the Company or any Subsidiary or affiliate of
the Company.
In the event of the death of an Optionee while in an employment or other
relationship with the Company and before the date of expiration of such option,
such option shall terminate on the earlier of such date of expiration or 180
days following the date of such death. After the death of the Optionee, his
executor, administrator or any person or persons to whom his option may be
transferred by will or by laws of descent and distribution, shall have the
right, at any time prior to such termination, to exercise the option to the
extent the Optionee was entitled to exercise such option as of the date of his
death.
(f) Rights of Optionees. No Optionee shall be deemed for any
-------------------
purpose to be the owner of any shares of Common Stock subject to any option
unless and until (i) the option shall have been exercised with respect to such
shares pursuant to the terms thereof, and (ii) the Company shall have issued and
delivered a certificate representing such shares. Thereupon, the Optionee shall
have full voting, dividend and other ownership rights with respect to such
shares of Common Stock.
5.2 Certain Optional Terms. The Board or the Committee may in its
-----------------------
discretion provide, upon the grant of any option hereunder, that the Company
shall have an option to repurchase all or any number of shares purchased upon
exercise of such option. The repurchase price per share payable by the Company
shall be such amount or be determined by such formula as is fixed by the Board
or the Committee at the time the option for the shares subject to repurchase was
granted. The Board or the Committee may also provide that the Company shall have
a right of first refusal with respect to the transfer or proposed transfer of
any shares purchased upon exercise of an option granted hereunder. In the event
the Board or the Committee shall grant options subject to the Company's
repurchase rights or rights of first
-5-
<PAGE>
refusal, the certificate or certificates representing the shares purchased
pursuant to the exercise of such option shall carry a legend satisfactory to
counsel for the Company referring to such rights.
SECTION 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
6.1 Notice of Exercise. Any option granted under the Plan may be
-------------------
exercised by the Optionee by delivering to the Company on any business day a
written notice specifying the number of shares of Common Stock the Optionee then
desires to purchase and specifying the address to which the certificates for
such shares are to be mailed (the "Notice"), accompanied by payment for such
shares.
6.2 Means of Payment and Delivery. Payment for the shares of Common Stock
------------------------------
purchased pursuant to the exercise of an option shall be made either (i) in cash
equal to the option price for the number of shares specified in the Notice (the
"Total Option Price"), or (ii) if authorized by the applicable option agreement,
in shares of Common Stock of the Company having a fair market value equal to or
less than the Total Option Price, plus cash in an amount equal to the excess, if
any, of the Total Option Price over the fair market value of such shares of
Common Stock. For the purpose of the preceding sentence, the fair market value
of the shares of Common Stock so delivered to the Company shall be determined in
the manner specified in Section 5.1(c) hereof. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the Optionee certificates for the number of shares with respect to which such
Option has been so exercised, issued in the Optionee's name; provided, however,
that such delivery shall be deemed effected for all purposes when the Company or
a stock transfer agent of the Company shall have deposited such certificates in
the United States mail, addressed to the Optionee, at the address specified
pursuant to Section 6.1.
SECTION 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 No Effect of Options upon Certain Corporate Transactions. The
---------------------------------------------------------
existence of outstanding options shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of Common Stock, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
7.2 Stock Dividends, Recapitalizations, Etc. If the Company shall effect
----------------------------------------
a subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of the
-6-
<PAGE>
Common Stock outstanding, without receiving compensation therefor in money,
services or property, then: (i) the number, class and per share price of shares
of stock subject to outstanding options hereunder shall be appropriately
adjusted in such a manner as to entitle an Optionee to receive upon exercise of
an option, for the same aggregate cash consideration, the same total number and
class of shares that the owner of an equal number of outstanding shares of
Common Stock would own as a result of the event requiring the adjustment; and
(ii) the number and class of shares with respect to which options may be granted
under the Plan shall be adjusted by substituting for the total number of shares
of Common Stock then reserved for issuance under the Plan that number and class
of shares of stock that the owner of an equal number of outstanding shares of
Common Stock would own as the result of the event requiring the adjustment.
7.3 Determination of Adjustments. Adjustments under this Section 7 shall
-----------------------------
be determined by the Board or the Committee and such determinations shall be
conclusive. The Board or the Committee shall have the discretion and power in
any such event to determine and to make effective provision for acceleration of
the time or times at which any option or portion thereof shall become
exercisable. No fractional shares of Common Stock shall be issued under the Plan
on account of any adjustment specified above.
7.4 No Adjustment in Certain Cases. Except as hereinbefore expressly
-------------------------------
provided, the issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to outstanding options.
SECTION 8. EFFECT OF CERTAIN TRANSACTIONS
If the Company is a party to a reorganization or merger with one or more
other corporations, whether or not the Company is the surviving or resulting
corporation, or if the Company consolidates with or into one or more other
corporations, or if the Company is liquidated or sells or otherwise disposes of
substantially all of its assets to another corporation (each hereinafter
referred to as a "Transaction"), in any such event while unexercised options
remain outstanding under the Plan, then: (i) subject to the provisions of clause
(iii) below, after the effective date of such Transaction unexercised options
shall remain outstanding and shall be exercisable in shares of Common Stock, or,
if applicable, shares of such stock or other securities, cash or property as the
holders of shares of Common Stock received pursuant to the terms of such
Transaction; (ii) the Board may accelerate the time for exercise of all
unexercised and unexpired options to and after a date prior to
-7-
<PAGE>
the effective date of such Transaction; or (iii) all outstanding options may be
cancelled by the Board as of the effective date of such Transaction, provided
that (x) notice of such cancellation shall be given to each holder of an option
and (y) each holder of an option shall have the right to exercise such option to
the extent that the same is then exercisable or, if the Board shall have
accelerated the time for exercise of all unexercised and unexpired options, in
full, during the 30-day period preceding the effective date of such Transaction.
SECTION 9. AMENDMENT OF THE PLAN
The Board may terminate the Plan at any time, and may amend the Plan at any
time and from time to time, subject to the limitation that, except as provided
in Sections 7 and 8 hereof, no amendment shall be effective unless approved by
the stockholders of the Company in accordance with applicable law and
regulations, at an annual or special meeting held within twelve months before or
after the date of adoption of such amendment, in any instance in which such
amendment would: (i) increase the number of shares of Common Stock as to which
options may be granted under the Plan; or (ii) change in substance the
provisions of Section 4 hereof relating to eligibility to participate in the
Plan.
Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before termination or amendment of the Plan shall not be
altered or impaired by such termination or amendment except with the consent of
the Optionee.
SECTION 10. NON-EXCLUSIVITY OF THE PLAN; NON-UNIFORM
DETERMINATIONS
Neither the adoption of the Plan by the Board nor the approval of the Plan
by the stockholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation the granting of stock
options otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
The Board's or Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who receive or are
eligible to receive options under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the Board
or the Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective option
agreements, as to (i) the persons to receive options under the Plan, (ii) the
terms and provisions of options, (iii) the exercise by the Board or the
Committee of its discretion in respect of
-8-
<PAGE>
the exercise of options pursuant to the terms of the Plan, and (iv) the
treatment of leaves of absence pursuant to Section 5.1(e) hereof.
SECTION 11. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW;
WITHHOLDING TAXES
The obligation of the Company to sell and deliver shares of Common Stock
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Board or the
Committee. All shares sold under the Plan shall bear appropriate legends. The
Company may, but shall in no event be obligated to, register or qualify any
shares covered by options under applicable federal and state securities laws;
and in the event that any shares are so registered or qualified the Company may
remove any legend on certificates representing such shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an option or the issuance of shares pursuant thereto to comply with
any law or regulation of any governmental authority. The Plan shall be governed
by and construed in accordance with the laws of the state of New Hampshire.
Whenever under the Plan shares are to be delivered upon exercise of an
option, the Company shall be entitled to require as a condition of delivery that
the Optionee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto.
SECTION 12. "LOCKUP" AGREEMENT
The Board or the Committee may in its discretion specify upon granting an
option that the Optionee shall agree, for a period of time (not to exceed 180
days) from the effective date of any registration of securities of the Company,
upon request of the Company or the underwriter or underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
shares issued pursuant to the exercise of such option, without the prior written
consent of the Company or such underwriter or underwriters, as the case may be.
SECTION 13. EFFECTIVE DATE OF PLAN
The effective date of the Plan is December 20, 1993, the date on which it
was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date. Subject to the foregoing, options may
be granted under the Plan at any time subsequent to December 20, 1993; provided,
however, that (a) no Incentive Option shall be exercised or exercisable unless
the stockholders of the
-9-
<PAGE>
Company shall have approved the Plan no later than one year from such effective
date, and (b) all Incentive Options issued prior to the date of such
stockholders' approval shall contain a reference to such condition.
-10-
<PAGE>
EXHIBIT 10.3
MILLER-VALENTINE PARTNERS
-------------------------
WAREHOUSE/DISTRIBUTION
----------------------
AGREEMENT OF LEASE
------------------
TABLE OF CONTENTS
-----------------
LEASE FOR PC CONNECTION, INC.
------------------
PROPERTY LOCATED AT 2870 Old State Route 73, Wilmington, Ohio 45177
-----------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. TERM........................................................ 1
ARTICLE 2. LEASED PREMISES............................................. 1
ARTICLE 3. POSSESSION.................................................. 1
ARTICLE 4. RENT........................................................ 2
ARTICLE 5. SECURITY DEPOSIT............................................ 3
ARTICLE 6. COMMON AREA................................................. 4
ARTICLE 7. USE OF LEASED PREMISES...................................... 4
ARTICLE 8. REPAIRS..................................................... 5
ARTICLE 9. INSTALLATIONS AND ALTERATIONS............................... 6
ARTICLE 10. INDEMNIFICATION............................................. 6
ARTICLE 11. INSURANCE................................................... 7
ARTICLE 12. DAMAGE BY FIRE OR OTHER CASUALTY............................ 7
ARTICLE 13. EMINENT DOMAIN.............................................. 8
ARTICLE 14. ASSIGNMENT OR SUBLETTING.................................... 9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 15. ACCESS TO LEASED PREMISES................................... 9
ARTICLE 16. ATTORNMENT.................................................. 9
ARTICLE 17. LESSEE'S DEFAULT............................................10
ARTICLE 18. SURRENDER OF LEASED PREMISES................................10
ARTICLE 19. RELOCATION..................................................11
ARTICLE 20. SUBORDINATION...............................................12
ARTICLE 21. NOTICE......................................................12
ARTICLE 22. WAIVER OF SUBROGATION.......................................12
ARTICLE 23. ESTOPPEL CERTIFICATE........................................12
ARTICLE 24. RENT DEMAND.................................................12
ARTICLE 25. NO REPRESENTATION BY LESSOR.................................13
ARTICLE 26. WAIVER OF BREACH............................................13
ARTICLE 27. QUIET ENJOYMENT.............................................13
ARTICLE 28. ENVIRONMENTAL PROVISIONS....................................13
ARTICLE 29. INTERPRETATION..............................................14
ARTICLE 30. FINANCIAL STATEMENTS........................................14
ARTICLE 31. MEMORANDUM OF LEASE.........................................14
ARTICLE 32. OPTION TO RENEW.............................................15
ARTICLE 33. ENTIRE AGREEMENT............................................16
</TABLE>
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<PAGE>
MILLER-VALENTINE PARTNERS
-------------------------
WAREHOUSE/DISTRIBUTION
----------------------
AGREEMENT OF LEASE
------------------
THIS LEASE made this 24th day of September, 1990, by and between MILLER-
VALENTINE PARTNERS, hereinafter referred to as the Lessor, and PC CONNECTION,
INC., hereinafter referred to as the Lessee. The Lessee's business enterprise
is organized as a corporation and is admitted to do business in the State of
Ohio.
W I T N E S S E T H:
--------------------
The Lessor does hereby lease and let to the Lessee and the Lessee accepts
from the Lessor under the terms and conditions of this Lease, the following
described Premises:
38,400 square feet of a building which contains 102,400 square feet more or
less at 2870 Old State Route 73, Wilmington, Ohio 45177
hereinafter referred to as the Leased Premises.
ARTICLE 1. TERM.
----
TO HAVE AND TO HOLD unto the Lessee for a term of three (3) years
commencing on the 1st day of January 1991, and ending on the 31st day of
December 1993, both dates inclusive.
ARTICLE 2. LEASED PREMISES.
---------------
The Leased Premises shall be delivered as per the attached specification,
Exhibit A.
ARTICLE 3. POSSESSION.
----------
If Lessor is unable to give occupancy of the Leased Premises on the above
date because construction has not been completed, the term shall commence on the
first of the month following completion and thereafter for the full term
granted. Lessor shall not be liable for damages because of such delay in
occupancy. Provided, however, if the Lessee's occupancy is delayed by fault of
Lessor more than sixty (60) days after the commencement date, the Lessee may
after thirty (30) days' written notice elect to terminate this Lease if Lessor
is not able to deliver occupancy before such termination date. If the delay in
completion is caused by the Lessee, the term shall commence and rent will start
irrespective of the Leased Premises not being ready for occupancy.
<PAGE>
ARTICLE 4. RENT.
----
Section 1. Lessee shall pay to the Lessor as Basic Annual Rent for
----------
the Leased Premises the sum of ONE HUNDRED THIRTY FOUR THOUSAND FOUR HUNDRED AND
NO/100 DOLLARS ($134,400.00) which shall be paid in equal monthly installments
of ELEVEN THOUSAND TWO HUNDRED AND NO/100 DOLLARS ($11,200.00), due and payable
on the first day of each month, in advance, without demand. Said rent shall be
paid to the Lessor, or to the duly authorized agent of the Lessor, at its office
during business hours. If the commencement date of this Lease is other than the
first day of the month, any rental adjustment or additional rents hereinafter
provided for shall be prorated accordingly. The Lessee will pay the rent as
herein provided, without deduction whatsoever, and without any obligation of the
Lessor to make demand for it. Any installment of rent accruing hereunder and any
other sum payable hereunder, if not paid when due, shall bear interest at the
rate of eighteen percent (18%) per annum until paid. The Basic Annual Rent of
$134,400.00 shall be adjusted annually based on any increases in the Consumer
Price Index beginning one year after the commencement date of this Lease and at
the end of each year thereafter, whether during the term of this Lease or any
renewal or extension thereof. Increases in the Annual Rent shall be made in
accordance with the following procedure:
a. The index to be used for this adjustment shall be the consumer
Price Index (U.S. City Average, All Urban Consumers, All Items, 1982-1984
equaling a base of 100, from the U. S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
b. The Consumer Price Index of 1990 for the month of September shall
be the "Base Period Consumer Price Index." The Consumer Price Index for the
month of September in each adjustment year shall be the "Adjustment Period
Consumer Price Index."
c. The Base Period Consumer Price Index shall be subtracted from the
Adjustment Period Consumer Price Index; the difference shall be divided by the
Base Period Consumer Price Index. This quotient shall then be multiplied by the
Basic Annual Rent, and the result shall then be added to the Basic Annual Rent.
The resulting sum shall be the adjusted Annual Rent for such immediately
succeeding leasehold period which shall be paid in equal monthly installments.
d. If the said Consumer Price Index is, at any time during the term
of this Lease, discontinued by the Government, then the most nearly comparable
index shall be substituted for the purpose of the aforesaid calculations.
Section 2. The Lessee shall reimburse the Lessor for the costs of
----------
water, gas, and electricity or such other utilities and heating and air
conditioning
-2-
<PAGE>
maintenance in the event that such services are furnished by Lessor and not
separately metered to the Lessee. Said reimbursement shall be additional rent
due on the first day of the calendar month next following rendition of a bill
therefor. If any services are separately metered, the cost shall be paid
directly by the Lessee to the utility service. The heating and other utilities,
except water, not separately metered will be prorated on the basis of the square
footage serviced by a given meter and paid to Lessor as billed. The total costs
of water shall be paid by the Lessees currently in occupancy and the costs
thereof shall be prorated on the basis of square footage occupied by each
Lessee. A 10% handling fee for these billable services will be charged by the
Lessor.
Section 3. The Lessee agrees to pay any increased real estate
----------
taxes over and above the real estate taxes paid by the Lessor during the first
year of the term of this Lease. The Lessee's proportionate share of any such
increase shall be a fraction thereof, the numerator of which is the number of
square feet of floor area in the Leased Premises and the denominator of which is
the total square feet of the floor area in the building both as specified
aforesaid in the Lease. Said amount shall be deemed to be additional rent and
shall be due and payable on the first of the month following delivery to Lessee
of a receipt for Lessor's payment of said real estate taxes. The Lessee shall
pay its prorated share of expenses that the Lessor shall incur by reason of
compliance with new laws, orders, special rent/use taxes, ordinances and new
regulations of Federal, State, County and Municipal authorities, and with any
lawful direction of any public officer or officers, which lawful direction shall
be imposed upon the Lessor for the common good of the occupants of the building.
ARTICLE 5. SECURITY DEPOSIT.
----------------
To assure fulfillment of the covenants by Lessee hereinafter set forth,
Lessor hereby acknowledges receipt from the Lessee of ELEVEN THOUSAND TWO
HUNDRED AND NO/100 DOLLARS ($11,200.00) as a security deposit to be held by the
Lessor until such time as this Agreement has terminated, Lessee has vacated the
Leased Premises, and Lessor has inspected the same. THE SECURITY DEPOSIT SHALL
ACCRUE INTEREST FOR THE BENEFIT OF LESSEE. Until such time, Lessor shall have
no obligation to apply the security deposit to any unpaid amount due Lessor from
Lessee. If Lessee has performed and observed all terms, covenants and
conditions of this Agreement, including without limitation, the payment of all
rentals thereunder, as and when same become due, Lessor shall refund said
security deposit to Lessee, less such amounts as may be reasonably chargeable
for any failure by Lessee to restore the Leased Premises to the condition at
time of occupancy, reasonable wear and tear excepted. Lessee's duty to restore
the Leased Premises shall include, but not be limited to, the repair and
painting of the walls, repair of floors, ceilings and woodwork and other parts
of the Leased Premises occasioned by the removal of nails, screws or other
fasteners that are now on the Leased Premises or
-3-
<PAGE>
may be placed there during the term of this Lease. Under no circumstances shall
this security deposit be deducted from the last month's rent.
ARTICLE 6. COMMON AREA.
-----------
For the purpose of this Lease, common area shall be defined as all of the
property described herein that is not actually occupied by the building. The
Lessee shall have the use in common with other Lessees to the parking areas and
driveways for ingress and egress to the Leased Premises. The Lessee shall have
no right to use the common area for storage purposes and trash shall be stored
only in approved containers in the common area. The Lessor shall maintain the
common area and keep the same in good order and repair including lighting and
landscaping. The cost of ice and snow removal will be prorated among the Lessees
in accordance with the percentage that the Leased Premises bears to the entire
building. The pro rata share of such cost will be deemed to be additional rent
and shall be due the first of the month following the invoice thereof by Lessor
to Lessee of the amount due.
ARTICLE 7. USE OF LEASED PREMISES.
----------------------
Section 1. The Leased Premises shall be used and occupied only for
----------
office purposes and/or DISTRIBUTION AND storage of COMPUTER SOFTWARE AND
COMPONENTS WHICH ARE materials of light or ordinary hazard, and for no other
purpose or purposes without the written consent of the Lessor.
Section 2. The Lessee shall operate its business in a safe and
----------
proper manner as is normal, considering the uses of the Leased Premises above
provided; and shall not manufacture, store, display or maintain any products or
materials that will endanger the Leased Premises; shall NOT USE, SELL, STORE OR
MANUFACTURE HAZARDOUS MATERIALS, PROVIDED THAT THIS PROVISION SHALL NOT PREVENT
LESSEE FROM USING ORDINARY CLEANING AGENTS IN THE COURSE OF REGULAR MAINTENANCE
OF ITS FACILITY; shall not obstruct the sidewalks; shall not use the plumbing
for any other purpose than for which it was constructed; shall not make or
permit any noise and/or odor objectionable to the public or adjacent occupants;
shall not create a nuisance on the Leased Premises; and shall commit no waste.
Section 3. The Lessee shall abide by all police and fire
----------
regulations concerning the operation of its business; shall store all trash,
rubbish, and debris in closed containers; and shall practice all proper
procedures and methods that are common to its business enterprise. The Lessee
shall maintain a minimum temperature in the Leased Premises of 55 degrees F.
-4-
<PAGE>
ARTICLE 8. REPAIRS.
-------
Section 1. Lessor shall keep the foundations, exterior walls
----------
(except plate glass or glass or other breakable materials used in structural
portions) and roof in good repair.
Section 2. Lessor shall contract for the maintenance of the
----------
mechanical equipment and the Lessee will reimburse its pro rata share thereof.
The Lessee shall replace any hot water heater as the need should arise with the
same type and quality servicing the Leased Premises PROVIDED THE HOT WATER
HEATER HAS BEEN PROPERLY SERVICED. The Lessor shall replace, as needed, the
heating and air conditioning equipment, provided the unit has been serviced
annually AND PROPERLY. The cost of replacement shall be prorated over the
warranty period for such equipment, and further prorated among the Lessee
benefiting from such equipment; the result of such proration to be an annual
share of cost to Lessee, and the Lessee will pay one-twelfth thereof for each
month during the remaining term and renewals of this Lease.
Section 3. Lessor shall not be liable for any damage TO THE
----------
PREMISES CAUSED BY THE NEGLIGENCE OF LESSEE OR DAMAGE CAUSED BY THE FAILURE OF
LESSEE TO NOTIFY LESSOR OF THE NEED FOR REPAIRS IF LESSEE HAD ACTUAL KNOWLEDGE
OF SUCH NEED FOR REPAIR. The Lessee shall reimburse the Lessor the cost of all
repairs to the Leased Premises, fixtures and appurtenances necessitated by the
fault of the Lessee, its agents, employees or guests and shall reimburse the
Lessor for the cost of repair, at or before the end of the term or sooner if so
requested by Lessor, all injury done by the installation or removal of furniture
or other property.
Section 4. Except as provided in Sections 1, 2, and 3 of this
----------
Article, Lessor shall not be obligated to make repairs, replacements or
improvements of any kind upon said Leased Premises, or any equipment facilities
or fixtures therein contained, which shall at all times be kept in good order,
conditions and repair by Lessee, and in a clean, sanitary and safe condition and
in accordance with all applicable laws, ordinances and regulations of any
governmental authority having jurisdiction. Lessee shall permit no waste,
damage, or injury to the Leased Premises.
Section 5. Lessee shall forthwith at its own cost and expense
----------
replace with glass of the same kind and quality any cracked or broken glass,
including plate glass or glass or other breakable materials used in structural
portions, and any interior and exterior windows and doors in the Leased
Premises.
-5-
<PAGE>
ARTICLE 9. INSTALLATIONS AND ALTERATIONS.
-----------------------------
Section 1. Lessee shall not make any alterations or additions to
----------
the Leased Premises without first procuring Lessor's written consent WHICH WILL
NOT BE UNREASONABLY WITHHELD and delivering to Lessor the plans and
specifications and copies of the proposed contracts and necessary permits, and
shall furnish indemnification against liens, costs, damages and expenses as may
be reasonably required by Lessor. LESSEE SHALL HAVE THE OPTION OF REMOVING ANY
OF THE ALTERATIONS, ADDITIONS, IMPROVEMENTS AND FIXTURES AT THE END OF THE LEASE
PERIOD UNLESS REMOVAL WILL CAUSE DAMAGE TO THE PREMISES; ALL REMOVAL SHALL TAKE
PLACE BY THE END OF THE LEASE PERIOD. Any linoleum or other floor covering of
similar character which may be cemented or otherwise adhesively affixed to the
floor shall become the property of Lessor, all without compensation or credit to
Lessee.
Section 2. The Lessee shall not erect or install any signage
----------
without first procuring Lessor's written consent WHICH WILL NOT BE UNREASONABLY
WITHHELD.
Section 3. The Lessee shall have no rights to use and shall not
----------
use the roof of the Leased Premises for any purpose without the written consent
of the Lessor. The Lessee shall not use the roof for storage, for any activity
that will result in traffic on the roof, for anything that will penetrate the
roof, use the roof as an anchor or otherwise damage the roof. The consent of the
Lessor must be in writing for each specific use and must also approve the method
of installation of the permitted use. Should the Lessee break this covenant, the
Lessee shall be responsible for any damages caused to the roof or other parts of
the building and shall assume the cost of maintaining and repairing the roof
during the term of the Lease, including any renewals.
ARTICLE 10. INDEMNIFICATION.
---------------
Except to the extent of the negligence or misconduct of Lessor, Lessee
agrees to indemnify and hold Lessor harmless against and from any and all
claims, damages, costs, and expenses, including reasonable attorney's fees,
arising out of Lessee's use or occupancy of the Leased Premises. Except to the
extent of Lessee's negligence or misconduct, Lessor agrees to indemnify and hold
Lessee harmless against and from any and all claims, damages, costs, and
expenses, including reasonable attorney's fees, arising out of Lessor's failure
to perform its duties and obligations as owner or agent of the owner of the
property of which the Leased Premises is a part.
-6-
<PAGE>
ARTICLE 11. INSURANCE.
---------
Section 1. Lessee shall not carry any stock of goods or do
----------
anything in or about said Leased Premises which CONSTITUTES HAZARDOUS MATERIAL
OR ACTIVITY. If Lessor shall consent to such use, Lessee agrees to reimburse
Lessor on a pro rata basis for any increase in premiums for insurance against
loss by fire or extended coverage risks resulting from the business carried on
in the Leased Premises by Lessee. If Lessee installs any electrical equipment
that overloads the power lines to the building, Lessee shall at its own expense
make whatever changes are necessary to comply with the requirements of insurance
underwriters and insurance rating bureaus and governmental authorities having
jurisdiction PROVIDED THAT THIS PROVISION SHALL HAVE NO EFFECT IF LESSEE
INSTALLS OR USES THE ELECTRICAL AND ELECTRONIC EQUIPMENT SET FORTH IN SCHEDULE
"A" ATTACHED HERETO AND MADE A PART HEREOF. LESSOR ACKNOWLEDGES THAT THE
ELECTRICAL SUPPLY FOR THE LEASED PREMISES IS ADEQUATE FOR THE EQUIPMENT LISTED
ON SAID SCHEDULE "A."
Section 2. Lessee agrees to procure and maintain a policy or
----------
policies of insurance, at its own costs and expense, insuring from all claims,
demands or actions for injury to or death of more than one person in any one
accident and for damages to property in an aggregate amount of not less than
$1,000,000.00 made by or on behalf of any person or persons, firm or
corporation, arising from, related to, or connected with the conduct and
operation of Lessee's business in the Leased Premises. Lessor shall be named an
Additional Insured Party in said policy. Such insurance shall be primary
relative to any other valid and collective insurance. Said insurance shall not
be subject to cancellation except after at least thirty (30) days' prior written
notice to Lessor, and the policy or policies, or duly executed certificate or
certificates for the same, OR OTHER PROPER EVIDENCE OF THE SAME, together with
satisfactory evidence of the payment of the premium thereon, shall be deposited
with Lessor at the commencement of the term and renewals of such coverage. If
Lessee fails to comply with such requirement, Lessor may obtain such insurance
and keep the same in effect, and Lessee shall pay Lessor the premium cost
thereof upon demand.
Section 3. All property which may be upon said Leased Premises
----------
during the term hereof or any renewal thereof shall be at and upon the sole risk
and responsibility of Lessee.
ARTICLE 12. DAMAGE BY FIRE OR OTHER CASUALTY
--------------------------------
Section 1. If the Leased Premises shall be destroyed or so injured
----------
by any cause as to be unfit, in whole or in part, for occupancy and such
destruction or injury could reasonably be repaired within three (3) months from
the happening of
-7-
<PAGE>
such destruction or injury, then Lessee shall not be entitled to surrender
possession of the Leased Premises nor shall Lessee's liability to pay rent under
this Lease cease without mutual consent of the parties hereto, but in case of
any such destruction or injury Lessor shall repair the same with all reasonable
speed and shall complete such repairs within three (3) months from the happening
of such injury, and if during such period Lessee shall be unable to use all or
any portion of the Leased Premises, a proportionate allowance shall be made to
Lessee from the rent corresponding to the time during which and to the portion
of the Leased Premises of which Lessee shall be so deprived of the use on
account thereof.
Section 2. If such destruction or injury cannot reasonably be
----------
repair within three (3) months from the happening thereof, Lessor shall notify
Lessee within ten (120) days after the happening of such destruction or injury
whether or not Lessor will repair or rebuild. If Lessor elects not to repair or
rebuild, this Lease shall be terminated. If Lessor shall elect to repair or
rebuild, Lessor shall specify the time within which such repairs or
reconstruction will be complete, and Lessee shall have the option, within ten
(10) days after the receipt of such notice, to elect either to terminate this
Lease and further liability hereunder, or to extend the term of the Lease by a
period of time equivalent to the time from the happening of such destruction or
injury until the Leased Premises are restored to their former condition. In the
event Lessee elects to extend the term of the Lease, Lessor shall restore the
Leased Premises to their former condition within the specified time in the
notice, and Lessee shall not be liable to pay rent for the period from the time
of such destruction or injury until the Leased Premises are so restored to their
former condition.
ARTICLE 13. EMINENT DOMAIN.
---------------
Section 1. If the whole or substantially all of the Leased
----------
Premises hereby leased shall be taken by a public authority under the power of
eminent domain, then the term of this Lease shall cease as of the day possession
shall be taken by such public authority, and the rent shall be paid up to that
date with a proportionate refund by Lessor of such rent as shall have been paid
in advance.
Section 2. If less than substantially all of the floor area of the
----------
Leased Premises shall be so taken PROVIDED THAT THE AREA REMAINING IS ADEQUATE
FOR LESSOR'S BUSINESS PURPOSES, the term of this Lease shall cease only on the
parts so taken as of the day possession shall be taken by such public authority,
and the rent shall be paid up to that day with a proportionate refund by Lessor
of such rent as may have been paid in advance, and thereafter the minimum rent
shall be equitably abated, and Lessor shall at its own cost and expense make all
necessary repairs or alterations as to constitute the remaining Leased Premises
a complete architectural unit.
-8-
<PAGE>
Section 3. All damages awarded for such taking under the power of
----------
eminent domain, whether for the whole or a part of the Leased Premises, shall be
the property of Lessor whether such damages shall be awarded as compensation for
diminution in value of the leasehold or to the fee of the Leased Premises;
provided, however, that the Lessor shall not be entitled to any separate award
made to Lessee for loss of business, depreciation to and cost of removal of
stock and fixtures.
ARTICLE 14. ASSIGNMENT OR SUBLETTING.
-------------------------
Section 1. Lessee shall not assign or in any manner transfer this
----------
Lease or any interest therein, nor sublet said Leased Premises or any part or
parts thereof, not permit occupancy by anyone with, through, or under it,
without the previous written consent of Lessor which consent shall not be
unreasonably withheld. Consent by Lessor to one or more assignments of this
Lease or to one or more sublettings of the Leased Premises shall not operate as
a waiver of Lessor's rights under this Article to any subsequent assignment or
subletting. No assignment shall release Lessee of any of its obligations under
this Lease or be construed or taken as a waiver of any of Lessor's rights or
remedies hereunder.
Section 2. Neither this Lease nor any interest therein, nor any
----------
estate thereby created, shall pass to any trustee or receiver in bankruptcy or
any assignee for the benefit of creditors or by operation of law.
Section 3. Provided that the Lessee with Lessor's consent assigns
----------
or sublets part or all of the Leased Premises at a rental that exceeds the
current rental herein reserved, the Lessor shall be entitled to receive as
additional rental one-half of such excess of the current rental. The Lessee
shall remit one-half of such increase within five (5) days after receipt by it.
ARTICLE 15. ACCESS TO LEASED PREMISES.
-------------------------
The Lessor shall retain duplicate keys to all of the doors of the
Leased Premises. THE LESSOR OR ITS AGENTS SHALL HAVE THE RIGHT TO ENTER UPON THE
LEASED PREMISES ONLY IN THE EVENT OF AN EMERGENCY. THE LESSOR OR ITS AGENTS
SHALL HAVE THE RIGHT TO ENTER UPON THE LEASED PREMISES AT REASONABLE HOURS FOR
THE PURPOSE OF INSPECTING THE SAME OR MAKING REPAIRS ONLY UPON REASONABLE NOTICE
TO LESSEE. LESSOR MAY SHOW THE LEASED PREMISES TO PROSPECTIVE LESSEES OR
PURCHASERS FROM TIME TO TIME DURING THE LEASE TERM, AT A TIME AGREEABLE TO
LESSEE. LESSEE MAY REFUSE SHOWING TO PERSONS REASONABLY BELIEVED TO BE GATHERING
INFORMATION FOR COMPETITIVE BUSINESS PURPOSES.
ARTICLE 16. ATTORNMENT.
----------
-9-
<PAGE>
In the event the herein Leased Premises are sold due to any
foreclosure sale or sales, by virtue of judicial proceedings or otherwise, this
Lease shall continue in full force and effect, and Lessee agrees, upon request,
to attorn to and acknowledge the foreclosure purchaser or purchasers at such
sale as Lessors hereunder; provided such purchaser will recognize this Lease,
unless and until it is in default.
ARTICLE 17. LESSEE'S DEFAULT.
----------------
Section 1. The Lessee, ten (10) days after receipt of written
----------
notice, shall be considered in default of this Lease upon failure to pay when
due the rent or any other sum required by the terms of the Lease; failure to
perform any term, covenant or condition of this Lease; the commencement of any
action or proceeding for the dissolution, liquidation or reorganization under
the Bankruptcy Act, of Lessee, or for the appointment of a receiver or trustee
of the Lessee's property; the making of any assignment for the benefit of
creditors by Lessee; the suspension of business; or the abandonment of the
Leased Premises by the Lessee.
Section 2. In the event of default of this Lease by Lessee, then
----------
LESSEE SHALL QUIT AND SURRENDER THE PREMISES WITHIN TEN (10) DAYS OF SUCH
DEFAULT. IF AFTER THE TEN (10) DAY PERIOD LESSEE HAS NOT QUIT THE PREMISES, THEN
LESSEE SHALL BE RESPONSIBLE FOR ALL DAMAGES AND COSTS OF EVICTION THEREAFTER,
INCLUDING REASONABLE ATTORNEY'S FEES.
Section 3. No such reentry or taking possession of said Leased
----------
Premises by Lessor shall be construed as an election on its part to terminate
this Lease, unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Lessor may at any time
thereafter elect to terminate this Lease for such previous breach or act of
default. Should Lessor at any time terminate this Lease for any breach or act of
default, in addition to any other remedy it may have, it may recover from Lessee
all damages it may incur by reason of such breach or act of default, including
the cost of recovering the Leased Premises, legal fees, and including the worth
at the time of such termination of the excess, if any, of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Leased Premises for the
remainder of the stated term.
ARTICLE 18. SURRENDER OF LEASED PREMISES.
----------------------------
Section 1. If Lessee holds possession of the Leased Premises after
----------
the termination of this Lease for any reason, Lessee shall pay Lessor double the
rent
-10-
<PAGE>
provided for herein for such period that Lessee holds over, but such payment of
rent shall not create any Lease arrangement whatsoever between Lessor and
Lessee, unless expressly agreed to in writing by Lessor. It is further
understood that during such period that Lessee holds over, the Lessor retains
all of Lessor's rights under this Lease, including damages as a result of the
termination of this Lease and the right to immediate possession of the Lease
Premises. This paragraph shall not be construed to grant Lessee permission to
hold over.
Section 2. At the expiration of the tenancy created hereunder,
----------
whether by lapse of time or otherwise, Lessee shall surrender the Leased
Premises broom clean, free of all debris and in good condition and repair,
reasonable wear and loss by fire or other unavoidable casualty excepted.
Section 3. Prior to surrender of the Leased Premises, the Leased
----------
Premises will be reviewed by a representative of the Lessor and Lessee to
determine if there is any deferred maintenance or unrepaired damage. In the
event that there is deferred maintenance and/or unrepaired damage, Lessor may
effect such maintenance and repairs and Lessee will pay the cost thereof.
Section 4. Upon the expiration of the tenancy hereby created, if
----------
Lessor so requests in writing, Lessee shall promptly remove any additions,
fixtures and installations placed in the Leased Premises by Lessee that is
designated in said request, and repair any damage occasioned by such removals at
its own expense, and in default thereof, Lessor may effect such removals and
repairs, and Lessee shall pay Lessor the cost thereof, with interest at the rate
of eight (8) percent per annum from the date of payment by Lessor.
ARTICLE 19. RELOCATION.
----------
The Lessor reserves the right, at any time during the term of this Lease,
to request in writing that the Lessee relocate to other such space, area or
floor within the said building or building complex as the Lessor may deem
advisable or necessary. The new Leased Premises shall contain the same
approximate square footage of rentable area as the former Leased Premises.
Lessee shall have thirty (30) days from the date of Lessor's request to accept
OR REFUSE the new Leased Premises. If accepted, Lessor shall remodel the new
Leased Premises to be as nearly as possible similar, in layout and finish as the
former Leased Premises. Upon completion of remodeling by Lessor and delivery of
possession, Lessee shall relocate in the new Leased Premises and vacate the
former Leased Premises. Except for the change in designation of Leased Premises,
all provisions of this Lease shall remain the same. The Lessor shall pay the
cost of relocating the Lessee into the new Leased Premises, including a
reasonable cost of address changes for supplies if necessary. If the Lessee
refuses to accept the new Leased Premises, THE LESSEE SHALL CONTINUE TO OCCUPY
AND LEASE THE PRESENT LEASED PREMISES WITHOUT PREJUDICE AND THE TERMS AND
CONDITIONS OF THIS LEASE
-11-
<PAGE>
SHALL CONTINUE IN FULL FORCE AND EFFECT FOR THE DURATION OF THE LEASE PERIOD OR
RENEWAL THEREOF.
ARTICLE 20. SUBORDINATION.
-------------
This Lease shall be subject to and subordinate at all times to the
lien of any mortgages, now or hereafter made on the Lease Premises, and to all
advances made or hereafter to be made thereunder. The Lessee agrees to execute
a subordination agreement should Lessor's lender request same.
ARTICLE 21. NOTICE.
------
All notices under this Lease may be personally delivered or mailed
to the address shown by certified mail..
Lessor: Miller-Valentine Partners
Mail: P.O. Box 744
Dayton, Ohio 45401-0744
Lessee: PC Connection, Inc.
Mail: ATTN: Mr. Donald S. Kincaid
450 Marlboro Street
Keene, New Hampshire 03431
Either party may from time to time designate in writing other addresses.
ARTICLE 22. WAIVER OF SUBROGATION.
---------------------
The Lessor and Lessee waive all rights, each against the other, for
damages caused by fire or other perils covered by insurance where such damages
are sustained in connection with the occupancy of the Leased Premises.
ARTICLE 23. ESTOPPEL CERTIFICATE.
--------------------
The Lessee agrees to execute an Estoppel Certificate for the benefit
of Lessor's lender; that wherein the Lessee acknowledges the terms and
conditions of this Lease.
ARTICLE 24. RENT DEMAND.
-----------
Every demand for rent due wherever and whenever made shall have the
same effect as if made at the time it falls due and at the place of payment, and
after the service of any notice or commencement of any suit, or final judgment
-12-
<PAGE>
therein, Lessor may receive and collect any rent due, and such collection or
receipt shall not operate as a waiver or nor affect such notice, suit or
judgment.
ARTICLE 25. NO REPRESENTATION BY LESSOR.
---------------------------
Lessor and its agent have made no representations or promises with
respect to the Leased Premises or the building of which the same form a part
except as herein expressly set forth.
ARTICLE 26. WAIVER OF BREACH.
----------------
No waiver of any breach of the covenants, provisions or conditions
contained in this Lease shall be construed as a waiver of the covenant itself or
any subsequent breach itself, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach had occurred, unless otherwise agreed. The acceptance of
rent hereunder shall neither be nor construed to be a waiver of any breach of
any term, covenant or condition of this Lease.
ARTICLE 27. QUIET ENJOYMENT.
---------------
Lessor hereby covenants and agrees that if Lessee shall perform all
the covenants and agreements herein stipulated to be performed on Lessee's part,
Lessee shall at all times during the continuance hereof have the peaceable and
quiet enjoyment and possession of the Leased Premises without any manner of let
or hindrance from Lessor or any person or persons lawfully claiming the Leased
Premises except as otherwise provided for herein.
ARTICLE 28. ENVIRONMENTAL PROVISIONS.
------------------------
Section 1. The Lessor, to the best of its knowledge, represents to
----------
the Lessee that no toxic, explosive or other dangerous materials or hazardous
substances have been concealed within, buried beneath, released on or from, or
removed from and stored off-site of the Property upon which the Leased Premises
is constructed.
Section 2. Lessee shall at all times during the term of this Lease
----------
comply with all applicable federal, state, and local laws, regulations,
administrative rulings, orders, ordinances, and the like, pertaining to the
protection of the environment, including but not limited to, those regulating
the handling and disposal of waste materials. Further, during the term of this
Lease, neither Lessee nor any agent or party acting at the direction or with the
consent of Lessee shall treat, store, or dispose of any "hazardous substance,"
as defined in Section 101 (14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980
-13-
<PAGE>
("CERCLA"), or petroleum (including crude oil or any fraction thereof) on or
from the Property.
Section 3. Lessee shall fully and promptly pay, perform,
----------
discharge, defend, indemnify and hold harmless Lessor from any and all claims,
orders, demands, causes of action, proceedings, judgments, or suits and all
liabilities, losses, costs or expenses (including, without limitation, technical
consultant fees, court costs, expenses paid to third parties and reasonable
legal fees) and damages arising out of, or as a result of, (i) any "release" as
defined in Section 101 (22) of CERCLA, of any "hazardous substance," as defined
in Section 101 (14) of CERCLA, or petroleum, (including crude oil or any
fraction thereof) or place into, on or from the Property at any time after the
date of this lease; (ii) any contamination of the Property's soil or groundwater
or damage to the environment and natural resources of the Property the result of
actions occurring after the date of this Lease, whether arising under CERCIA or
other statutes and regulations, or common law; and (iii) any toxic, explosive or
otherwise dangerous materials or hazardous substances which have been buried
beneath, concealed within or released on or from the Property after the date of
this Lease. THIS SUBSECTION SHALL APPLY ONLY IN THE EVENT ANY OF THE SAID ACTS
WERE ACTUALLY UNDERTAKEN BY THE LESSEE, LESSEE'S SUPPLIERS OR UNDERTAKEN ON
LESSEE'S BEHALF.
ARTICLE 29. INTERPRETATION.
--------------
Section 1. Wherever either the word "Lessor" or "Lessee" is used
----------
in the Lease, it shall be considered as meaning the singular and/or neuter
pronouns as used herein, and the same shall be construed as including all
persons and corporations designated respectively as Lessor or Lessee in the
heading of this instrument wherever the context requires.
Section 2. If any clause, sentence, paragraph, or part of this
----------
Lease shall for any reason be adjudged by any court of competent jurisdiction to
be invalid, such judgment shall not effect, impair, or invalidate the remainder
of this Lease, but be confined in its operation to the clause, sentence,
paragraph, or part thereof directly involved in the controversy in which such
judgment shall have been rendered, and in all respects said Lease shall continue
in full force and effect.
ARTICLE 30. FINANCIAL STATEMENTS.
--------------------
At Lessor's request, the Lessee, within thirty (30) days of Lessor's
request, shall furnish the Lessor OR LESSOR'S MORTGAGEE WITH FINANCIAL
REFERENCES AND SUCH LIMITED FINANCIAL INFORMATION AS IT DEEMS REASONABLE TO
PROVIDE LESSOR WITH COMFORT THAT LESSEE HAS THE ABILITY TO MEET ITS OBLIGATIONS
HEREUNDER.
-14-
<PAGE>
ARTICLE 31. MEMORANDUM OF LEASE.
-------------------
It is agreed by both parties that this instrument is not recordable
and if either party should record the same in the Office of the Recorder of
Warren County, Ohio, the recording shall have no effect. When possession of the
Leased Premises has been delivered to Lessee, the parties hereto may execute,
acknowledge and deliver a Memorandum of Lease in recordable form specifying the
terms of this Lease and renewal period of this Lease. In the event they differ
from the dates herein, the date in the Memorandum shall control.
ARTICLE 32. OPTION TO RENEW.
---------------
Lessee is hereby granted an option to renew this Lease for an
additional term of three (3) years on the same terms and conditions contained
herein except for the rental and the length of the term, upon the conditions
that:
a. written notice of the exercise of such option shall be given by
Lessee to Lessor not less than one hundred eighty (180) days prior to the end of
the term of this Lease; and
b. at the time of the giving of such notice and at the expiration
of the term of this Lease, there are no defaults in the covenants, agreements,
terms and conditions on the part of Lessee to be kept and performed, and all
rents are and have been fully paid. Provided also, that the rent to be paid
during each year of the said renewal period shall be as determined in accordance
with the following procedure:
(1) The index to be used for this adjustment shall be the Consumer
Price Index (U.S. City Average, All Urban Consumers, All Items, 1982-1984
equalling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
(2) The Consumer Price Index of 1990 for the month of September
shall be the "Base Period Consumer Price Index."
(3) The Consumer Price Index for the month of September each
succeeding year shall be determined from the published figures and shall be the
"Adjustment Period Consumer Price Index."
(4) The Base Period Consumer Price Index shall be subtracted from
the Adjustment Period Consumer Price Index; the difference shall be divided by
the Base Period Consumer Price Index. This quotient shall then be multiplied by
$134,400.00 and the result shall then be added to $134,400.00. This arithmetical
sum shall then be the adjusted Basic Annual Rent for such immediately succeeding
leasehold year which shall be paid in equal monthly payments.
-15-
<PAGE>
(5) If the said Consumer Price Index is, at any time during the
term of this Lease, discontinued by the Government, then the most nearly
comparable index shall be substituted for the purpose of the aforesaid
calculations.
ARTICLE 33. ENTIRE AGREEMENT.
----------------
This Lease contains the entire agreement between the parties and any
executory agreement hereafter shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification, or
discharge is sought./*/
IN WITNESS WHEREOF, the parties hereto set their hands to
triplicates hereof, this 27th day of September, 1990, as to Lessor, and this
24th day of September, 1990, as to Lessee.
Signed and acknowledged LESSOR: MILLER-VALENTINE PARTNERS
in the presence of:
/s/ Vernon Oakley By: /s/ James M. Miller
- ------------------------- --------------------------
James M. Miller
/s/ Audrey G. Sachs Its: Senior Partner
- ------------------------- --------------------------
LESSEE: PC CONNECTION, INC.
/s/ Charles Morang III By: /s/ David Hall
- ------------------------- --------------------------
David Hall
/s/ Steven Markiewicz Its: Executive Vice President
- ------------------------- --------------------------
_________________
/*/Other than that Lessee has entered into this Lease, Lessor shall keep
the specific terms of this Lease confidential.
-16-
<PAGE>
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 27th day of
September, 1990, by James M. Miller, Senior Partner on behalf of MILLER-
-------------------------------
VALENTINE PARTNERS, an Ohio general partnership.
/s/ Mary Anne Hartley
----------------------------
Notary Public
Mary Anne Hartley, Notary Public
In and for The State of Ohio
My Commission Expires Jan. 26, 1992
STATE OF NEW HAMPSHIRE, COUNTY OF CHESHIRE, SS:
The foregoing instrument was acknowledged before me this 24th day of
September, 1997, by David Hall, the Executive Vice President of PC CONNECTION,
----------------------------------------
INC., a corporation, on behalf of said corporation.
/s/ Steven Markiewicz
--------------------------------------
Notary Public
-17-
<PAGE>
EXHIBIT A
Outline Specification
---------------------
September 10, 1990
Prepared for
PC CONNECTION, INC.
Area: 38,400 Square Feet (240' x 160').
See Exhibit B
Clear Height: 19' under bar joist.
Doors: 5 dock high doors (8' x 9') with levelers.
1 grade level drive-in door (12' x 14')
1 decorative glass office entry door with side lite plus 2
pedestrian doors per bay (one in front and one in rear) as
required by fire code.
Insulation: .1 U factor both roof and walls.
Sprinkler: Wet pipe system to meet requirements of Insurance
Services of Ohio
Electrical Entrance
Service: 200 amp, 480 V, 3 Phase.
Lighting: 20 foot candles measured at three feet off the floor.
Heating: Gas fired unit heaters designed to maintain 60 degrees
inside at 0 degrees outside.
Restrooms: One set of restrooms designed to meet the code
requirements for PC Connection, Inc.'s operation. To
include drinking fountain and janitor sink.
Office: Office space will be specifically designed to meet your
requirements. Costs are not included in the base lease
rate.
-18-
<PAGE>
Exhibit B may be obtain by written request from the Registrant.
<PAGE>
REVISED AMENDMENT NO. 1 TO LEASE
--------------------------------
THIS AGREEMENT MADE THIS 28th day of June, 1996, by and between
MILLER-VALENTINE PARTNERS, as Lessor and PC CONNECTION, INC., as Lessee located
at 2870 Old State Route 73, Wilmington, Ohio 45177.
W I T N E S S E T H :
---------------------
WHEREAS, Lessor and Lessee entered into a Lease dated September 27,
1990, and
WHEREAS, the Lessor and Lessee desire to amend the Lease to extend
the term and add a Right of First Offering.
NOW THEREFORE, the Lease is amended as follows:
1. Article 1. TERM shall be revised as follows.
----
... for an additional four (4) years, for a term totaling ten
(10) years, commencing on the 1st day of January 1991 and ending on the 31st day
of December 2000.
2. Article 2. RENT shall be revised as follows:
----
Section 1. Lessee shall continue to pay to the Lessor as
---------
Monthly Rent for the Leased Premises for the period of January 1, 1996 through
December 31, 1996, the sum of TWELVE THOUSAND NINE HUNDRED TWENTY-FOUR AND
00/100 DOLLARS ($12,924.00), due and payable on the first day of each month, in
advance, without demand. Said rent shall be paid to the Lessor, or to the duly
authorized agent for the Lessor, at its office during business hours. If the
commencement date of this Lease is other than the first day of the month, any
rental adjustment or additional rents hereinafter provided for shall be prorated
accordingly. The Lessee will pay the rent as herein provided, without deduction
whatsoever, and without any obligation of the Lessor to make demand for it. Any
installment of rent accruing hereunder and any other sum payable hereunder, if
not paid when due, shall bear interest at the rate of eighteen percent (18%) per
annum until paid. The Basic Annual Rent of $134,400.00 shall be adjusted
annually based on any increases in the Consumer Price Index on January 1, 1997
and at the end of each year thereafter, whether during the term of this Lease or
any renewal or extension thereof. Increases in the Annual Rent shall be made in
accordance with the following procedure:
a. The index to be used for this adjustment shall be the
Consumer Price Index (U.S. City Average, All Urban Consumers, All Items, 1982-
1984
-20-
<PAGE>
equaling a base of 100, from the U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C.).
b. The Consumer Price Index of 1990 for the month of
September shall be the "Base Period Consumer Price Index." The Consumer Price
Index for the month of September in each adjustment year shall be the "Adjusted
Period Consumer Price Index."
c. The Base Period Consumer Price Index shall be subtracted
from the Adjustment Period Consumer Price Index; the difference shall be divided
by the Base Period Consumer Price Index. This quotient shall then be multiplied
by $134,400.00, and the result shall then be added to $134,400.00. The resulting
sum shall be the adjusted Annual Rent for such immediately succeeding lease hold
period which shall be paid in equal monthly installments.
d. If the Consumer Price Index is, at any time during the
term of this Lease, discontinued by the Government, then the most nearly
comparable index shall be substituted for the purpose of the aforesaid
calculations.
3. Article 32. OPTION TO RENEW shall be deleted in its entirety.
---------------
4. Lessor agrees to grant to Lessee a Right of First Offering on
any space that Lessor owns (not to exceed 25,600 square feet) that becomes
available within the Airborne Commerce Park buildings during the period of
October 1, 1995 through and including November 30, 1998. Lessor shall notify
Lessee of any available space and Lessee shall have five (5) business day to
respond to Lessor's offer in writing. Should Lessee refuse Lessor's offer to
lease the available space then Lessee understands that Lessor will commence
marketing efforts to lease the space to another party.
5. Except as expressly amended herein, all other terms and
conditions of the Lease remain in full force and effect.
-21-
<PAGE>
IN WITNESS WHEREOF, the Lessor and Lessee have affixed their
signatures to triplicates of this Amendment, this 24th day of June, 1996, as to
Lessee and this 28th day of June, 1996, as to Lessor.
Signed and acknowledged LESSOR: MILLER-VALENTINE PARTNERS
in the presence of:
/s/ Vernon H. Oakley By: /s/ James M. Miller
- ------------------------------ -----------------------------------
James M. Miller
______________________________ Title: Senior Partner
-----------------------------------
LESSEE: PC CONNECTION, INC.
/s/ Steven Markiewicz By: /s/ Ronald J. Karvosky
- ------------------------------ -----------------------------------
______________________________ Title: Treasurer
-----------------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 28th day of June,
1996, by James M. Miller, Senior Partner, on behalf of MILLER-VALENTINE
PARTNERS.
/s/ Sharon L. Rislund
---------------------------------
NOTARY PUBLIC
Sharon L. Rislund, Notary Public
In and for the State of Ohio
My Commission Expires Oct. 31, 1996
STATE OF NEW HAMPSHIRE, COUNTY OF CHESHIRE, SS:
The foregoing instrument was acknowledged before me this 24th day of June,
1996, by Ronald J. Karvosky, the Treasurer of PC CONNECTION, INC., a
corporation on behalf of said corporation.
-22-
<PAGE>
/s/ Steven H. Markiewicz
----------------------------------------
NOTARY PUBLIC
Steven H. Markiewicz, Notary Public
My Commission Expires January 7, 1997
-23-
<PAGE>
EXHIBIT 10.4
LOWER BELLBROOK COMPANY
-----------------------
WAREHOUSE/DISTRIBUTION
----------------------
AGREEMENT OF LEASE
------------------
TABLE OF CONTENTS
-----------------
LEASE FOR PC CONNECTION, INC.
PROPERTY LOCATED AT 643-651 Lower Bellbrook Avenue
Xenia, Ohio 45385
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
ARTICLE 1. TERM....................................... 1
ARTICLE 2. ACCEPTANCE OF LEASED PREMISES.............. 1
ARTICLE 3. POSSESSION................................. 1
ARTICLE 4. RENT....................................... 1
ARTICLE 5. SECURITY DEPOSIT........................... 2
ARTICLE 6. COMMON AREA................................ 3
ARTICLE 7. USE OF LEASED PREMISES..................... 3
ARTICLE 8. REPAIRS.................................... 4
ARTICLE 9. INSTALLATIONS AND ALTERATIONS.............. 5
ARTICLE 10. INDEMNIFICATION............................ 5
ARTICLE 11. INSURANCE.................................. 6
ARTICLE 12. DAMAGE BY FIRE OR OTHER CASUALTY........... 6
ARTICLE 13. EMINENT DOMAIN............................. 7
ARTICLE 14. ASSIGNMENT OR SUBLETTING................... 8
ARTICLE 15. ACCESS TO LEASED PREMISES.................. 8
ARTICLE 16. ATTORNMENT................................. 9
ARTICLE 17. LESSEE'S DEFAULT........................... 9
ARTICLE 18. SURRENDER OF LEASED PREMISES............... 10
ARTICLE 19. RELOCATION................................. 11
ARTICLE 20. SUBORDINATION.............................. 11
ARTICLE 21. NOTICE..................................... 11
ARTICLE 22. WAIVER OF SUBROGATION...................... 12
ARTICLE 23. ESTOPPEL CERTIFICATE....................... 12
ARTICLE 24. RENT DEMAND................................ 12
ARTICLE 25. NO REPRESENTATION BY LESSOR................ 12
ARTICLE 26. WAIVER OF BREACH........................... 12
ARTICLE 27. QUIET ENJOYMENT............................ 13
ARTICLE 28. ENVIRONMENTAL PROVISIONS................... 13
ARTICLE 29. INTERPRETATION............................. 14
ARTICLE 30. FINANCIAL STATEMENTS....................... 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 31. AMERICANS WITH DISABILITIES ACT COMPLIANCE. 14
ARTICLE 32. MEMORANDUM OF LEASE........................ 15
ARTICLE 33. TIME....................................... 15
ARTICLE 34. OPTION TO RENEW............................ 15
ARTICLE 35. RIGHT OF FIRST OFFERING ON CURRENTLY
OCCUPIED SPACE............................ 16
ARTICLE 36. ENTIRE AGREEMENT........................... 16
</TABLE>
<PAGE>
LOWER BELLBROOK COMPANY
-----------------------
WAREHOUSE/DISTRIBUTION
----------------------
AGREEMENT OF LEASE
------------------
THIS LEASE made this 26th day of September, 1997, by and between LOWER
BELLBROOK COMPANY, hereinafter referred to as the Lessor, and PC CONNECTION,
INC., hereinafter referred to as Lessee. The Lessee's business enterprise is
organized as a corporation and is admitted to do business in the State of Ohio.
W I T N E S S E T H:
The Lessor does hereby lease and let to the Lessee and the Lessee
accepts from the Lessor under the terms and conditions of this Lease, the
following described Premises:
Approximately 19,200 square feet of a building which contains 102,400
square feet more or less at 643-651 Lower Bellbrook Avenue, Xenia, Ohio 45385
hereinafter referred to as the Leased Premises.
ARTICLE 1. TERM.
----
TO HAVE AND TO HOLD unto the Lessee for a term of one (1) year
commencing on the 1st day of October 1997, and ending on the 30th day of
September 1998, both dates inclusive.
ARTICLE 2. ACCEPTANCE OF LEASED PREMISES.
-----------------------------
The Leased Premises, as shown on floor plan attached hereto as Exhibit
A, are delivered to the Lessee in their existing condition which the Lessee has
examined and finds in a condition suitable for its use and purpose.
ARTICLE 3. POSSESSION. INTENTIONALLY OMITTED
----------
ARTICLE 4. RENT.
-----
Section 1. For the period commencing October 1, 1997 and ending
---------
September 30, 1998, Lessee shall pay to the Lessor as Annual Rent for the Leased
Premises the sum SIXTY-TWO THOUSAND FOUR HUNDRED AND 00/100 DOLLARS ($62,400.00)
which shall be paid in equal monthly installments of FIVE THOUSAND TWO HUNDRED
AND 00/100 DOLLARS ($5,200.00), due and payable on the first day of each month,
in advance, without demand. Provided however, the first month's rent shall
accompany the return of the signed Lease.
<PAGE>
Checks should be made payable to Lower Bellbrook Company and sent to Lower
Bellbrook Company, c/o Miller-Valentine Group, Post Office Box 744, Dayton, Ohio
45401-0744. Said rent shall be paid to the Lessor, or to the duly authorized
agent of the Lessor, at its office during business hours. If the commencement
date of this Lease is other than the first day of the month, any rental
adjustment or additional rents hereinafter provided for shall be prorated
accordingly. The Lessee will pay the rent as herein provided, without deduction
whatsoever, and without any obligation of the Lessor to make demand for it. Any
installment of rent accruing hereunder and any other sum payable hereunder, if
not paid when due, shall bear interest at the rate of eighteen percent (18%) per
annum until paid.
Section 2. The Lessee shall reimburse the Lessor for the costs
---------
of water, gas, and electricity (including electricity costs for exterior
lighting) and all other utilities and heating and air conditioning maintenance
in the event that such services are furnished by Lessor and not separately
metered to the Lessee if such costs exceed fifteen dollars ($15.00). Said
reimbursement shall be additional rent due on the first day of the calendar
month next following rendition of a bill therefor. If any services are
separately metered, the cost shall be paid directly by the Lessee to the utility
service. The heating and other utilities not separately metered will be prorated
on the basis of the square footage, except water, serviced by a given meter and
paid to Lessor as billed. The total costs of water shall be paid by the Lessees
currently in occupancy and the costs thereof shall be prorated on the basis of
square footage occupied by each Lessee. A 10% handling fee for these billable
services will be charged by the Lessor.
Section 3. The Lessee agrees to pay any increased real estate
---------
taxes over and above the real estate taxes paid by the Lessor during the first
calendar year (1997) of the term of this Lease. The Lessee's proportionate share
of any such increase shall be a fraction thereof, the numerator of which is the
number of square feet of floor area in the Leased Premises and the denominator
of which is the total square feet of the floor area in the building both as
specified aforesaid in the Lease. Said amount shall be deemed to be additional
rent and shall be due and payable on the first of the month following delivery
to Lessee of a receipt for Lessor's payment of said real estate taxes. The
Lessee shall pay its prorated share of expenses that the Lessor shall incur by
reason of compliance with new laws, orders, special rent/use taxes, charges for
governmental services, ordinances and new regulations of Federal, State, County
and Municipal authorities, and with any lawful direction of any public officer
or officers, which lawful direction shall be imposed upon the Lessor for the
common good of the occupants of the building.
ARTICLE 5. SECURITY DEPOSIT. INTENTIONALLY OMITTED
----------------
2
<PAGE>
ARTICLE 6. COMMON AREA.
-----------
For the purpose of this Lease, common area shall be defined as all of
the property described herein that is not actually occupied by the building. The
Lessee shall have the use in common with other Lessees to the parking areas and
driveways for ingress and egress to the Leased Premises. The Lessee shall have
no right to use the common area for storage purposes and trash shall be stored
only in approved containers in the common area. The Lessor shall maintain the
common area and keep the same in good order and repair including lighting and
landscaping. The cost of exterior lighting and ice and snow removal will be
prorated among the Lessees in accordance with the percentage that the Leased
Premises bear to the entire building. The pro rata share of such cost will be
deemed to be additional rent and shall be due the first of the month following
the invoice thereof by Lessor to Lessee of the amount due.
ARTICLE 7. USE OF LEASED PREMISES.
----------------------
Section 1. The Leased Premises shall be used and occupied only
---------
for office purposes and/or DISTRIBUTION AND STORAGE OF COMPUTER SOFTWARE AND
COMPONENTS WHICH ARE materials of light or ordinary hazard, and for no other
purpose or purposes without the written consent of the Lessor.
Section 2. The Lessee shall operate its business in a safe and
---------
proper manner as is normal, considering the uses of the Leased Premises above
provided; and shall not manufacture, store, display or maintain any products or
materials that will endanger the Leased Premises; shall do nothing that would
increase the cost of insurance on the building or invalidate existing policies;
SHALL NOT USE, SELL, STORE OR MANUFACTURE HAZARDOUS MATERIALS, PROVIDED THAT
THIS PROVISION SHALL NOT PREVENT LESSEE FROM USING ORDINARY CLEANING AGENTS IN
THE COURSE OF REGULAR MAINTENANCE OF ITS FACILITY; shall not obstruct the
sidewalks; shall not use the plumbing for any other purpose than for which it
was constructed; shall not make or permit any noise and/or odor objectionable to
the public or adjacent occupants; shall not create a nuisance on the Leased
Premises; and shall commit no waste.
Section 3. The Lessee shall abide by all police and fire
---------
regulations concerning the operation of its business; shall store all trash,
rubbish, and debris in closed containers; and shall practice all proper
procedures and methods that are common to its business enterprise. The Lessee
shall maintain a minimum temperature in the Leased Premises of 55 degrees F.
3
<PAGE>
ARTICLE 8. REPAIRS.
-------
Section 1. Lessor shall keep the foundations, exterior walls
---------
(except plate glass or glass or other breakable materials used in structural
portions) and roof in good repair.
Section 2. Lessor shall contract for the maintenance of' the
---------
mechanical equipment and the Lessee will reimburse its pro rata share thereof.
The Lessee shall replace any hot water heater as the need should arise with the
same type and quality servicing the Leased Premises PROVIDED THE HOT WATER
HEATER HAS BEEN PROPERLY SERVICED. The Lessor shall replace, as needed, the
heating and air conditioning equipment, provided the unit has been serviced
annually AND PROPERLY. The cost of replacement shall be prorated over the
warranty period for such equipment, and further prorated among the Lessee
benefiting from such equipment; the result of such proration to be an annual
share of cost to Lessee, and the Lessee will pay one-twelfth thereof for each
month during the remaining term and renewals of this Lease.
Section 3. Lessor shall not be liable for any damage
---------
occasioned by reason of the construction of the Leased Premises, that occurs
after occupancy or for failure to keep the Leased Premises in repair, unless
notice of the need for repairs has been given Lessor, a reasonable time has
elapsed and Lessor has failed to make such repairs. Lessor shall not be liable
for any damage done or occasioned by or from the electrical system, the heating
and/or air condition system, the plumbing and sewer system in, above, upon or
about the Leased Premises nor for damage occasioned by water, snow or ice being
upon or coming through the roof, trapdoor, walls, windows, doors or otherwise,
except as above provided. LESSOR SHALL NOT BE LIABLE FOR ANY DAMAGE TO THE
PREMISES CAUSED BY THE NEGLIGENCE OF LESSEE OR DAMAGE CAUSED BY THE FAILURE OF
LESSEE TO NOTIFY LESSOR OF THE NEED FOR REPAIRS IF LESSEE HAD ACTUAL KNOWLEDGE
OF SUCH NEED FOR REPAIR. The Lessee shall reimburse the Lessor for the cost of
all repairs to the Leased Premises, fixtures and appurtenances necessitated by
the fault of the Lessee, its agents, employees or guests and shall reimburse the
Lessor the costs of repair, at or before the end of the term or sooner if so
requested by Lessor, all injury done by the installation or removal of furniture
or other property.
Section 4. Except as provided in Sections 1, 2, and 3 of this
---------
Article, Lessor shall not be obligated to make repairs, replacements or
improvements of any kind upon said Leased Premises, or any equipment facilities
or fixtures therein contained, which shall at all times be kept in good order,
conditions and repair by Lessee, and in a clean, sanitary and safe condition and
in accordance with all applicable laws, ordinances and regulations of any
governmental authority having
4
<PAGE>
jurisdiction. Lessee shall permit no waste, damage, or injury to the Leased
Premises.
Section 5. Lessee shall forthwith at its own cost and expense
---------
replace with glass of the same kind and quality any cracked or broken glass,
including plate glass or glass or other breakable materials used in structural
portions, and any interior and exterior windows and doors in the Leased
Premises.
ARTICLE 9. INSTALLATIONS AND ALTERATIONS.
-----------------------------
Section 1. Lessee shall not make any alterations or additions
---------
to the Leased Premises without first procuring Lessor's written consent WHICH
WILL NOT BE UNREASONABLY WITHHELD and delivering to Lessor the plans and
specifications and copies of the proposed contracts and necessary permits, and
shall furnish indemnification against liens, costs, damages and expenses as may
be reasonably required by Lessor. LESSEE SHALL HAVE THE OPTION OF REMOVING ANY
OF THE ALTERATIONS, ADDITIONS, IMPROVEMENTS AND FIXTURES AT THE END OF THE LEASE
PERIOD UNLESS REMOVAL WILL CAUSE DAMAGE TO THE PREMISES; ALL REMOVAL SHALL TAKE
PLACE BY THE END OF THE LEASE PERIOD. Any linoleum or other floor covering of
similar character which may be cemented or otherwise adhesively affixed to the
floor shall likewise become the property of Lessor, all without compensation or
credit to Lessee.
Section 2. The Lessee shall not erect or install any signage
---------
without first procuring Lessor's written consent WHICH WILL NOT BE REASONABLY
WITHHELD.
Section 3. The Lessee shall have no rights to use and shall not
---------
use the roof of the Leased Premises for any purpose without the written consent
of the Lessor. The Lessee shall not use the roof for storage, for any activity
that will result in traffic on the roof, for anything that will penetrate the
roof, use the roof as an anchor or otherwise damage the roof. The consent of
the Lessor must be in writing for each specific use and must also approve the
method of installation of the permitted use. Should the Lessee break this
covenant, the Lessee shall be responsible for any damages caused to the roof or
other parts of the building and shall assume the cost of maintaining and
repairing the roof during the term of the Lease, including any renewals.
ARTICLE 10. INDEMNIFICATION.
---------------
Except to the extent of the negligence or misconduct of Lessor,
Lessee agrees to indemnify and hold Lessor harmless against and from any and all
claims, damages, costs, and expenses, including reasonable attorney's fees,
arising out of
5
<PAGE>
Lessee's use or occupancy of the Leased Premises. Except to the extent of
Lessee's negligence or misconduct, Lessor agrees to indemnify and hold Lessee
harmless against and from any and all claims, damages, costs, and expenses,
including reasonable attorney's fees, arising out of Lessor's failure to perform
its duties and obligations as owner or agent of the owner of the property of
which the Leased Premises is a part.
ARTICLE 11. INSURANCE.
---------
Section 1. Lessee shall not carry any stock of goods or do
---------
anything in or about said Leased Premises which CONSTITUTES HAZARDOUS MATERIAL
OR ACTIVITY. If Lessor shall consent to such use, Lessee agrees to reimburse
Lessor on a pro rata basis for any increase in premiums for insurance against
loss by fire or extended coverage risks resulting from the business carried on
in the Leased Premises by Lessee. If Lessee installs any electrical equipment
that overloads the power lines to the building, Lessee shall at its own expense
make whatever changes are necessary to comply with the requirements of insurance
underwriters and insurance rating bureaus and governmental authorities having
jurisdiction.
Section 2. Lessee agrees to procure and maintain a policy or
---------
policies of insurance, at its own costs and expense, insuring from all claims,
demands or actions for injury to or death of one or more persons in any one
accident and for damages to property in an aggregate amount of not less than
$2,000,000 made by or on behalf of any person or persons, firm or corporation,
arising from, related to, or connected with the conduct and operation of
Lessee's business in the Leased Premises. Lessor shall be named an Additional
Insured Party in said policy. Such insurance shall be primary relative to any
other valid and collectible insurance. Said insurance shall not be subject to
cancellation except after at least thirty (30) days prior written notice to
Lessor, and the policy or policies, or duly executed certificate or certificates
for the same, OR OTHER PROPER EVIDENCE OF THE SAME, together with satisfactory
evidence of the payment of the premium thereon, shall be deposited with Lessor
at the commencement of the term and renewals of such coverage. If Lessee fails
to comply with such requirement, Lessor may obtain such insurance and keep the
same in effect, and Lessee shall pay Lessor the premium cost thereof upon
demand.
Section 3. All property which may be upon said Leased Premises
---------
during the term hereof or any renewal thereof shall be at and upon the sole risk
and responsibility of Lessee.
ARTICLE 12. DAMAGE BY FIRE OR OTHER CASUALTY.
--------------------------------
Section 1. If the Leased Premises shall be destroyed or so
---------
injured by any cause as to be unfit, in whole or in part, for occupancy and such
destruction or
6
<PAGE>
injury could reasonably be repaired within three (3) months from the happening
of such destruction or injury, then Lessee shall not be entitled to surrender
possession of the Leased Premises nor shall Lessee's liability to pay rent under
this Lease cease without mutual consent of the parties hereto, but in case of
any such destruction or injury Lessor shall repair the same with all reasonable
speed and shall complete such repairs within three (3) months from the happening
of such injury, and if during such period Lessee shall be unable to use all or
any portion of the Leased Premises, a proportionate allowance shall be made to
Lessee from the rent corresponding to the time during which and to the portion
of the Leased Premises of which Lessee shall be so deprived of the use on
account thereof.
Section 2. If such destruction or injury cannot reasonably be
---------
repaired within three (3) months from the happening thereof, Lessor shall notify
Lessee within ten (10) days after the happening of such destruction or injury
whether or not Lessor will repair or rebuild. If Lessor elects not to repair or
rebuild, this Lease shall be terminated. If Lessor shall elect to repair or
rebuild, Lessor shall specify the time within which such repairs or
reconstruction will be complete, and Lessee shall have the option, within ten
(10) days after the receipt of such notice, to elect either to terminate this
Lease and further liability hereunder, or to extend the term of the Lease by a
period of time equivalent to the time from the happening of such destruction or
injury until the Leased Premises are restored to their former condition. In the
event Lessee elects to extend the term of the Lease, Lessor shall restore the
Leased Premises to their former condition within the specified time in the
notice, and Lessee shall not be liable to pay rent for the period from the time
of such destruction or injury until the Leased Premises are so restored to their
former condition.
ARTICLE 13. EMINENT DOMAIN.
--------------
Section 1. If the whole or substantially all of the Leased
----------
Premises hereby leased shall be taken by a public authority under the power of
eminent domain, then the term of this Lease shall cease as of the day possession
shall be taken by such public authority, and the rent shall be paid up to that
date with a proportionate refund by Lessor of such rent as shall have been paid
in advance.
Section 2. If less than substantially all of the floor area
---------
of the Leased Premises shall be so taken PROVIDED THAT THE AREA REMAINING IS
ADEQUATE FOR LESSOR'S BUSINESS PURPOSES, the term of this Lease shall cease only
on the parts so taken as of the day possession shall be taken by such public
authority, and the rent shall be paid up to that day with a proportionate refund
by Lessor of such rent as may have been paid in advance, and thereafter the
minimum rent shall be equitably abated, and Lessor shall at its own cost and
expense make all necessary repairs or alterations as to constitute the remaining
Leased Premises a complete architectural unit.
7
<PAGE>
Section 3. All damages awarded for such taking under the power
---------
of eminent domain, whether for the whole or a part of the Leased Premises, shall
be the property of Lessor whether such damages shall be awarded as compensation
for diminution in value of the leasehold or to the fee of the Leased Premises;
provided, however, that the Lessor shall not be entitled to any separate award
made to Lessee for loss of business, depreciation to and cost of removal of
stock and fixtures.
ARTICLE 14. ASSIGNMENT OR SUBLETTING.
------------------------
Section 1. Lessee shall not assign or in any manner transfer
---------
this Lease or any interest therein, nor sublet said Leased Premises or any part
or parts thereof, nor permit occupancy by anyone with, through, or under it,
without the previous written consent of Lessor which consent shall not be
unreasonably withheld. Consent by Lessor to one or more assignments of this
Lease or to one or more sublettings of the Leased Premises shall not operate as
a waiver of Lessor's rights under this Article to any subsequent assignment or
subletting. No assignment shall release Lessee of any of its obligations under
this Lease or be construed or taken as a waiver of any of Lessor's rights or
remedies hereunder.
Section 2. Neither this Lease nor any interest therein, nor any
---------
estate thereby created, shall pass to any trustee or receiver in bankruptcy or
any assignee for the benefit of creditors or by operation of law.
Section 3. Provided that the Lessee with Lessor's consent
---------
assigns or sublets part or all of the Leased Premises at a rental that exceeds
the current rental herein reserved, the Lessor shall be entitled to receive as
additional rental one-half of such excess of the current rental. The Lessee
shall remit one-half of such excess within five (5) days after receipt by it.
ARTICLE 15. ACCESS TO LEASED PREMISES.
-------------------------
The Lessor shall retain duplicate keys to all of the doors of the
Leased Premises. THE LESSOR OR ITS AGENTS SHALL HAVE THE RIGHT TO ENTER UPON
THE LEASED PREMISES ONLY IN THE EVENT OF AN EMERGENCY. THE LESSOR OR ITS AGENTS
SHALL HAVE THE RIGHT TO ENTER UPON THE LEASED PREMISES AT REASONABLE HOURS FOR
THE PURPOSE OF INSPECTING THE SAME OR MAKING REPAIRS ONLY UPON REASONABLE NOTICE
TO LESSEE. LESSOR MAY SHOW THE LEASED PREMISES TO PROSPECTIVE LESSEES OR
PURCHASERS FROM TIME TO TIME DURING THE LEASE TERM, AT A TIME AGREEABLE TO
LESSEE. LESSEE MAY REFUSE SHOWING TO PERSONS REASONABLY BELIEVED TO BE GATHERING
INFORMATION FOR COMPETITIVE BUSINESS PURPOSES.
8
<PAGE>
ARTICLE 16. ATTORNMENT.
----------
In the event the Leased Premises are sold or transferred due to any
foreclosure sale or sales, judicial proceedings, or voluntary conveyance in lieu
of such foreclosure, or in the event the Premises are transferred by any
mortgagee in a sale, exchange or otherwise, this Lease shall continue in full
force and effect, and Lessee agrees, upon request, to attorn to and acknowledge
the foreclosure purchaser or purchasers at such sale, or other party succeeding
to the interest of Lessor, as Lessors hereunder. This Lease will, upon request
of any person owning or succeeding to the interest of Lessor, automatically
become a direct lease between said owner or successor and Lessee, without change
in the terms or the provisions of this Lease. Upon request by said owner or
successor in interest, Lessee shall execute and deliver an instrument or
instruments confirming such attornment.
If the successor Lessor requests such attornment, then so long as
Lessee shall faithfully discharge the obligations on its part to be kept and
performed under the terms of this Lease, Lessee's tenancy will not be disturbed
nor this Lease affected by any default under any mortgage. Lessee agrees that
this Lease shall remain in full force and effect even though default in the
mortgage may occur.
ARTICLE 17. LESSEE'S DEFAULT.
----------------
Section 1. The Lessee, ten (10) days after receipt of written
---------
notice, shall be considered in default of this Lease upon failure to pay when
due the rent or any other sum required by the terms of the Lease. The Lessee,
thirty (30) days after receipt of written notice, shall be considered in default
of this Lease upon failure to perform any term, covenant or condition of this
Lease; the commencement of any action or proceeding for the dissolution,
liquidation or reorganization under the Bankruptcy Act, of Lessee, or for the
appointment of a receiver or trustee of the Lessee's property; the making of any
assignment for the benefit of creditors by Lessee; the suspension of business;
or the abandonment of the Leased Premises by the Lessee.
Section 2. In the event of default of this Lease by Lessee,
---------
then LESSEE SHALL QUIT AND SURRENDER THE PREMISES WITHIN TEN (10) DAYS OF SUCH
DEFAULT. IF AFTER THE TEN (10) DAY PERIOD LESSEE HAS NOT QUIT THE PREMISES, THEN
LESSEE SHALL BE RESPONSIBLE FOR ALL DAMAGES AND COSTS OF EVICTION THEREAFTER,
INCLUDING REASONABLE ATTORNEY'S FEES.
Section 3. No such reentry or taking possession of said Leased
---------
Premises by Lessor shall be construed as an election on its part to terminate
this Lease, unless a written notice of such intention be given to Lessee or
unless the
9
<PAGE>
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Lessor may at any time
thereafter elect to terminate this Lease for such previous breach or act of
default. Should Lessor at any time terminate this Lease for any breach or act of
default, in addition to any other remedy it may have, it may recover from Lessee
all damages it may incur by reason of such breach or act of default, including
the cost of recovering the Leased Premises, legal fees, and including the worth
at the time of such termination of the excess, if any, of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Leased Premises for the
remainder of the stated term.
ARTICLE 18. SURRENDER OF LEASED PREMISES.
----------------------------
Section 1. If Lessee holds possession of the Leased Premises
---------
after the termination of this Lease for any reason, Lessee shall pay Lessor
double the last monthly rent provided for herein for each month or a portion of
a month that Lessee holds over, together with all other changes due hereunder.
Such payment of rent shall not create any Lease arrangement whatsoever between
Lessor and Lessee, unless expressly agreed to in writing by Lessor. It is
further understood that during such period that Lessee holds over, the Lessor
retains all of Lessor's rights under this Lease, including damages as a result
of the termination of this Lease and the right to immediate possession of the
Leased Premises. This paragraph shall not be construed to grant Lessee
permission to hold over.
Section 2. At the expiration of the tenancy created hereunder,
---------
whether by lapse of time or otherwise, Lessee shall surrender the Leased
Premises broom clean, free of tire marks, free of all debris and in good
condition and repair, reasonable wear and loss by fire or other unavoidable
casualty excepted.
Section 3. Prior to surrender of the Leased Premises, the
---------
Leased Premises will be reviewed by a representative of the Lessor and Lessee to
determine if there is any deferred maintenance or unrepaired damage. In the
event that there is deferred maintenance and/or unrepaired damage, Lessor may
effect such maintenance and repairs, and Lessee will pay the cost thereof.
Section 4. Upon the expiration of the tenancy hereby created,
---------
if Lessor so requests in writing, Lessee shall promptly remove any additions,
fixtures, cabling for phone lines, fax lines, etc., and installations placed in
the Leased Premises by Lessee that is designated in said request, and repair any
damage occasioned by such removals at its own expense, and in default thereof,
Lessor may effect such removals and repairs, and Lessee shall pay Lessor the
cost thereof, with interest at the rate of eight (8) percent per annum from the
date of payment by Lessor.
10
<PAGE>
ARTICLE 19. RELOCATION.
----------
The Lessor reserves the right, at any time during the term of this
Lease, to request in writing that the Lessee relocate to other such space, area
or floor within the said building or building complex as the Lessor may deem
advisable or necessary. The new Leased Premises shall contain the same
approximate square footage of rentable area as the former Leased Premises.
Lessee shall have thirty (30) days from the date of Lessor's request to accept
the new Leased Premises. If accepted, Lessor shall remodel the new Leased
Premises to be as nearly as possible similar, in layout and finish as the former
Leased Premises. Upon completion of remodeling by Lessor and delivery of
possession, Lessee shall relocate in the new Leased Premises and vacate the
former Leased Premises. Except for the change in designation of Leased Premises,
all provisions of this Lease shall remain the same. The Lessor shall pay the
cost of relocating the Lessee into the new Leased Premises, including a
reasonable cost of address changes for supplies if necessary. If the Lessee
refuses to accept the new Leased Premises, THE LESSEE SHALL CONTINUE TO OCCUPY
AND LEASE THE PRESENT LEASED PREMISES WITHOUT PREJUDICE AND THE TERMS AND
CONDITIONS OF THIS LEASE SHALL CONTINUE IN FULL FORCE AND EFFECT FOR THE
DURATION OF THE LEASE PERIOD OR RENEWAL THEREOF.
ARTICLE 20. SUBORDINATION.
-------------
This Lease shall be subject to and subordinate at all times to the
lien of any mortgages, now or hereafter made on the Leased Premises, and to all
advances made or hereafter to be made thereunder. The Lessee agrees to execute a
subordination agreement should Lessor's lender request same.
ARTICLE 21. NOTICE.
------
All notices under this Lease may be personally delivered; sent by
courier service, with receipt; or mailed to the address shown by certified mail,
return receipt requested. The effective date of any mailed notice shall be one
(1) day after delivery of the same to the United States Postal Service.
Lessor: Lower Bellbrook Company
Mail: c/o Miller-Valentine Group
P. O. Box 744
Dayton, Ohio 45401-0744
Courier: 4000 Miller-Valentine Court
Moraine, OH 45439
Lessee: PC Connection, Inc.
11
<PAGE>
Mail: Attn:______________________
___________________________
___________________________
Either party may from time to time designate in writing other addresses.
ARTICLE 22. WAIVER OF SUBROGATION.
---------------------
The Lessor and Lessee waive all rights, each against the other, for
damages caused by fire or other perils covered by insurance where such damages
are sustained in connection with the occupancy of the Leased Premises.
ARTICLE 23. ESTOPPEL CERTIFICATE.
--------------------
The Lessee agrees to execute an Estoppel Certificate within ten (10)
days of receipt of a written request by the Lessor for the benefit of any
purchaser and/or prospective Lender designated by Lessor as well as Lessor's
present Lender; that wherein the Lessee acknowledges the terms and conditions of
this Lease.
ARTICLE 24. RENT DEMAND.
-----------
Every demand for rent due wherever and whenever made shall have the
same effect as if made at the time it falls due and at the place of payment, and
after the service of any notice or commencement of any suit, or final judgment
therein, Lessor may receive and collect any rent due, and such collection or
receipt shall not operate as a waiver of nor affect such notice, suit or
judgment.
ARTICLE 25. NO REPRESENTATION BY LESSOR.
---------------------------
Lessor and its agent have made no representations or promises with
respect to the Leased Premises or the building of which the same form a part
except as herein expressly set forth.
ARTICLE 26. WAIVER OF BREACH.
----------------
No waiver of any breach of the covenants, provisions or conditions
contained in this Lease shall be construed as a waiver of the covenant itself or
any subsequent breach itself, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach had occurred, unless otherwise agreed. The acceptance of
rent hereunder shall neither be or construed to be a waiver of any breach of any
term, covenant or condition of this Lease.
12
<PAGE>
ARTICLE 27. QUIET ENJOYMENT.
---------------
Lessor hereby covenants and agrees that if Lessee shall perform all
the covenants and agreements herein stipulated to be performed on Lessee's part,
Lessee shall at all times during the continuance hereof have the peaceable and
quiet enjoyment and possession of the Leased Premises without any manner of let
or hindrance from Lessor or any person or persons lawfully claiming the Leased
Premises except as otherwise provided for herein.
ARTICLE 28. ENVIRONMENTAL PROVISIONS.
------------------------
Section 1. The Lessor, to the best of its knowledge, represents
---------
to the Lessee that no toxic, explosive or other dangerous materials or hazardous
substances have been concealed within, buried beneath, released on or from, or
removed from and stored off-site of the Property upon which the Leased Premises
is constructed.
Section 2. Lessee shall at all times during the term of this
--------
Lease comply with all applicable federal, state, and local laws, regulations,
administrative rulings, orders, ordinances, and the like, pertaining to the
protection of the environment, including but not limited to, those regulating
the handling and disposal of waste materials. Further, during the term of this
Lease, neither Lessee nor any agent or party acting at the direction or with the
consent of Lessee shall treat, store, or dispose of any "hazardous substance,"
as defined in Section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") , or petroleum (including
crude oil or any fraction thereof) on or from the Property.
Section 3. Lessee shall fully and promptly pay, perform,
---------
discharge, defend, indemnify and hold harmless Lessor from any and all claims,
orders, demands, causes of action, proceedings, judgments, or suits and all
liabilities, losses, costs or expenses (including, without limitation, technical
consultant fees, court costs, expenses paid to third parties and reasonable
legal fees) and damages arising out of, or as a result of, (i) any "release" as
defined in Section 101(22) of CERCLA, of any "hazardous substance," as defined
in Section 101(14) of CERCLA, or petroleum, (including crude oil or any fraction
thereof) or placed into, on or from the Property at any time after the date of
this Lease by Lessor, its agents, or employees; (ii) any contamination of the
Property's soil or groundwater or damage to the environment and natural
resources of the Property the result of actions occurring after the date of this
Lease, whether arising under CERCLA or other statutes and regulations, or common
law by Lessee, its agents, or employees; and (iii) any toxic, explosive or
otherwise dangerous materials or hazardous substances which have been buried
beneath, concealed within or released on or from the Property after the date of
this Lease. THIS SUBSECTION SHALL APPLY ONLY IN THE EVENT ANY OF THE
13
<PAGE>
SAID ACTS WERE ACTUALLY UNDERTAKEN BY THE LESSEE, LESSEE'S SUPPLIERS OR
UNDERTAKEN ON LESSEE'S BEHALF.
ARTICLE 29. INTERPRETATION.
--------------
Section 1. Wherever either the word "Lessor" or "Lessee" is
---------
used in the Lease, it shall be considered as meaning the singular and/or neuter
pronouns as used herein, and the same shall be construed as including all
persons and corporations designated respectively as Lessor or Lessee in the
heading of this instrument wherever the context requires.
Section 2. If any clause, sentence, paragraph, or part of this
---------
Lease shall for any reason be adjudged by any court of competent jurisdiction to
be invalid, such judgment shall not effect, impair, or invalidate the remainder
of this Lease, but be confined in its operation to the clause, sentence,
paragraph, or part thereof directly involved in the controversy in which such
judgment shall have been rendered, and in all other respects said Lease shall
continue in full force and effect.
ARTICLE 30. FINANCIAL STATEMENTS.
--------------------
At Lessor's request, the Lessee, within thirty (30) days of Lessor's
request, shall furnish the Lessor OR LESSOR'S MORTGAGEE WITH FINANCIAL
REFERENCES AND SUCH LIMITED FINANCIAL INFORMATION AS IT DEEMS REASONABLE TO
PROVIDE LESSOR WITH COMFORT THAT LESSEE HAS THE ABILITY TO MEET ITS OBLIGATIONS
HEREUNDER.
ARTICLE 31. AMERICANS WITH DISABILITIES ACT COMPLIANCE.
------------------------------------------
Notwithstanding anything set forth herein to the contrary, Lessor
shall be solely responsible and liable for making any modifications to the
exterior of the Building (including the exterior doors and entrances leading to
the Leased Premises) that may be required to comply with the Americans with
Disabilities Act of 1990 as it may be amended from time to time ("ADA"). Lessee,
at its sole cost and expense, shall remove any barriers or provide such
accommodations as may be necessary for the interior of the Leased Premises to
comply with the ADA. Any structural alterations or renovations that the Lessee
may make to the Premises, as permitted under this Lease, shall comply with the
accessibility standards and regulations of the ADA. If the Lessee fails to
fulfill its obligations under this Article, the Lessor may elect to provide the
modifications and renovations required pursuant to the ADA and seek
reimbursement from the Lessee. Should the Lessor incur any such expenses for
the obligations of Lessee, the amount of such expenses may, at the Lessor's
option, be added to the rent due from the Lessee under the terms of this Lease.
Lessor and Lessee hereby mutually indemnify and hold each other harmless against
any and all liability, losses, fines or other penalties that may be incurred or
assessed against the
14
<PAGE>
other, including reasonable attorney fees, due to the failure of the other to
adhere to their respective obligations under this Article of the Lease.
ARTICLE 32. MEMORANDUM OF LEASE.
-------------------
It is agreed by both parties that this instrument is not recordable
and if either party should record the same in the Office of the Recorder of
Greene County, Ohio, the recording shall have no effect. When possession of the
Leased Premises has been delivered to Lessee, the parties hereto may execute,
acknowledge and deliver a Memorandum of Lease in recordable form specifying the
terms of this Lease and renewal periods of this Lease. In the event they differ
from the dates herein, the date in the Memorandum shall control.
ARTICLE 33. TIME.
----
Time is of the essence in this Lease.
ARTICLE 34. OPTION TO RENEW.
---------------
Lessee is hereby granted an option to renew this Lease for TWO
additional TERMS of one (1) year EACH on the same terms and conditions contained
herein except for the rental and the length of the term, upon the conditions
that:
a. written notice of the exercise of such option shall be given by
Lessee to Lessor not less than ninety (90) days prior to the end of the term of
this Lease; and
b. at the time of the giving of such notice and at the expiration of
the term of this Lease, there are no defaults in the covenants, agreements,
terms and conditions on the part of Lessee to be kept and performed, and all
rents are and have been fully paid. Provided also, that the rent to be paid
during each year of the said renewal period shall be as determined in accordance
with the following:
For the period commencing October 1, 1998 and ending September 30,
1999, Lessee shall pay to the Lessor as Annual Rent for the Leased Premises the
sum of SIXTY-FOUR THOUSAND THREE HUNDRED TWENTY AND 00/100 DOLLARS ($64,320.00)
which shall be paid in equal monthly installments of FIVE THOUSAND THREE HUNDRED
SIXTY AND 00/100 DOLLARS ($5,360.00), due and payable on the first day of each
month, in advance, without demand.
FOR THE PERIOD COMMENCING OCTOBER 1, 1999 AND ENDING SEPTEMBER 30,
2000, LESSEE SHALL PAY TO THE LESSOR AS ANNUAL RENT FOR THE LEASED PREMISES THE
SUM OF SIXTY-SIX THOUSAND TWO HUNDRED FORTY AND 00/100 DOLLARS ($66,240.00)
WHICH SHALL BE PAID IN EQUAL MONTHLY INSTALLMENTS OF FIVE
15
<PAGE>
THOUSAND FIVE HUNDRED TWENTY AND 00/100 DOLLARS ($5,520.00), DUE AND PAYABLE ON
THE FIRST DAY OF EACH MONTH, IN ADVANCE, WITHOUT DEMAND.
ARTICLE 35. RIGHT OF FIRST OFFERING ON CURRENTLY OCCUPIED SPACE.
---------------------------------------------------
If currently occupied space at 635-639 Bellbrook Avenue, Xenia, Ohio
(12,800 square feet) becomes available during this lease term or options hereof,
and at the time of giving such notice there are no defaults on the covenants,
agreements, terms and conditions on the part of the Lessee to be kept and
performed, and all rents are and have been fully paid, Lessor shall notify
Lessee of its availability in writing and Lessee shall have five (5) business
days from the date of Lessor's notice to Lessee to advise Lessor in writing that
Lessee accepts such space offered and agrees that it shall become a part of the
Leased Premises. The base rent for the space offered and the approximate date
possession is to be delivered shall be included in Lessor's notice to Lessee.
Should Lessee not accept the offering, then the provisions of this paragraph
shall be void.
ARTICLE 36. ENTIRE AGREEMENT.
----------------
This Lease contains the entire agreement between the parties; it
supersedes all previous understandings and agreements between the parties, if
any, and no oral or implied representation or understandings shall vary its
terms; and it may not be amended except by a written instrument executed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto set their hands to triplicates
hereof, this 26th day of September, 1997, as to Lessor, and this 24th day of
September, 1997, as to Lessee.
Signed and acknowledged LESSOR: LOWER BELLBROOK COMPANY
in the presence of: AN OHIO GENERAL PARTNERSHIP
BY MILLER-VALENTINE PARTNERS
ITS GENERAL PARTNER
/s/ Vernan H. Oddery By: /s/ James M. Miller
- -------------------- ----------------------------
James M. Miller
/s/ Michelle Athinson Its: General Partner
- ---------------------
LESSEE: PC CONNECTION, INC.
/s/ Celeste S. Connor By: /s/ Philip Blaisdell
- --------------------- ----------------------------
16
<PAGE>
/s/ Celeste S. Connor Its: Philip Blaisdell
- --------------------- ----------------------------
(Witness) Owner Representative
STATE OF OHIO )
) ss:
COUNTY OF MONTGOMERY )
The foregoing instrument was acknowledged before me this 26th day of
September, 1997, by James M. Miller, General Partner on behalf of LOWER
BELLBROOK COMPANY, an Ohio general partnership.
/s/ Sharon L. Rislund
------------------------------------
Notary Public
Sharon L. Rislund, Notary Public
In and for The State of Ohio
My Commission Expires Nov. 4, 2001
STATE OF NEW HAMPSHIRE )
) ss:
COUNTY OF HILLSBOROUGH )
The foregoing instrument was acknowledged before me this 24th day of
September, 1997, by Philip Blaisdell, the Owner Representative of PC CONNECTION,
INC., a corporation, on behalf of said corporation.
/s/ Celeste S. Connor
------------------------------------------
Notary Public
Celeste S. Connor, Notary Public
My Commission Expires January 22, 2002
17
<PAGE>
Exhibits may be obtained by written request from the Registrant.
<PAGE>
EXHIBIT 10.5
LEASE
Lease made May 1, 1997 by and between Gallup & Hall partnership with offices at
528 Route 13 South, Milford, New Hampshire (Landlord) and PC Connection, Inc., a
New Hampshire corporation with offices at 528 Route 13 South, Milford, New
Hampshire (Tenant).
In consideration of the mutual covenants herein contained, the Landlord agrees
to lease to Tenant and the Tenant agrees to lease from Landlord, the following
described premises under the following conditions:
1. PREMISES. The premises to be leased consist of two adjoining parcels known
as 442 Marlboro Street in Keene, New Hampshire and an approximately 1,152 square
foot building situated thereon together with any parking spaces thereon, further
described in a deed dated May 8, 1997 and recorded at Volume 1598, Page 595 in
the Cheshire County Registry of Deeds.
2. TERM. The Lease shall commence on the date hereof and shall continue in
force for five (5) years, terminating on April 31, 2002.
3. RENT. Tenant shall pay as rent to the Landlord an annual sum of $45,000.00
per year, payable as follows:
(a) A payment of $90,000.00 upon execution of this Lease,
representing prepayment of the first two years of the Lease.
(b) A monthly payment of $3,750.000 due on the first day of the month
during each of years 3, 4, and 5 of the Lease.
4. POSSESSION. Tenant shall have possession of the premises upon execution of
the Lease.
5. COVENANTS. Landlord warrants that it is the true owner of record of the
Premises. Landlord covenants that so long as Tenant pays the rent and performs
its covenants, Tenant shall peaceably and quietly have, hold, enjoy and have the
exclusive use of the premises for the term provided.
Tenant covenants that it will undertake only lawful business on the premises and
that it will comply with all applicable laws and regulations, and that it will
not operate any business so as to constitute a nuisance. Tenant covenants that
at the end of the Lease term, or the renewal period, it will return the premises
to the Landlord in its original condition, subject to reasonable wear and tear
and subject to such improvements that Tenant does not remove.
<PAGE>
6. IMPROVEMENTS. Tenant may make reasonable improvements to the premises
including office fix-up and the erection of signs, at its expense. Tenant shall
promptly pay for all material and labor for said improvements and shall have the
option of removing any of the improvements at the end of the Lease period unless
removal will cause damage to the premises; all removal shall take place no later
than 30 days after the end of the Lease period. Tenant shall make no structural
changes to the building without the prior written consent of the Landlord.
7. ASSIGNMENT. Tenant may assign this Lease to its subsidiary, sister or
parent corporation; notice of which will be given to Landlord. Tenant will not
otherwise assign or sublet this Lease without the Landlord's consent; which
consent it will not unreasonably withhold. Landlord may assign this Lease to
banks or other financial institutions for the purpose of securing loans made by
it.
8. REPAIR. Landlord shall keep the buildings' roof and structure in good
repair. Tenant shall make all other necessary repairs to the premises, including
the heating, electrical and plumbing systems. Reasonable wear and tear shall be
allowed.
9. UTILITIES. Tenant shall pay all utilities and services including water and
sewer charges, snow removal, trash removal, lawn mowing, janitorial, heat,
electricity, telephone and any other utility.
10. TAX. Tenant shall be responsible for all real property taxes assessed
against the premises.
11. INSURANCE. Tenant shall maintain adequate fire and extended hazard
insurance (all risk policy) on the building and shall maintain adequate
insurance on its contents and property on the premises, including improvements
within the building. Tenant and Landlord shall each maintain adequate general
liability insurance, with waivers of subrogation. Policies of insurance shall be
presented for review upon the reasonable request of the other party.
12. EMINENT DOMAIN. If there is any taking by eminent domain that materially
affects Tenant's use and enjoyment of the premises, this Lease shall, at the
option of Tenant, terminate when title vests with the taking authority. Tenant
shall have the right to present claims for its damages to the taking authority.
Rent shall be apportioned as of the date of termination, and any sums of Tenant
held by Landlord shall be returned.
13. TERMINATION. If Tenant defaults in the payment of rent, Landlord may
notify Tenant, in writing of such default. If Tenant does not cure the rent
default within 15 days of such notice, then Landlord may give Tenant a 30 day
written notice
<PAGE>
of termination. If at the end of the 30 days, Tenant has not cured the rent
default, Landlord may declare this Lease terminated, and Tenant shall quit and
surrender the premises. If after the 30 day period Tenant has not quit the
premises, then Tenant shall be responsible for all costs of eviction thereafter,
including attorney's fees.
14. DAMAGE. If the building is damaged by fire or other hazard or any other
cause, so that the damage equals or exceeds 10% of the replacement value of the
building or the premises cannot be reasonably used for the purposes for which
they were leased, then Tenant, no later than 15 days following the damage, may
elect to terminate the Lease upon 30 days written notice. If Tenant elects not
to terminate the Lease, then the rent shall be reasonably reduced to reflect the
reduction in use of the premises. If the damage equals or exceeds 50% of the
replacement value of the building, Landlord, no later than 15 days following the
damage, may elect to terminate the Lease upon 30 days written notice. If
Landlord elects not to terminate the Lease, then repair and restoration of the
premises will be made as soon as possible, during which time the rent shall be
reduced to reflect the reduction in use of the premises; rent shall be abated if
no use can be made of the building during that time.
15. SHOWING. Landlord may show the premises from time to time during the lease
term, at a time agreeable to Tenant.
16. HOLD HARMLESS. Tenant agrees to save the Landlord harmless from and
indemnify Landlord against, any and all claims, actions or damages resulting
from any act omission, or negligence of Tenant or subtenant taking place within
the building or directly caused by Tenant or its agent on the premises, or in
connection with making any improvements, unless any such claim, action or damage
results from any act, omission or negligence of a third party on the premises,
not on business with the Tenant. Landlord agrees to save the Tenant harmless
from and indemnify Tenant against, any and all claims actions or damages
resulting from any act, omission or negligence of Landlord or its agent.
17. GENERAL. This Lease represents the entire and exclusive understanding
between the parties. This Lease shall be binding on the parties, their heirs,
legal representatives, assigns and successors. Failure to exercise any rights
herein shall not prejudice the parties in any future exercise of their rights.
IN WITNESS WHEREOF: The Parties hereto have set their hands on the date first
written, at Milford, New Hampshire.
<PAGE>
Gallup & Hall (Landlord)
/s/ Steve Markiewicz By: /s/ David Hall
- -------------------- ----------------------------
David Hall, Partner
PC Connection, Inc. (Tenant)
/s/ Steve Markiewicz By: /s/ Wayne Wilson
- -------------------- ------------------------
Wayne Wilson, Senior Vice President
<PAGE>
EXHIBIT 10.6
LEASE
Lease made June 1, 1987, by and between GALLUP & HALL partnership with offices
at 6 Mill Street, Marlow, New Hampshire (Landlord) and PC CONNECTION, INC., a
New Hampshire corporation located at 6 Mill Street, Marlow, New Hampshire
(Tenant).
In consideration of the mutual covenants herein contained, the Landlord agrees
to lease to Tenant and the Tenant agrees to lease from Landlord, the following
described premises under the following conditions:
1. PREMISES. The premises to be leased consist of those parcels of land
known as lots 1, 2 and 3 on a Deed dated May 9, 1984, recorded at Vol. 1061, P.
90 of the Cheshire County Registry of Deeds, located in Marlow, New Hampshire,
together with the Christmas Trees Inn, an approximate 12,000 square foot
building situated thereon, together with any parking space on the parcels.
2. TERM. The Lease shall commence on June 1, 1987 and shall continue
in force for twenty (20) years, terminating on May 31, 2007.
3. RENT. Tenant shall pay as rent to the Landlord, based on $6.00
per square foot, the sum of $6,000 per month, payable in advance, during the
first three (3) years of the Lease. For the next three (3) years, and again
every three (3) years thereafter until the termination of the Lease, the rent
shall be increased the same percentage as the increase in the Consumer Price
Index (CPI) for the Boston Metropolitan Area. If the CPI remains the same or
decreases, the rent payable herein shall remain the same as the preceding three
(3) year period. In the event the CPI is no longer reported, an equivalent
measure will be used. Currently the CPI is
4. POSSESSION. Tenant currently has possession of the premises and shall
continue to have possession of the premises upon the execution of this Lease.
5. COVENANTS. Landlord warrants that it is the true owner of record of
the Premises. Landlord covenants that so long as Tenant pays the rent and
performs its covenants, Tenant shall peaceably and quietly have, hold, enjoy and
have the exclusive use of the premises for the term provided.
Tenant covenants that it will undertake only lawful
business on the premises and that it will comply with all applicable laws and
regulations, and that it will not operate any business so as to constitute a
nuisance. Tenant covenants that at the end of the Lease term, or the renewal
period, it will
<PAGE>
return the premises to the Landlord in its original condition, subject to
reasonable wear and tear and subject to such improvements that Tenant does not
remove.
6. IMPROVEMENTS. Tenant may make reasonable improvements to the premises
including the erection of signs, at its expense. Tenant shall promptly pay for
all material and labor for said improvements and shall have the option of
removing any of the improvements at the end of the Lease period unless removal
will cause damage to the premises; all removal shall take place no later than 30
days after the end of the Lease period. Tenant shall make no structural changes
to the building without the prior written consent of the Landlord.
7. ASSIGNMENT. Tenant may assign this Lease to its subsidiary, sister or
parent corporation; notice of which will be given to Landlord. Tenant will not
otherwise assign or sublet this Lease without the Landlord's consent; which
consent it will not unreasonably withhold.
8. REPAIR. Landlord shall keep the buildings' roof and structure in
good repair; Tenant shall make all other necessary repairs to the premises,
including the heating, electrical and plumbing systems. Reasonable wear and tear
shall be allowed.
9. UTILITIES. Tenant shall pay all utilities and services including water
and sewer charges, snow removal, trash removal, lawnmowing, janitorial, heat,
electricity, telephone and any other utility.
10. TAX. Landlord shall be responsible for all real property taxes
assessed against the premises.
11. INSURANCE. Landlord shall maintain adequate fire and extended hazard
insurance (all risk policy) on the building. Tenant shall maintain adequate
insurance on its contents and property on the premises, including improvements
within the building. Tenant and Landlord shall each maintain adequate general
liability insurance, with waivers of subrogation. Policies of insurance shall
be presented for review upon the reasonable request of the other party.
12. EMINENT DOMAIN. If there is any taking by eminent domain that materially
affects Tenant's use and enjoyment of the premises, this Lease shall, at the
option of Tenant, terminate when title vests with the taking authority. Tenant
shall have the right to present claims for its damages to the taking authority.
Rent shall be
<PAGE>
apportioned as of the date of termination, and any sums of Tenant held by
Landlord shall be returned.
13. TERMINATION. If Tenant defaults in the payment of rent, Landlord may
notify Tenant, in writing, of such default. If Tenant does not cure the rent
default within 15 days of such notice, then Landlord may give Tenant a 30 day
written notice of termination. If at the end of the 30 days, Tenant has not
cured the rent default, Landlord may declare this Lease terminated, and Tenant
shall quit and surrender the premises. If after the 30 day period Tenant has
not quit the premises, then Tenant shall be responsible for all costs of
eviction thereafter, including attorney's fees.
14. DAMAGE. If the building is damaged by fire or other hazard or any
other cause, so that the damage equals or exceeds 10% of the replacement value
of the building or the premises cannot be reasonably used for the purposes for
which they were leased, then Tenant, no later than 15 days following the damage,
may elect to terminate the Lease upon 30 days written notice. If Tenant elects
not to terminate the Lease, then the rent shall be reasonably reduced to reflect
the reduction in use of the premises. If the damage equals or exceeds 50% of
the replacement value of the building, Landlord, no later than 15 days following
the damage, may elect to terminate the Lease upon 30 days written notice. If
Landlord elects not to terminate the Lease, then repair and restoration of the
premises will be made as soon as possible, during which time the rent shall be
reduced to reflect the reduction in use of the premises; rent shall be abated if
no use can be made of the building during that time.
15. SHOWING. Landlord may show the premises from time to time during the
lease term, at a time agreeable to Tenant. Tenant may refuse showing to persons
reasonably believed to gathering information for competitive business purposes.
16. HOLD HARMLESS. Tenant agrees to save the Landlord harmless from and
indemnify Landlord against, any and all claims, actions or damages resulting
from any act omission, or negligence of Tenant or subtenant taking place within
the building or directly caused by Tenant or Tenant's agent on the premises, or
in connection with making any improvements, unless any such claim, action or
damage results from any act, omission or negligence of a third party on the
premises, not on business with the Tenant. Landlord agrees to save the Tenant
harmless from and indemnify Tenant against, any and all claims actions or
damages resulting from any act, omission, or negligence of Landlord or
Landlord's agent.
17. GENERAL. This Lease represents the entire and exclusive
understanding between the parties. This Lease agreement shall be binding on the
<PAGE>
parties, their heirs, legal representatives, assigns and successors. Failure to
exercise any rights herein shall not prejudice the parties in any future
exercise of their rights.
IN WITNESS WHEREOF: The Parties hereto have set their hands on the date first
written, at Marlow, New Hampshire.
GALLUP & HALL - Landlord
/s/ Steve Markiewicz By: /s/ David Hall
- -------------------- -----------------------------
PC CONNECTION, INC. - Tenant
/s/ Steve Markiewicz By:/s/ Charles H. Morang, III
- -------------------- -----------------------------
Charles H. Morang, III
<PAGE>
AMENDMENT TO LEASE
The Lease entered into June 1, 1987 by and between Gallup & Hall partnership
with offices at Mill Street Marlow, New Hampshire (Landlord) and PC Connection,
Inc., a New Hampshire corporation located at 6 Mill Street, Marlow, New
Hampshire (Tenant) for premises known as the Christmas Trees Inn is hereby
amended as follows:
Item Amend or Replace the Indicated Lease Section as follows:
- ---- -------------------------------------------------------
1 1. PREMISES. The premises to be leased consists of the Christmas
Trees Inn located along NH Rt. 10 in Marlow, New Hampshire further
described on a Deed dated May 9, 1984, recorded at Vol. 1061, Page 90
of the Cheshire County Registry of Deeds and the land abutting the new
Mansfield Road extension, formerly part of the Smith and Aldrich
properties. The Christmas Trees Inn contains approximately 15,800
square feet.
2. 3. RENT. Tenant shall pay as rent to the Landlord, the sum of
$8,850 payable monthly in advance, during the term of this Lease.
3. 10. TAX. Landlord shall be responsible for all real property taxes
assessed against the premises up to and including the amount of the
1990 tax bill. Any increase in the real estate tax shall be borne by
the Tenant.
This Amendment shall have an effective date of June 1, 1990. All other
provisions of the Lease shall continue in full force and effect.
IN WITNESS WHEREOF: The parties hereto have set their hands this 24th day of
December, 1990 at Marlow, New Hampshire.
Gallup & Hall, Partnership
/s/ Steve Markiewicz By: /s/David Hall
- -------------------- ------------------------------
David Hall, Partner
as to all By: /s/ Patricia Gallup
- -------------------- ------------------------------
Patricia Gallup, Partner
<PAGE>
____________________ PC Connection, Inc.
By: /s/ Ronald J. Karvosky
-----------------------
Ronald J. Karvosky, Controller
<PAGE>
EXHIBIT 10.7
LEASE
Lease made July 22, 1988 by and between Gallup & Hall partnership with offices
at 6 Mill Street, Marlow, New Hampshire (Landlord) and PC Connection, Inc., a
New Hampshire corporation located at 6 Mill Street, Marlow, New Hampshire
(Tenant).
In consideration of the mutual covenants herein contained, the Landlord agrees
to lease to Tenant and the Tenant agrees to lease from Landlord, the following
described premises under the following conditions:
1. PREMISES. The premises to be leased consist of two adjoining parcels known
as 450 Marlboro Street in Keene, New Hampshire and an approximately 12,400
square foot building situated thereon together with any parking spaces thereon,
further described in a deed of even date hereof and recorded at Volume _____,
Page ______ in the Cheshire County Registry of Deeds.
2. TERM. The Lease shall commence on the date hereof and shall continue in
force for twenty (20) years, terminating on July 21, 2008.
3. RENT. Tenant shall pay as rent to the Landlord, the sum of $3,900 per
month, or part thereof, payable in advance, during the first three (3) years of
the Lease. For the next three (3) years, and again every three (3) years
thereafter until the termination of the Lease, the rent shall be increased the
same percentage as the increase in the Consumer Price Index (CPI) for the Boston
Metropolitan Area. If the CPI remains the same or decreases, the rent payable
herein shall remain the same as the preceding three (3) year period. In the
event the CPI is no longer reported, an equivalent measure will be used.
4. POSSESSION. Tenant currently has possession of the premises and shall
continue to have possession of the premises upon the execution of this Lease.
5. COVENANTS. Landlord warrants that it is the true owner of record of the
Premises. Landlord covenants that so long as Tenant pays the rent and performs
its covenants, Tenant shall peaceably and quietly have, hold, enjoy and have the
exclusive use of the premises for the term provided.
Tenant covenants that it will undertake only lawful business on the
premises and that it will comply with all applicable laws and regulations, and
that it will not operate any business so as to constitute a nuisance. Tenant
covenants that at the end of the Lease term, or the renewal period, it will
return the premises to the Landlord in its original condition, subject to
reasonable wear and tear and subject to such
<PAGE>
improvements that Tenant does not remove.
6. IMPROVEMENTS. Tenant may make reasonable improvements to the premises
including the erection of signs, at its expense. Tenant shall promptly pay for
all material and labor for said improvements and shall have the option of
removing any of the improvements at the end of the Lease period unless removal
will cause damage to the premises; all removal shall take place no later than 30
days after the end of the Lease period. Tenant shall make no structural changes
to the building without the prior written consent of the Landlord.
7. ASSIGNMENT. Tenant may assign this Lease to its subsidiary, sister or
parent corporation; notice of which will be given to Landlord. Tenant will not
otherwise assign or sublet this Lease without the Landlord's consent; which
consent it will not unreasonably withhold. Landlord may assign this Lease to
banks or other financial institutions for the purpose of securing loans made by
it.
8. REPAIR. Landlord shall keep the buildings' roof and structure in good
repair; Tenant shall make all other necessary repairs to the premises, including
the heating, electrical and plumbing systems. Reasonable wear and tear shall be
allowed.
9. UTILITIES. Tenant shall pay all utilities and services including water and
sewer charges, snow removal, trash removal, lawn mowing, janitorial, heat,
electricity, telephone and any other utility.
10. TAX. Tenant shall be responsible for all real property taxes assessed
against the premises.
11. INSURANCE Tenant shall maintain adequate fire and extended hazard insurance
(all risk policy) on the building and shall maintain adequate insurance on its
contents and property on the premises, including improvements within the
building. Tenant and Landlord shall each maintain adequate general liability
insurance, with waivers of subrogation. Policies of insurance shall be presented
for review upon the reasonable request of the other party.
12. EMINENT DOMAIN. If there is any taking by eminent domain that materially
affects Tenant's use and enjoyment of the premises, this Lease shall, at the
option of Tenant, terminate when title vests with the taking authority. Tenant
shall have the right to present claims for its damages to the taking authority.
Rent shall be apportioned as of the date of termination, and any sums of Tenant
held by Landlord shall be returned.
<PAGE>
13. TERMINATION. If Tenant defaults in the payment of rent, Landlord may
notify Tenant, in writing, of such default. If Tenant does not cure the rent
default within 15 days of such notice, then Landlord may give Tenant a 30 day
written notice of termination. If at the end of the 30 days, Tenant has not
cured the rent default, Landlord may declare this Lease terminated, and Tenant
shall quit and surrender the premises. If after the 30 day period Tenant has not
quit the premises, then Tenant shall be responsible for all costs of eviction
thereafter, including attorney's fees.
14. DAMAGE. If the building is damaged by fire or other hazard or any other
cause, so that the damage equals or exceeds 10% of the replacement value of the
building or the premises cannot be reasonably used for the purposes for which
they were leased, then Tenant, no later than 15 days following the damage, may
elect to terminate the Lease upon 30 days, written notice. If Tenant elects not
to terminate the Lease, then the rent shall be reasonably reduced to reflect the
reduction in use of the premises. If the damage equals or exceeds 50% of the
replacement value of the building, Landlord, no later than 15 days following the
damage, may elect to terminate the Lease upon 30 days, written notice. If
Landlord elects not to terminate the Lease, then repair and restoration of the
premises will be made as soon as possible, during which time the rent shall be
reduced to reflect the reduction in use of the premises; rent shall be abated if
no use can be made of the building during that time.
15. SHOWING. Landlord may show the premises from time to time during the lease
term, at a time agreeable to Tenant. Tenant may refuse showing to persons
reasonably believed to be gathering information for competitive business
purposes.
16. HOLD HARMLESS. Tenant agrees to save the Landlord harmless from and
indemnify Landlord against, any and all claims, actions or damages resulting
from any act omission, or negligence of Tenant or subtenant taking place within
the building or directly caused by Tenant or its agent on the premises, or in
connection with making any improvements, unless any such claim, action or damage
results from any act, omission or negligence of a third party on the premises,
not on business with the Tenant. Landlord agrees to save the Tenant harmless
from and indemnify Tenant against, any and all claims actions or damages
resulting from any act, omission or negligence of Landlord or its agent.
17. GENERAL. This Lease represents the entire and exclusive understanding
between the parties. This Lease agreement shall be binding on the parties, their
heirs, legal representatives, assigns and successors. Failure to exercise any
rights herein shall not prejudice the parties in any future exercise of their
rights.
<PAGE>
IN WITNESS WHEREOF: The Parties hereto have set their hands on the date first
written, at Marlow, New Hampshire.
Gallup & Hall (Landlord)
/s/ Steve Markiewicz By: /s/ David Hall
- -------------------- ---------------
David Hall, Partner
By: /s/ Patricia Gallup
-------------------
Patricia Gallup, Partner
PC Connection, Inc. (Tenant)
/s/ Steve Markiewicz By: /s/ Charles H. Morang III
- -------------------- -------------------------
Charles H. Morang, III
Director of Operations
<PAGE>
AMENDMENT TO LEASE
The Lease entered into by and between Gallup & Hall partnership (Landlord) and
PC Connection, Inc. (Tenant) dated July 22, 1988 is hereby amended as follows:
Item Replace Indicated Lease Section with:
- ---- ------------------------------------
1 1. PREMISES. The premises demised consist of the property known as 450
Marlboro Street in Keene, New Hampshire, together with the 22,140 square
foot building and parking space thereon, being all the premises conveyed to
Gallup & Hall by Deed dated July 28, 1989 and recorded at Volume 1299, Page
187 of the Cheshire County Registry of Deeds.
2 3. RENT. Tenant shall pay as rent to the Landlord, the sum of $7,000 per
month, or part thereof, payable in advance, during the first three (3)
years of the Lease. For the next three (3) years, and again every three
(3) years thereafter until the termination of the Lease, the rent shall be
increased the same percentage as the increase in the Consumer Price Index
(CPI) for the Boston Metropolitan Area. If the CPI remains the same or
decreases, the rent payable herein shall remain the same as the preceding
three (3) year period. In the event the CPI is no longer reported, an
equivalent measure will be used.
This Amendment shall have an effective date of January 1, 1990. All other
provisions of the Lease, including date of termination, shall continue in full
force and effect.
IN WITNESS WHEREOF: The Parties hereto have set their hands this 13th day of
March, 1990 at Marlow, New Hampshire.
Gallup & Hall (Landlord)
/s/ Steve Markiewicz By: /s/ David Hall
- -------------------- --------------
David Hall, Partner
By: /s/ Patricia Gallup
-------------------
Patricia Gallup, Partner
<PAGE>
PC Connection, Inc. (Tenant)
_______________________________ By: /s/ Ronald J. Karvosky
----------------------
Ronald J. Karvosky, Controller
<PAGE>
EXHIBIT 10.8
LEASE AGREEMENT
1. PARTIES
This Lease Agreement is entered into as of the 22nd day of June, 1993, by
and between Dataproducts Corporation, a Delaware Corporation ("Lessor"),
and PC Connection, Inc., a New Hampshire Corporation with offices at 6 Mill
Street, Marlow, New Hampshire 03456 ("Lessee").
2. PREMISES
Lessor leases to Lessee and Lessee hires from Lessor the following
described Premises, situated in the City of Milford, County of Hillsboro,
State of New Hampshire commonly known and described as 582 Route 13 South:
24,000 square feet of office space on the second floor of the building at
that location as shown in Exhibit "A" hereto. Lessee shall have access to
the Premises via its own entrance. Lessee shall have access to all drives,
walks and common hallways and may use as many parking spaces as necessary
for its employees and visitors, subject to a mutually agreeable parking
agreement to be negotiated by the parties.
3. RENTAL
Lessee shall pay to Lessor as rent for the Premises in advance on the first
day of each calendar month of the term of this Lease without deduction,
offset, prior notice or demand, in lawful money of the United States the
sum of Eight Thousand Dollars ($8,000.00).
The rental payable hereunder includes all utilities and all utility
connections (including water, sewer, heat, light, electricity, gas, power,
air conditioning, and rubbish removal), real estate taxes, parking,
security, maintenance and repair. In the event Lessee or any of its
employees, agents or invitees causes, through negligence or misconduct, any
damage to the Premises which is not normal wear and tear, Lessor shall have
the right to repair same and invoice Lessee for the cost thereof, which
invoice Lessee shall promptly pay.
4. TERM
The term of this Lease shall be for a period of 48 months commencing on
July 15, 1993 and ending on July 14, 1997, except that if Lessor shall sell
or totally lease the building of which the Premises are a part, this Lease
shall terminate upon 150 days' notice to Lessee.
5. RENEWAL AND EXPANSION OPTIONS
Lessee has the option to extend this Lease for an additional term of 12
months
<PAGE>
(subject to the same 150 days' notice of termination by Lessor as set forth
in paragraph 4, above) by notifying Lessor, in writing, 30 days prior to
the end of the initial term.
Lessor shall offer to Lessee the opportunity to lease additional like space
(i.e., suitable for offices) in the building, upon the same rental and
terms of this Lease at Lessee's request if such space is then available for
lease, and also before offering such space for lease to other prospective
tenants and shall not consummate such a lease with others at a lower rental
rate than offered to Lessee without first re-offering such space to Lessee
at such lower rent. Any such initial offer to Lessee shall be for a term
that ends on the same date as this Lease, but if Lessee declines such
offer, Lessor may so offer such space to others for any term. In all such
initial or subsequent offers to lease, Lessee shall have ten days to accept
Lessor's offer to lease after which time Lessor may consummate its lease
with another party.
Lessee shall not lease or rent any space on this property to competitors of
the Lessee, which shall be defined on Exhibit "B" hereto.
6. USE
Lessee shall use the Premises for administration and general office, and
for no other purpose without written consent of Lessor.
7. SECURITY
Prior to possession, Lessee shall pay to Lessor the sum of Eight Thousand
Dollars ($8,000.00) to be held by Lessor as a security deposit. In the
event Lessor in its reasonable discretion, determines that Lessee damaged
the Premises, or in the event Lesser fails to pay rent, Lessor may deduct
such sums from the security deposit and shall not be obligated to Lessor
for that portion of the security deposit. Lessee shall then replenish the
security deposit to its full original amount. At the termination of the
Lease, if the Lessor has no claim against the security deposit, it (or the
remaining portion of it) shall be returned to the Lessee.
8. IMPROVEMENTS
The Premises are leased in "as is" condition. Lessee shall take occupancy
of the Premises with existing offices. Any additional facilities
requirements will be the financial responsibility of the Lessee. Lessee
shall make no alterations to the Premises without the written authorization
of Lessor. In the event Lessee makes alterations to the Premises, Lessee
shall be entitled, at the end of the Lease term, to remove such
alterations, including fixtures, provided removal does not damage the
Premises.
<PAGE>
9. NOTICES
All notices or demands of any kind required or desired to be given by
Lessor or Lessee hereunder shall be in writing and shall be deposited in
the United States mail, certified or registered mail, postage prepaid,
addressed to the Lessor or Lessee, as the case may be, at the address set
forth after their signatures at the end of this Lease. All rent and other
payments due under this Lease shall be made by Lessee to Lessor at the same
address.
10. TOXIC CONTAMINATION DISCLOSURE
Lessee acknowledges that it has been advised that numerous federal, state
and/or local laws, ordinances and regulations ("Law") affect the existence
and removal, storage, disposal, leakage of and contamination by materials
designated as hazardous or toxic ("Toxins"). Many materials, some utilized
in everyday business activities and property maintenance, are designated as
hazardous or toxic.
Some of the Laws require that Toxins be removed or cleaned up by
landowners, future landowners, former landowners or tenants without regard
to whether the party required to pay for "clean up" caused the
contamination, owned the property at the time the contamination occurred or
even knew about the contamination. Some items, such as asbestos or PCB's,
which were legal when installed, now are classified as Toxins, and are
subject to removal requirements. Civil lawsuits for damages resulting from
Toxins may be filed by third parties in certain circumstances.
Lessor agrees to indemnify and hold the Lessee harmless from any actions,
claims or judgments made against the Lessee resulting from toxic or
hazardous waste contamination on the Premises, including the real property
on which the Premises are located, provided, however, that this indemnity
shall not apply to any contamination caused by Lessee.
11. PERFORMANCE
A. In the event Lessee defaults in or fails to perform any of its
obligations under this Lease with respect to the Premises, Lessor may
cure such default or perform such obligation, and the amount paid by
Lessor to do same shall be immediately repaid to Lessor by Lessee.
B. In the event of any breach of this Lease by Lessee, which is not cured
by Lessee within 10 days after written notice from Lessor, Lessor
shall be entitled to terminate this Lease and recover all of its
legally allowable damages. Lessor shall also be entitled to recover
its reasonable attorneys' fees and other costs in addition to the
damages caused by such breach.
<PAGE>
12. INSURANCE
Lessee shall provide evidence of insurance to Lessor (in the form of a
certificate of insurance) and at its own expense shall obtain and keep in
force during the term of this Lease a policy of combined Single Limit,
Bodily Injury and Property Damage Insurance, insuring Lessor against any
liability arising out of the use or occupancy by Lessee of the Premises and
all areas appurtenant thereto.
Such insurance shall be a Combined Single Limit Policy in an amount not
less than $1,000,000.00 per occurrence and shall name Lessor as an
additional insured. Insurance required hereunder shall be in companies
holding a General Policy Holders rating of at least B+.
Lessee shall provide Lessor a certificate of insurance with evidence of
Worker Compensation coverage with the statutory limits and Employers
liability of $1,000,000.00
Lessor shall maintain adequate fire and hazard insurance (all risk policy)
and general liability insurance (including bodily injury and property
damage) in an amount no less than $1,000,000 on the Premises. Policies of
insurance shall be presented for review upon request of the Lessee.
13. QUIET ENJOYMENT
Lessor warrants that it is the true owner of record of the Premises. Lessor
covenants that so long as Lessee pays the rent and performs its covenants,
Lessee shall peaceably and quietly have, hold, enjoy and have the exclusive
use of the Premises for the term provided subject to the terms and
conditions of the Lease.
14. ENTIRE AGREEMENT
This Lease Agreement represents the entire and exclusive understanding
between the parties; shall be binding on the parties, their heirs, legal
representatives, assigns and successors; and is subject to and shall be
construed under the laws of the State of New Hampshire. Failure to exercise
any rights herein shall not prejudice the parties in any future exercise of
their rights.
ACCEPTED:
LESSEE: LESSOR:
PC CONNECTION, INC. DATAPRODUCTS CORPORATION
6 Mill Street 6219 DeSoto Avenue
Marlow, New Hampshire 03456 Woodland Hills, California 91367
<PAGE>
By: /s/ David Hall By: /s/ E. H. Hemmer
-------------- -----------------------------
(Authorized Signature) (Authorized Signature)
Name: David Hall Name: William S. Mieth
---------------------- ---------------------------
(Type or Print) (Type or Print)
Title: Executive Vice President Title: Senior Vice President
<PAGE>
Exhibit A may be obtained by written request from the Registrant.
<PAGE>
EXHIBIT B
Competitors of Lessee shall mean direct resellers of computers, hardware or
software or any combination thereof. Without limitation, the following are
examples of competitors: Microwarehouse, Dell, Zeos, Egghead, Compaq, DEC
Direct, Lotus, Etc.
<PAGE>
ADDENDUM TO LEASE
This Addendum modifies the Lease made July 7, 1993 by and between Dataproducts
Corporation (Lessor) and PC Connection, Inc. (Lessee).
# Modification
1. Add at end of Section 4: "Lessee may terminate this Lease at any time upon
150 days written notice to Lessor."
Agreed:
Dataproducts Corporation
by: /s/ E. H. Hemmer
------------------------
PC Connection, Inc.
by: /s/ David Hall
---------------------------
David Hall, Executive Vice President
<PAGE>
EXHIBIT 10.9
LEASE AGREEMENT
(Multi-Tenant Office Building, Triple Net)
CENTURY PARK, LLC
(Landlord)
To
PC CONNECTION, INC.
(Tenant)
Century Park
Hudson, New Hampshire
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
ARTICLE I LEASED PREMISES; CONSTRUCTION
ARTICLE II TERM OF LEASE
ARTICLE III OPTION TO RENEW
ARTICLE IV RENT;
ARTICLE V SECURITY DEPOSIT;
ARTICLE VI QUIET ENJOYMENT
ARTICLE VII COMMON AREAS OF THE OFFICE BUILDING; MAINTENANCE THEREOF
ARTICLE VIII CONDITION OF LEASED PREMISES; REPAIRS
ARTICLE IX IMPROVEMENTS BY TENANT
ARTICLE X MACHINERY AND EQUIPMENT - TRADE FIXTURES
ARTICLE XI UTILITIES
ARTICLE XII USE OF LEASED PREMISES
ARTICLE XIII HAZARDOUS WASTE OR SUBSTANCES
ARTICLE XIV ASSIGNMENT; SUBLEASING
ARTICLE XV TAXES AND ASSESSMENTS
ARTICLE XVI MECHANIC'S LIEN
ARTICLE XVII EMINENT DOMAIN
ARTICLE XVIII LIABILITY; INDEMNIFICATION
ARTICLE XIX RULES AND REGULATIONS
ARTICLE XX LANDLORD'S INSURANCE
ARTICLE XXI TENANT'S INSURANCE
ARTICLE XXII DESTRUCTION OR DAMAGE
ARTICLE XXIII REPOSSESSION BY LANDLORD
ARTICLE XXIV MORTGAGE LIEN
ARTICLE XXV DEFAULT
ARTICLE XXVI ACCESS TO LEASED PREMISES
ARTICLE XXVII NOTICES
ARTICLE XXVIII SIGNS; EXTERIOR APPEARANCE; PYLON; SIGN
ARTICLE XXIX SHORT FORM RECORDING
ARTICLE XXX NO BROKER
ARTICLE XXXI WARRANTIES AND REPRESENTATIONS OF TENANT
ARTICLE XXXII SUCCESSION
ARTICLE XXXIII WAIVER
ARTICLE XXXIV GOVERNING LAW
ARTICLE XXXV COUNTERPARTS
ARTICLE XXXVI MODIFICATION; ENTIRE AGREEMENT
ARTICLE XXXVII SECTION HEADINGS
ARTICLE XXXVIII SEVERABILITY
ARTICLE XXXIX PARKING
ARTICLE XL INTERPRETATION
</TABLE>
-i-
<PAGE>
Exhibit A Floor Plans
Exhibit A-2 Legal Description
Exhibit B Tenant's Work
Exhibit C Landlord's Work
Exhibit D Letter of Credit
Exhibit E Credit, Bank and Trade References for Tenant
Exhibit F Rules and Regulations
Exhibit G Collateral Assignment of Lease form
Exhibit H Landlord's Consent to Collateral Assignment of Lease form
-ii-
<PAGE>
LEASE dated this 1st day of October, 1997, by and between CENTURY PARK,
LLC, a New Hampshire limited liability company with an address of c/o Oreo
Marketing Corporation, 124 Indian Rock Road, Windham, NH 03087 ("Landlord") and
PC CONNECTION, INC., a New Hampshire corporation, with an address of 528 Route
13 South, Milford, New Hampshire 03055 ("Tenant").
WITNESSETH:
ARTICLE I - LEASED PREMISES; CONSTRUCTION
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, upon and subject to the terms and provisions of this Lease, an area of
approximately Eight Thousand Three Hundred Eighty-Seven (8,387) square feet, as
cross-hatched on the plan attached hereto as Exhibit A-1 (the "Leased
Premises"), which area is a part of an office building or buildings known as
Century Park located upon a lot or parcel of land situated in the Town of
Hudson, County of Hillsborough, New Hampshire, as more particularly described in
Exhibit A-2 attached hereto, together with such additions and extensions as
Landlord may from time to time designate as included within the office building
or buildings (the "Office Building"). This is a "net, net, net lease" and Tenant
shall pay Tenant's Proportionate Share (hereinafter defined) of all expenses
incurred in connection with the operation of the Office Building so that the
Base Rent described in Article IV will be entirely "net" to Landlord, except for
(a) interest and amortization on mortgages encumbering the fee title at any time
and (b) any estate, inheritance, income or personal taxes of Landlord.
1.2 (a) All work performed by Tenant shall be performed at Tenant's sole
risk and in accordance with good construction practices, applicable legal
requirements and insurance requirements. Tenant leases the Lease Premises in an
"as is" condition, excluding Landlord's Work (hereinafter defined) and all
required interior improvements as described in Exhibit B attached hereto,
including, but not limited to, heating, ventilation and air conditioning
("HVAC"), lighting, electrical, plumbing, separate metering for all electrical
and other utilities servicing the Leased Premises, installation of a transformer
and ventilation for the new HVAC unit, design and permits, shall be the sole
responsibility and cost of Tenant (the "Tenant's Work"). The Tenant's Work shall
be installed and constructed in accordance with the provisions of this Lease,
including, but not limited to, Article IX.
(b) Landlord shall purchase and install, at Landlord's sole cost and
expense, one (1) HVAC unit, renovate existing bathrooms and install a new
handicap bathroom as shown on Exhibit C attached hereto ("Landlord's Work").
1.3 For all purposes in this Lease, the term "Tenant's Proportionate
Share" shall mean six and sixty-three hundredths percent (6.63%), which is the
ratio that the gross square feet of the Leased Premises of Eight thousand five
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hundred sixty (8,560)
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square feet plus a common area factor of ten percent (10%), totaling Nine
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thousand four hundred sixteen (9,416) square feet bears to the total rentable
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square feet of the Office Building (which is One hundred forty-two-thousand
eighty-nine (142,089)) square feet. Landlord may adjust, at its option, the
Tenant's Proportionate Share in the event that the rentable square feet in the
Office Building changes. In the event of such adjustment, Landlord shall give
Tenant notice in writing of the new Tenant's Proportionate Share which shall
become effective on the first (1st) day of the month following the notice.
ARTICLE II - TERM OF LEASE
2.1 The initial term of this Lease is for a period of one (1) year, which
period will commence on September 1, 1997 (the "Commencement Date") and
terminate on August 31, 1998.
2.2 The term "Lease Year" shall mean each twelve (12) full months
following the first such Lease Year.
2.3 If Tenant holds over after the expiration of this term or any
exercised option term without objection from Landlord, then such holding over
will not extend the term of this Lease, but will create a month-to-month tenancy
under the same conditions as this Lease except that rent shall be paid in the
amount of 200% the base rent set forth in Section 4.1 hereof.
ARTICLE III - OPTION TO RENEW
3.1 Tenant shall have the option to renew the Lease for four (4)
additional terms of one (1) year each. Said options may be exercised by given
notice to Landlord on or before three (3) months prior to expiration of the
then-current term of the Lease of Tenant's intent to exercise the option. As a
condition to the right to renew this Lease for each renewal term, Tenant shall
furnish to Landlord credit, bank and trade references in the form and with the
same or greater financial quality as the references attached hereto as Exhibit
E. If Tenant fails to exercise an option to renew, then all further options
renew expire, and the Lease shall terminate and the end of the then-current
term.
ARTICLE IV - RENT; TENANT'S FINANCIAL CONDITION
4.1 Tenant shall pay Landlord (at the address specified in Article XXVIII
hereof), based upon nine thousand four hundred sixteen (9,416) square feet which
is the gross square feet of the Leased Premises plus a common area factor of ten
----
percent (10%), as base rent for the Leased Premises during the initial term of
this Lease, the sum of Four Dollars and Fifty Cents ($4.50) per square foot,
which is Forty-Two Thousand Three Hundred Seventy-Two Dollars ($42,372) (the
"Base Rent"), payable in
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equal monthly installments of Three Thousand Five Hundred Thirty-One Dollars
($3,531).
4.2 Tenant shall pay Landlord (at the address specified in Article XXVIII
hereof), as "Base Rent" for the Leased Premises for the renewal terms the
following amounts:
(a) The sum of Five Dollars ($5.00) per square foot, Forty-Seven Thousand
Eighty Dollars ($47,080) for the second Lease Year, payable in equal
monthly installments of Three Thousand Nine Hundred Twenty-Three
Dollars and Thirty-Four Cents ($3,923.34);
(b) The sum of Five Dollars and Fifty Cents ($5.50) per square foot,
Fifty-One Thousand Seven Hundred Eighty-Eight Dollars ($51,788) for
the third Lease Year payable in equal monthly installments of Four
Thousand Three Hundred Fifteen Dollars and Sixty-Seven Cents
($4,315.67);
(c) The sum of Six Dollars ($6.00) per square foot, Fifty-Six Thousand
Four Hundred Ninety-Six Dollars ($56,496) for the fourth Lease Year
payable in equal monthly installments of Four Thousand Seven Hundred
Eight Dollars ($4,708); and
(d) The sum of Seven Dollars ($7.00) per square foot, Sixty-Five Thousand
Nine Hundred Twelve Dollars ($65,912) for the fifth Lease Year payable
in equal monthly installments of Five Thousand Four Hundred Ninety-Two
Dollars and Sixty-Seven Cents ($5492.67).
4.3 All rent is payable in advance, without demand, in fixed monthly
installments of one twelfth of the then-current yearly Base Rate on or before
the first day of each and every month during the term hereof. If this lease
begins on any day other than the first (1st) of any calendar month, then the
rent for the first month will be prorated for the number of days in that month
that this lease is effective. A similar proration will be made for the end of
the term.
4.4 The Base Rent and all other sums payable by Tenant hereunder shall be
referred to as "Rent". For further sums payable by Tenant as Rent (sometimes
called "Additional Rent") see Articles VII, VIII, XI, XV and XX.
4.5 It is understood that the Base Rent, Monthly Estimated Common Area
Maintenance Charge, Tenant Proportionate Share of Real Estate Taxes (hereinafter
defined) and Insurance Premiums (hereinafter defined) is payable on or before
the first day of each month without offset or deduction of any nature. In the
event such Rent is not received when due or any check tendered to Landlord is
returned to
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Landlord as uncollectible, Tenant shall pay the applicable service charges set
forth in this Section 4.5, which Landlord and Tenant agree are a fair and
reasonable estimate of the costs to be incurred by Landlord by reason of such
late payment. The service charge for a late payment shall be an amount equal to
five percent (5%) of any installment of rent and other charges past due for more
than five (5) days; provided, however, interest on such past due installment and
late payment charge shall accrue at the rate of eighteen percent (18%) per annum
after the thirtieth (30th) day such installment is past due until paid. The
service charge for a returned check shall be One Hundred Dollars ($100). In no
event shall the aggregate of the interest to be paid by Tenant, plus any other
amounts paid in connection with the transaction evidenced hereby which would
under applicable law be deemed "interest", ever exceed the maximum amount of
interest which, under applicable law, could be lawfully charged to Tenant
hereunder (the "Maximum Rate"). Therefore, none of the terms of this Lease shall
ever be construed to create a contract to pay interest at a rate in excess of
the Maximum Rate, and Tenant shall not be liable for interest in excess of that
determined at the Maximum Rate, and the provisions of this Section shall control
all other provisions of this Lease. If any amount of interest taken or received
by Landlord shall be in excess of the maximum amount of interest which, under
applicable law, could lawfully have been collected under this Lease, then the
excess shall be deemed to have been the result of a mathematical error by
Landlord and Tenant and shall be refunded promptly to Tenant.
4.6 Any payment by Tenant or acceptance by Landlord of an amount less than
that due under the terms hereof will be treated as a payment on account,
regardless of any endorsement appearing on any such check or any statement made
by Tenant to the contrary.
ARTICLE V - SECURITY DEPOSIT; LETTER OF CREDIT
5.1 Upon the execution hereof, and prior to the commencement of the lease
term under Article II hereof, Tenant shall pay to and deposit with Landlord the
sum of Five Thousand Dollars ($5,000), as security for the full and faithful
performance by Tenant of all the terms of this Lease required to be performed by
Tenant, including, but not limited to, the obligations of Tenant under Section
8.5 of this Lease. Landlord may use, apply, or retain the whole or any part of
the money deposited as security hereunder to the extent required for the payment
of any rent and additional rent or other sum(s) as to which Tenant is in default
or for any sum(s) which Landlord may expend or may be required to expend by
reason of Tenant's default in respect of any of the conditions of this Lease,
including, but not limited to, any damages or deficiency in reletting of the
Leased Premises whether such damages or deficiency accrued before or after
summary proceedings or other reentry by Landlord or the failure of Tenant to
comply with the provision of Section 8.5 of this Lease. In the event of
Landlord's sale or lease of the Leased Premises of which the Leased Premises
forms a part, Landlord shall have the right to transfer said security deposit
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to the purchaser or lessee, and Landlord shall thereupon be released from all
liability for the return of such security deposit. In the event of such a
transfer, Tenant shall look solely to said transferee for the return of said
security deposit. Tenant shall not assign or encumber the money deposited as
security without the prior written consent of Landlord, and Tenant agrees that
neither Landlord nor its successors and assigns shall be bound by any such
assignment or encumbrance. Tenant agrees that the money deposited as security
hereunder will not be used to pay the Rent for the last month of the term hereof
without the prior written consent of Landlord. Tenant shall be entitled to
interest at money market rates on the money deposited as security hereunder.
Subject to the terms of this Section, in the event that Tenant shall comply with
all of the terms of this Lease, the money deposited as security hereunder will
be returned to Tenant at the expiration of the term hereof and after delivery of
possession of the Leased Premises to Landlord.
5.2 As a condition to the exercise of the fourth option to renew this
Lease as set forth in Section 3.1 hereof, Tenant shall deliver to Landlord a
Letter of Credit in the form attached hereto as Exhibit D in the amount equal to
four (4) months Base Rent for the fifth Lease Year of this Lease, which Letter
of Credit may be drawn upon by Landlord in the event of a default by Tenant
under the terms of this Lease.
ARTICLE VI - QUIET ENJOYMENT
6.1 Landlord shall put Tenant into possession of the Leased Premises on
the Commencement Date, and Tenant, upon paying the rent and observing the other
covenants and conditions herein, upon its part to be observed, shall peaceably
and quietly hold and enjoy the Leased Premises. Notwithstanding the provisions
of the foregoing sentence, Tenant acknowledges that the Office Building and the
surrounding site shall be under renovation, and at various times during the term
of this Lease, and agrees that any such renovation shall not be a violation of
Tenant's right of quiet enjoyment.
ARTICLE VII - COMMON AREAS OF THE OFFICE BUILDING; MAINTENANCE THEREOF
7.1 The term "Common Area" is defined for all purposes of this Lease as
that part of the Office Building intended for the common use of all tenants,
including among other facilities (as such may be applicable to the Office
Building) parking areas, private streets and alleys, landscaping, curbs, loading
areas, sidewalks, lobbies, hallways, lighting facilities, drinking fountains,
meeting rooms, public toilets, and the like but excluding space in buildings
(now or hereafter existing) designed for rental for commercial purposes, as the
same may exist from time to time, and further excluding streets and alleys
maintained by a public authority. Landlord reserves the right to change from
time to time the dimensions and location of the Common Area, as well as the
dimensions, identity and type of any buildings in the Office Building.
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Tenant, its employees and customers, and, when duly authorized pursuant to the
provisions of this Lease, its subtenants, licensees and concessionaires, shall
have the nonexclusive right to use the Common Area as constituted from time to
time. Such use shall be in common with Landlord, other tenants in the Office
Building and other persons permitted by Landlord to use the same, and shall be
subject to such reasonable rules and regulations governing use as Landlord may
from time to time prescribe, including the designation of specific areas within
the Office Building or in reasonable proximity thereto, in which automobiles
owned by Tenant, its employees, subtenants, licensees and concessionaires shall
be parked. Tenant shall not take any action which would interfere with the
rights of other persons to use the Common Area. Landlord may temporarily close
any part of the Common Area for such periods of times as may be necessary to
make repairs or alterations or to prevent the public from obtaining prescriptive
rights. Landlord shall be responsible for the operation, management, and
maintenance of the Common Area, the manner of maintenance and the expenditures
therefor to be in the sole discretion of Landlord.
7.2 (a) In addition to Monthly Rent and any other charges prescribed in
this Lease, Tenant shall pay to Landlord Tenant's Proportionate Share of the
cost of ownership, operation and maintenance of the Common Area (including,
among other costs, those for lighting, management and administrative costs not
to exceed $0.50 per square foot, painting, cleaning, policing, inspecting,
repairing, replacing, and removing of snow and ice from the Common Area, and the
cost of heating, cooling, water, sewer, electricity, fuel oil, natural gas and
other utilities for any lobbies and hallways, and, in the event that the Leased
Premises and other areas of the Office Building which are leased are not
separately metered for utilities, the costs of electricity, heating, cooling and
other utilities servicing the Office Building) which may be incurred by Landlord
in its discretion, including the cost of maintaining and repairing all utility
mains, lines, conduits and other facilities located on, above or under the
Common Area (collectively, the "Common Area Maintenance Charges").
(b) During the first year of this Lease, Tenant will pay Landlord a
"Monthly Estimated Common Area Maintenance Charge" in the amount of One Thousand
Five Hundred Dollars ($1,500), monthly in advance, payable at the same time and
place as the Monthly Rent is payable, except, however, if the Lease Term does
not begin on the first day of a calendar month, Tenant shall pay a pro rata
portion of such sum for such partial month. Landlord shall have the right to
adjust such monthly estimate on an annual basis, pursuant to the following
paragraph.
(c) At the end of each calendar year occurring during the Term of this
Lease (or subsequent to the expiration or other termination of this Lease, if
such occurs on a date other than the last day of a calendar year), Landlord will
give Tenant notice of the total amount paid by Tenant for the relevant calendar
year together with the actual amount of Tenant's Proportionate Share of the
Common Area Maintenance Charges (the "Total Cost") for such calendar year. If
the actual
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amount of Tenant's Proportionate Share of the Total Cost with respect to such
period exceeds the aggregate amount previously paid by Tenant with respect
thereto during such period, Tenant shall pay to Landlord the deficiency within
15 days following notice from Landlord; however, if the aggregate amount
previously paid by Tenant with respect thereto exceeds Tenant's Proportionate
Share of the Total Cost for such period, then, at Landlord's election, such
surplus (net of any amount then owing by Tenant to Landlord) shall be credited
against the next ensuing installment of any such cost due hereunder by Tenant or
against any other amount of Rent owing by Tenant to Landlord hereunder, or
Landlord may remind such net surplus to Tenant. Periodically, during the Term of
this Lease, Landlord shall have the right to estimate Tenant's Proportionate
Share of Common Area Maintenance Charges for the next fiscal period (determined
by Landlord) of the Term of this Lease, whereupon, Tenant shall pay Landlord
such amounts as may be so indicated by Landlord in the same manner as the
Monthly Estimated Common Area Maintenance Charge. Tenant shall have the right,
upon thirty (30) days prior written notice, to inspect Landlord's records
relating to such charges, such right to be limited to one time per year.
7.3 Tenant shall not permit its employees to park in the parking areas
overnight for more than three (3) nights, nor to allow unregistered vehicles to
be parked on the property. Tenant agrees to indemnify Landlord, its employees,
and agents, except the towing operator, and holds each of them harmless from any
and all claims of whatsoever nature which may arise by reason of Landlord's
removal of unauthorized vehicles. Landlord may from time to time substitute for
any parking area other areas reasonably accessible to the tenants of the Office
Building, which areas may be elevated, surface or underground.
ARTICLE VIII - CONDITION OF LEASED PREMISES; REPAIRS
8.1 Subject to the terms of Article I of this Lease, Tenant accepts the
Office Building, improvements, and any equipment or fixtures on or in the Leased
Premises "as is" and in their existing condition and agrees that no
representation, statement or warranty, express or implied, has been made by or
on behalf of Landlord as to such condition, or as to the use that may be made of
such property.
8.2 If the Leased Premises is now, or at any time during the term of this
Lease becomes, a "Public Accommodation" under the Americans with Disabilities
Act of 1990 (the "ADA"), Tenant shall, at its sole expense, subject to the terms
of Article I of this Lease, be responsible for (i) compliance with Title III of
the ADA to the extent that the ADA imposes obligations on the procedure and
design of any alterations to the Leased Premises made by Tenant, and (ii) making
modifications in its policies, practices and procedures in connection with the
operating of Tenant's business. If a failure to make such modifications
constitutes a violation of the ADA, Tenant shall indemnify and hold harmless
Landlord with respect to its failure to comply with the
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foregoing responsibilities. Any work to be performed Tenant pursuant to this
Section 8.2 shall be governed by all the provisions set forth in Section 9.1
below.
8.3 Landlord shall maintain in good repair the structural integrity of the
roof, and exterior walls of the Leased Premises, and the structural beams,
structural columns and other structural parts of the Leased Premises, and the
cost of such amount shall be reimbursed to Landlord as part of the Common Area
Maintenance Charges. Tenant shall keep, during the term hereof, at its own cost
and expense, both the interior of the Leased Premises, excluding the structural
integrity of the roof and exterior walls, in as good condition as the same was
after the completion of Tenant's Work, reasonable wear and tear, taking by
eminent domain and damage due to fire or casualty insured against excepted.
Tenant shall replace, at its own cost and expense, damaged, broken or scratched
window glass, if any, of the same kind and quality, reasonable wear and tear,
taking by eminent domain and damage due to fire or other casualty insured
against excepted. Tenant shall replace and/or repair, at its own cost and
expense, all light bulbs and lighting fixtures which are damaged, broken or
cease to function during the term hereof, with bulbs or fixtures of the same
kind and quality. In addition, Tenant shall maintain, repair and replace the
HVAC servicing the Leased Premises and shall maintain a service contract for the
servicing of the HVAC, a copy of which shall be furnished to Landlord, excluding
Landlord's Work.
8.4 Tenant shall take good care of the Leased Premises and keep the same
free from waste at all times. Tenant shall keep the Leased Premises and
sidewalks, service-ways and loading areas adjacent to the Leased Premises neat,
clean and free from dirt or rubbish at all times, and shall store all trash and
garbage within the Leased Premises, arranging for the regular pick-up of such
trash and garbage at Tenant's expense. Removal of garbage and trash shall be
made only in the manner and areas prescribed by Landlord as Tenant is notified.
Tenant shall arrange for the regular pick up of trash and refuse at Tenant's
expense, unless Landlord provides other refuse service, in which case Tenant
shall use such other refuse service and pay the cost of such service as
specified by Landlord. Tenant shall not operate an incinerator or burn trash or
garbage within or outside the Office Building. Tenant shall procure at its sole
expense all permits and licenses required for the transaction of business in the
Leased Premises and otherwise comply with all applicable laws, ordinances, and
governmental regulations affecting the Office Building, including those relating
to Hazardous Waste or Substance (hereinafter defined) now in force or that may
be hereafter enacted or promulgated.
8.5 At the end of the term of this Lease and all exercised renewal terms,
or upon an earlier termination of this Lease, Tenant shall return the Leased
Premises to Landlord in the same condition as the Leased Premises will be upon
the completion of Tenant's Work, ordinary wear and tear excepted, with all
maintenance obligations of Tenant under this Lease having been performed; and
Tenant shall repaint, repair
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holes or damage to walls, replace burned out light bulbs, clean carpets, replace
ceiling tiles and complete any deferred maintenance prior to the time the Lease
Premises are returned to Landlord.
ARTICLE IX - IMPROVEMENTS BY TENANT
9.1 Tenant shall not make or allow to be made any alterations,
installations, additions or improvement in or to the Leased Premises, or place
safes, vaults or any other heavy furniture or equipment within the Leased
Premises, without Landlord prior written consent, which consent shall not be
unreasonably withheld or delayed. Any such alterations, additions or
improvements to the Leased Premises shall be governed by the following terms:
(a) No such alteration, addition or improvement lessens the fair market
value of the Leased Premises or the Office Building and all such improvements
are performed in class and quality at least equal to the original construction
work;
(b) All work for any such alteration, addition or improvement shall be
performed by a contractor reasonably satisfactory to Landlord prior to the
commencement of the work, and Landlord shall approve the construction contract
which shall be between the Tenant and the approved contractor;
(c) Prior to the commencement of work on any such alteration, addition or
improvement, Tenant shall procure, at its own cost and expense, all necessary
permits; furthermore, the plans and specifications covering the same will have
been submitted to and approved by (i) Landlord, (ii) all municipal or other
governmental departments or agencies having jurisdiction over the subject matter
thereof, and (iii) any mortgagee having an interest in or lien upon the Leased
Premises or the Office Building if required by the terms of the mortgage, it
being understood that Landlord will not unreasonably refuse to join in any
application to any such mortgagee or governmental agency to obtain such approval
with respect to any reasonable alteration, addition or improvement;
(d) In carrying out all such alterations, additions and improvements,
Tenant shall comply with the standards, guidelines and specifications imposed by
all municipal or other governmental departments and agencies having jurisdiction
over the same, including without limitation, all building codes;
(e) Prior to the commencement of work on any such alteration, addition or
improvements, Tenant shall have procured and delivered to Landlord the policy of
Builder's Risk insurance hereinafter referred to in Section 21.2 hereof or
additional fire and extended coverage insurance as required by Section 21.3
hereof, whichever is applicable;
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(f) All work shall be completed promptly and in a good and workman like
manner and shall be performed in such a manner that no mechanic's, materialmen's
or other similar liens shall attach to Tenant's leasehold estate, and in no
event shall Tenant permit, or be authorized to permit, any such liens or other
claims to be asserted against Landlord or Landlord's rights, estate and interest
with respect to the Leased Premises or the Office Building; and at the
completion of all work Tenant shall obtain waivers of mechanic's and
materialmen's liens from all persons performing work on or on furnished material
to the Leased Premises; and
(g) Any such alteration, addition or improvement made by Tenant pursuant to
the terms hereof shall, at the expiration of the term hereof become and remain
the property of Landlord, provided, however, that Landlord may, at its option
and upon notice to Tenant not less than ninety (90) days prior to such
expiration, require Tenant to remove any such alterations, additions, and
improvements and to restore the Leased Premises to their condition as at the
beginning of the term hereof, reasonable wear and tear, taking by eminent domain
and damage due to fire or other casualty insured against excepted.
ARTICLE X - MACHINERY AND EQUIPMENT - TRADE FIXTURES
10.1 All alterations, installations, additions or improvements, other than
moveable furniture and moveable trade fixtures, made by Tenant to the Leased
Premises shall remain upon and be surrendered with the Leased Premises and
become the property of Landlord at the expiration or termination of this Lease
or the termination of Tenant's right to possession of the Leased Premises;
provided, however, that Landlord may require Tenant, at Tenants cost, to remove
any and all of such items that are not building standard within ten (10) days
following the expiration or termination of this Lease, or the termination of
Tenant's right to possession of the Leased Premises. Tenant, at its sole cost
and within ten (10) days following the expiration or termination of this Lease,
shall remove all of Tenant's property from the Leased Premises. Any such
property which may be removed pursuant to the preceding sentence and which is
not so removed prior to the expiration or earlier termination of this Lease may
be removed from the Leased Premises by Landlord and stored for the account of
Tenant; and if Tenant fails to reclaim such property within thirty (30) days
following such expiration or earlier termination of this Lease, then such
property will be deemed to have been abandoned by Tenant, and may be
appropriated, sold, destroyed or otherwise disposed of by Landlord without
notice to Tenant and without obligation to account therefor. Tenant shall pay
to Landlord the cost incurred by Landlord in removing, storing, selling,
destroying or otherwise disposing of any such property.
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ARTICLE XI - UTILITIES
11.1 If the following utilities are, or are to be, separately provided to
the Leased Premises, Tenant shall make arrangements for and pay when due all
charges for gas, oil, electricity, water, light, heat, air conditioning, sewer,
power, telephone and any other services used on or about or supplied to the
Leased Premises and shall indemnify Landlord against any liability on such
account. Landlord shall not be liable for any failure of water supply or
electric current or of any service by any utility; or injury to persons
(including death) or damage to property resulting from steam, gas, electricity,
water, rain or snow which may flow or leak from any part of the Leased Premises
or from any pipes, appliances or plumbing works, on the street or subsurface, or
from any other place; or for interference with light or other easements, unless
caused by Landlord's negligence.
11.2 Tenant shall, at its sole cost and expense, maintain, repair, change
and improve the electrical and other utility systems, including, but not limited
to, the transformers to be installed by Tenant, which are located within the
Leased Premises pursuant to Section 1.2 of this Lease. Any work performed by
Tenant under this Section 11.2 shall be governed by all of the terms contained
in Section 9.1 of this Lease.
ARTICLE XII - USE OF LEASED PREMISES
12.1 Without the prior written consent of Landlord, Tenant may use the
Leased Premises only for the purpose of telephone sales/call center and offices
and for other services and purposes reasonably incident thereto.
12.2 In its use of the Leased Premises, Tenant shall comply with all
statutes, ordinances and regulations applicable to the use thereof, including,
without limiting the generality of the foregoing, the Zoning Ordinances of the
Town of Hudson, New Hampshire, as now in effect or as hereafter amended.
12.3 Tenant shall not injure or deface, or commit waste with respect to the
Leased Premises nor occupy or use the Leased Premises, or permit or suffer any
part thereof to be occupied or used, for any unlawful or illegal business, use
or purpose, nor for any business, use or purpose deemed to be disreputable or
extra-hazardous, nor in such manner as to constitute a nuisance of any kind, nor
for any purpose nor in any manner in violation of any present or future laws,
rules, requirements, orders, directions, ordinances or regulations of any
governmental or lawful authority including Boards of Fire Underwriters. Tenant
shall, immediately upon the discovery of any such unlawful illegal, disreputable
or extra-hazardous use, take, at its own cost and expense, all necessary steps,
legal and equitable, to compel the discontinuance of such use and to oust and
remove the subtenants, occupants or other persons guilty of such unlawful,
illegal, disreputable or extra-hazardous use.
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12.4 Tenant shall procure any licenses or permits required by any use of
the Leased Premises by Tenant.
ARTICLE XIII - HAZARDOUS MATERIAL OR SUBSTANCES
13.1 Tenant shall not (either with or without negligence) cause or permit
the escape, disposal, release of any Hazardous Materials (as said term is
hereafter defined) on, in, upon or under the Property of the Leased Premises.
Tenant shall not allow Tenant to generate, store, use or dispose of such
Hazardous Materials in any manner not sanctioned by law for the generation,
storage, use and disposal of such Hazardous Materials, nor allow to be brought
into the Property any such Hazardous Materials except for use in the ordinary
course of Tenant's business and in compliance with all applicable laws, rules
and regulations. Tenant shall furnish to Landlord prior to Delivery of
Possession the Material Safety Data Sheets ("MSDS") for all Hazardous Materials
to be used by Tenant. No additional Hazardous Materials shall be used by Tenant
until delivery to Landlord of a MSDS pertaining thereto. Hazardous Materials
shall include, without limitation, any material or substance which is (i)
petroleum, (ii) asbestos, (iii) designated as a "hazardous substance" pursuant
to the Federal Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq. (33
U.S.C. (S)(S) 1321) or listed pursuant to (S)(S) 307 of the Federal Water
Pollution control Act (33 U.S.C. (S)(S) 1317), (iv) defined as a "hazardous
waste" pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S)
6901 et seq. (42 U.S.C. (S)(S) 6903), (v) defined as a "hazardous substance"
pursuant to the Comprehensive Environmental Response, compensation, and
Liability Act, 42 U.S.C. (S)(S) 9601 et seq. (42 U.S.C. (S)(S) 9601), as
amended, (vi) Superfund Amendment and Reauthorization Act of 1986,42 USC Section
6901 et. seq. (SARA, amending CERCLA); (vii) New Hampshire RSA 147 and 147-A
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and 147-B; (viii) any federal, state or local regulations, rules or orders
issued or promulgated, now or hereafter, under or pursuant to any of the
foregoing or otherwise by any department, agency or other administrative,
regulatory or judicial body; or (ix) defined as "oil" or a "hazardous waste", a
"hazardous substance", a "hazardous material" or a "toxic material" under any
other law, rule or regulation applicable to the Property. If Landlord, any
lender or any governmental agency shall ever require testing to ascertain
whether or not there has been any release of Hazardous Materials, then all cost
of such investigations there shall be borne by Tenant. In addition, Tenant
shall execute estoppel certificates and the like, from time to time, at
Landlord's reasonable request concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials on the Leased Premises introduced
or brought onto the Leased Premises by Tenant other than ordinary cleaning
fluids and/or fluids and other material commonly used for offices. In all
events, Tenant shall indemnify and save Landlord harmless from any release,
unlawful presence or unlawful existence of Hazardous Materials on the Leased
Premises. The covenants and indemnity and other provisions set forth in this
Section 13.1 shall survive the expiration or earlier termination of this Lease.
Landlord expressly reserves the right to enter the Leased Premises to perform
regular
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inspections upon reasonable notice to Tenant provided that same does not
interfere with Tenant's use of the Leased Premises.
13.2 Tenant warrants and acknowledges that at no time have funds been
expended from the State of New Hampshire's hazardous waste cleanup hind
established under R.S.A. 147-B with respect to any of Tenant's property located
within New Hampshire which would entitle the State to a so-called superlien
under R.S.A. 147-B:10 III. Tenant also acknowledges same with respect to
similar laws of any other state which liens might possibly affect the Leased
Premises. Tenant shall indemnify Landlord and hold Landlord harmless for any
liability imposed should the provisions of this Section 13.2 be or become
untrue. The provisions of this section will survive the expiration or
termination of this Lease.
13.3 Except for the above ground storage tank for heating oil, to
Landlord's best knowledge, there is no hazardous material stored in, under or
around the Lease Premises or the land on which the Leased Premises are situated,
and that there is no current or threatened governmental action relating to
environmental or hazardous waste cleanup in the Leased Premises.
ARTICLE XIV - ASSIGNMENT; SUBLEASING
14.1 Tenant shall not, voluntarily, by operation of law, or otherwise,
assign, transfer, mortgage, pledge or encumber this Lease or sublease the Leased
Premises or any part thereof, or grant a right to any person other than Tenant,
its employees, agents, servants and invitees to occupy or use the Leased
Premises or any portion thereof, without the express prior written consent of
Landlord; provided, however, Landlord agrees to consent to the collateral
assignment of this Lease in the form attached hereto as Exhibit G to Tenant's
Lender, such consent to be in the form attached hereto as Exhibit H. Any
attempt to do any of the foregoing without such written consent shall be null
and void and of no affect, and shall further constitute a material default under
this Lease. If Tenant so requests Landlord's consent, said request shall be in
writing specifying the duration of said desired sublease or assignment, the date
same is to occur, the exact location of the space affected thereby and the
proposed rentals on a square foot basis chargeable thereunder, and shall be
submitted to Landlord at least sixty (60) days in advance of the date on which
Tenant desires to make such assignment or sublease or allow such occupancy or
use. Upon such request, Landlord may, in its sole discretion, (i) grant such
consent subject to Landlord's approval of the assignee, transferee, subtenant or
mortgagee, or (ii) elect to terminate this Lease, or (iii) suspend this Lease as
to the space to be affected by such assignment, sublease or other event
specified above for the duration specified by Tenant in its notice, in which
event Tenant will be relieved of all obligations hereunder as to such space
during such suspension, including a suspension of the rent hereunder in
proportion to the portion of the Leased Premises affected thereby
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(but after said suspension, if the suspension is not for the full term hereof,
Tenant shall once again become liable hereunder as to the applicable space).
14.2 Tenant shall, despite any permitted assignment or sublease, remain
directly and primarily liable for the performance of all of the covenants,
duties and obligations of Tenant hereunder, and Landlord shall be permitted to
enforce the provisions of this Lease against Tenant or any assignee or subleasee
without demand upon or proceeding in any way against any other person; provided,
however, in the event of an assignment of this Lease with the Landlord's consent
to a new tenant which has financial ability which is the same or greater than
Tenant, which consent shall not be unreasonably withheld by Landlord, Tenant
shall be released from all liability under this Lease.
14.3 Consent by Landlord to a particular assignment or sublease shall not
be deemed a consent to any other subsequent transaction. If this Lease is
assigned or if the Leased Premises are subleased without the permission of
Landlord, then Landlord may nevertheless collect rent from the assignee or
subleasee and apply the net amount collected to the rent payable hereunder, but
no such transaction or collection of rent or application thereof by Landlord
shall be deemed a waiver of any provision hereof or a release of Tenant from the
performance of the obligations of the Tenant hereunder.
14.4 All cash or other proceeds of any assignment, sale or sublease of
Tenants interest in this Lease, whether consented to by Landlord or not, shall
be paid to Landlord notwithstanding the fact that such proceeds exceed the rent
called for hereunder, and Tenant hereby assigns to Landlord all rights it might
have or ever acquire in such proceeds.
ARTICLE XV - TAXES AND ASSESSMENTS
15.1 Tenant shall pay, in addition to Base Rent and other charges, an
amount equal to Tenant's Proportionate Share of "Real Estate Taxes" (hereinafter
defined) and levies and charges and governmental impositions, duties, charges,
betterment assessments and other charges and levies of like kind which are or
may during the term of this Lease be charged, laid, levied or imposed upon or
become a lien or liens upon the Office Building or any part thereof, or upon any
buildings or appurtenances thereto or any parts thereof, or which may become due
and payable with respect thereto and any and all taxes charged, laid or levied
in addition to the foregoing under or by virtue of any present or future laws,
requirements, rules, orders, directions, ordinances or regulations of the United
States of America, the State of New Hampshire, county of Hillsborough or Town of
Hudson government, or of any other municipal government or lawful authority
whatsoever. All such duties and charges, including Real Estate Taxes, are
referred to herein as "Taxes".
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15.2 "Real Estate Taxes" means all real estate taxes, sewer taxes, and any
other charges made by a public authority which upon assessment or failure of
payment become a lien or liens upon the Office Building or any part thereof, or
upon any buildings or appurtenances thereto, or any parts thereof, or which may
become due and payable with respect thereto. If any betterment assessments are
payable by law in installments, said betterment assessments are deemed payable
not for the period in which the same are assessed but in installments for the
periods in which the installments thereof are payable. Real estate taxes shall
not include any franchise, estate, inheritance, succession, capital levy or
transfer tax of Landlord or any income tax of Landlord.
15.3 Tenant shall pay to Landlord along with each installment of rent, an
amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of the
Taxes for the current tax year, if the amount thereof is known, or of such taxes
for the prior tax year, if the amount thereof for the current tax year is not
known. Upon receipt by Landlord of the final tax bill for any tax year during
the term of this Lease, Landlord shall give Tenant notice of the total amount of
Taxes paid by Landlord for such tax year. If the actual amount of Tenant's
Proportionate Share of the Taxes with respect to such tax year exceeds the
aggregate amount previously paid by Tenant, Tenant shall pay to Landlord the
deficiency within fifteen days following notice from Landlord. If the aggregate
amount previously paid by Tenant with respect thereto exceeds Tenant's
Proportionate Share of the Taxes for such tax year, then, at Landlord's
election, such surplus (net of any amounts then owing by Tenant to Landlord)
shall be credited against the next ensuing installment of any such cost due
hereunder by Tenant. Periodically, during the Term of this Lease, Landlord
shall have the right to estimate Tenant's Proportionate Share of Taxes for the
next tax year (determined by Landlord) of the term of this Lease, whereupon
Tenant shall pay Landlord such revised amount as set forth in the first sentence
of this Section 15.3.
15.4 Tenant shall also punctually pay and discharge all taxes which are or
may during the term of this Lease be charged, laid, levied or imposed upon or
become a lien upon any personal property of Tenant attached to or used in
connection with Tenant's business conducted on the Leased Premises which
personal property constitutes a fixture. Nothing herein contained requires
Tenant to pay any taxes on the rent reserved to Landlord hereunder.
15.5 Landlord, at its option, may, but shall not be obligated to, contest
or review by any appropriate proceedings, and at Landlord's expense, any tax,
charge or other governmental imposition aforementioned which shall not be
contested or reviewed as aforesaid by Tenant, and Tenant shall promptly join
with Landlord in such contest or review if Landlord so requests. Any abatement
in such taxes, less the cost incurred in obtaining the abatement, shall be
reflected in the amount of taxes to be paid by Tenant the following year
pursuant to this Article XV.
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ARTICLE XVI - MECHANIC'S LIEN
16.1 In the event of the filing in the Hillsborough County Registry of
Deeds of any notice of a builder's, supplier's or mechanic's lien on the Leased
Premises or the Office Building arising out of any work performed by or on
behalf of Tenant, Tenant shall cause without delay proper proceedings to be
instituted to test the validity of the lien claimed, and before the end of the
lease term to discharge the same by the posting of bond or otherwise; and during
the pendency of any such proceeding, Tenant shall completely defend and
indemnify Landlord against any such claim or lien and all costs of such
proceedings wherein the validity of such lien is contested by Tenant, and during
the pendency of such proceeding such lien may continue until disposition of such
proceeding, and after disposition thereof, Tenant shall cause said lien to be
released and discharged.
ARTICLE XVII - EMINENT DOMAIN
17.1 If the Leased Premises is lawfully condemned or taken by any public
authority either in its entirety or in such proportion that it is no longer
suitable for the intended use by Tenant, then this Lease will automatically
terminate without further act of either party hereto on the date when possession
of the Leased Premises is taken by such public authority, and each party hereto
will be relieved of any further obligation to the other except that Tenant shall
be liable for and shall promptly pay to Landlord any rent or other payments due
hereunder then in arrears or Landlord shall promptly rebate to Tenant a pro rata
portion of any rent or other such payments paid in advance. In the event the
proportion of the Leased Premises so condemned or taken is such that the Leased
Premises is still suitable for its intended use by Tenant, this Lease will
continue in effect in accordance with its terms and a portion of the rent and
other payments due hereunder will abate equal to the proportion of the rental
value of the Leased Premises so condemned or taken. In either of the above
events, the award for the property so condemned or taken will be payable solely
to Landlord without apportionment to Tenant.
ARTICLE XVIII - LIABILITY
18.1 Except for injury or damage caused by the negligence or willful
misconduct of Landlord, its servants or agents, when so proven and adjudicated
in a court of competent jurisdiction, Landlord shall not be liable for any
injury or damage to any person happening on or about the Leased Premises or the
Office Building or for any injury or damage to the Leased Premises or to any
property of Tenant or to any property of any third person, firm, association, or
corporation on or about the Leased Premises or the Office Building. Tenant
shall, except for injury or damage caused as aforesaid, defend (with counsel
reasonably acceptable to Landlord), indemnify and hold Landlord harmless from
and against any and all liability and damages, costs and expenses, including
reasonable attorneys' fees, and from and
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against any and all suits, claims and demands of any kind or nature whatsoever,
by and on behalf of any person, firm, association or corporation arising out of
or based upon any incident, occurrence, injury or damage which happens or may
happen on or about the Leased Premises and from and against any matter or thing
growing out of the condition, maintenance, repair, alteration, use, occupation
or operation of the Leased Premises or the installation of any property therein
or the removal of any property therefrom. This indemnity and hold harmless
agreement shall include indemnity against all costs, expenses and liabilities
incurred in or in connection with any such claim or proceeding brought thereon,
in the defense thereof, including attorneys' fees. Tenant shall not settle or
compromise any claim without the prior written consent of Landlord.
18.2 (a) In addition, Tenant agrees to defend with counsel acceptable to
Landlord and indemnify Landlord and hold Landlord harmless from and against all
claims arising from the discharge or other release onto the Leased Property from
the Leased Premises of any Hazardous Material, excluding any discharge of
Hazardous Material to the extent caused by Landlord, its officers, directors,
agents, employees, invitees, licensees or contractors. Tenant shall not settle
or compromise any claim without the consent of Landlord.
(b) Landlord agrees to defend with counsel acceptable to Tenant and
indemnify Tenant and hold Tenant harmless from and against all claims arising
from the discharge or other release onto the Leased Property from the Leased
Premises of any Hazardous Material caused by Landlord, excluding any discharge
of Hazardous Material to the extent caused by Tenant, its officers, directors,
agents, employees, invitees, licensees or contractors. Landlord shall not
settle or compromise any claim against Tenant without the consent of Tenant.
18.3 The obligations and liabilities Tenant hereunder with respect to the
indemnities pursuant to this Article XVIII or under any other provisions of this
Lease, resulting from any claim or other assertion of liability by third parties
(hereinafter "Claim" or collectively, "Claims"), shall be subject to the
following terms and conditions:
(a) The party seeking indemnification (the "Indemnified Party") must give
the other party (the "Indemnifying Party"), notice of any such Claim
promptly after the Indemnified Party receives notice thereof.
(b) The Indemnifying Party shall have the right to undertake, by counsel
or other representatives approved by Landlord, the defense of such
Claim.
(c) In the event that the Indemnifying Party shall elect not to undertake
such defense, or within a reasonable time after notice of any such
Claim from the Indemnified Party shall fail to defend, the
Indemnified Party
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(upon further written notice to the Indemnifying Party) shall have
the right to undertake the defense, compromise or settlement of such
Claim, by counsel or other representatives of its own choosing, on
behalf of and for the account and risk of the Indemnifying Party
(subject to the right of the Indemnifying Party, upon payment of all
fees and costs incurred by the Indemnified Party for defense of such
Claims to assume defense of such Claim at any time prior to
settlement, compromise or final determination thereof).
(d) Anything in this Section 18.3 to the contrary notwithstanding, (i) if
there is a reasonable probability that a Claim may materially and
adversely affect the Indemnified Party other than as a result of
money damages or other money payments, the Indemnified Party shall
have the right, at his own cost and expense, to participate in the
defense, compromise or settlement of the Claim, (ii) the Indemnifying
Party shall not, without the Indemnified Party's written consent,
settle or compromise any Claim or consent to entry of any judgment
which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party of a release
from all liability in respect of such Claim, and (iii) in the event
that the Indemnifying Party undertakes defense of any Claim, the
Indemnified Party, by counsel or other representative of its own
choosing and at its sole cost and expense, shall have the right to
consult with the Indemnifying Party and its counsel or other
representatives concerning such Claim and the Indemnifying Party and
the Indemnified Party and their respective counsel or other
representatives shall cooperate with respect to such Claim.
(e) Notwithstanding any provision herein to the contrary, in the event
that a response is required to a condition, occurrence or other
happening which may impose liability on Landlord within a time period
which does not allow notice to Tenant, Landlord shall have no
obligation to notify Tenant prior to taking any action, and despite
the lack of prior notice to Tenant, Tenant shall remain fully
responsible to Landlord under the terms of this Article XVIII and any
other provisions of this Lease.
18.4 The provisions of this Article XVIII will survive the expiration or
termination of this Lease.
ARTICLE XIX -RULES AND REGULATIONS
19.1 Tenant, its servants, employees, agents, visitors, invitees, and
licensees, shall observe faithfully and comply with the Rules and Regulations
set forth in Exhibit E hereto, and shall abide by and conform to such further
rules and
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regulations as Landlord may from time to time reasonably make, amend or adopt,
after Tenant receives a copy thereof.
ARTICLE XX - LANDLORD'S INSURANCE
20.1 The term "Insurance Premiums" shall mean the total annual insurance
premiums which accrue on all property insurance, boiler insurance, public
liability and property damage insurance, rent insurance, and any other insurance
which, from time to time, may, at Landlord's election, be carried by Landlord
with respect to the Office Building during any applicable calendar year (or
portion thereof) occurring during the term of this Lease; provided, however, in
the event, during any such calendar year, all or any part of such coverage is
written under a "blanket policy" or otherwise in such manner that Landlord was
not charged a specific insurance premium applicable solely to the Office
Building, then in such event, the amount considered to be the Insurance Premium
with respect to such coverage for such calendar year, shall be that amount which
would have been the annual Insurance Premium payable under the rates in effect
on the first day of such applicable calendar year for a separate New Hampshire
Standard Form insurance policy generally providing such type and amount of
coverage (without any deductible amount) with respect to the Office Building
(considering the type of construction and other relevant matters), irrespective
of the fact that Landlord did not actually carry such type policy. In the event
that Tenant's activities in the Leased Premises cause an increase in Landlord's
Insurance Premiums, then such increase due to Tenant's use shall be paid by
Tenant upon demand from Landlord.
20.2 Monthly, during the first year of the term of this Lease, Tenant will
pay to Landlord the Tenant's Proportionate Share of the Insurance Premiums
(which may be estimated by Landlord), monthly in advance, payable at the same
time and place as the Base Rent is payable, except, however, if the Lease Term
does not begin on the first date of a calendar month, Tenant shall pay a pro
rata portion of such sum for such partial month. Landlord shall have the right
to adjust such monthly estimate on an annual basis, pursuant to the following
paragraph hereof.
20.3 At the end of each calendar year occurring during the term of this
Lease (subsequent to the expiration or other termination of this Lease, if such
occurs on a date other than the last day of the calendar year), Landlord shall
give Tenant notice of the total amount paid by Tenant for the relevant calendar
year together with the actual amount of Tenant's Proportionate Share of
Insurance Premiums for such calendar year. If the actual amount of Tenant's
Proportionate Share of the Insurance Premiums with respect to such period
exceeds the aggregate amount previously paid by Tenant with respect thereto
during such period, Tenant shall pay to Landlord the deficiency within fifteen
days following notice from Landlord; however, if the aggregate amount previously
paid by Tenant with respect thereto exceeds Tenant's Proportionate Share of the
Insurance Premiums Cost for such period, then, at
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Landlord's election, such surplus (net of any other amounts then owing by Tenant
to Landlord) shall be credited against the next ensuing installment of any such
cost due hereunder by Tenant. Periodically, during the term of this Lease,
Landlord shall have the right to estimate Tenant's Proportionate Share of
Insurance Premiums for the next fiscal period (determined by Landlord) of the
term of this Lease, whereupon, Tenant shall pay Landlord such amount as may be
so indicated by Landlord.
20.4 In the event of loss, Landlord shall promptly initiate action to
effect a settlement with the insurer. Tenant shall cooperate with Landlord and
any mortgagee in connection with the proceeding and collection of claims, and
shall execute and deliver to Landlord such proofs of loss, releases and other
instruments as may be necessary to settle any such claims and obtain the
proceeds thereof, and in the event Tenant fails or neglects to so cooperate or
to execute and deliver any such instrument, Landlord may, as the agent or
attorney in fact of Tenant, execute and deliver any such instrument, and Tenant
hereby nominates and appoints Landlord the proper and legal attorney in fact of
Tenant for such purpose, hereby ratifying all that Landlord may lawfully do as
such attorney in fact.
ARTICLE XXI - TENANT'S INSURANCE
21.1 Tenant shall, from the Delivery of Possession of the Leased Premises,
even if such date precedes the commencement of the term hereof, and throughout
the term hereof procure and carry at its own expense comprehensive liability
insurance on the Leased Premises with an insurance company authorized to do
business in New Hampshire and acceptable to Landlord. Such insurance will be
carried in the name of and for the benefit of Tenant and Landlord; will be
written on an "occurrence" basis; and shall provide coverage of at least One
Million Dollars ($1,000,000) in case of death of or injury to one person, Two
Million Dollars ($2,000,000) in case of death of or injury to more than one
person in the same occurrence, and One Million Dollars ($1,000,000) in case of
loss, destruction or damage to property. If applicable, Tenant shall comply
with the requirements of the Boilers and Unfired Pressure Vessels Law (RSA 157-
A), and in such event the policy or policies referred to above shall contain an
endorsement providing pressure vessels insurance coverage and naming Landlord as
an additional insured. Tenant shall furnish to Landlord a certificate of such
insurance which must provide that the insurance indicated therein will not be
canceled without at least ten (10) days' written notice to Landlord.
21.2 During any period or periods of construction by Tenant on the Leased
Premises, the construction of which (a) is of a type to which Builder's Risk
Insurance is applicable and (b) requires the advance written approval of
Landlord pursuant to Article IX hereof, Tenant shall obtain and maintain in
effect standard Builder's Risk Insurance written on a completed value basis,
including extended coverage, and utilizing a maximum value at date of completion
not less than the greater of (y) the
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aggregate contract price or prices for the construction of such facilities or
(z) the amount which may be required by a mortgagee which is financing such
construction. Such insurance shall be obtained from an insurance company
authorized to do business in New Hampshire and acceptable to Landlord, and
Lessee shall furnish to Landlord a certificate of such insurance naming Landlord
as an additional insured which shall provide that the insurance indicated
therein shall not be canceled without at least ten (10) days written notice to
Landlord. If such construction by Tenant is of a type to which Builder's Risk
Insurance is not applicable, Tenant shall provide the necessary additional
coverage under the policies referred to in this ARTICLE XXI.
21.3 Tenant shall procure and continue in force during the term hereof,
all-risk insurance which contains fire and extended coverage on a full value,
repair or replacement basis upon facilities, machinery, equipment and
appurtenances constructed, erected or installed on or in the Leased Premises by
Tenant and which have or may become the property of Landlord pursuant hereto.
The policies evidencing such insurance must provide that loss, if any, payable
thereunder will be payable to Landlord and/or Tenant and/or mortgagee of the
Leased Premises or the Office Building as their respective interests may appear,
and all such policies together with evidence of payment of the premiums thereon
will be delivered to Landlord and/or any such mortgagee. All such policies must
be taken in such responsible companies authorized to do business in New
Hampshire as Landlord shall approve (which approval shall not be unreasonably
withheld) and must be in form satisfactory to Landlord. Upon receipt of a copy
of notice of cancellation of any insurance which is the responsibility of Tenant
hereunder, Landlord may pay the premiums necessary to reinstate the same. The
amount so paid will constitute Additional Rent payable by Tenant at the next
rental payment date. Payment of premiums by Landlord will not be deemed a
waiver or release by Landlord of the default by Tenant in failing to pay the
same or of any action which Landlord may take hereunder as a result of such
default. Tenant shall neither violate, nor allow its agents or employees to
violate any of the terms, conditions and provisions of such policies.
21.4 If and to the extent permitted without prejudice to any rights of
Tenant under the applicable insurance policies, Landlord shall be held free and
harmless from liability for loss or damage to personal property of Tenant in the
Leased Premises by fire, the extended coverage perils, sprinkler leakage,
vandalism and malicious mischief if and to the extent actually insured against,
whether or not such loss or damage is the result of the negligence of Landlord,
its employees or agents. This subsection does not impose any added obligation or
expense upon Tenant nor require that it carry any insurance of any kind and is
to be construed only as a limitation upon the rights of the insurance carriers
to subrogation.
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ARTICLE XXII - DESTRUCTION OR DAMAGE
22.1 In the event that the Leased Premises, as it exists at the beginning
of the term hereof, is totally destroyed by fire or other casualty insured
against, or is so damaged that repairs and restoration cannot, in the opinion of
Landlord in its sole discretion, be accomplished within a period of one hundred
eighty (180) days from the date of such destruction or damage, this Lease will
automatically terminate without further act of either party hereto, and each
party shall be relieved of any further obligation to the other except for the
rights and obligations of the parties under ARTICLES XX and XXI hereof, and
except that Tenant shall be liable for and shall promptly pay Landlord any Rent
then in arrears or Landlord shall promptly rebate to Tenant a pro rata portion
of any Rent paid in advance. In the event that the Leased Premises is so
damaged that repairs and restoration can be accomplished within a period of one
hundred eighty (180) days from the date of such destruction or damage, this
Lease will continue in effect in accordance with its terms; such repairs and
restoration will, unless otherwise agreed by Landlord and Tenant, be performed
as closely as practicable to the original specifications (utilizing therefor the
proceeds of the insurance applicable thereto without any apportionment thereof
for damages to the leasehold interest created by this Lease), and until such
repairs and restoration have been accomplished, a portion of the rent will abate
equal to the proportion of the Leased Premises rendered unusable by the damage.
Landlord's obligation to restore, replace or rebuild such facilities will not
exceed in amount the sum of the insurance proceeds paid to it and/or released to
it by any mortgagee with which settlement was made. In the event the Leased
Premises may be repaired and/or restored within the aforementioned one hundred
eighty (180) day period, but the cost of such repair or restoration exceeds the
available insurance proceeds, at Landlord's discretion, this Lease will be
terminated in which event the rights and duties of the parties shall be governed
by the first sentence of this Section 22.1. Tenant shall execute and deliver to
Landlord all instruments and documents necessary to evidence the fact that the
right to such insurance proceeds is vested in Landlord. Landlord shall not be
responsible for damage or destruction, partial or total, to or of machinery,
equipment and appurtenances constructed or installed on or in the Leased
Premises by Tenant. Notwithstanding anything contained herein to the contrary,
in the event that the damage to the Leased Premises results from the fault or
negligence of Tenant, its agents, employees, licensees or invitees, Tenant shall
not be entitled to any abatement or reduction of any rent or other sums due
hereunder, and such damage shall be repaired by Tenant, or at Landlord's option
by Landlord at Tenant's expense.
ARTICLE XXIII - REPOSSESSION BY LANDLORD
23.1 At the expiration of this Lease or upon the earlier termination of
this Lease for any cause herein provided for, Tenant shall peaceably and quietly
quit the Leased Premises and deliver possession of the same to Landlord together
with the
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improvements thereon at the beginning of the term hereof and all improvements
constructed thereon by Tenant which are not removed pursuant to the terms
hereof, and all machinery, equipment and appurtenances installed therein which
have become part of the Leased Premises, or which are not to be removed pursuant
to ARTICLE X hereof. At the time of delivery of possession to Landlord at the
expiration of this Lease any and all machinery, equipment and appurtenances
constructed or installed on or in the Leased Premises by Tenant at its expense
after the beginning of the term hereof, which constitute fixtures and which have
become the property of Landlord pursuant to ARTICLE X hereof will be free and
clear of any mortgage, lien, pledge or other encumbrance or charge.
ARTICLE XXIV - MORTGAGE LIEN
24.1 This Lease and all rights of Tenant hereunder are and will remain
subject and subordinate to the lien of (a) any mortgage(s) constituting a lien
on the Office Building, or any part thereof, at the date hereof, and (b) the
lien of any mortgage(s) hereafter executed to a person, bank, trust company,
insurance company or other recognized lending institution to provide permanent
financing or refinancing of the facilities on the Office Building, and (c) any
renewal, modification, consolidation or extension of any mortgage or deed of
trust referred to in clause (a) or (b). Tenant shall, upon demand at any time
or times, execute, acknowledge and deliver to Landlord, any and all instruments
that may be necessary or proper to subordinate this Lease and all rights of
Tenant here under to the lien of any mortgage, deed of trust or other instrument
referred to in clause (b) or clause (c) of the preceding sentence, and, in the
event that Tenant shall fail or neglect to execute, acknowledge and deliver any
such subordination instrument notwithstanding its receipt of a reasonable
subordination, nondisturbance and attornment agreement (see below) from said
mortgagee, Landlord, in addition to any other remedies, may, as the agent or
attorney-in-fact of Tenant, execute acknowledge and deliver the same, and Tenant
hereby nominates, constitutes and appoints Landlord as Tenant's proper legal
attorney-in-fact for such purposes; provided, however, that the subordination of
this Lease shall be conditioned upon the execution and delivery by the mortgagee
or trustee of an agreement (i) that so long as Tenant is not in default under
the terms of this Lease the mortgagee or trustee, or any person succeeding to
the rights of the mortgagee or trustee, or any purchaser at a foreclosure sale
under said mortgage or deed of trust, shall not disturb the peaceful possession
of Tenant hereunder, and (ii) that the proceeds of insurance policies received
by it in settlement of losses under insurance policies held by it will be
applied to the cost of repairs and restoration in those instances in which
Landlord is obligated to repair and restore pursuant to the provisions hereof.
24.2 Tenant shall execute and acknowledge a certificate containing such
information as may be reasonably requested for the benefit of Landlord, any
prospective purchaser or any current or prospective mortgagee of the Office
Building
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<PAGE>
within ten (10) days of receipt of same. In the event Tenant fails to deliver
such certificate to Landlord, Tenant irrevocably appoints Landlord as Tenant's
attorney-in-fact to execute the same.
ARTICLE XXV - DEFAULT
25.1 In the event that (a) any installment of Rent or Additional Rent is
not paid within five (5) days after the same is due and payable, or (b) Tenant
defaults in the performance or observance of any other covenant or condition in
this Lease and such default remains unremedied for ten (10) days after written
notice thereof has been given or sent to Tenant by Landlord, or (c) any warranty
or representation made by Tenant herein proves to be false or misleading, or (d)
Tenant or any Guarantor makes an assignment for the benefit of creditors, is
generally not paying its debts as such debts become due, a custodian is
appointed or takes possession of its assets other than a trustee, receiver or
agent appointed or authorized to take charge of less than substantially all of
the property of Tenant or any Guarantor for the purpose of enforcing a lien
against such property, commences any proceeding relating to Tenant or any
Guarantor or any substantial part of its property arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction whether now
or hereafter in effect, or there is commenced against Tenant or any Guarantor
any such proceeding which remains undismissed for a period of sixty (60) days,
or any order approving the petition in any such proceeding is entered, or Tenant
or any Guarantor by any act indicates its consent to, or acquiescence in, any
such proceeding or the appointment of any receiver or trustee for Tenant or any
Guarantor or any substantial part of its property, or suffers any such
receivership or trusteeship to continue undischarged for a period of sixty (60)
days, or any party holding a security interest in any of Tenant's fixtures of
personal property of any nature whatsoever that are located on the Leased
Premises institutes or gives notice of foreclosure against any such property, or
(e) Tenant shall have assigned or sublet the Leased Premises without the prior
written consent of Landlord, or (f) Tenant shall abandon or vacate or shall
commence to abandon or vacate the Leased Premises or any substantial portion of
the Leased Premises or shall remove or attempt to remove, without the prior
written consent of Landlord, all or a substantial portion of Tenant's goods,
wares, equipment, fixtures, furniture, or other personal property, or (g) the
death of any individual Tenant or Guarantor, the dissolution of any corporate
Tenant or Guarantor or the termination of any partnership Tenant or Guarantor,
then, in any of such events, Landlord may immediately or at any time thereafter
and without demand or notice enter upon the Leased Premises or any part thereof
in the name of the whole and repossess the same as of Landlord's former estate
and expel Tenant and those claiming through or under Tenant and remove their
effects forcibly if necessary, without being deemed guilty in any manner of
trespass and without prejudice to any remedies which might otherwise be used for
arrears of rent or preceding breach of covenant, and upon such entry this Lease
will terminate, and in case of such termination or in case of termination under
the
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<PAGE>
provisions of statute by reason of the default of Tenant, Tenant shall remain
and continue liable to Landlord in an amount equal to the total Rent reserved
for the balance of the term plus all additional Rent reserved for the balance of
such term less the net amounts (after deducting the expenses of repair,
renovation or demolition) which Landlord realizes, or with due diligence should
have realized, from the reletting of the Leased Premises, plus all costs
associated with the termination of the Lease, including Landlord's reasonable
attorneys' fees. As used in this Section, the term "Additional Rent" means the
value of all considerations other than Base Rent agreed to be paid or performed
by Tenant hereunder, including, without limiting the generality of the
foregoing, taxes, assessments, maintenance charges, and insurance premiums.
Landlord will have the right from time to time to relet the Leased Premises upon
such terms as it deems fit, and if a sufficient sum is not thus realized to
yield the net rent required under this Lease, Tenant shall satisfy and pay all
deficiencies as they may become due during each month of the remaining term of
this Lease. At Landlord's option, upon any uncured default of Tenant hereunder,
all Rent and Additional Rent due from Tenant under this Lease may be accelerated
and Landlord should be entitled to a judgment therefor immediately. Nothing
herein contained will be deemed to require Landlord to await the date on which
this Lease, or the term hereof, would have expired had there been no default by
Tenant, or no such termination or cancellation. Landlord's rights and remedies
under this Lease are distinct, separate and cumulative remedies, and no one of
them, whether or not exercised by Landlord, will be deemed to be in exclusion of
any of the others herein or by law or equity provided. Nothing contained in this
Section will limit or prejudice the right of Landlord to prove and obtain, in
proceedings involving the bankruptcy or insolvency of, or a composition with
creditors by, Tenant the maximum allowed by any statute or rule of law at the
time in effect.
ARTICLE XXVI - ACCESS TO LEASED PREMISES
26.1 Landlord or its representatives shall have free access to the Leased
Premises at all times in cases of emergency and at reasonable intervals during
normal business hours for the purpose of inspection, or for the purpose of
showing the Leased Premises to prospective purchasers or tenants, or for the
purpose of making repairs which Tenant is obligated to make hereunder but has
failed or refused to make; provided, that (with the exception of emergency
situations), Landlord shall not unreasonably interfere with Tenant's business.
The preceding sentence does not impose upon Landlord any obligation to make
repairs. During the ninety (90) day period preceding the expiration of this
Lease, Landlord may keep affixed to any suitable part of the outside of the
building on the Leased Premises a notice that the Leased Premises is for sale or
rent.
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ARTICLE XXVII - NOTICES
27.1 Any written notice, request or demand required or permitted by this
Lease will, until either party notifies the other in writing of a different
address, be properly given if sent by certified mail, return receipt requested,
or registered first class mail, postage prepaid, or delivery by a nationally
recognized overnight delivery service and addressed as follows:
If to Landlord: John M. Wolters, Jr., Manager
Century Park, LLC
c/o Oreo Marketing Corporation
124 Indian Rock Road
Windham, NH 03087
Telecopy: 603/894-1158
With a copy to: Karen S. McGinley, Esq.
Devine, Millimet & Branch
Professional Association
111 Amherst Street, P.O. Box 719
Manchester, NH 03105-0719
Telecopy: 603/669-8547
If to Tenant: PC Connection, Inc.
528 Route 13 South
Milford, New Hampshire 03255
Attention: Mr. Phillip Blaisdell
ARTICLE XXVIII - SIGNS; EXTERIOR APPEARANCE; PYLON
28.1 Tenant shall not, without Landlord's prior written consent, install
any interior or exterior lighting, decorations, paintings, awning, canopies or
the like; or erect or install any signs, banners, window or door lettering,
placards, decorations or advertising media of any type that can be viewed from
the exterior of the Leased Premises or within common areas of the Office
Building. All signs, banners, lettering, placards, decorations and advertising
media shall be no larger than two hundred square inches in size and shall
conform in all respects to the requirements, if any, of all applicable laws,
codes and ordinances and to the sign criteria established by Landlord for the
Office Building from time to time in the exercise of its sole discretion, and
shall be subject to the prior written approval of Landlord as to construction,
method of attachment, shape, height, lighting, color and general appearance,
which approval shall not be unreasonably withheld. All signs shall be kept in
good condition and in proper operating order at all times. Upon the expiration
or earlier termination of this Lease, Tenant shall remove the sign and restore
the surface to which the sign was attached to its original condition at Tenant's
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expense. In the event Tenant fails to remove the sign within 3 days from
expiration or earlier termination of this Lease, the sign shall become the
property of Landlord without any credit or compensation to Tenant, and Landlord
may, but is not obligated to, remove and store or dispose of the sign and Tenant
shall be liable to Landlord for all costs incurred by Landlord in connection
therewith. Tenant shall indemnify and hold Landlord harmless from all loss,
damage, cost, expense and liability in connection with such removal, storage or
disposal.
28.2 The Office Building has a pylon sign shared by other tenants, and
Tenant, at Tenant's cost and expense, and upon payment of the Pylon Sign Charge
of $500.00, shall have the right, subject however to the written consent of
Landlord, to locate a sign advertising Tenant upon the pylon structure.
Notwithstanding anything herein to the contrary, Landlord shall in all cases
retain the right and power to relocate Tenant's sign located upon such pylon
structure, if any, to another location on such pylon structure, to be determined
by Landlord, in the sole and absolute discretion of Landlord. The cost of
installation, the cost of bringing electrical service to Tenant's sign located
upon the pylon structure, the sign itself and any cost incurred by Landlord in
repairing or maintaining such sign shall all be the sole cost and expense of
Tenant, and Tenant shall indemnify, defend, and hold Landlord harmless with
respect to any claim, charge, expense, or liability for same. Under no
circumstances whatsoever will Tenant be allowed to remove such sign from the
pylon structure without the prior written consent of Landlord. The placement of
any such sign upon the pylon structure, and the design and construction criteria
therefor shall be governed by such rules, regulations and requirements as
Landlord may, from time to time, promulgate. Upon expiration or earlier
termination of this Lease, any sign advertising Tenant upon the pylon structure
(if Landlord elects to erect any such structure) shall remain upon the pylon
structure and be surrendered with the Leased Premises and become the property of
Landlord without credit or compensation to Tenant, unless Landlord requires
removal of such sign, in which event Landlord shall remove the same at Tenant's
expense, and Tenant shall pay to Landlord upon demand, the cost of removing
Tenant's sign from the pylon structure.
ARTICLE XXIX - SHORT FORM RECORDING
29.1 If required by the applicable statute, there shall be recorded in the
Hillsborough County Registry of Deeds a Notice of this Lease that complies in
content and form with New Hampshire RSA Section 477:7-a. Landlord and Tenant
shall execute and deliver a Notice of Lease in such form for such purpose. In
the event of termination, cancellation or assignment of this Lease prior to the
expiration of the term hereof, Landlord and Tenant shall execute and deliver, in
recordable form, an instrument setting forth such termination, cancellation or
assignment.
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<PAGE>
ARTICLE XXX - NO BROKER
30. The parties acknowledge that OREO Marketing Corporation represents
Landlord as its broker and that Landlord shall be responsible for any brokerage
fee. The parties covenant that no other broker was involved in any capacity in
bringing about the relationship evidenced by this Lease; and further agree that
if any claim on behalf of any broker or agent is made or upheld, then the party
against or through whom such claim is made shall defend (with counsel reasonably
acceptable to the other party), indemnify and hold the other harmless against
any damages, costs or expenses in any way attributable to such claim, including
without limitation reasonable attorney's fees.
ARTICLE XXXI - WARRANTIES AND REPRESENTATIONS OF TENANT
31.1 Tenant warrants and represents to Landlord that Tenant's entrance
into this Lease does not violate any other contracts, agreements, Leases or any
other arrangements of any nature whatsoever that Tenant has with any third
parties and that Tenant has obtained all necessary corporate authorization to
enter into this Lease.
31.2 If Tenant is a corporation, Tenant represents and warrants to
Landlord that Tenant (i) is a corporation duly organized, validly existing under
the laws of the state of its incorporation and in good standing under the laws
of the state of its incorporation and the laws of the State of New Hampshire,
(ii) has paid all franchise and other taxes, if any, required to maintain the
corporate existence of Tenant, and (iii) is not the subject of voluntary or
involuntary proceedings for the forfeiture of the Articles of Incorporation of
Tenant for its dissolution.
31.3 If Tenant is a partnership or joint venture, Tenant is duly organized
and validly existing under applicable state laws, and this Lease is within
Tenant's powers, has been duly authorized by all requisite action and is not in
contravention of any law or the powers of Tenant's partnership or joint venture
agreement, as the case may be.
Landlord represents and warrants to Tenant that Landlord's entrance
into this Lease does not violate any other contracts, agreements, leases or any
other arrangements of any nature whatsoever that Landlord has with any third
party, and that this Lease is within Landlord's powers and has been duly
authorized by all requisite action.
ARTICLE XXXII - SUCCESSION
32.1 This Lease is binding upon and will inure to the benefit of the
heirs, executors, administrators, successor and permitted assigns of the parties
hereto.
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<PAGE>
ARTICLE XXXIII - WAIVER
33.1 Any consent, express or implied, by Landlord to any breach by Tenant
of any covenant or condition of this Lease will not constitute a waiver by
Landlord of any prior or succeeding breach by Tenant of the same or any other
covenant or condition of this Lease. Acceptance by Landlord of rent or other
payment with knowledge of a breach of or default under any condition hereof by
Tenant will not constitute a waiver by Landlord of such breach or default.
ARTICLE XXXIV - GOVERNING LAW
34.1 This Lease will be construed and interpreted in accordance with the
laws of the State of New Hampshire.
ARTICLE XXXV - COUNTERPARTS
35.1 This Lease may be executed in two (2) or more counter-parts, each of
which will be deemed an original and all collectively but one and the same
agreement.
ARTICLE XXXVI - MODIFICATION; ENTIRE AGREEMENT
36.1 This Lease contains and embraces the entire agreement between the
parties hereto and no part of it may be changed, altered, amended, modified,
limited or extended orally or by agreement between the parties unless such
agreement is expressed in writing and signed by Landlord and Tenant or their
respective successors in interest.
ARTICLE XXXVII - SECTION HEADINGS
37.1 The headings at the beginning of each of the Sections in this Lease
are solely for purposes of convenience and identification and are not to be
deemed or construed to be part of this Lease.
ARTICLE XXXIII - SEVERABILITY
38.1 If any term, clause or provision of this Lease is judged to be
invalid and/or unenforceable, the validity and/or enforceability of any other
term, clause or provision in this Lease will not be affected thereby.
ARTICLE XXXIX - PARKING
39.1 Tenant shall be entitled to park in five (5) undesignated parking
spaces per 1,000 square feet of the Lease Premises in the paved parking lot
surrounding the
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Office Building for the parking of its employees, agents and invitees.
Additional parking may be used by Tenant as available.
39.2 Tenant, its employees, agents and invitees, or any other party
related to Tenant, shall not park or store cars, trucks, trailers or other
vehicles overnight in any of the parking areas surrounding the Office Building
or anywhere else on the Landlord's property.
39.3 Tenant acknowledges that Landlord will be reconstructing and repaving
the parking lot surrounding the Office Building and that its right to specific
parking spaces may be altered by Landlord at Landlord's sole option during such
work.
ARTICLE XL - INTERPRETATION
40.1 The captions of the Articles or Sections of this lease are to assist
the parties in reading this Lease and are not a part of the terms or provisions
of this Lease. Whenever required by the context of this Lease, the singular
shall include the plural and the plural shall include the singular. The
masculine, feminine and neuter genders shall each include the other. In any
provision relating to the conduct, acts or omissions of Tenant, the term
"Tenant" shall include Tenant's agents, employees, contractors, customers,
agents, invitees or successors. In addition, in any provision relating to the
conduct, acts or omissions of Tenant, the term "Tenant" shall also include
others using the Leased Premises with Tenant's permission.
IN WITNESS WHEREOF, the parties execute this Lease as of the day and year
first above written.
CENTURY PARK, LLC
("Landlord")
/s/ Karen S. McGinley By: /s/ John M. Wolters, Jr.
- -------------------------- --------------------------------
Witness John M. Wolters, Jr., Manager
PC CONNECTION, INC.
("Tenant")
/s/ Celeste S. Connor By: /s/ Philip F. Blaisdell
- -------------------------- --------------------------------
Witness Philip F. Blaisdell , Its Duly
-----------------------
Authorized Manager
-------------------------
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STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 23rd day of
September, 1997, by John M. Wolters, Jr., Manager of Century Park, LLC, a New
Hampshire limited liability company, on behalf of said limited liability
company.
/s/ Karen S. McGinley
--------------------------------------------
Justice of the Peace
My Commission Expires:
----------------------
Notary Seal or Stamp:
[Sign in Black Ink]
STATE/COMMONWEALTH OF
---------------
COUNTY OF
---------------------------
The foregoing instrument was acknowledged before me this 3 day of
September, 1997, by Philip F. Blaisdell (name), Adm. Svc. Mgr, (title), of PC
Connection, Inc., a corporation organized under the laws of the
State/Commonwealth of New Hampshire, on behalf of said corporation.
/s/ Celeste S. Connor
---------------------------------------------
Justice of the Peace/Notary Public
My Commission Expires: Jan. 22, 2002
--------------
Notary Seal or Stamp:
[Sign in Black Ink]
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<PAGE>
Exhibits may be obtained from the Company upon written request.
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<PAGE>
EXHIBIT 10.11
________________________________________________________________________________
ABX AIR, INC.
AGREEMENT OF SUBLEASE
________________________________________________________________________________
THIS SUBLEASE made this 7th of June, 1995, by and between ABX AIR, INC.,
hereinafter referred to as the Sublessor of 145 Hunter Drive, Wilmington, Ohio
45177, PC CONNECTION, INC., 6 Mill Street, Marlow, NH, 03456, hereinafter
referred to as Sublessee. The Sublessee's business enterprise is organized as a
corporation and is admitted to do business in the State of New Hampshire.
________________________________________________________________________________
W I T N E S S E T H:
ARTICLE 1. TERM
----------------
The Sublessor does hereby sublease and let to the Sublessee and the
Sublessee accepts from the Sublessor under the terms and conditions of this
Sublease, the following described Premises:
64,000 square feet, more or less, consisting of the area highlighted on
Exhibit "A" attached hereto and made a part hereof, which area shall include
Bays (the "Premises") in a building (the "Building") which contains 102,400
square feet more or less, located at Old State Route 73, Wilmington, Ohio 45177
hereinafter referred to as the Premises and sometimes designated as Building #3.
TO HAVE AND TO HOLD unto the Sublessee for a term of FIVE (5) years and
SEVEN (7) months commencing on the 1st day of June, 1995, and ending on the 31st
day of December 2000, both dates inclusive.
This Sublease is subordinate to the terms of a certain Agreement of Lease
(the "Lease") dated June 26, 1990, between MILLER VALENTINE PARTNERS (MILLER
VALENTINE) as Lessor and ABX AIR, Inc. Lessee, a copy of which is attached
hereto as Exhibit "B".
1
<PAGE>
ARTICLE 2. ACCEPTANCE OF SUBLEASED PREMISES
--------------------------------------------
The Sublease Premises ("Premises") are delivered to the Sublessee in their
existing condition which the Sublessee has examined and finds in a condition
suitable for its use and purpose.
ARTICLE 3. RENT
----------------
Section I. Sublessee shall pay to the Sublessor Rent for the period June
---------
1, 1995 through December 31, 1995 for the Leased Premises the sum of ONE HUNDRED
FORTY FIVE THOUSAND ONE HUNDRED FOUR AND 05/100 DOLLARS ($145,104.05) which
shall be paid in equal monthly installments of TWENTY THOUSAND SEVEN HUNDRED
TWENTY NINE AND 15/100 DOLLARS ($20,729.15), due and payable on the first day of
each month, in advance, without demand.
Sublessee shall pay to the Sublessor an Annual Rent for the period January
1, 1996 through December 31, 2000 for the Leased Premises the sum of TWO
HUNDRED SEVENTY SEVEN THOUSAND FIVE HUNDRED FORTY NINE AND 80/100 DOLLARS
($277,549.80) which shall be paid in equal monthly installments of TWENTY THREE
THOUSAND ONE HUNDRED TWENTY NINE AND 15/100 DOLLARS ($23,129.15), due and
payable on the first day of each month, in advance, without demand.
NOTWITHSTANDING ANYTHING ABOVE TO THE CONTRARY, SUBLESSEE'S OBLIGATION TO
PAY RENT SHALL NOT BEGIN UNTIL SUBLESSOR DELIVERS POSSESSION OF THE PREMISES TO
SUBLESSEE AND IN THE EVENT THAT SUCH POSSESSION IS NOT DELIVERED AT THE
PROJECTED DATE, THE BEGINNING AND ENDING DATES OF THE LEASE AS WELL AS THE RENT
CHANGE DATE SHALL BE ADJUSTED ACCORDINGLY.
Section II. In addition to the Annual Rent the Sublessee shall pay to the
----------
Sublessor a portion of the remaining balance of the unamortized cost of the
improved sprinkler system. As of June 1, 1995, the remaining balance is
$69,220.00, and Sublessee agrees to pay to Sublessor the amount of $56,295.00
payable in monthly installments of $840.23 on the first day of each month, in
advance, without demand, at the office of the Sublessor.
Section III. The total obligation due from Sublessee to Sublessor shall be
-----------
in accordance with the following schedule:
<TABLE>
<CAPTION>
MONTHLY 6/1/95-12/31/95
---------- ---------------
<S> <C> <C>
Annual rent for the period $20,729.15 $145,104.05
June 1, 1995 through
December 31, 1995
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Sprinkler amortization $ 840.23 $ 5,881.61
Total obligation for the period $21,569,38 $150,985.66
June 1, 1996 through
December 31, 1996
MONTHLY ANNUAL
------- ------
Annual rent for the period $23,129.15 $277,549.80
January 1, 1996 through
December 31, 2000
Sprinkler amortization $ 840.23 $ 10,082.76
MONTHLY ANNUAL
------- ------
Total Annual obligation for the $23,969.38 $287,632.56
period of January 1, 1996
through December 31, 2000
</TABLE>
Section IV. The Sublessee shall reimburse the Sublessor for the costs
----------
of water, gas, and electricity, including electricity costs for exterior
lighting, or such other utilities and heating and air conditioning maintenance
in the event that such services are furnished by Sublessor and not separately
metered to the Sublessee. Said reimbursement shall be additional rent due on
the first day of the calendar month next following rendition of a bill therefor.
If any services are separately metered, the cost shall be paid directly by the
Sublessee to the utility service. The heating and other utilities, except
water, not separately metered will be prorated on the basis of the square
footage serviced by a given meter and paid to Sublessor as billed. The total
costs of water shall be paid by the Sublessee's and any other party, including
Sublessor currently in occupancy and of any part of the building and the costs
thereof shall be prorated on the basis of relative square footage occupied.
Section V. The Sublessee agrees to pay any increased real estate taxes
---------
with respect to the building only over and above the real estate taxes with
respect to the building only paid by the Sublessor during the first year of the
term of this Sublease. For this purpose, the term "real estate taxes" shall
include special rent or use taxes enacted after the commencement date of this
Sublease which are enacted as a substitute for a part or all of the current real
estate taxes. The Sublessee's proportionate share of any such increase shall be
a fraction thereof, the numerator of which is the number of square feet of floor
area in the Premises and the denominator of which is the total square feet of
the floor area in the Building both as specified aforesaid in the Sublease
("Sublessee's Pro Rata Share"). Said amount shall be deemed to be additional
rent and shall be due and payable on the first of the month following delivery
to Sublessee of a receipt for Sublessor's payment of said real estate taxes.
ARTICLE 4. COMMON AREA
-----------------------
3
<PAGE>
For the purpose of this Sublease, common area shall be defined as all of
the property described herein that is not actually occupied by the building. The
Sublessee shall have the use in common with other occupants of the building to
the parking areas and driveways for ingress and egress to the Premises. Parking
-------------
is for the exclusive use of the occupants of the Building and their business
invitee's. The Sublessee shall have no right to use the common area for storage
purposes and trash shall be stored only in approved containers in the common
area. The cost of exterior lighting and ice and snow removal will be prorated
among the Lessees and Sublessee's in accordance with the percentage that the
Premises bear to the entire building. The pro-rata share of such cost will be
deemed to be additional rent and shall be due the first of the month following
the invoice thereof by Sublessor to Sublessee of the amount due.
ARTICLE 5. USE OF PREMISES
---------------------------
Section I. The Premises shall be used and occupied only for warehousing,
---------
office, light manufacturing, product assembly and repair, and distribution of
products, and related activities and for no other purpose or purposes without
the written consent of the Sublessor and Miller-Valentine, which consent shall
not unreasonably be withheld.
Section II. The Sublessee shall operate its business in a safe and proper
----------
manner as is normal, considering the uses of the Premises above provided; and
shall not manufacture, store, display or maintain any products or materials that
will endanger the Premises; shall do nothing that would increase the cost of
insurance on the building or invalidate existing policies; shall not obstruct
the sidewalks; shall not use the plumbing for any other purpose than for which
it was constructed; shall not make or permit any unreasonable noise and/or odor
objectionable to the public or adjacent occupants; shall not create a nuisance
on the Premises; and shall commit no waste to the Premises which exceeds normal
wear and tear thereon.
Section III. The Sublessee shall abide by all police and fire regulations
-----------
concerning the operation of its business; provided that appropriate closable
containers are supplied by Sublessor for such propose; and shall practice all
proper procedures and methods that are common to its business enterprise. The
Sublessee shall not cause the temperature in the Premises to be set at less than
55 degrees F.
Section IV. Sublessee shall at all times keep all improvements and any
----------
equipment facilities or fixtures in good order, conditions and repair and in a
clean, sanitary and safe condition and in accordance with all applicable laws,
ordinances and regulations of any governmental authority having jurisdiction.
Sublessee shall exercise reasonable care not to cause waste, damage or injury to
the Premises, normal wear and tear excepted.
Section V. Sublessee shall forthwith at its own cost and expense replace
---------
with glass of the same kind and quality any cracked or broken glass, including
plate glass or glass or other breakable materials used in structural portions,
and any interior and exterior windows and doors in the Premises.
4
<PAGE>
ARTICLE 6. COMPLIANCE WITH LEASE
---------------------------------
Section I. Except as otherwise provided by this Sublease, (i) Sublessee
---------
shall, throughout the term, assume and perform, for the benefit of Sublessor,
all of the obligations, covenants and agreements of Sublessor as Sublessee under
the Lease, to the extent that the same apply to the Subleased Premises and (ii)
Sublessor grants to Sublessee, for the duration of the term of this Sublease,
all of the rights and privileges granted Sublessor under the Lease with respect
to the Subleased Premises.
Section II. Notwithstanding the foregoing: This Sublease is subject to all
----------
of the terms and conditions of the Lease and to the performance of Lessor's
obligations, under the Lease. Sublessor does not assume or agree to perform for
Sublessee's benefit any of Lessor's obligations except to receive from Sublessee
and transmit to Lessor any communication dealing with Sublessee's occupancy of
the Premises.
Sublessor agrees throughout the term of this Sublease to perform and comply with
the following provisions of the Lease:
(a) The obligations to pay the rentals required under the Lease;
(b) The obligations to pay to Lessor the costs enumerated in Article 3,
Sections II and III above, subject, however, to Sublessee's obligation to
reimburse Sublessor for the percentage of those costs set forth in Article
3, Sections II and III;
(c) The obligation to maintain the liability insurance required under the
Lease. However, Sublessee will maintain its own liability insurance as
provided in Article 9 hereinafter.
ARTICLE 7. INSTALLATION AND ALTERATIONS
----------------------------------------
Section I. Sublessee shall not make any alterations or additions to the
---------
Premises without first procuring Lessor and Sublessor's written consent and
delivering to Lessor and Sublessor the plans and specifications and copies of
the proposed contracts, and necessary permits, and shall furnish indemnification
against liens, costs, damages and expenses as may be reasonably required by
Lessor and Sublessor. Trade fixtures shall include but not be limited to the
following: Conveyors, product racks and any other equipment or devices used in
the storing, picking, packaging and delivery of products, whether or not they
are attached to floors, walls, or ceilings. Any damages incurred by removal of
trade fixtures shall be the responsibility of Sublessee. Alterations,
additions, improvements and fixtures, other than trade fixtures, which may be
made or installed by either of the parties hereto upon the Premises and which in
any manner are attached to the floors, walls or ceilings, at the termination of
the Sublease shall become the property of the Sublessor, unless Sublessor
requests their removal, and shall
5
<PAGE>
remain upon and be surrendered with the Premises as a part thereof, without
damage or injury. Any linoleum or other floor covering of similar character
which may be cemented or otherwise adhesively affixed to the floor shall
likewise become the property of Sublessor, all without compensation or credit to
Sublessee.
Section II. The Sublessee shall not erect or install any signage without
----------
first procuring Lessor and Sublessor's written consent.
Section III. The Sublessee shall have no right to use and shall not use
-----------
the roof of the Premises for any purpose without the written consent of the
Lessor and Sublessor. The Sublessee shall not use the roof for storage, for any
activity that will result in traffic on the roof, for anything that will
penetrate the roof, use the roof as an anchor or otherwise damage the roof. The
consent of the Lessor and Sublessor must be in writing for each specific use and
must also approve the method of installation of the permitted use. Should the
Sublessee break this covenant, the Sublessee shall be responsible for any
damages caused to the roof or other parts of the building and shall assume the
cost of maintaining and repairing the roof during the term of the Sublease,
including any renewals.
ARTICLE 8. INDEMNIFICATION
---------------------------
Except to the extent of the negligence or misconduct of the other party,
Sublessor and Sublessee hereby waive all claims against each other for damages
to goods, wares, merchandise and building, in, upon or about said Premises and
for injuries to persons in or about said Premises for any cause arising at any
time, and Sublessor and Sublessee will hold each other exempt and harmless for
and on account of any damage or injury to any person, or the goods, wares,
merchandise and building, of any person, arising from the use of the Premises by
Sublessee, or arising from the failure of either Sublessor or Sublessee to keep
the Premises and common areas in good condition as herein provided or otherwise
to comply with such indemnifying party's obligations and duties hereunder. The
party claiming the right of indemnity under this Article 8 shall give the other
party from whom indemnity is sought, notice of such claim or action and shall
give such party from whom indemnification is sought the right to defend,
compromise, or settle such claim or action and shall provide reasonable
cooperation to such party with respect thereto. No party who seeks
indemnification from the other shall make any payment, settlement or otherwise
waive any rights without first obtaining the prior written consent of the party
from whom such indemnification is sought. Sublessor shall not be liable to
Sublessee for any damage by or from any act or negligence of any Co-Lessee or
other occupant of the same building. Sublessee agrees to pay for all damage to
the Building, as well as all damage to other Lessees or Sublessee's or occupants
thereof caused by Sublessee's misuse or negligent use of said Premises, its
apparatus or appurtenances.
ARTICLE 9. INSURANCE
---------------------
Section I. Sublessee shall not carry any stock of goods or do anything in
---------
or about said
6
<PAGE>
Premises which will actually cause insurance rates on said Premises or the
building in which the same are located to be increased. If Sublessor shall
consent to such use, Sublessee agrees to reimburse Sublessor on a pro-rata basis
for any increase in premiums for insurance against loss by fire or extended
coverage risks resulting from the business carried on in the Premises by
Sublessee. If Sublessee installs any electrical equipment that overloads or may
overload the power lines to the building, Sublessee shall make immediately and
at its own expense make whatever changes are necessary to remedy such overload
or possible overload and to avoid some in the future, and should comply with all
government authorities having jurisdiction and with the requirements of any
insurance underwriters and rating bureaus.
Section II. Sublessee agrees to procure and maintain a policy or policies
---------- ------------------
of insurance, at its own costs and expense, insuring from all claims, demands,
- ----------------
or actions for injury to or death of more than one person in any one accident
and for damages to property in an aggregate amount of not less than
$2,000,000.00 made by or on behalf of any person or persons, firm or
- -------------
corporation, arising from, related to, or connected with the conduct and
operations of Sublessee's business in the Premises. Sublessor and Lessor shall
be named an Additional Insured Party in said policy. Such insurance shall be
primary relative to any other valid and collectible insurance. Said insurance
shall not be subject to cancellation except after at least thirty (30) days
prior written notice to Sublessor and Lessor, and the policy or policies, or
duly executed certificate of certificates for the same, together with
satisfactory evidence of the payment of the premium thereon, shall be deposited
with Sublessor and Lessor at the commencement of the term and renewals of such
coverage. If Sublessee fails to comply with such requirement, Sublessor may
obtain such insurance and keep the same in effect, and Sublessee shall pay
Sublessor the premium cost thereof upon demand.
Section III. All property of Sublessee or those claiming under Sublessee
-----------
which may be upon said Premises during the term hereof or any renewal thereof
shall be at and upon the sole risk and responsibility of Sublessee.
ARTICLE 10. EMINENT DOMAIN
---------------------------
Section I. If the whole or substantially all of the Premises hereby leased
---------
shall be taken by a public authority under the power of eminent domain, then the
term of the Sublease shall cease as of the day possession shall be taken by such
public authority, and the rent shall be paid up to that date with a
proportionate refund by Sublessor of such rent as shall have been paid in
advance.
Section II. If less than substantially all of the floor area of the
----------
Premises shall be so taken, provided that the area remaining is adequate for
Sublessee's business purposes, the term of the Sublease shall cease only on the
parts so taken as of the day possession shall be taken by such public authority,
and the rent shall be paid up to that day with a proportionate refund by
Sublessor of such rents as may have been paid in advance, and thereafter the
minimum rent shall be equitably abated.
7
<PAGE>
Section III. All damages awarded for such taking under the power of
-----------
eminent domain, whether for the whole or a part of the Premises, shall be the
property of Sublessor whether such damages shall be awarded as compensation for
diminution in value of the leasehold or to the fee of the Premises provided,
however, that the Sublessor shall not be entitled to any separate award made to
Sublessee for loss of business, depreciation to and cost of removal of stock and
fixtures.
ARTICLE 11. ASSIGNMENT OF SUBLETTING
-------------------------------------
Section I. Sublessee shall not assign or in any manner transfer this
---------
Sublease or any interest therein, nor sublet said premises or any part of parts
thereof, nor permit occupancy by anyone with, through, or under it without the
previous written consent of Lessor and Sublessor not to be unreasonably withheld
or delayed, provided, however, that any additional assignee or sublessee shall
be a customer of ABX AIR, INC. unless otherwise approved by ABX AIR, INC.
Consent by Lessor and Sublessor to one or more assignments of this sublease or
to one or more subletting's of the Premises shall not operate as a waiver of
Sublessor's rights under this Article to any subsequent assignment or
subletting. No assignment or sublease shall release Sublessee of any of its
obligations hereunder or be construed or taken as a waiver of any sublessor's
rights or remedies hereunder.
Section II. Neither this Sublease nor any interest therein, nor any estate
----------
thereby created, shall pass to any trustee or receiver in bankruptcy or any
assignee for the benefit of the creditors or by operation of law.
ARTICLE 12. ACCESS TO PREMISES
-------------------------------
Lessor, Sublessor or its agents shall have the right to enter upon the
Premises at all reasonable hours after the giving of reasonable prior notice to
Sublessee for the purpose of inspecting the same or of making repairs, additions
or alterations thereto or to the building in which the same are located,
provided that Sublessee's operations at the Premises shall not unreasonably be
interfered with or disrupted. The Lessor and Sublessor shall have the right,
upon reasonable prior notice and during reasonable times, to show the Premises
to prospective purchasers, and during the final year of this Sublease only to
prospective Lessees and Sublessees and provided that Sublessee may prohibit such
showing to companies listed on Schedule "A". Such Schedule may be updated by
Sublessee on an annual basis. The exercise of such right shall not be deemed an
eviction or disturbance of Sublessee's use or possession.
ARTICLE 13. LIMITATION UPON LIABILITY
--------------------------------------
Notwithstanding any other provision of this Sublease, Sublessee agrees to
look solely to Sublessor's interest in the Lease (subject to any mortgage on the
Building) for the recovery of any judgement requiring the payment of money by
Sublessor; it being agreed that Sublessor,
8
<PAGE>
and if Sublessor is a corporation, its directors, officers, or shareholders,
shall never be personally liable for any such judgment, and no other assets of
the Sublessor shall be subject to levy, execution or other procedures for the
satisfaction of Sublessee's judgement. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Sublessee might
otherwise have to obtain injunctive relief against Sublessor, Sublessor's
successors in interest, or to maintain any other action not involving the
personal liability of Sublessor, or to maintain any suit or action in connection
with enforcement of collection of amounts which may become owing or payable
under or an account of insurance maintained by Sublessor.
ARTICLE 14. SUBLESSOR'S SUCCESSORS
-----------------------------------
The term "Sublessor" as used in this Lease shall be limited to mean and
include only the Lessee under the Lease with Miller-Valentine, at the time, its
successors and assigns, so that in the event of any transfers or assignments of
the Lease, the previous Sublessor shall be entirely released with respect to the
performance of all subsequently accruing covenants and obligations on the part
of Sublessor, provided the new Sublessor or Lessor, as the case may be, agrees
to perform all the covenants and agreements in this Agreement of Sublease.
ARTICLE 15. SUBLESSEE'S DEFAULT
--------------------------------
Section I. The Sublessee, ten (10) days after receipt of written notice,
---------
shall be considered in default of this Sublease upon failure to pay when due the
rent or any other sum required by the terms of the Sublease, and thirty (30)
days after receipt of written notice for failure to perform any term, covenants
or condition of this Sublease provided that any such failure which cannot
reasonably be cured within such 30 day period shall not constitute a default so
long as Sublessee shall have such cure and shall diligently pursue the same to
completion; provided that such cure does not exceed 90 days from notice of
default, the commencement of any action or proceeding for the dissolution,
liquidation or reorganization under the Bankruptcy Act, of Sublessee, or for the
appointment of a receiver or trustee of the Sublessee's property; the making of
any assignment for the benefit of creditors by Sublessee; the suspension of
business; or the abandonment of the Premises by the Sublessee.
Section II. In the event of default of the Sublease by Sublessee, then
----------
Sublessor may pursue any and all remedies and rights available to the Sublessor
under applicable Ohio law. Should Sublessor elect to reenter, as herein
provided, or should it take possession pursuant to legal proceedings or pursuant
to any notice provided for by law, it may either terminate this Sublease, or it
may without terminating this Sublease relet said Premises or any parts thereof
for such term or terms and at such rental or rentals and upon such other terms
and conditions as Sublessor may deem advisable, with the right to make
alterations and repairs to said Premises for the purpose of re-rental. Should
such rentals received from such reletting during any month be less than required
to be paid by Sublessee as defined above, then Sublessee shall immediately pay
such deficiency to Sublessor.
9
<PAGE>
Section III. No such reentry or taking possession of said Premises by
-----------
Sublessor shall be construed as an election on its part to terminate this
Sublease, unless a written notice of such intention be given to Sublessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Sublessor may at any
time thereafter elect to terminate this Sublease for such previous breach or act
of default. Should Sublessor at any time terminate this Sublease for any breach
or act of default, in addition to any other remedy it may have, it may recover
from Sublessee all damages it may incur by reason of such breach or act of
default, including the cost of recovering the Premises, legal fees, and
including the worth at the time of such termination of the excess, if any, of
the amount of rent and charges equivalent to rent reserved in this Sublease for
the remainder of the stated term over the then reasonable rental value of the
Premises for the remainder of the stated term.
ARTICLE 16. SURRENDER OF PREMISES
----------------------------------
Section I. If Sublessee holds possession of the Premises after the
---------
termination of this Sublease for any reason, Sublessee shall pay Sublessor
double the rent provided for herein for such period that Sublessee holds over,
but such payment of rent shall not create any Sublease arrangement whatsoever
between Sublessor and Sublessee, unless expressly agreed to in writing by
Sublessor. It is further understood that during such period that Sublessee
holds over, the Sublessor retains all of Sublessor's rights under this Lease,
including damages as a result of the termination of this Sublease and the right
to immediate possession of the Premises. This paragraph shall not be construed
to grant Sublessee permission to hold over.
Section II. At the expiration of the tenancy created hereunder, whether
----------
by lapse of time or otherwise, Sublessee shall surrender the Premises broom
clean, free of tire marks, free of all debris and in good condition and repair,
reasonable wear and loss by fire or other unavoidable casualty excepted.
Section III. Prior to surrender of the Premises, the Premises will be
-----------
reviewed by a representative of the Sublessor and Sublessee to determine if
there is any deferred maintenance or un-repaired damage for which Sublessee is
responsible under Article V, Section 5 hereof. In the event that there is
deferred maintenance and/or un-repaired damage, Sublessor may effect such
maintenance and repairs, and Sublessee will pay the actual, reasonable cost
thereof.
Section IV. Upon the expiration of the tenancy hereby created, if
----------
Sublessor so requests in writing, Sublessee shall promptly remove any additions,
fixtures and installations placed in the Premises by Sublessee that is
designated in said request (provided, however, that Sublessee shall in no event
be required to remove the Sublessee's Required Improvements), and repair any
damage occasioned by such removals at its own expense, and in default thereof,
Sublessor may effect such removals and repairs, and Sublessee shall pay
Sublessor the actual, reasonable cost thereof, with interest at the rate of
eight percent (8%) per annum from the date of payment
10
<PAGE>
by Sublessor.
ARTICLE 17. SUBORDINATION
--------------------------
This lease shall be subject to and subordinate at all times to the lien of
any mortgages, now or hereafter made on the Premises, and to all advances made
or hereafter to be made thereunder. The Sublessee agrees to execute a
subordination agreement should the lender request same, provided such
subordination agreement does not diminish Sublessee's rights under this
Agreement of Sublease.
ARTICLE 18. NOTICE
-------------------
All notices under this lease may be personally delivered; sent by courier
service, with receipt; or mailed to the address shown by certified mail, return
receipt requested. The effective date of any mailed notice shall be THREE (3)
days after delivery of the same to the United States Postal Service.
SUBLESSOR: ABX AIR, INC.
Attn: Amiel M. Kuli
ADDRESS: 145 Hunter Drive
Wilmington, Ohio 45177
SUBLESSEE: PC Connection, Inc.
Attn: Donald S. Kincaid
ADDRESS: 2870 Old State Rout 73
Wilmington, OH 45177
PHONE: 513-382-4800
ARTICLE 19. WAIVER OF SUBROGATION
----------------------------------
The Lessor, Sublessor and Sublessee waive all rights, each against the
other, for damages caused by fire or other perils to the extent covered by
insurance where such damages are sustained in connection with the occupancy of
the Leased Premises.
ARTICLE 20. ESTOPPEL CERTIFICATE
---------------------------------
The Sublessee agrees to execute an Estoppel Certificate for the benefit of
any Lender in which the Sublessee acknowledges the terms and conditions of this
Sublease.
ARTICLE 21. RENT DEMAND
------------------------
11
<PAGE>
Every demand for rent due wherever and whenever made shall have the same
effect as if made at the time it falls due and at the place of payment, and
after the service of any notice or commencement of any suit, or final judgement
therein, Sublessor may receive and collect any rent due, and such collection or
receipt shall not operate as a waiver of nor affect such notice, suit or
judgment.
ARTICLE 22. NO REPRESENTATION BY SUBLESSOR
-------------------------------------------
Sublessor and its agents have made no representations or promises with
respect to the Premises or the building of which the same form a part except as
herein expressly set forth.
ARTICLE 23. WAIVER OF BREACH
-----------------------------
No waiver of any breach of the covenants, provisions or conditions
contained in this Sublease shall be construed as a waiver of the covenant itself
or any subsequent breach itself, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Sublease shall continue in full force and
effect as if no breach had occurred, unless otherwise agreed. The acceptance of
rent hereunder shall neither be or construed to be a waiver of any breach of any
term, covenant or condition of this Sublease.
ARTICLE 24. QUIET ENJOYMENT
----------------------------
Sublessor hereby covenants and agrees that so long as Sublessee performs
all the covenants and agreements herein stipulated to be performed on
Sublessee's part, Sublessee shall at all times during the continuance hereof
have the peaceable and quiet enjoyment and possession of the Premises without
any manner of let or hindrance from Sublessor or any person or persons lawfully
claiming the Premises except as otherwise provided for herein.
ARTICLE 25. ENVIRONMENTAL PROVISIONS
-------------------------------------
Section I. Sublessee shall at all times during the term of this Sublease
---------
comply with all applicable federal, state, and local laws, regulations,
administrative rulings, orders, ordinances, and the like, pertaining to the
protection of the environment with respect to its operations at the Premises,
including but limited to, those regulating the handling and disposal of waste
materials. Further, during the term of this Sublease, neither Sublessee nor any
agent or party acting at the direction or with the consent of Sublessee shall
treat, store, or dispose of any "hazardous substance" as defined in Section
101(14) of the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") or petroleum (including crude oil or any fraction
thereof) on or from the Property.
Section II. Sublessee shall fully and promptly pay, perform, discharge,
----------
defend, indemnify and hold harmless Sublessor from any and all claims, orders,
demands, causes or
12
<PAGE>
action, proceedings, judgements, or suits and all liabilities, losses, costs or
expenses (including, without limitation, technical consultant fees, court costs,
expenses paid to third parties and reasonable legal fees) and damages arising
out of, or as a result of, (i) any "release" as defined in Section 101(22) of
CERCLA, of any "hazardous substance," as defined in Section 101(14) of CERCLA,
or petroleum (including crude oil or any fraction thereof) or placed into, on or
from the Property at any time after the date of this Sublease by Sublessee, its
agents, or employees; (ii) any contamination of the Property's soil or
groundwater or damage to the environment and natural resources of the Property
the result of actions occurring after the date of this Sublease, whether arising
under CERCLA or other statutes and regulations, or common law by Sublessee, its
agents, or employees; and (iii) any toxic, explosive or otherwise dangerous
materials or hazardous substances which have been buried beneath, concealed
within or released on or from the Property after the date of this Sublease by
Sublessee, its agents, or employees.
Section III. Sublessor shall fully and promptly pay, perform, discharge,
-----------
defend, indemnify and hold harmless Sublessee from any and all claims, orders,
demands, causes or action, proceedings, judgments, or suits and all liabilities,
losses, costs or expenses (including, without limitation, technical consultant
fees, court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of, (i) any "release" as defined in
Section 101(22) of CERCLA, of any "hazardous substance," as defined in Section
101(14) of CERCLA, or petroleum (including crude oil or any fraction thereof) or
placed into, on or from the Property at any time after the date of this Sublease
by Sublessor, its agents, or employees; (ii) any contamination of the Property's
soil or groundwater or damage to the environment and natural resources of the
Property the result of actions occurring after the date of this Sublease,
whether arising under CERCLA or other statutes and regulations, or common law by
Sublessor, its agents, or employees; and (iii) any toxic, explosive or otherwise
dangerous materials or hazardous substances which have been buried beneath,
concealed within or released on or from the Property after the date of this
Sublease by Sublessor, its agents, or employees."
ARTICLE 26. INTERPRETATION
---------------------------
Section I. Wherever either the "Sublessor" or "Sublessee" is used in the
---------
Sublease, it shall be considered as meaning the singular and/or neuter pronouns
as used herein, and the same shall be construed as including all persons and
corporations designated respectively as Sublessor or Sublessee in the heading of
this instrument wherever the context requires.
Section II. If any clause, sentence, paragraph or part of this Sublease
----------
shall for any reason be adjudged by any court of competent jurisdiction to be
invalid, such judgment shall not effect, impair, or invalidate the remainder of
this Sublease, but be confined in its operation to the clause, sentence,
paragraph, or part thereof directly involved in the controversy in which such
judgment shall have been rendered, and in all other respects said Sublease shall
continue in full force and effect.
13
<PAGE>
ARTICLE 27. FINANCIAL STATEMENTS
---------------------------------
At Sublessor's request, Sublessee shall furnish the Sublessor with its most
current financial information. Sublessee's specific financial information shall
include items listed in Schedule "B".
ARTICLE 28. MEMORANDUM OF LEASE
--------------------------------
It is agreed by both parties that this instrument is not recordable and if
either party should record the same in the Office of the Recorder of Clinton
County, Ohio, the recording shall have no effect. When possession of the
Premises has been delivered to Sublessee, the parties hereto may execute,
acknowledge and deliver a Memorandum of Lease in recordable form specifying the
terms of this Sublease and renewal periods of this Sublease.
ARTICLE 29. TIME
-----------------
Time is of the essence in this Sublease.
ARTICLE 30. ENTIRE AGREEMENT
-----------------------------
This Sublease contains the entire agreement between the parties with
respect to the use and operation of the Premises by Sublessee; it supersedes all
previous understandings and agreements between the parties, if any, and no oral
or implied representation or understandings shall vary its terms; and it may not
be amended except by a written instrument executed by both parties hereto.
- --------------------------------------------------------------------------------
IN WITNESS HEREOF, the parties hereto set their hands to triplicates hereof
this 7th day of June, 1995, as to Sublessor, and this 1st day of June, 1995, as
to Sublessee.
Signed and Acknowledged SUBLESSOR
in the presence of : ABX AIR, INC.
By /s/
------------------------------
Its Vice President
------------------------------
14
<PAGE>
Signed and Acknowledged SUBLESSEE
in the presence of : PC Connection, Inc.
/s/ Steve Markiewicz By /s/ Charles Morang
- ------------------------------------ --------------------------------
Its Director, Infrastructure
Development
----------------------------------
STATE OF OHIO, COUNTY OF CLINTON, SS:
The foregoing instrument was acknowledged before me this 7th day of June,
1995, by Amiel M. Kuli, Vice President on behalf of ABX AIR, INC., a Delaware
corporation.
/s/ Phyllis J. King
----------------------------------
PHYLLIS J. KING
Notary Public, Sate of Ohio
My Commission Expires August
Recorded in Highland County
STATE OF NEW HAMPSHIRE, COUNTY OF CHESHIRE, SS:
The foregoing instrument was acknowledged before me this 1st day of June,
1995, by Charles Morang, Director, Infrastructure Development, on behalf of PC
Connection, Inc., a corporation.
/s/ Steve Markiewicz
-----------------------------------
STEVEN MARKIEWICZ, Notary Public
My Commission Expires January 7, 1997
15
<PAGE>
Exhibits to this Agreement of Sublease may be obtained from the
Registrant upon written request.
<PAGE>
EXHIBIT 10.12
PC CONNECTION, INC.
EMPLOYMENT AGREEMENT
--------------------
In consideration of my employment and the compensation paid to me by PC
Connection, Inc. (the "Corporation"), a New Hampshire corporation with an office
at 6 Mill Street, Marlow, New Hampshire 03456, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, I
agree as follows:
1. Employment Status: The Corporation hereby employs me, and I hereby
-----------------
accept employment, on the terms and conditions set forth in this Agreement. I
understand that I am employed for an indefinite term and that either the
Corporation or I may terminate the employment relationship at any time pursuant
to Section 6 hereof. My first day of employment with the Corporation will be
the date listed in Schedule A attached hereto.
----------
2. Duties: I shall perform the duties of the job title listed on
------
Schedule A and such other or additional duties and responsibilities as may be
- ----------
assigned to me from time to time by the Board of Directors of the Corporation.
As long as I am employed by the Corporation, I shall devote my skill, energy and
best efforts to the faithful discharge of my duties as a full-time employee of
the Corporation. My principal place of employment shall be at the Corporation's
various corporate and other offices, including an office at the Corporation's
Bradco Street Building and in Milford, New Hampshire. I shall, when possible,
perform my duties at such offices of the Corporation; however, I realize that it
will, at times, be necessary to perform duties at my address on my equipment or
on equipment provided by the Corporation. I agree that I will not without the
Corporation's specific written consent engage in any employment, occupation or
the provision of consulting services for a fee other than for the Corporation or
for Affiliates of the Corporation for so long as I am employed by the
Corporation. Nothing in this Agreement is intended to prevent me from
performing or providing services for an Affiliate of the Corporation, as may be
agreed upon from time to time by me and such Affiliate of the Corporation.
3. Compensation and Benefits: I shall receive the compensation and
-------------------------
other consideration, if any, described on Schedule A and in addition shall be
----------
entitled to at least three weeks vacation annually, plus holidays and sick
leave, and to participate in such employee benefit plans and to receive such
other fringe benefits, as are customarily afforded the Corporation's employees
having positions and seniority comparable to my own. Any payments or benefits
in respect of any calendar year during which I am employed for less than the
entire year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which I am employed by the Corporation. I understand and agree that
these employee benefit plans and fringe benefits may be amended, enlarged, or
diminished by the Corporation in its discretion
<PAGE>
from time to time; provided, however, that my vacation benefits shall at no time
be less than three weeks per year. The Corporation shall provide me with
descriptions of such benefit plans as are in effect from time to time. The
Corporation shall also reimburse me for reasonable out-of-pocket disbursements,
which may include travel expenses, educational expenses, computer supplies and
equipment or other products which I may require in connection with the
performance of my duties hereunder, such as disks, books, software, cellular air
time or telephone charges, provided such expenses are accounted for in
accordance with the policies and procedures established by the Corporation. All
material paid for by the Corporation shall be the property of the Corporation.
4. Performance: I shall use my best efforts to perform my assigned
-----------
duties diligently, loyally, conscientiously, and with skill commensurate with my
qualifications and experience, and shall comply with all rules, procedures and
standards promulgated from time to time by the Corporation with regard to
conduct of employees of the Corporation and with regard to access to and use of
the Corporation's property, equipment, and facilities. Among such rules,
procedures and standards are those governing ethical and other professional
standards for dealing with customers, government agencies, vendors, competitors,
consultants, fellow employees, and the public-at-large; security provisions
designated to protect the Corporation's property and the personal security of
the Corporation's employees; and rules and procedures designed to protect
Confidential Information, as defined below.
5. The Corporation's Management Rights: The Corporation retains its
-----------------------------------
full discretion to manage and direct its business affairs, including without
limitation the choice of sources, methods and degree of financing and the
adoption, amendment or modification of such research, development, production,
customer service or marketing methods and approaches as it sees fit,
notwithstanding any employee's individual interest in or expectation regarding a
particular business program or product.
6. Termination: (a) The employment relationship established by this
-----------
Agreement may be terminated voluntarily by me at any time, without cause, on
twelve weeks prior written notice to the Corporation. The employment
relationship established by this Agreement may be terminated by the Corporation
at any time, without cause, effective upon delivery to me of written notice
thereof. In addition, if the Corporation permanently relocates its corporate
offices to a location not in the vicinity of Marlow, Keene or Milford, New
Hampshire, I shall be entitled to terminate my employment relationship,
effective upon the effective date of such relocation.
b) In the event that my employment hereunder is terminated by the
Corporation or by any successor in interest to the Corporation without cause or
by me due to a permanent relocation of the Corporation's corporate offices as
described in paragraph (a) above, and I am not, within thirty days following
such termination,
2
<PAGE>
offered employment by another entity that is owned or controlled by either
Patricia Gallup or David Hall or both of them for the same base salary, deferred
incentive compensation and additional compensation as set forth herein, I shall
be entitled to payment of severance pay equal to one year of my Base Salary as
of the effective date of my termination set forth on Schedule A, such severance
----------
pay to be payable as follows: (i) a single lump sum of $200,000 payable within
thirty days of the effective date of my termination and (ii) the difference, if
any, between my Base Salary and $200,000 payable in quarterly installments over
the course of the twelve months immediately succeeding the effective date of my
termination. The payment of such severance pay under this Agreement is subject
to my full compliance with any and all of my obligations to the Corporation or
any Affiliate of the Corporation, whether under this Agreement or otherwise. I
agree that my acceptance of such severance pay, whether paid by the Corporation
or any guarantor of the Corporation's obligations, will be in full and complete
satisfaction of any and all claims that I may have against the Corporation, its
officers, directors, employees, agents, stockholders and Affiliates. I further
agree that my receipt of such severance pay, may, at the election of the
Corporation, be conditioned upon my execution of a general release of any and
all such claims prior to my receipt of such severance pay.
(c) The Corporation may terminate my employment for cause at any time
without prior notice. Cause shall mean failure to comply with rules, standards
or procedures promulgated by the Corporation, negligent or substandard
performance of my assigned responsibilities, breach of the terms of this
Agreement, falsification of Corporation records or documents, or any act of
dishonesty or moral turpitude or any other statement, act or omission to act
made or taken in bad faith or contrary to the direction of the Board of
Directors of the Corporation that materially and adversely affects the
businesses of the Corporation or any Affiliate of the Corporation or the owners
thereof. Termination of the employment relationship terminates any obligation
on the part of the Corporation or any of its Affiliates to make any further
payments hereunder, with the exception of any accrued but unpaid payments and
severance pay as described above, if any. Termination of employment by the
Corporation shall be without prejudice to any other right or remedy to which the
Corporation may be entitled, at law or in equity, under this Agreement or
otherwise.
7. Agreement not to Compete with the Corporation:
----------------------------------------------
(a) As long as I am employed by the Corporation, or by any
Affiliate of the Corporation, I shall not participate, directly or indirectly,
in any capacity, in any business or activity that is in competition with the
business of the Corporation or of any Affiliate of the Corporation. This
section does not limit interpretation of the scope of my obligations as set
forth in Section 2, above.
(b) For a period of two years after the termination of my
employment with the Corporation or with any Affiliate of the corporation, so
long as such
3
<PAGE>
termination did not constitute or result from a substantial, material breach of
this Agreement by the Corporation or any Affiliate of the Corporation, I shall
not, on my own behalf, or as owner, manager, stockholder, consultant, director,
officer or employee of any business entity, participate in the development or
provision of goods or services which are competitive with goods or services
provided (or proposed to be provided) by the Corporation or by any Affiliate of
the Corporation without the express written authorization of the Corporation's
Directors. For purposes of this Agreement, a product or service shall be deemed
competitive with the Corporation or an Affiliate of the Corporation if such
product or service is offered as or could be used as an alternative to or
substitute for any product or service now or hereafter offered by the
Corporation or any Affiliate of the Corporation. Notwithstanding the foregoing,
the Corporation agrees that I may trade in the stock of any company which is
listed on a national or international stock exchange, so long as I do not
acquire more than one percent (1%) of the total outstanding stock of any such
company.
(c) For a period of two years after the termination of my
employment with the Corporation or with any Affiliate of the Corporation, so
long as such termination did not constitute or result from a substantial,
material breach of this Agreement by the Corporation or any Affiliate of the
Corporation, I shall not solicit, induce, attempt to hire, or hire any employee
of the Corporation, or of any Affiliate of the Corporation, (or any other person
who was employed by the Corporation or by any Affiliate of the Corporation
within one year prior to the termination of my employment), or assist in such
hiring by any other person or business entity or encourage any such employee to
terminate his or her employment with the Corporation or with any Affiliate of
the Corporation.
(d) I shall not make any statements that are derogatory of the
businesses of the corporation or any Affiliate of the Corporation or the owners
thereof, nor shall I make any statements, take any actions or omit to take any
actions that will harm the reputation of the businesses of the Corporation or
any Affiliate of the Corporation or the owners thereof.
(e) For purposes of this Agreement, an "Affiliate" of the
Corporation shall be deemed to be any person, persons or entity that is
controlled by, under common control with, or that controls the Corporation. The
term "control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), means the possession, directly or indirectly,
of the power to direct or cause the direction of the actions, management or
policies of a person, persons or entity, whether through the ownership of voting
securities, by contract or otherwise.
8. Nondisclosure of Confidential Information:
-----------------------------------------
While employed by the Corporation and thereafter, I shall not, other than
pursuant to my employment by and for the benefit of the Corporation or as may be
4
<PAGE>
required by law, directly or indirectly, use any Confidential Information, copy
any Confidential Information, remove any Confidential Information from the
Corporation's premises, or disclose any Confidential Information to anyone
outside of the Corporation or to anyone within the Corporation who has not been
authorized to receive such information; provided, however, that in the event
that I am required by law to disclose any Confidential Information, I shall
reasonably notify the Corporation in writing of such requirement so as to
provide the Corporation with a reasonable opportunity to object thereto and I
shall take appropriate actions to protect any such Confidential Information,
including, without limitation, obtaining a protective order or the like. On
request, I promptly shall deliver to the Corporation all Confidential
Information, whether written or contained in any other medium or computer
hardware outside the Corporation's premises, which is in my possession or under
my control, and shall return all such things promptly upon termination of my
employment with the Corporation.
The term "Confidential Information" as used throughout this Agreement shall
mean all data or information (and any tangible evidence, record or
representation thereof), whether prepared, conceived or developed by or for the
Corporation or received by the Corporation from an outside source, which is not
generally known outside of the Corporation and which is maintained in confidence
by the Corporation or by any Affiliate of the Corporation. Without limiting the
generality of the foregoing, confidential Information shall include:
(a) identities of customers, customer lists and other customer
information, sales information, the name of any customer, employee,
prospective customer or consultant, any unpublished sales or marketing
material, plan or survey, oral or written agreements with vendors and
distributors, pricing methods, purchasing and sales contacts, and sales
figures;
(b) any idea, improvement, invention, innovation, development,
technical data, design, formula, device, pattern, concept, computer
program, computer screen layout, model, diagram, schematic, equipment,
tool, training or service manual, product specification and other technical
information, plan for a new or revised product or service, compilation of
information or work in process, and any and all revisions and improvements
relating to any of the foregoing;
(c) any business plan or opportunity; information regarding marketing
methods and plans, and plans for expansion, diversification, sales,
financing and the like, any product or development plan or specification,
any business proposal, financial record or information, or business record,
and all other non-public records and information relating to the present or
proposed business of the Corporation; and
5
<PAGE>
(d) any materials that reflect the information described in Sections 8(a)
through 8(c); "materials" includes, without limitation, any documents,
memoranda, notes, notebooks, reports, studies, programs, data, drawings,
schematics, ideas, diskettes, files, slides, and any material generated by or
for the Corporation, stored or contained in any medium.
Each item above is included, without limitation, as "Confidential Information"
regardless of whether it is stored in any tangible medium, or the type of medium
in which the information may be stored. Information is confidential
independently of whether it was created individually or together with others,
and independently of whether it was created during or outside of regular working
hours, so long as the information was created for the benefit of the Corporation
or by utilizing Corporation time, resources, materials or information.
Notwithstanding the foregoing, the term "Confidential Information" shall
not apply to information which the Corporation has voluntarily disclosed to the
public without restriction, or which is otherwise known to the public at large.
9. Rights in Documents and Work Product:
------------------------------------
(a) I agree that all originals and all copies of all manuscripts,
drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models,
and all other materials containing, representing, evidencing, recording or
constituting any Confidential Information (as defined above), however and
whenever produced (whether by myself or others) (herein referred to as
"Documents") shall be the property solely of the Corporation.
(b) I agree that all work Product (as hereinafter defined) shall be
the property solely of the Corporation I agree that all Work Product shall
constitute work made for hire under the copyright laws of the United States and
I hereby assign, and to the extent that such assignment cannot be made at this
time, agree to assign, to the Corporation any and all copyrights, patents, and
other proprietary rights I may have in any Work Product, together with the right
to file and/or own wholly without restrictions applications for United States
and foreign patents, trademark registrations and copyright registrations and any
patent, copyright or trademark registration issuing thereon. I agree to waive,
and hereby waive, all moral rights or proprietary rights which I may have in or
to any Work Product and, to the extent that such rights may not be waived, agree
not to assert such rights against the Corporation or its licensees, successors
or assigns.
(c) The term "Work Product" as used throughout this Agreement shall
mean any and all discoveries, inventions, ideas, concepts, research, trademarks,
service marks, good will, slogans, logos and other information, processes,
products, techniques, methods and improvements, or parts thereof conceived,
developed, or
6
<PAGE>
otherwise made by me alone or jointly with others, during the period of my
employment with the Corporation or with any Affiliate of the Corporation or
during the six month period next succeeding the termination of my employment
with the Corporation or with any Affiliate of the Corporation, and in any way
relating to the present or proposed products, programs or services of the
Corporation or of any Affiliate of the Corporation, or to tasks assigned to me
during the course of my employment, whether or not patentable or subject to
copyright or trademark protection, whether or not reduced to tangible form or
reduced to practice, whether or not made during my regular working hours,
whether or not made on the Corporation's premises, whether or not
Confidential Information and whether or not disclosed by me to the Corporation.
10. Obligation to Keep Records: I shall make and maintain adequate and
--------------------------
current written records of all Work Product and I shall disclose all Work
Product promptly, fully and in writing to the Corporation's Directors, or to
such person as the Corporation's Directors may designate, immediately upon
development of the same and at any time upon request.
11. Obligation to Cooperate: I will, at any time during my employment,
-----------------------
or after it terminates, at the request of the Corporation, execute all documents
and perform all lawful acts which the Corporation considers necessary or
advisable to secure its rights hereunder and to carry out the intent of this
Agreement. It is understood that my reasonable out-of-pocket expenses of my
assistance incurred at the request of the Corporation will be reimbursed by the
Corporation.
12. Conflicts of Interest: I understand that my position with the
---------------------
Corporation may require me to have contact with persons outside the Corporation
such as vendors, contractors, and government agencies and officials. I agree to
adhere strictly to the Corporation's policy against giving gifts of any kind to,
or receiving gifts of any kind from, such persons. I also agree to comply with
any additional guidelines and policies that the Corporation may adopt from time
to time.
13. Return of Property
------------------
(a) Immediately upon the cessation of my employment by the
Corporation, or earlier upon request of the Corporation, I shall return any
Documents, manuals, specifications, drawings, blueprints, reproductions,
sketches, notes, reports, proposals, business plans, computer programs, or
copies of them, other documents or materials, tools, equipment or other property
belonging to the Corporation, to any Affiliate of the Corporation or to their
customers.
(b) If requested to do so by the Corporation, I agree to sign a
Termination Certificate in which I state whether I have complied with the
requirements of this section and in which I acknowledge that certain
restrictions
7
<PAGE>
imposed upon me by this Agreement and by my other agreements with the
Corporation continue after termination of employment. I understand, however,
that my rights and obligations under this Agreement will continue even if I do
not sign a Termination Certificate.
14. Exceptions to this Agreement: I hereby certify that my performance of
----------------------------
all the terms of this Agreement and as an employee of the Corporation does not
and will not breach any agreement or other obligation owing to any other person,
including, without limitation, obligations to keep in confidence proprietary
information, knowledge or data acquired by me in confidence or in trust prior to
my employment with the Corporation, and I will not disclose to the Corporation
or induce the Corporation to use any confidential information or material
belonging to any previous employer or others. I hereby certify that I have
identified on Schedule B attached hereto any and all continuing obligations to
----------
any previous employers or other persons which require me not to disclose to the
Corporation any information and that I have also identified on Schedule B any
----------
and all Confidential Information, Documents or Work Product which I claim as my
own or otherwise intend to exclude from this Agreement. I understand and agree
that once I have signed this Agreement I may not exclude any other Confidential
Information, Document or Work Product from this Agreement without the written
consent of the Chief Executive Officer of the Corporation.
15. General Provisions.
-------------------
(a) Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the substantive laws of the state of
New Hampshire, without regard to its principles of conflicts of laws, and shall
be deemed to be effective as of the first day of my employment by the
Corporation.
(b) Counterparts. This Agreement may be executed in counterparts.
------------
(c) Entire Agreement. This Agreement contains the entire and only
----------------
agreement between me and the Corporation respecting the subject matter hereof,
and no modification, renewal, extension, waiver or termination of this Agreement
or any of the provisions herein contained shall be binding upon me or the
Corporation unless made in writing and signed by me and an authorized officer of
the Corporation. In the event of any inconsistency between this Agreement and
any other contract between me and the Corporation, the provisions of this
Agreement shall prevail. This Agreement is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder, except as
otherwise expressly provided herein. I shall not assign any of my rights, or
delegate any of my duties, hereunder without the prior written consent of the
Chief Executive Officer of the Corporation.
8
<PAGE>
(d) Waiver of Rights, Cumulative Rights. The waiver by either party
-----------------------------------
of a breach of any provision of this Agreement shall not operate as a waiver of
any subsequent breach. No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other right or remedy. All rights and remedies hereunder
are cumulative and are in addition to all other rights and remedies provided by
law, agreement or otherwise.
(e) Survival. My obligations under this Agreement shall survive the
--------
termination of my employment with the Corporation regardless of the manner of or
reasons, if any, for such termination, and regardless of whether such
termination constitutes a breach of this Agreement or of any other agreement I
have with the Corporation. My obligations under this Agreement shall be binding
upon my heirs, executors and administrators, and the provisions of this
Agreement shall inure to the benefit of and be binding on the successors and
assigns of the Corporation.
(f) Severability. If the scope of any provision contained herein is
------------
too broad to permit enforcement of such provision to its full extent, then such
provision shall be enforced to the maximum extent permitted by law, and I hereby
consent and agree that such scope may be judicially modified in any proceeding
brought with respect to the enforcement of such provision. Without limiting the
generality of the foregoing, in the event that any provision of this Agreement
shall be determined to be unenforceable by reason of its extension for too great
a period of time or over too large a geographic area or over too great a range
of activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
Except as otherwise provided in the preceding two sentences, if any provision of
this Agreement shall be construed to be illegal or invalid, the legality or
validity of any other provision hereof shall not be affected thereby, and any
illegal or invalid provision of this Agreement shall be severable, and all other
provisions shall remain in full force and effect.
(g) Remedies. I recognize that money damages alone would not
--------
adequately compensate the Corporation in the event of my breach of this
Agreement, and I therefore agree that, in addition to all other remedies
available to the Corporation at law or in equity, the Corporation shall be
entitled to injunctive relief for the enforcement hereof. Failure by the
Corporation to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such terms, covenants or
conditions.
(h) Arbitration. Any dispute arising under or in connection with
-----------
this Agreement that is not first resolved by the parties to such dispute or
controversy shall, at the election of me or the Corporation, be determined and
settled exclusively by an arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect;
provided, however, that in no event shall the
9
<PAGE>
election of an arbitrator pursuant to this sentence preclude either party hereto
from seeking injunctive relief in any court of law pending the outcome of
arbitration. The arbitrator shall be selected pursuant to such Rules. The place
of arbitration shall be Boston, Massachusetts or Marlow, New Hampshire, at the
election of the Corporation. An award rendered in such arbitration shall be
final and binding on the parties and judgment may be entered on the arbitrator's
award in any court having jurisdiction. The existence of the arbitration
proceeding and the outcome thereof, including the amount of any award, shall be
kept confidential and not publicly disclosed by any party to this Agreement
except for such disclosure as may be required by law.
(i) References and Titles. A reference to a Section shall mean a
---------------------
Section in this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
(j) Effective Date. This Agreement shall be deemed to be effective
--------------
as of the first day of my employment by the Corporation.
(k) Seal. This Agreement is executed under seal.
----
BEFORE SIGNING, I ACKNOWLEDGE THAT I HAVE READ THIS AGREEMENT, THAT I AGREE TO
ALL OF ITS TERMS, AND THAT THIS AGREEMENT SUPERSEDES ANY PRIOR AGREEMENT ON THE
SAME SUBJECT. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN A COPY OF THIS
AGREEMENT, AND HAVE HAD AN OPPORTUNITY TO DISCUSS ANY QUESTIONS WITH THE
CORPORATION'S.
PERSONNEL MANAGER AND LEGAL COUNSEL AND WITH INDEPENDENT COUNSEL OF MY CHOICE.
ACCEPTED:
PC CONNECTION, INC. EMPLOYEE:
By: /s/ Patricia Gallup /s/ Wayne Wilson
-------------------------- ----------------------------
Date: 8/16/95 Date: 8/16/95
--------------------------- ------------------------
10
<PAGE>
Schedule A
To
Employment Agreement
Name: Wayne L. Wilson
Job Title: Senior Vice President of Finance and
Chief Financial Officer
Starting Date: 8/28/95
Base Salary: $230,000 per annum, payable semi-monthly in arrears
Deferred
Incentive
Compensation: In the first year of your employment under this Agreement,
Deferred Incentive Compensation equal to Seventy Thousand
Dollars ($70,000.00) will be paid in quarterly installments
of Seventeen Thousand, Five Hundred Dollars ($17,500.00)
each, within 45 days after the end of each calendar quarter,
based on the attainment by you of quarterly performance goals
for such year. At the beginning of the second year and each
succeeding year of your employment under this Agreement, the
Corporation may, in its discretion, allocate up to Thirty-
Five Thousand Dollars ($35,000.00) as a year-end bonus which
will be paid within 45 days after the end of the calendar
year, based on the attainment by you of annual performance
goals for the year. During the second year and each
succeeding year, Deferred Incentive Compensation equal to the
difference between the amount actually allocated as the year-
end bonus and Seventy Thousand Dollars ($70,000.00) will be
paid in quarterly installments within 45 days after the end
of each calendar quarter, based on the attainment by you of
quarterly performance goals for the year. Quarterly and
annual performance goals are to be determined by agreement
between you and the Chief Executive Officer ("CEO") of the
Corporation or, in the event that you and the CEO are unable
to reach an agreement, by the Board of Directors of the
Corporation. Such quarterly and annual performance goals must
be reasonable and such Deferred Incentive Compensation shall
not be withheld unreasonably.
<PAGE>
Schedule B
To
Employment Agreement
EXCEPTIONS
Name: Wayne L. Wilson
Job Title: Senior Vice President of Finance and
Chief Financial Officer
Description of Prior Commitments and Agreements:
Non-competition agreement with Deloitte & Touche LLP.
Transition time as reasonably may be required to complete satisfactorily my
commitments to Deloitte & Touche LLP for client services under my
supervision.
Description of Excluded Confidential Information, Documents, and Work Product:
Confidentiality obligations with respect to confidential information about
Deloitte & Touche LLP and clients of Deloitte & Touche LLP.
<PAGE>
Additional
Compensation: In each of the first two quarter-years of your employment, you
shall receive one-half of the difference between Seventy-Five
Thousand Dollars ($75,000.00) and the amount of bonus
compensation, if any, paid to you by Deloitte & Touche LLP with
respect to the last year of your employment by the said Deloitte
& Touche LLP, up to a limit of Twelve Thousand Five Hundred
Dollars ($12,500.00) in each such quarter-year.
Stock Options: You shall receive stock options for 50,000 shares of Series A
Non-Voting Common Stock of the Corporation under the terms and
conditions of the Non-Statutory Stock Option Agreement granted to
you by the Corporation of even date herewith.
In addition, you shall be eligible to receive future options at
the discretion of the Board of Directors of PC Connection, Inc.
<PAGE>
EXHIBIT 10.13
PC CONNECTION, INC.
EMPLOYMENT AGREEMENT
--------------------
In consideration of my employment and the compensation paid to me by PC
Connection, Inc. (the "Corporation"), a New Hampshire corporation with an office
in Keene, New Hampshire, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, I agree as follows:
1. Employment Status: The Corporation hereby employs me, and I hereby
-----------------
accept employment, on the terms and conditions set forth in this Agreement I
understand that I am employed for an indefinite term and that either the
Corporation or I may terminate the employment relationship at any time pursuant
to Section 6 hereof. My first day of employment with the Corporation will be the
date listed on Schedule A attached hereto.
2. Duties: I shall perform the duties described in Schedule A and such
------
other or additional duties and responsibilities as may be assigned to me from
time to time by the Chief Executive Officer of the Corporation. As long as I am
employed by the Corporation, I shall devote my skill, energy and best efforts to
the faithful discharge of my duties as a full-time employee of the Corporation.
I shall, when possible, perform these duties at an office of the Corporation;
however, I realize that it will, at times, be necessary to perform duties at my
address on my equipment or on equipment provided by the Corporation. I agree
that I will not without the Corporation's specific written consent engage in any
employment, occupation or consultation other than for the Corporation for so
long as I am employed by the Corporation.
3. Compensation and Benefits: I shall receive the compensation and other
-------------------------
consideration, if any, described on Schedule A and in addition shall be entitled
to vacation time, holidays, sick leave, and to participate in such employee
benefit plans and to receive such other fringe benefits, as are customarily
afforded the Corporation's employees having positions and seniority comparable
to my own. Any payments or benefits in respect of any calendar year during which
I am employed for less than the entire year shall, unless otherwise provided in
the applicable plan or arrangement, be prorated in accordance with the number of
days in such calendar year during which I am employed by the Corporation. I
understand and agree that these employee benefit plans and fringe benefits may
be amended, enlarged, or diminished by the Corporation in its discretion from
time to time. The Corporation shall provide me with descriptions of such benefit
Plans as are in effect from time to time. The Corporation shall also reimburse
me for reasonable out-of-pocket disbursements, which may include travel
expenses, educational expenses, computer supplies and equipment or other
products which I may require in connection with the performance of my duties
hereunder, such as disks, books, software, cellular air time or telephone
charges, provided such expenses
<PAGE>
are approved in advance by the Corporation's Chief Financial Officer and are
accounted for in accordance with the policies and procedures established by the
Corporation. All material paid for by the Corporation shall be the property of
the Corporation.
4. Performance: I shall use my best efforts to perform my assigned duties
-----------
diligently, loyally, conscientiously, and with skill commensurate with my
qualifications and experience, and shall comply with all rules, procedures and
standards promulgated from time to time by the Corporation with regard to
conduct of employees of the Corporation and with regard to access to and use of
the Corporation's property, equipment, and facilities. Among such rules,
procedures and standards are those governing ethical and other professional
standards for dealing with customers, government agencies, vendors, competitors,
consultants, fellow employees, and the public-at-large; security provisions
designated to protect the Corporation's property and the personal security of
the Corporation's employees; rules respecting attendance, punctuality, and hours
of work; and rules and procedures designed to protect Confidential Information,
as defined below.
5. The Corporation's Manaqement Rights: The Corporation retains its full
-----------------------------------
discretion to manage and direct its business affairs, including without
limitation the choice of sources, methods and degree of financing and the
adoption, amendment or modification of such research, development, production,
customer service or marketing methods and approaches as it sees fit,
notwithstanding any employee's individual interest in or expectation regarding a
particular business program or product.
6. Termination: The employment relationship established by this Agreement
-----------
may be terminated by the Corporation or me at any time, without cause, on six
months' prior written notice, or by the Corporation on payment of six months'
severance pay in lieu of notice. The Corporation may terminate my employment for
cause at any time without prior notice; provided, however, that the Corporation
shall provide to me within thirty (30) days following my written request, such
request to be made in writing within thirty (30) days of any such for-cause
termination, a statement of the reason or reasons for such termination. Cause
shall include, without limitation, failure to comply with rules, standards or
procedures promulgated by the Corporation, neglect of or substandard performance
of my assigned responsibilities, breach of the terms of this Agreement,
falsification of Corporation records or documents, or any act of dishonesty or
moral turpitude. Termination of the employment relationship terminates any
obligation on the part of the Corporation or any of its Affiliates to make any
further payments hereunder, with the exception of any accrued but unpaid
payments and severance pay as described above, if any. Termination of employment
by the Corporation shall be without prejudice to any other right or remedy to
which the Corporation may be entitled, at law or in equity, under this Agreement
or otherwise.
2
<PAGE>
7. Agreement Not to Compete With the Corporation
---------------------------------------------
(a) As long as I am employed by the Corporation, or by any Affiliate
of the Corporation, I shall not participate, directly or indirectly, in any
capacity, in any business or activity that is in competition with the business
of the Corporation or of any Affiliate of the Corporation. This section does not
limit interpretation of the scope of my obligations as set forth in Section 2,
above.
(b) For the non-competition period specified in this paragraph, I
shall not, without the express written authorization of the Corporation's
Directors, on my own behalf, or as owner, manager, stockholder, consultant,
director, officer or employee of any business entity, participate in any
business that is competitive with any business that, as of the date of
termination of my employment, the Corporation or any Affiliate of the
Corporation: (i) is actively operating; (ii) is actively investigating or
negotiating with for purposes of possible investment by the Corporation or an
Affiliate of the Corporation; or (iii) has invested in. The Corporation shall
within thirty (30) days following on my written request, such request to be made
within thirty (30) days following termination of my employment, supply to me a
written statement describing the businesses falling into categories (i), (ii)
and (iii) of the preceding sentence. I agree that the said statement shall
constitute Confidential Information of the Corporation for purposes of this
Agreement. Notwithstanding the foregoing, the Corporation agrees that I may
trade in the stock of any company which is listed on a national or international
stock exchange, so long as I do not acquire more than one percent (1%) of the
total outstanding stock of any such company. The non-competition period shall be
two years in case of a termination for cause or in case I voluntarily resign my
employment with the Corporation, and shall be one year in all other cases.
(c) For a period of two years following the termination of my
employment with the Corporation or with any Affiliate of the Corporation,
regardless of the circumstances of the termination, I shall not solicit, induce,
attempt to hire, or hire any employee of the Corporation, or of any Affiliate of
the Corporation, (or any other person who was employed by the Corporation or by
any Affiliate of the Corporation within one year prior to the termination of my
employment), or assist in such hiring by any other person or business entity or
encourage any such employee to terminate his or her employment with the
Corporation or with any Affiliate of the Corporation.
(d) For purposes of this Agreement, an "Affiliate" of the Corporation
shall be deemed to be any person, persons or entity that is controlled by, under
common control with, or that controls the Corporation. The term "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), means the possession, directly or indirectly, of the
power to direct or cause the direction of the actions, management or policies of
a person, persons or entity, whether through the ownership of voting securities,
by contract or otherwise.
3
<PAGE>
8. Nondisclosure of Confidential Information:
------------------------------------------
While employed by the Corporation and thereafter, I shall not, other
than pursuant to my employment by and for the benefit of the Corporation,
directly or indirectly, use any Confidential Information, copy any Confidential
Information, remove any Confidential Information from the Corporation's
premises, or disclose any Confidential Information to anyone outside of the
Corporation or to anyone within the Corporation who has not been authorized to
receive such information. On request, I promptly shall deliver to the
Corporation all Confidential Information, whether written or contained in any
other medium or computer hardware outside the Corporation's premises, which is
in my possession or under my control, and shall return all such things promptly
upon termination of my employment with the Corporation.
The term "Confidential Information" as used throughout this Agreement
shall mean all data or information (and any tangible evidence, record or
representation thereof), whether prepared, conceived or developed by or for the
Corporation or received by the Corporation from an outside source, which is not
generally known outside of the Corporation and which is maintained in confidence
by the Corporation or by any Affiliate of the Corporation. Without limiting the
generality of the foregoing, Confidential Information shall include:
(a) identities of customers, customer lists and other customer
information, sales information, the name of any customer, employee,
prospective customer or consultant, any unpublished sales or marketing
material, plan or survey, oral or written agreements with vendors and
distributors, pricing methods, purchasing and sales contacts, and
sales figures;
(b) any idea, improvement, invention, innovation, development,
technical data, design, formula, device, pattern, concept, computer
program, computer screen layout, model, diagram, schematic, equipment,
tool, training or service manual, product specification and other
technical information, plan for a new or revised product or service,
compilation of information or work in process, and any and all
revisions and improvements relating to any of the foregoing;
(c) any business plan or opportunity; information regarding
marketing methods and plans, and plans for expansion, diversification,
sales, financing and the like, any product or development plan or
specification, any business proposal, financial record or information,
or business record, and all other non-public records and information
relating to the present or proposed business of the Corporation; and
4
<PAGE>
(d) any materials that reflect the information described in
sections 8(a) through 8(c); "materials" includes, without limitation, any
documents, memoranda, notes, notebooks, reports, studies, programs, data,
drawings, schematics, ideas, diskettes, files, slides, and any material
generated by or for the Corporation, stored or contained in any medium.
Each item above is included, without limitation, as "Confidential Information"
regardless of whether it is stored in any tangible medium, or the type of medium
in which the information may be stored. Information is confidential
independently of whether it was created individually or together with others,
and independently of whether it was created during or outside of regular working
hours, so long as the information was created for the benefit of the Corporation
or by utilizing Corporation time, resources, materials or information.
Notwithstanding the foregoing, the term "Confidential Information"
shall not apply to information which the Corporation has voluntarily disclosed
to the public without restriction, or which is otherwise known to the public at
large.
9. Rights in Documents and Work Product:
-------------------------------------
(a) I agree that all originals and all copies of all
manuscripts, drawings, prints, manuals, diagrams, letters, notes,
notebooks, reports, models, and all other materials containing,
representing, evidencing, recording or constituting any Confidential
Information (as defined above), however and whenever produced (whether
by myself or others) (herein referred to as "Documents") shall be the
property solely of the Corporation.
(b) I agree that all Work Product (as hereinafter defined) shall
be the property solely of the Corporation. I agree that all Work
Product shall constitute work made for hire under the copyright laws
of the United States and I hereby assign, and to the extent that such
assignment cannot be made at this time, agree to assign, to the
Corporation any and all copyrights, patents, and other proprietary
rights I may have in any Work Product, together with the right to file
and/or own wholly without restrictions applications for United States
and foreign patents, trademark registrations and copyright
registrations and any patent, copyright or trademark registration
issuing thereon. I agree to waive, and hereby waive, all moral rights
or proprietary rights which I may have in or to any work Product and,
to the extent that such rights may not be waived, agree not to assert
such rights against the Corporation or its licensees, successors or
assigns.
(c) The term "Work Product" as used throughout this Agreement
shall mean any and all discoveries, inventions, ideas, concepts,
research,
5
<PAGE>
trademarks, service marks, good will, slogans, logos and other
information, processes, products, techniques, methods and
improvements, or parts thereof conceived, developed, or otherwise made
by me alone or jointly with others, during the period of my employment
with the Corporation or with any Affiliate of the Corporation or
during the twelve month period next succeeding any for-cause
termination of my employment with the Corporation or with any
Affiliate of the Corporation, and in any way relating to the present
or proposed products, programs or services of the Corporation or of
any Affiliate of the Corporation, or to tasks assigned to me during
the course of my employment, whether or not patentable or subject to
copyright or trademark protection, whether or not reduced to tangible
form or reduced to practice, whether or not made during my regular
working hours, whether or not made on the Corporation's premises,
whether or not Confidential Information and whether or not disclosed
by me to the Corporation.
10. Obligation to Keep Records: I shall make and maintain adequate and
---------------------------
current written records of all Work Product and I shall disclose all Work
Product promptly, fully and in writing to the Corporation's Directors, or to
such person as the Corporation's Directors may designate, immediately upon
development of the same and at any time upon request.
11. Obligation to Cooperate: I will, at any time during my employment, or
------------------------
after it terminates, at the request of the Corporation, execute all documents
and perform all lawful acts which the Corporation considers necessary or
advisable to secure its rights hereunder and to carry out the intent of this
Agreement. It is understood that my reasonable out-of-pocket expenses of my
assistance incurred at the request of the Corporation will be reimbursed by the
Corporation.
12. Conflicts of Interest: I understand that my position with the
---------------------
Corporation may require me to have contact with persons outside the Corporation
such as vendors, contractors, and government agencies and officials. I agree to
adhere strictly to the Corporation's policy against giving gifts of any kind to,
or receiving gifts of any kind from, such persons. I also agree to comply with
any additional guidelines and policies that the Corporation may adopt from time
to time.
13. Return of Property
------------------
(a) Immediately upon the cessation of my employment by the
Corporation, or earlier upon request of the Corporation, I shall return any
Documents, manuals, specifications, drawings, blueprints, reproductions,
sketches, notes, reports, proposals, business plans, computer programs, or
copies of them, other documents or materials, tools, equipment or other property
belonging to the Corporation, to any Affiliate of the Corporation or to their
customers.
6
<PAGE>
(b) If requested to do so by the Corporation, I agree to sign a
Termination Certificate in which I state whether I have complied with the
requirements of this section and in which I acknowledge that certain
restrictions imposed upon me by this Agreement and by my other agreements with
the Corporation continue after termination of employment. I understand, however,
that my rights and obligations under this Agreement will continue even if I do
not sign a Termination Certificate.
14. Exceptions to This Agreement: I hereby certify that my performance of
----------------------------
all the terms of this Agreement and as an employee of the Corporation does not
and will not breach any agreement or other obligation owing to any other person
or employer, including, without limitation, noncompetition and nonsolicitation
obligations and obligations to keep in confidence proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Corporation, and I will not disclose to the Corporation or
induce the Corporation to use any confidential information or material belonging
to any previous employer or others. I hereby certify that I have identified on
Schedule B attached hereto any and all Confidential Information, Documents or
Work Product which I claim as my own or otherwise intend to exclude from this
Agreement. I understand and agree that once I have signed this Agreement I may
not exclude any other Confidential Information, Document or Work Product from
this Agreement without the written consent of the Chief Executive Officer of the
Corporation.
15. General Provisions.
------------------
(a) Governing Law. This Agreement shall be governed by, and construed
--------------
and enforced in accordance with, the substantive laws of the state of New
Hampshire, without regard to its principles of conflicts of laws, and shall be
deemed to be effective as of the first day of my employment by the Corporation.
(b) Counterparts. This Agreement may be executed in counterparts.
-------------
(c) Entire Agreement. This Agreement contains the entire and only
----------------
agreement between me and the Corporation respecting the subject matter hereof,
and no modification, renewal, extension, waiver or termination of this Agreement
or any of the provisions herein contained shall be binding upon me or the
Corporation unless made in writing and signed by an authorized officer of the
Corporation. In the event of any inconsistency between this Agreement and any
other contract between me and the Corporation, the provisions of this Agreement
shall prevail. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder, except as otherwise
expressly provided herein. I shall not assign any of my rights, or delegate any
of my duties, hereunder without the prior written consent of the Chief Executive
Officer of the Corporation.
7
<PAGE>
(d) Waiver of Rights, Cumulative Rights. The waiver by either party
-----------------------------------
of a breach of any provision of this Agreement shall not operate as a waiver of
any subsequent breach. No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other right or remedy. All rights and remedies hereunder
are cumulative and are in addition to all other rights and remedies provided by
law, agreement or otherwise.
(e) Survival. My obligations under this Agreement shall survive the
--------
termination of my employment with the Corporation regardless of the manner of or
reasons, if any, for such termination, and regardless of whether such
termination constitutes a breach of this Agreement or of any other agreement I
have with the Corporation. My obligations under this Agreement shall be binding
upon my heirs, executors and administrators, and the provisions of this
Agreement shall inure to the benefit of and be binding on the successors and
assigns of the Corporation.
(f) Severability. It the scope of any provision contained herein is
------------
too broad to permit enforcement of such provision to its full extent, then such
provision shall be enforced to the maximum extent permitted by law, and I hereby
consent and agree that such scope may be judicially modified in any proceeding
brought with respect to the enforcement of such provision. Without limiting the
generality of the foregoing, in the event that any provision of this Agreement
shall be determined to be unenforce able by reason of its extension for too
great a period of time or over too large a geographic area or over too great a
range of activities, it shall be interpreted to extend only over the maximum
period of time, geographic area or range of activities as to which it may be
enforceable. Except as otherwise provided in the preceding two sentences, if any
provision of this Agreement shall be construed to be illegal or invalid, the
legality or validity of any other provision hereof shall not be affected
thereby, and any illegal or invalid provision of this Agreement shall be
severable, and all other provisions shall remain in full force and effect.
(g) Remedies. I recognize that money damages alone would not
--------
adequately compensate the Corporation in the event of my breach of this
Agreement, and I therefore agree that, in addition to all other remedies
available to the Corporation at law or in equity, the Corporation shall be
entitled to injunctive relief for the enforcement hereof. Failure by the
Corporation to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a Waiver of such terms, covenants or
conditions.
(h) Arbitration. Any dispute arising under or in connection with this
-----------
Agreement that is not first resolved by the parties to such dispute or
controversy shall, at the election of the Corporation, be determined and settled
exclusively by an arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect. The arbitrator shall be
selected pursuant to such Rules. The
8
<PAGE>
place of arbitration shall be Boston, Massachusetts or Marlow, New Hampshire, at
the election of the Corporation. An award rendered in such arbitration shall be
final and binding on the parties and judgment may be entered on the arbitrator's
award in any court having jurisdiction. The existence of the arbitration
proceeding and the outcome thereof, including the amount of any award, shall be
kept confidential and not publicly disclosed by any party to this Agreement
except for such disclosure as may be required by law.
(i) References and Titles. A reference to a Section shall mean a
---------------------
Section in this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
(j) Effective Date. This Agreement shall be deemed to be effective as
--------------
of the first day of my employment by the Corporation.
BEFORE SIGNING, I ACKNOWLEDGE THAT I HAVE READ THIS AGREEMENT, THAT I AGREE TO
ALL OF ITS TERMS, AND THAT THIS AGREEMENT SUPERSEDES ANY PRIOR AGREEMENT ON
THE SAME SUBJECT. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN A COPY OF THIS
AGREEMENT, AND HAVE HAD AN OPPORTUNITY TO DISCUSS ANY QUESTIONS WITH THE
CORPORATION'S PERSONNEL MANAGER AND LEGAL COUNSEL AND WITH INDEPENDENT COUNSEL
OF MY CHOICE.
ACCEPTED: EMPLOYEE:
PC CONNECTION, INC.
By: /s/ Patricia Gallup /s/ Robert F. Wilkins
------------------------------ ------------------------------------
Robert F. Wilkins
Date: Dec. 23, 1995 Date: Dec. 23, 1995
--------------------------- ------------------------------
9
<PAGE>
Schedule A
To
Employment Agreement
--------------------
Name: Robert F. Wilkins
Title: Vice President, Merchandising and Product Management
Starting Salary: At the rate of $140,000 per year
Additional Compensation: Eligible for a yearly incentive bonus in an amount
up to $60,000 depending on extent to which mutually agreed-upon performance
goals are achieved.
Starting Date: December 23, 1995
10
<PAGE>
Schedule B
To
Employment Agreement
--------------------
Name: Robert F. Wilkins
Description of Excluded Confidential Infomation, Documents, and Work Product:
1. Simm Remover by Stratos.
2. Disk Page by Acco Corporation.
3. Pimm Code, Ct. programming & Houston Based.
<PAGE>
EXHIBIT 10.14
[PC Connection stationery]
March 4, 1997
Mr. R. Wayne Roland
VP of Fulfillment Operations
22 Federation Drive
Bedford, NH 03110
Dear Wayne:
First of all, I would like to thank you for your continuing efforts in leading
our fulfillment operations, especially Sales and Distribution, and for helping
the company experience record revenue growth. At this time I would also like to
summarize our severance package for you so that this question need not further
linger in your mind.
In the event the company terminates your employment for any reason other than
for cause, you will receive six months severance at the salary level then
applicable to you. Cause shall include, without limitation, failure to comply
with rules, standards or procedures promulgated by the Company, neglect of or
substandard performance of your assigned responsibilities, breach of the terms
of this Agreement, falsification of Company records or documents, or any act of
dishonesty or moral turpitude. If the company merely wishes to replace you for
its own reasons, that is not termination for cause, and you will receive
severance. This letter and severance package does not alter your status as an
at-will employee under New Hampshire law. Also, just so there will be no
confusion, you will not receive severance in the event you resign your position,
or the company reorganizes or modifies your position or duties, unless the
company agrees in writing at that time to extend some sort of benefit to you.
Wayne, thanks again for your tremendous continuing contributions to the
Company's current and future success. Keep up the good work as we complete a
great first quarter.
Yours truly,
/s/ Wayne Wilson
Wayne Wilson
Senior Vice President & COO Agreed:
/s/ R. Wayne Roland
--------------------------
R. Wayne Roland
<PAGE>
EXHIBIT 10.15
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AIRBORNE
EXPRESS
April 30, 1990
Mr. David Hall
Chief Executive Officer
PC Connection
6 Mill Street
Marlow, New Hampshire 03456
Dear Dave;
This is to document what we talked about on Friday, April 27th.
1. Airborne will offer the following rate structure for shipments tendered to
us in Wilmington, Ohio:
Letter - 5 lbs $ *****
6 - 20 lbs $ *****
21 - 99 lbs $ ************
*******
100+ lbs $ *****
2. Airborne will guarantee the above rates for ** years unless one or both of
the following occur:
a. If the Consumer Price Index increases by more than **% annually.
Airborne may increase by no more than **% of the increase. (A **%
increase in the CPI would allow us to increase by a maximum **%).
b. If the **month average Producers Price Index for jet fuel was to
increase by **% or more over the average for the second quarter of of
1990, Airborne would be allowed an increase of up to **% of the
increase. (A **% increase would allow a maximum increase of **%).
3. Airborne will agree to ***** year renewals under the same conditions as
above. Airborne may adjust rates at the beginning of
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
each ** year period without regard to the CPI or Producers Price Index for
jet fuel. This increase will naturally be limited by market conditions, but
in no case will it exceed an overall ***% (over the ** year life of the
renewal period this is only **% per year).
4. Airborne will reduce our C.O.D. fee to ********.
5. Rates in Paragraph 1 will apply both outbound and inbound Wilmington.
6. Multi-piece shipments will be rated as a single shipment if the aggregate
weight of the pieces is a minimum of *** lbs.
7. Overnight express rates in Paragraph 1 apply to the 48 contiguous states
and Puerto Rico. I will advise within a couple of weeks how much we will
have to add for shipments to Alaska and Hawaii. Rates will not apply to
Guam.
8. Airborne will offer a deferred rate of $****/cwt, minimum weight ***lbs,
for 2-3 day service from Keene to Wilmington. This rate may also be made
available for inbound shipments from major vendors based on specifics
involved.
9. Airborne cannot offer any exceptions to our terms of liability.
10. This proposal is based on Airborne's expectations of a minimum of *****
shipments per month. If actual volume is significantly less, Airborne will
have the right to renegotiate rates and terms.
Dave, please give me a call if you'd like to discuss or if I missed any points.
I truly believe a Wilmington location and our proposed rate structure will give
you a crucial edge in your very competitive industry.
Sincerely,
/s/ Jerry Cameron
Gerald L. Cameron, Jr.
Vice President
Corporate Accounts and Pricing
GLC/rz
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AIRBORNE
EXPRESS
June 25, 1990
Mr. David Hall
Chief Executive Officer
PC CONNECTION
6 Mill Street
Marlow, New Hampshire 03456
Dear Dave:
This is to confirm our conversation of Friday, June 22nd.
1. Add-ons for service to Alaska and Hawaii will be:
Letter $ *****
1-99 lbs *****
100+ lbs *****
2. Airborne will guarantee the rate structure presented in my April 30, 1990
letter for ********** regardless of volume.
a. If volume after *** months is less than ****** shipments/month, but
more than ******, we will adjust rates as follows:
*Letter - 20 lbs will increase to the level of your existing
Keene rates;
*Over 20 lbs will increase by **%.
b. If volume is less than ***** shipments/month, but more than *****, we
would increase rates by a further **% over the ***** shipment/month
rate level.
c. To determine volume for rates from Wilmington, Airborne will combine
shipment activity of Keene and Wilmington. (Keene will maintain its
present rate structure).
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3. Airborne will offer the following alternative to the ** year guarantee
-----------
exceptions in paragraph 2 of my April 30th letter:
a. If the Consumer Price Index increases by **% or more annually, Airborne
may increase by no more than **% of the increase. (A **% increase in the
CPI would allow us to increase by **%). If CPI increases by less than
**%, there would be no increase under this provision.
b. If the ** month average Producers Price Index for jet fuel was to
increase by **% or more over the average for the second quarter of 1990,
Airborne would be allowed an increase of up to **% of the increase. (A
**% increase would allow a maximum increase of **%). If the jet fuel
index increases by less than **%, there would be no increase under this
provision.
4. Any significant improvement in package densities will be taken into
consideration in future rate negotiations.
Dave, I believe that covers all the points we discussed. I look forward to your
decision to locate in Wilmington. Airborne takes pride in the part we play of
maintaining PC Connection's position of leadership in your industry.
Sincerely,
/s/ Gerald L. Cameron, Jr.
Gerald L. Cameron, Jr.
Vice President
Corporate Accounts and Pricing
GLC/rz
cc/Ken McCumber
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AIRBORNE
EXPRESS
June 29, 1990
Mr. David Hall
Chief Executive Officer
P.C. Connection
6 Mill Street
Marlow, New Hampshire 03456
Dear David,
This letter responds to your request for a written recap of issues agreed to by
Airborne. Please contact me to any items that may require additional
explanation.
DROP OFF CUT TIMES
We will accept up to *** shipments per night by ***** Eastern time, and up to
*** Shipments per night by ***** Eastern time, the latter, with drops at
*******. When shipment volume reaches an average of **** per night, we will
expand the volume allowed by ***** to **% of your total, and by ***** to **% of
your total. However, the total number of shipments that can be dropped using
these percentages is capped at a maximum of *** shipments at *** and
***shipments by ****. Expansion beyond the maximum must be agreed to by our
airline subsidiary chairman.
It is expected that shipments will be dropped at our sort building as early as
possible and that each will bear an address label and sort code. The more
automated we can make the transfer of shipping information, the better, as we
have no margin for errors or omissions.
INTERIM WAREHOUSE SPACE
To maintain confidentiality, we can secure on your behalf, up to 20,000 square
feet of warehouse space on a temporary basis. We will do so at the best rate
possible, passing on to you the same rate we pay the primary tenant. We would
need a no-break lease with you the for the length of time you commit to take the
space and an escrow deposit of some amount may be required.
<PAGE>
Prior to signing a lease with us, the primary lease holder wants to know the
approximate length of time we would sublet from them on your behalf. They are
concerned that their business needs may require expansion into the area you
occupy if the length of the lease is much longer than six months.
If your intentions are to pursue permanent rental space from Miller
Valentine/Airborne in the building scheduled for completion in January 1991,
discussions leading to a lease agreement should proceed immediately as demand
for space in this building is running high.
LIST RENTAL
We do not rent to, or provide to anyone, customer lists or lists of shipment
recipients. Should we do so in the future ( we have no plans to do so), your
customer's names would be eliminated from the lists.
AIRPORT USAGE FOR YOUR COMPANY TRANSPORTATION
There is no problem with your use of our runway for daytime landings and
takeoffs. However, no arrivals or departures are allowed between 12:00 midnight
and 7:00 AM. We will waive landing fees.
CONCLUSION
Please call me to discuss any items requiring clarification. We are most
pleased that we have reached tentative agreement with you to locate in
Wilmington and believe that both our companies will achieve significant benefits
from this decision.
Very truly yours,
/s/Ken McCumber
Ken McCumber
Vice President
Corporate Marketing
KM:rjb
<PAGE>
EXHIBIT 10.16
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
INGRAM
MICRO
RESALE AGREEMENT
This Agreement ("Agreement") is by and between PC Connection ("PC Connection"),
with its principal place of business at 528 Route 13 South, Milford, New
Hampshire 03055 and Ingram Micro Inc. ("Ingram") excluding its subsidiaries,
with its principal place of business at 1600 E. St. Andrew Place, Santa Ana,
California 92705. This Agreement will include PC Connection's domestic locations
only.
1. Purpose
The purpose of this Agreement is to provide the terms and conditions for the
purchase and resale by PC Connection and the sale by Ingram to PC Connection of
various computer products including both hardware and software ("Product").
2. Terms of Sale
All Product sales will be subject to Ingram's then current standard Sales Terms
and Conditions published in its Comprehensive Catalog ("Catalog") at the time of
purchase. Should Ingram's Catalog provisions conflict with this Agreement, the
provisions of this Agreement will prevail. If authorization for resale is
required by the publisher or manufacturer of any Product, then Ingram will not
be obligated to sell such Product to PC Connection unless Ingram has received
such required authorization.
3. Ordering
A. PC Connection will compile, update, and provide Ingram with Product order
information. The Product order information will include the: (i) Product SKU
number(s), (ii) unit quantity, (iii) PC Connection price, (iv) the correct
shipping address, and (v) the appropriate PC Connection account number (the
account number will correspond with PC Connection's choice of credit line
options provided in Section 7 of this Agreement). PC Connection personnel will
identify, for each Product order, the ship-to destination as either PC
Connection, PC Connection's customer, or to some other specified third party.
Ingram will, subject to Product availability, use best efforts to fill and ship
all Product orders placed by PC Connection within one (1) business day of order
receipt.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
B. Ingram will accept orders over telephone, via the Computer Assisted
Purchasing System("CAPS") or Electronic Data Interchange ("EDI"), only from
those who identify themselves as PC Connection personnel and provide the Ingram
customer number prior to placing the order. Ingram will have no obligation to
confirm the validity of any order placed or the authority of the person placing
an order in this manner. EDI transactions will be subject to the guidelines set
forth in Exhibit B.
C. PC Connection may request, as a special order, Products not included in
Ingram's inventory but carried by one of Ingram's vendors. Upon receipt of a
request for special order Product ("Special Product"), Ingram will endeavor to
include such Product in its inventory. Ingram will determine, at its sole
discretion, the inventory stocking levels of Special Product and Whenever
possible, Ingram will add additional SKU's to its existing vendor lines.
Ingram's price to PC Connection for such Special Product will be in accordance
with Section 5.B, unless otherwise specified in this Agreement.
D. In the event Ingram does not carry a vendor line that PC Connection
requires, Ingram will make its best efforts to add the vendor to its Product
offering. Ingram reserves the right to carry inventory only on those Products or
vendor lines where PC Connection is able to provide accurate Product forecasting
and has acquired the necessary vendor authorization for resale from the
manufacturer. The price for any additional vendor lines will be calculated
according to Section 5.B.
E. Ingram will provide an on-site Ingram Purchasing Support Representative at
PC Connection's purchasing facility located in New Hampshire, for the purpose of
assisting PC Connection with account management including, but not limited to,
answering inquiries regarding price protection, Product allocation and other
agreed upon inventory management programs.
F. To enable PC Connection to more efficiently allocate Product from Ingram,
Ingram and PC Connection will work together to define and develop a Product
ordering program, known as the "Scheduled Ship Program". Upon implementation,
the Scheduled Ship Program will allow PC Connection to schedule orders with
Ingram up to ******* days in advance of Product shipment and will enable Ingram
to allocate Product for PC Connection ******** days before the expected ship
date. To enable Ingram to meet its Scheduled Ship Program obligations, PC
Connection will provide Ingram with accurate and timely inventory forecasts of
PC Connection's high velocity Products on a weekly basis.
-2-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
G. Ingram and PC Connection agree to work together to further improve fill-
rates and inventory turns, and will implement mutually beneficial operating
efficiencies whenever possible.
4. Electronic Data Interchange ("EDI")
A. Ingram will maintain a telecommunication line between PC Connection and
Ingram's distribution center at Ingram's expense. In addition, Ingram will
assist PC Connection in establishing an EDI link between PC Connection's New
Hampshire location and Ingram's Williamsville, New York location.
B. PC Connection will be eligible for EDI development funds ("EDI Funds") up
to ****** upon Ingram's approval of an EDI implementation plan to be developed
by both parties. Ingram will provide EDI Funds for the purpose of assisting PC
Connection with the development of EDI between Ingram and PC Connection.
C. PC Connection agrees to provide Ingram with accurate and verifiable
documentation of its EDI development costs on a monthly basis. Ingram will
reimburse PC Connection by check within the second month following the end of
Ingram's fiscal quarter and upon Ingram's verification of PC Connection's
reasonable and allowable EDI development costs.
D. Upon EDI implementation, both parties agree to transact business via the
following EDI transaction sets:
832 Price Catalog File (receive only)
846 Inventory Inquiry Advice (receive only)
850 Purchase Order (active upon implementation of purchasing system)
855 Purchase Order Acceptance (active upon implementation of purchasing system)
856 Shipping Advice (receive only)
E. The procedures governing EDI orders placed and accepted are set forth in
Exhibit B.
5. Pricing
A. All Product prices will be as shown in Ingram's on-line ordering system as
of the date of order. This pricing is offered in expectation that PC
Connection's total net sales during each one year term of this Agreement will
meet or exceed ************* and, upon execution of this Agreement, Ingram will
be designated the Primary
-3-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Source ("Primary Source") for PC Connection's distribution Products. As Primary
Source, Ingram will be the first contact and, subject to Product availability,
source for all of PC Connection's distribution needs. Ingram and PC Connection
will jointly review the volume commitment level at the end of the first year.
B. Ingram's price for PC Connection's Product purchases, will be Ingram's
replacement cost on the date of purchase, divided by the factor applicable to
the Product type. The Product type and factors will be as follows:
PRODUCT TYPE FACTOR
Software ****
Hardware ****
Accessory Product ****
Technical Product ****
C. Ingram's price for specialty Product purchases, including but not limited
to memory, license, books, some technical education and exclusives may not be
included in the above pricing.
D. In addition to the pricing above, Ingram will provide PC Connection with
vendor level pricing on each of the Product lines listed in Exhibit A. All
other vendor lines for which PC Connection is authorized will be subject to the
pricing referred to in Section 5.B and C of this Agreement. As manufacturer
costs change, Ingram cost may be adjusted to reflect such change.
E. PC Connection may seek pricing from sources other than Ingram in unique or
large bidding situations provided: (a) PC Connection gives Ingram the
opportunity to bid the final pricing obtained through such solicitation; and (b)
the business opportunity will be granted Ingram if Ingram meets such pricing
requirements.
F. Ingram will notify PC Connection in writing of any increase to Product
prices which effect PC Connection's vendor level pricing shown Exhibit A.
Increases to vendor level pricing may occur due to changes in the amount of
Product discount a vendor provides Ingram.
G. In the event Ingram is notified by a manufacturer of a permanent price
reduction on the manufacturer's Product, and PC Connection has a quantity of
that Product on-hand and purchased from Ingram as of that date, Ingram will
provide pass-through price protection upon request by PC Connection if the
manufacturer so
-4-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
agrees. Ingram and PC Connection will jointly review PC Connection's top
Products in inventory each quarter, and in such cases where Ingram Does not have
an established price protection relationship with said Product manufacturers,
Ingram and PC Connection will work to develop such a relationship. Except for
the manufacturers listed in Exhibit D, Ingram will honor pass-through price
protection requests whenever possible.
H. To enable Ingram to meet its price protection obligations, PC Connection
will follow the procedures for requesting price protection as shown in Exhibit E
and will deliver accurate and current on-hand inventory reports to Ingram within
******* business days after Ingram notifies PC Connection of a permanent price
decrease. Upon receipt of PC Connection's request and confirmation of the
eligibility of the Products listed, Ingram will credit PC Connection's account
within ***** business days. Unless notified by Ingram within ******* days after
Ingram receives the request for price protection, PC Connection will assume that
price protection is granted and a credit memo will be issued by Ingram.
6. Shipping
A. PC Connection will pay the ground freight charges on any Product orders
shipped from Ingram's Chicago, Harrisburg and Memphis distribution centers.
B. If Products requested by PC Connection are unavailable in the local
Ingram warehouse at the time of order but available in another Ingram warehouse,
then Ingram will ship any lightweight Products (defined as single-box items
which are less than twenty-five (25) pounds)from Ingram's other warehouse to PC
Connection via second-day air freight carrier of Ingram's choice and at Ingram's
expense. Those Products designated as heavyweight Products (defined as single-
box items which meet or exceed twenty-five (25) pounds) shipped from any other
Ingram warehouse to PC Connection will be shipped through a ground freight
carrier of Ingram's choice with the freight charges paid by Ingram.
C. If PC Connection requests Product shipment by expedited carrier from any
Ingram warehouse for reasons other than listed in Section 6.B, the expedited
freight charges will be paid by PC Connection.
D. The freight and shipping terms offered to PC Connection in Section 6.B will
be reviewed by both parties ninety (90) days after the signing of this
Agreement. Should either party find the freight terms unsatisfactory, Ingram and
PC Connection will work together to determine a mutually acceptable alternative.
-5-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
E. Ingram will ship all of PC Connection's Product orders F.O.B. origin
whether shipping directly to the address provided by PC Connection or to a PC
Connection warehouse. However, Ingram shall bear the risk of loss for all
shipments until the Product(s) reach the address listed on PC Connection's
purchase order.
7. Payment Terms
At the time of manual or electronic order, PC Connection must designate an
account number which corresponds to one of the two methods of payment offered by
Ingram to PC Connection, as shown below. PC Connection understands that its
choice of account number for an order will determine the payment method and
credit line availability for that order.
A. Net *** Program: Ingram will provide PC Connection with a credit line of
******** for Product purchases, which is subject to change according to the
results of a periodic review. Ingram will conduct a periodic review of the
adequacy of PC Connection's credit lines to ensure satisfaction to both parties.
All invoices will be due and payable **********days from the invoice date.
B. Early Pay Program: In addition to Section 7.A, Ingram will provide PC
Connection with a credit line of ******* million for Product purchases, which is
subject to change according to the results of a review one (1) year after the
signing of this Agreement. PC Connection will receive a ********* Early Pay
Discount on all Product invoices based on the following: invoices accumulated
over ****** consecutive business days must be paid to Ingram so the average term
of payment on all such invoices is no more than ******* business days. Ingram
agrees to invoice PC Connection promptly to permit PC Connection to avail itself
of the Early Pay discount.
C. PC Connection's average monthly Days Sales Outstanding ("DSO") on their Net
*** account must be equal to or less than ******* days and will be calculated as
shown in Exhibit F.
D. When calculating PC Connection's monthly DSO, Ingram may reduce PC
Connection's accounts receivables balance by a total of ******** to compensate
for misshipments which may have occurred during that month. Misshipments will be
defined as veritably lost or short shipments, order entry errors, or wrong
Product shipped. PC Connection agrees to report each incident of misshipment to
Ingram's Customer Service Department within ****** business days of: (i)
receipt of the misshipment, or, (ii) the estimated time of shipment arrival
("Shipment ETA") requested by PC Connection and provided by Ingram at the time
of order.
-6-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
E. PC Connection will verify Product received against invoices within *****
business days from invoice date. Any discrepancies found will be deducted from
the invoice (DFI) and a debit memo created. PC Connection will not DFI until
********* **** days after Product leaves their dock for return to Ingram. Such
DFI's will be limited to short shipments, price variances, defectives and other
authorized returns. All debit memos submitted to Ingram must contain
information, including but not limited to quantity variance, SKU number,
quantity ordered, invoice number, Product price quoted and Product price
invoiced.
8. Returns
A. Subject to Ingram's approval prior to returning Products, PC Connection may
return any Products purchased from Ingram within *********** days after invoice
date for credit at the actual purchase price less any price protection, provided
that the total purchase price of all such stock balance returns does not exceed
**************** of all purchases during the preceding fiscal quarter (excludes
memory, mass storage Products and certain manufacturers specified in Exhibits C
and D). Stock balance returns which exceed ************ may be subject to a
**************** excess handling fee. All Products returned must be undamaged,
in the manufacturer's original packaging, in resalable condition and unused.
Ingram reserves the right to not accept Products if the manufacturer has placed
restrictions upon the return of Products as stated in Exhibits C and D. Ingram
also reserves the right to not accept Products which are no longer in production
or which are produced or published by a manufacturer which is insolvent or which
has declared bankruptcy. PC Connection will pay the freight charges and bear all
risk of loss when returning Products to Ingram.
B. Within *********** days after the date of purchase from Ingram, PC
Connection may return, for its choice of either replacement or credit, those
Products found to be defective, provided PC Connection obtains Ingram's RMA
approval via telephone or fax prior to return. Ingram reserves the right to
require PC Connection to return defective Products directly to the Products'
manufacturer for replacement according to the manufacturer's defective Products
return policy as stated in Exhibit C. Ingram will use its best efforts to
respond to PC Connection's direct RMA requests within ************ business day
dependent upon manufacturer's ability to respond in a timely manner.
C. In the event Ingram ships Product defined as misshipment in Section 7.D to
PC Connection, PC Connection will return the Product to Ingram via ground
freight F.O.B. destination and Ingram will credit PC Connection's account for
the freight costs upon receipt and verification of the returned Products. PC
Connection agrees to
-7-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
adhere to the returns request procedure outlined in Ingram's Catalog and Section
8 of this Agreement and will make requests for return freight credit within
****** days of invoice.
D. The stock balance terms offered to PC Connection will be reviewed by both
parties after ninety (90) days of the signing of this Agreement. Should either
party find this returns process unsatisfactory, Ingram and PC Connection will
work together to determine a mutually acceptable alternative.
E. Ingram and PC Connection will work together to monitor PC Connection's
returns rate and will make adjustments as needed to the satisfaction of both
parties. Ingram will provide PC Connection with a monthly report of PC
Connection's returns rate performance.
9. Marketing
A. Ingram will provide PC Connection one (1) Marketing Opportunity Forum
during the term of this Agreement. PC Connection will have the ability to
present, upon Ingram's approval and at Ingram's facility, marketing
opportunities to vendors they wish to pursue.
B. Ingram will provide marketing services and pass-through co-op marketing
development funds ("MDF") on a case-by-case basis dependent upon each vendors'
offering. In addition, Ingram will work with PC Connection and its direct
vendors to provide MDF for Products purchased as a second source through
distribution.
C. For purposes of Product evaluation and upon request, Ingram will use its
best efforts to provide PC Connection free copies of Not For Resale ("NFIU")
software and hardware subject to availability and restrictions by the
manufacturer for such purpose. Whenever possible, Ingram will meet the
quantities of NFR Product requested by PC Connection. This offer will only apply
to those NFR Products which Ingram receives free and without charge from the
manufacturer. PC Connection will pay for any freight costs incurred for the
shipment of NFR Products from Ingram.
D. Ingram will provide PC Connection with a dedicated marketing manager to
lend marketing support, assist PC Connection with customized marketing
opportunities, and provide notification to PC Connection of marketing and co-op
funds made available by Ingram's vendors.
-8-
<PAGE>
E. Ingram will provide PC Connection with advance notice of emerging
technologies and new Product launches whenever possible and will assist PC
Connection with new Product forecasting on an as-needed basis.
10. Technical Services And Support
Ingram will provide, to authorized PC Connection personnel only, free technical
support via its telephone support lines for the Products listed in Ingram's
Catalog. Under no circumstance will Ingram be obligated to provide any technical
support to PC Connection's customers.
11. Reporting
A. PC Connection agrees to provide Ingram with accurate and timely Product
inventor forecasts on a weekly basis to enable both parties to maximize their
collective operational and forecasting efficiencies. This reporting will be used
when PC Connection requests that Ingram add a vendor line as outlined in Section
3.D and for the Scheduled Ship Program as described in Section 3.F.
B. In addition to the EDI reporting provided in Section 4.D, Ingram will work
with PC Connection to furnish the customized electronic or printed reports as
listed below:
Daily: Backorder Report/File
Price Change File
Weekly: New Products Summary
Promo Pak
Monthly: Top 50 Vendors Report
Sales By Vendor By SKU - MTD & YTD
Marketing Development Funds Usage Report
C. Ingram and PC Connection will maintain an electronic Parts Cross-Reference
File to be transmitted once a week from PC Connection to Ingram for the purpose
of ensuring data integrity with Product ordering, P.O. placement and order-
related processes between both parties.
D. Ingram will maintain a daily electronic bulletin board Price Change File to
ensure pricing data accuracy between Ingram and PC Connection. Ingram may
periodically update the file format to maintain transmission and quality
standards.
-9-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
12. TERM AND TERMINATION
This Agreement will commence on the date of the last signature set forth below
and will continue for two (2) years. Either party may terminate this Agreement
without cause by giving ********** days advance written notice to the other
party. Ingram may terminate this Agreement immediately for cause upon written
notice, which notice will include a ten (10) day opportunity to cure.
13. CONFIDENTIALITY
This Agreement is and contains confidential information, and as such will not be
disclosed to any third party without the express written consent of both
parties. The parties agree to disclose the terms and conditions of this
Agreement only to their respective personnel with a need to know.
14. NOTICES
All notices and other communications relating to this Agreement or its terms
will be in writing and mailed via first class United States Postal Service,
certified or registered with return receipt requested or via facsimile. All
notices so mailed will be deemed received two (2) days after postmark date and
facsimiles will be deemed received upon notification of successful transmission.
15. ENTIRE AGREEMENT
This Agreement (including any Exhibits and Addenda) constitutes the entire
Agreement between the parties regarding the resale of Product, and will cancel,
terminate, and supersede any and all previous agreements, proposals,
representations, or statements, whether oral or written. The terms of this
Agreement will supersede the terms of any invoice or purchase order issued by
either party. Any modifications of this Agreement must be in writing and signed
by an authorized representative of each party.
16. GOVERNING LAW
This Agreement will be deemed made in the State of California and will be
governed by and construed in accordance with California laws, excluding its
conflicts or choice of law rule or principles which might refer to the law of
another jurisdiction.
-10-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
17. Headings
This Agreement may be executed in any number of original counterparts, each of
which when executed and delivered will be deemed to be an original and all of
which taken together will constitute but one and the same instrument. Headings
in this Agreement are included for convenience of reference only and will not
constitute a part of this Agreement for any other purpose.
18. Indemnity
Ingram shall indemnify and hold PC Connection harmless from and against any
actions, claims, and damages resulting from product liability, breach of
warranty, or infringement of an intellectual property right, but only to the
extent that Ingram has been granted rights of indemnity from the manufacturer or
publisher whose product is the subject of the underlying action, the intent of
this provision being to pass through any liability to the manufacturer or
publisher.
This Agreement will be effective as of October 30, 1997.
"PC Connection" "Ingram"
By: /s/Robert F. Wilkins By: /s/ Debbie Tibey
(Officer of the Company) (Officer of the Company)
Name: Robert F. Wilkins Name: Debbie Tibey
(Please print or type) (Please print or type)
Title: Vice President, Product Mgmt. Title: Vice President of NMA
-11-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
VENDOR LEVEL PRICING
<TABLE>
<CAPTION>
VENDOR VENDOR INGRAM COST
NUMBER NAME COST DIVIDED BY
<S> <C> <C>
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
**** **************************** *****
</TABLE>
NOTE:
All prices are subject to change without notice. As manufacturer costs change,
Ingram's price to PC Connection may be adjusted to reflect such change.
-12-
<PAGE>
EXHIBIT B
ELECTRONIC DATA INTERCHANGE
A. Documents/Standards
1. Each party may electronically transmit to or receive from the other
party any of the transaction sets listed in the Appendix 1 attached
hereto and incorporated by reference and transaction sets which the
parties by written agreement add to Appendix 1 (collectively
"Documents"). Any transmission of data which is not a Document shall
have no force or effect between the parties. All Documents shall be
transmitted in accordance with the standards set forth in Appendix 1.
2. Third Party Service Providers
a. Documents will be transmitted electronically to each party
either, as specified in Appendix 1 directly or through any
third party service provider ("Provider") with which either
party may contract. Either party may modify its election to
use, not use or change a Provider upon 30 days prior written
notice.
b. Each party shall be responsible for the cost of any Provider
with which it contracts, unless otherwise set forth in the
Appendix 1.
c. Each party shall be liable for the acts or omissions of its
Provider while transmitting, receiving, storing, or handling
Documents, or performing related activities for such party;
provided, that if both the parties use the same Provider to
effect the transmission and receipt of a Document, the
originating party shall be liable for the acts or omissions of
such Provider as to such Document.
3. System Operations
Each party, at its own expense, shall provide and maintain the
equipment, software, services and testing necessary to effectively
and reliably transmit and receive Documents.
-13-
<PAGE>
4. Security Procedures
Each party shall properly use those security procedures, including
those specified in Appendix 1, if any which are reasonably sufficient
to ensure that all transmissions of Documents are authorized and to
protect its business records and data from improper access.
5. Signatures
Each party shall adopt as its signature an electronic identification
consisting of symbol(s) or code(s) which are to be affixed to or
contained in each Document transmitted by such party ("Signatures").
Each party agrees that any Signature of such party affixed to or
contained in any transmitted document shall be sufficient to verify
such party originated such Document. Such electronic signature can
consist of our DUNS number or any other mutually agreed upon ID.
Neither party shall disclose to any unauthorized person the
Signatures of the other party.
B. Transmissions
1. Proper Receipt
Documents shall not be deemed to have been properly received, and no
Document shall give rise to any obligation, until accessible to the
receiving party at such party's Receipt Computer designated in
Appendix 1.
2. Verification
Upon proper receipt of any Document, the receiving party shall
promptly and properly transmit a functional acknowledgment in return,
unless otherwise specified in Appendix 1. A functional acknowledgment
shall constitute conclusive evidence a Document has been properly
received.
3. Acceptance
If acceptance of a Document is required by Appendix 1, any such
Document which has been properly received shall not give rise to any
obligation unless and until the party initially transmitting such
Document has properly received in return an Acceptance Document (as
specified in Appendix 1).
-14-
<PAGE>
4. Garbled Transmissions
If any transmitted Document is received in an unintelligible or
garbled form, the receiving party shall promptly notify the
originating party (if identifiable from the received Document) via
telephone. In the absence of such a notice, the originating party's
records of the contents of such Document shall control.
C. Transaction Terms
1. Transactions (and any related communication) governed by this
Agreement also shall be subject to the terms and conditions included
on each party's standard printed applicable forms attached to or
identified in Appendix 1 as the same may be amended from time to time
by either party upon written notice to the other. The parties
acknowledge that the terms and conditions set forth on such forms may
be inconsistent, or in conflict, but agree that any conflict or
dispute that arises between the parties in connection with any such
Transaction will be resolved as if such Transaction had been effected
through the use of such forms. The terms of this Agreement however
shall prevail in the event of any conflict with any other terms and
conditions applicable to any Transaction.
2. Validity/Enforceability
a. This Agreement has been executed by the parties to evidence
their mutual intent to create binding purchase and sale
obligations pursuant to the electronic transmission and receipt
of Documents specifying certain of the applicable terms.
b. Any Document properly transmitted pursuant to this Agreement
shall be considered, in connection with any Transaction, any
other written agreement described in Appendix 1, or this
Agreement, to be a "writing" or m writing"; and any such
Document when containing, or to which there is affixed, a
Signature ("Signed Documents") shall be deemed for all purposes
(a) to have been "signed" and (b) to constitute an "original"
when printed from electronic files or records established and
maintained in the normal course of business.
c. The conduct of the parties pursuant to this Agreement,
including the use of Signed Documents properly transmitted
pursuant to this Agreement, shall, for all legal purposes,
evidence a course of dealing and a course of performance
accepted by the parties in
-15-
<PAGE>
furtherance of this Agreement, any Transaction and any other
written agreement described in Appendix 1.
d. Without waiving other defenses either party may have, the
parties agree not to contest the validity or enforceability of
Signed Documents under the provisions of any applicable law
relating to requirements for certain agreements to be in
writing or signed by the party to be bound thereby in order to
be valid or enforceable. Signed Documents, if introduced as
evidence on paper in any judicial, arbitration, mediation or
administrative proceedings, will be admissible as between the
parties to the same extent and under the same conditions as
other business records originated and maintained in documentary
form. Neither party shall contest the admissibility of copies
of Signed Documents under either the business records exception
to the hearsay rule or the best evidence rule on the basis that
the Signed Documents were not originated or maintained in
documentary form.
-16-
<PAGE>
APPENDIX 1
STANDARDS
ANSI ASX X.12 (American National Standards Institute, Accredited Standards
Committee X.12)
Selected Standards include, as applicable, all data dictionaries, segment
dictionaries and transmission controls referenced in those standards but include
only the Transaction Sets listed in the DOCUMENTS Section of this Appendix
---------
below.
DOCUMENTS
- ---------
<TABLE>
<CAPTION>
ACCEPTANCE DOCUMENT
Verification Acceptance Document Name
Transaction Document Name or Required Required Transaction or
Set # Description (Y/N) (Y/N) Set # Description
<C> <S> <C> <C> <C> <C>
850 Purchase Order Yes Yes 855 P/O Acceptance
997 Functional No No N/A N/A
Acknowledgement
855 Purchase Order Yes No N/A N/A
Acceptance
856 Shipping Advice Yes No N/A N/A
810 Invoice Yes No N/A N/A
820 Payment Yes No N/A N/A
832 Price/Sales Yes No N/A N/A
Catalog
852 Product Activity Yes No N/A N/A
Data
</TABLE>
-17-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C
MANUFACTURERS' POLICIES AND WARRANTIES
Certain manufacturers require prior approval for defective returns and may also
have policy stipulations that the customer must follow prior to returning
defective product. Some manufacturers may also require that the customer obtain
a vendor's Return Merchandise Authorization from them prior to returning he
defective product. The manufacturers and their policies are listed below for
your convenience.
REFER DIRECT TO VENDORS
<TABLE>
<S> <C> <C> <C> <C>
***** ****************** ** *******
***** ****************** ** ******* *******
****
***** ****************** ** ******* ******
******
******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** *******
******
***** ****************** ** *******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
********* ****
***** ****************** ** ******* ******
******** ****
***** ****************** ** *******
***** ****************** ** ******* ******
****
***** ****************** ** *******
***** ****************** ** ******* ******
</TABLE>
-18-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C, Continued
REFER DIRECT TO VENDORS
<TABLE>
<S> <C> <C> <C> <C>
***** ****************** ** ******* ******
****** ******
***** ******
***** ****************** ** ******* *******
******* ****
***** ****************** ** *******
***** ****************** ** *******
***** ****************** ** ******* ******
************** ****
***** ****************** ** *******
***** ****************** ** ******* ******
******
***** ****************** ** ******* ******
****** ******
***** ****************** ** *******
*****
***** ****************** ** *******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
********* ****
***** ****************** ** *******
*****
***** ****************** ** ******
***** ****************** ** ******
</TABLE>
-19-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
OTHER VENDOR POLICIES
<TABLE>
<S> <C> <C> <C> <C>
***** ****************** ** *******
***** ****************** ** ******* *******
****
***** ****************** ** ******* ******
******
******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** *******
******
***** ****************** ** *******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
********* ****
***** ****************** ** ******* ******
******** ****
***** ****************** ** *******
***** ****************** ** ******* ******
****
***** ****************** ** *******
***** ****************** ** ******* ******
</TABLE>
-20-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
OTHER VENDOR POLICIES
<TABLE>
<S> <C> <C> <C> <C>
***** ****************** ** *******
***** ****************** ** ******* *******
****
***** ****************** ** ******* ******
******
******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
****
***** ****************** ** *******
******
***** ****************** ** *******
******
***** ****************** ** ******* ******
****
***** ****************** ** ******* ******
********* ****
***** ****************** ** ******* ******
******** ****
***** ****************** ** *******
***** ****************** ** ******* ******
****
***** ****************** ** *******
***** ****************** ** ******* ******
</TABLE>
-21-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C, Continued
OTHER VENDOR POLICIES
MASS STORAGE PRODUCTS SAGGED
********************* ********************************
***************** ********************************
********************************
***************************
MEMORY PRODUCT
***********************
*********************** ****** SOFTWARE LICENSES
*******************************
CONFIGURATION PRODUCTS *******************************
******************* *******************************
*******************
******************* OEM DIVISION
*******************************
MICROSOFT *******************************
*******************************
*************************
Vendor information is subject to change without notice.
-22-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT C-1
MANUFACTURER REFER DIRECT
POLICIES AND WARRANTIES
*****************************************************************************
***************************************************************************
*********:
<TABLE>
<CAPTION>
Vendor Vendor Phone
Number(s) Name Number Additional Notes
<S> <C> <C> <C>
************ ********* ******** *******************
************ ********* ********
************ ********* ******** *******************
************ ********* ********
************ ********* ******** *******************
*****
************ ********* ******** *******************
************ ********* ******** *******************
*******************
*****
************ ********* ********
************ ********* ******** *******************
*******************
*******************
*****
************ ********* ********
************ ********* ******** *******************
************ ********* ******** *******************
</TABLE>
Notes:
This list is subject to change without notice.
-23-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT D
*****************************************************************************
*********************
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
******** *******
********
********
********
********
********
********
********
********
********
********
********
********
********
********
********
********
********
Notes: This list is subject to change without notice.
-24-
<PAGE>
EXHIBIT E
INGRAM MICRO PRICE PROTECTION REQUEST
INVENTORY CERTIFICATION FORM
Return this form to Ingram Micro Customer Service, 1600 E. St. Andrew Place,
Santa Ana, CA 92799-5125 or fax documentation to (714) 566-7720 for Branches 10
and 50 or (716) 635-6446 for Branches 20, 30, 40, 60, and 70.
- ----------------------------- -----------------------------------
Dealer Name Customer Number
- ----------------------------- -----------------------------------
Address Store Number
- ----------------------------- -----------------------------------
City, State and Zip Code Contact Name
- ----------------------------- -----------------------------------
Telephone Number Fax Number
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
VENDOR NAME:
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ingram Micro Product Credit Amount
Quantity Part Number Description (Ingram Micro Use)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(Please attach additional Ingram Micro Part Number). One vender per form please.
DEALER CERTIFICATION
I certify that the above inventory was on-hand and/or in transit as of the close
of business on the date below. I will retain records for six (6) months to
substantiate these inventory levels and will allow the manufacturer access to my
premises to inspect current physical inventory and records at the manufacturer's
discretion.
- ----------------------------- -----------------------------------
Authorized Signature (Required) Title
- ----------------------------- -----------------------------------
Print Name Date
-25-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Note: This certification must be completed and submitted to Ingram Micro
Customer Service within *************** business days of manufacturer's
price decrease.
- --------------------------------------------------------------------------------
Ingram Micro Use Only:
- -------------------------------------- ------------------------------------
Customer Service Representative's Name Approvals
- -------------------------------------- ------------------------------------
Reference Number Amount
- -------------------------------------- ------------------------------------
Date
-26-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT F
PC CONNECTION
DAYS SALES OUT ("DSO") CALCULATION
Ingram will calculate PC Connection's DSO, as follows:
PC Connection's ********************************************
*************************** (equals the ************ balance)
*********************** (equals the******************************* sales)
*********************** number of days in the prior month (equals the number of
days remaining)
****** the number of days in the current month
Equals the DSO expressed in days.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C> <C> <C>
***** bal **** Sales
********* - *********
- ----------------------- # days in days days in
******** Sales Remaining **** prior month remaining curr. month DSO
********* = **** ** 28. = 3.44 ** 28. = ******
</TABLE>
PC Connection's DSO accounts receivable number may be adjusted as compensation
for verifiable misshipments, as set forth in Section 5.D of this Agreement.
-27-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
INGRAM
MICRO
AMENDMENT #1 August 29, 1997
Resale Agreement Confidential
INGRAM MICRO INC. ("Ingram") and PC CONNECTION ("PC Connection") hereby agree to
amend their mutual Resale Agreement, including any subsequent Amendments, as
follows:
1. Add the following to Section 8:
8.F. During the term of this Agreement, PC Connection may request a Product
return for buyback at PC Connection's invoice price in an amount not to
exceed $******** after fees have been applied. All Product must be
returned in resalable condition and will be subject to Ingram's review and
approval as well as the terms and conditions of Ingram's Buyback Agreement
when signed. PC Connection may split this buyback into various increments
so long as the total Product is returned prior to the expiration of this
Agreement.
Agreed to as of this 30 day of October 1997
"PC Connection" "Ingram"
By: /s/Robert F. Wilkins By: /s/ Debbie Tibey
(Officer of the Company) (Officer of the Company)
Name: Robert F. Wilkins Name: Debbie Tibey
(Please print or type) (Please print or type)
Title: Vice President, Product Mgmt. Title: Vice President of NMA
-28-
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of PC Connection, Inc.
on Form S-1 of our report dated November 4, 1997 (November 21, 1997, as to
Note 12), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
November 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM *THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
*Identify the financial statement(s) to be referenced in the legend:
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 162 723
<SECURITIES> 0 0
<RECEIVABLES> 25,314 32,115
<ALLOWANCES> 4,271 7,574
<INVENTORY> 44,419 60,745
<CURRENT-ASSETS> 67,567 87,246
<PP&E> 23,518 25,545
<DEPRECIATION> 15,847 17,242
<TOTAL-ASSETS> 75,238 95,549
<CURRENT-LIABILITIES> 52,945 70,769
<BONDS> 4,250 3,500
0 0
0 0
<COMMON> 90 90
<OTHER-SE> 17,953 21,190
<TOTAL-LIABILITY-AND-EQUITY> 75,238 95,549
<SALES> 333,322 383,460
<TOTAL-REVENUES> 333,322 383,460
<CGS> 282,117 330,008
<TOTAL-COSTS> 282,117 330,008
<OTHER-EXPENSES> (70) 43
<LOSS-PROVISION> 1,297 1,577
<INTEREST-EXPENSE> 1,269 933
<INCOME-PRETAX> 5,008 2,881
<INCOME-TAX> 252 429
<INCOME-CONTINUING> 4,756 2,452
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,756 2,452
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
