<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION STATEMENT NO. 333-41597
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CLIENTLINK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7373 75-2445706
(STATE OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION) INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)
----------------
3025 WINDWARD PLAZA, SUITE 200, ALPHARETTA, GA 30005
(ADDRESS, INCLUDING ZIP AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES H. HAMILTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CLIENTLINK, INC.
3025 WINDWARD PLAZA, SUITE 200
ALPHARETTA, GA 30005
(770) 663-3900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
J. ROWLAND COOK, ESQ. DOM H. WYANT, ESQ.
MICHAEL J. PENDLETON, ESQ.
JENKENS & GILCHRIST, P.C. MARK L. HANSON, ESQ.
JONES, DAY, REAVIS & POGUE
2200 ONE AMERICAN CENTER 3500 SUNTRUST PLAZA
600 CONGRESS AVENUE 303 PEACHTREE STREET, N.E.
AUSTIN, TEXAS 78701-3248 ATLANTA, GEORGIA 30308
(512) 499-3800 (404) 521-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being 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 the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 2,300,000
value per share shares $12.00 $27,600,000 $8,142
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</TABLE>
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(1) Includes 300,000 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(3) A registration fee of $5,900 has previously been paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
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 JANUARY 16, 1998
2,000,000 SHARES
[LOGO OF CLENTLINK APPEARS HERE]
COMMON STOCK
Of the 2,000,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby (the "Offering"), 1,500,000 shares are being sold by
ClientLink, Inc. ("ClientLink" or the "Company") and 500,000 shares are being
sold by certain stockholders of the Company named herein (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of
factors related to the determination of the initial public offering price.
Application has been made to approve the Common Stock for listing on the Nasdaq
National Market under the symbol "CLNK."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK.
-----------
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.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
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</TABLE>
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(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses estimated at $425,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 300,000 shares of Common Stock, solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to prior sale when, as and if received and accepted by them,
subject to their right to reject orders, in whole or in part, and to certain
other conditions. It is expected that delivery of the certificates representing
such shares will be made on or about , 1998.
THE ROBINSON-HUMPHREY COMPANY LEHMAN BROTHERS
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Prospectus, including "Risk Factors," "Selected Financial Data" and the
Company's Financial Statements and the Notes thereto. Except as otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option, (ii) gives effect to a 3 for 1 stock split
effective in December 1994 and (iii) gives effect to a 1.57 for 1 stock split
effective as of December 4, 1997.
THE COMPANY
ClientLink designs, develops and implements customized information technology
("IT") solutions for organizations with mission-critical business processing
needs. The Company's client/server and Internet/intranet-based applications are
designed to improve an organization's business processes and performance. The
Company offers IT solutions using an operating model that integrates client
personnel in the development process, leverages the Company's centralized
application development center and addresses specific key business functions.
The Company targets clients with business processing needs in such areas as
data collection and reporting, financial applications, inventory management,
sales commission calculation, sales force automation and sales pricing. The
Company's principal clients include The Gillette Company, Green Tree Financial
Corporation ("Green Tree"), Hewlett-Packard Company, Honda of America, MCI
Telecommunications Corporation ("MCI"), National Data Corporation and
Plantation Pipe Line Co.
The Company's application development framework encompasses a series of
development phases that enables the Company to create integrated, customized
solutions. This framework is designed to improve the utility of the Company's
solutions, as well as to identify, address and resolve uncertainties early in
the development process. The framework consists of four phases: Definition,
Detailed Design, Development and Implementation. While the application
development framework is designed as an integrated approach, each phase may
involve a separate contractual commitment and concludes with the delivery of a
discrete value-added deliverable. The Company performs the Definition Phase on
a time and materials basis and generally prices each subsequent phase
separately on either a time and materials basis or pursuant to fixed-price,
fixed-timeframe contracts. In addition, the Company complements its application
development services by offering separately-priced post-implementation support
services such as software enhancements and upgrades.
In order to develop and maintain a competitive advantage, organizations
continually seek to improve their product and service offerings, as well as the
processes by which they are delivered. Most of these critical business
processes are dependent on advanced information technology systems and
complementary software. Often, however, currently available software
applications do not specifically address these critical business processes. As
a result, there are a number of current trends which the Company believes are
compelling organizations to seek the services of external IT consultants to
design, develop and integrate customized software applications. These trends
include the increasing complexity of implementing client/server solutions,
pressure to minimize overall IT costs and clients' desire to influence the
development of solutions. As a result of these and other trends, the United
States market for application development, implementation/integration and IT
consulting services is large and growing. In November 1996, Dataquest, an
industry research organization, estimated that the U.S. market for these
services will reach $50.9 billion in revenue in 2000, which implies compound
annual growth of 14.9% from the estimated 1997 level of $33.6 billion in
revenue.
The Company's objective is to be a leader in developing and implementing
high-quality, customized IT solutions that address the core business needs of
its clients. To achieve this objective, the Company seeks to focus on the
following growth strategies: (i) expand relationships with existing clients,
(ii) focus on fixed-price, fixed-timeframe projects, (iii) attract and retain
highly skilled personnel, (iv) expand its geographic presence, (v) provide
post-implementation support and hosting of applications and (vi) increase its
sales and marketing efforts.
ClientLink was incorporated in Delaware in July 1992 under the name "CompuCom
Acquisition Corporation of Texas." The Company's name was changed to
ClientLink, Inc. in August 1994. The Company's executive offices are located at
3025 Windward Plaza, Suite 200, Alpharetta, Georgia 30005.
3
<PAGE>
RISK FACTORS
For a discussion of certain information that should be considered by
prospective investors in connection with an investment in the Common Stock, see
"Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,500,000 shares
Common Stock offered by the Selling 500,000 shares
Stockholders................................
Common Stock to be outstanding after the 6,836,430 shares(1)
Offering....................................
Use of proceeds.............................. For capital expenditures, to pursue
geographic expansion by establishing
additional application development centers,
and for working capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol....... CLNK
</TABLE>
- --------
(1) Based on the number of shares outstanding as of January 15, 1998. Does not
include (i) 359,530 shares of Common Stock issuable upon exercise of stock
options outstanding under the Company's 1994 Stock Option Plan and (ii)
916,600 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Incentive Plan. See "Management--Stock
Incentive Plans."
RELATIONSHIP WITH COMPUCOM SYSTEMS, INC.
Since inception, the Company has been a subsidiary of CompuCom Systems, Inc.
("CompuCom"), one of the Selling Stockholders. CompuCom is a provider of
network integration services and distributed desktop products to large
corporate customers nationwide. Upon completion of the Offering, CompuCom and
its directors and executive officers will beneficially own more than 50% of the
Company's outstanding Common Stock, and CompuCom will be the Company's largest
stockholder. So long as CompuCom beneficially owns a majority of the
outstanding Common Stock, CompuCom will have the voting power to elect the
Company's entire Board of Directors and will have the practical ability to
control all other matters requiring stockholder approval, even where such
matters may not be advantageous to the other stockholders. Four of the seven
members of the Board of Directors of the Company are directors or executive
officers of CompuCom or CompuCom's largest stockholder. Furthermore, the Senior
Vice President of Finance and Chief Financial Officer of CompuCom also serves
as Chief Financial Officer, Secretary and a director of the Company. Since
1994, CompuCom has provided capital and management and administrative services
to the Company, and the Company's employees have participated in a number of
employee benefit plans maintained by CompuCom, all in return for certain fees.
While the Company intends to reduce its dependence upon CompuCom for management
and administrative services, in order to assure the continued provision of
these services after the completion of the Offering, the Company has entered
into certain agreements pursuant to which CompuCom will continue to provide
certain of such services. See "Risk Factors--Control by and Relationship with
CompuCom," "Management" and "Relationship Between the Company and CompuCom--
Certain Transactions."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 25, 1994
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------
1994 1995 1996 1997
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Service ................... $2,496,342 $5,682,236 $8,406,111 $13,524,397
Product ................... 8,067 292,239 610,132 197,502
---------- ---------- ---------- -----------
Total revenue............ $2,504,409 $5,974,475 $9,016,243 $13,721,899
Operating expenses:
Project related expenses... 1,832,104 3,855,186 5,492,114 7,131,685
Cost of products sold...... 8,067 292,239 610,132 197,502
Depreciation and
amortization.............. 50,160 141,919 210,004 326,659
General and administrative. 489,159 1,048,544 1,708,750 2,266,094
Nonrecurring compensation
expense(1)................ 1,200,000
---------- ---------- ---------- -----------
Total operating expenses. 2,379,490 5,337,888 8,021,000 11,121,940
---------- ---------- ---------- -----------
Income from operations....... 124,919 636,587 995,243 2,599,959
Interest expense (income) to
(from) stockholder.......... 25,519 76,319 94,952 (18,330)
---------- ---------- ---------- -----------
Income before income taxes... 99,400 560,268 900,291 2,618,289
Income taxes................. 39,760 222,987 358,316 1,015,896
---------- ---------- ---------- -----------
Net income................... $ 59,640 $ 337,281 $ 541,975 $ 1,602,393
========== ========== ========== ===========
Earnings per common share:
Basic...................... $ 0.01 $ 0.07 $ 0.10 $ 0.30
Diluted.................... $ 0.01 $ 0.06 $ 0.09 $ 0.27
Average common shares
outstanding:
Basic...................... 4,747,680 4,763,814 5,336,430 5,336,430
Diluted.................... 5,626,359 5,663,714 5,861,330 5,861,330
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $1,458,068 $16,378,068
Total assets.......................................... 6,449,391 21,369,391
Total stockholders' equity............................ 2,819,414 17,739,414
</TABLE>
- --------
(1) See "Management--Employment Agreements" and Note 13 to the Company's
Financial Statements.
(2) As adjusted to give effect to the sale of the 1,500,000 shares of Common
Stock offered by the Company pursuant to the Offering at an assumed initial
public offering price of $11.00 per share, after deducting the estimated
underwriting discount and offering expenses payable by the Company, and the
application of the net proceeds therefrom.
5
<PAGE>
RISK FACTORS
An investment in the Common Stock of the Company involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to the other information contained in this Prospectus, in evaluating
an investment in the Common Stock offered by this Prospectus. In addition,
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements as a result of various
factors, including but not limited to those set forth under "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMER CONCENTRATION
The Company has derived, and anticipates that it will continue to derive, a
significant portion of its revenues from a limited number of large clients
with multiple ongoing and new projects. In 1997, the Company derived
approximately 91% of its revenues from a series of contracts with its two
largest clients. In addition, revenues from a given client may constitute a
significant portion of the Company's total revenues for a particular quarter.
The volume of work performed for specific clients is likely to vary from year
to year, and there can be no assurance that a significant client in one year
will utilize the Company's services in a subsequent year. In addition,
although the revenue provided to the Company by its large clients generally is
attributable to individual contracts entered into with multiple autonomous
departments, there can be no assurance that these clients or departments will
continue to utilize the services of the Company. Furthermore, no prediction
can be made as to whether or not the pending merger of MCI, one of the
Company's largest clients, with WorldCom Inc. will have an adverse impact on
the Company's relationship with MCI. The loss of any large client could have a
material adverse effect on the Company's business, financial condition or
results of operations.
DEPENDENCE ON CHIEF EXECUTIVE OFFICER
The Company's success will depend in large part upon the continued services
of its Chief Executive Officer, James H. Hamilton. The Company's employment
contract with Mr. Hamilton provides that his employment is terminable at will
by either party. The loss of Mr. Hamilton's services and any resulting loss in
clients or potential clients would have a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company maintains a policy of "key man" insurance on Mr. Hamilton, there can
be no assurance that the proceeds from this policy will adequately compensate
the Company in the event that the Company loses the services of Mr. Hamilton.
There can be no assurance that the Company will retain the services of Mr.
Hamilton or any of its other key employees or that the departure of one or
more key employees would not have a material adverse effect on the Company.
See "Management."
MANAGEMENT OF GROWTH AND PROJECTS
The Company's growth has placed significant demands on its management and
other resources. From the beginning of 1995 through January 13, 1998, the
Company's staff has increased from 25 to 90 full-time employees. Furthermore,
the Company intends to continue to expand its operations and to enter new
geographic markets. The Company's ability to manage its growth effectively
will require it to continue to develop and improve its operational, financial
and other internal systems and business development capabilities, as well as
to train, motivate and manage its employees and independent contractors. In
addition, the Company's future success will depend in large part on its
ability to continue to operate profitably under fixed-price, fixed-timeframe
contracts, maintain high rates of labor utilization and maintain project
quality as the average size of the Company's projects continues to increase.
If the Company is unable to manage its growth or projects effectively, such
inability could have a material adverse effect on the quality of the Company's
services and products, on its ability to retain key personnel and on its
business, financial condition or results of operations.
6
<PAGE>
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
The Company's business is labor intensive. The Company's success will depend
in large part upon the Company's ability to attract, retain, train and
motivate highly-skilled employees, particularly software engineers,
consultants and project managers. There is significant competition for
employees who have the skills required to perform the services the Company
offers. Qualified software engineers, consultants and project managers are in
great demand and are likely to remain a limited resource for the foreseeable
future. In addition, approximately 25% of the Company's labor is obtained
through independent contractors who provide development engineering services.
There can be no assurance that the Company will be successful in attracting a
sufficient number of highly-skilled employees in the future, retaining,
training and motivating the employees it is able to attract or in engaging a
sufficient level of independent contractors to meet its needs. The Company's
inability to do so could impair its ability to adequately manage and complete
its existing projects and to bid for or obtain new projects, and could
adversely affect the Company's business, financial condition or results of
operations. See "Business--Human Resources."
LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE FINANCIAL RESULTS
The Company commenced operations in early 1994 and has had a limited
operating history. Despite the fact that the Company has recognized increasing
revenue since its inception, there can be no assurance that the Company will
continue to sustain such growth or maintain profitable levels of operations in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based upon such factors as the number, size and scope of projects in which the
Company is engaged, the contractual terms and degree of completion of such
projects, any delays incurred in connection with a project, employee
utilization rates, the adequacy of provisions for losses, the accuracy of
estimates of resources required to complete ongoing projects and general
economic conditions. Although the Company's use of independent contractors
generally allows it to adjust the size of its workforce as needed, a high
percentage of the Company's operating expenses, particularly personnel and
rent, are relatively fixed and do not tend to fluctuate on a quarterly basis.
As a result, unanticipated variations in the number, or progress toward
completion, of the Company's projects or in employee utilization rates may
cause significant variations in operating results in any particular quarter
and could result in losses for such quarter. An unanticipated termination of a
major project, a client's decision not to proceed with a project as
anticipated by the Company or the completion during a quarter of multiple
large projects, could require the Company to incur expenses related to
underutilized employees and could therefore have a material adverse effect on
the Company's business, financial condition or results of operations.
CONTROL BY AND RELATIONSHIP WITH COMPUCOM
Upon completion of the Offering, CompuCom and its directors and executive
officers will beneficially own more than 50% of the Company's outstanding
Common Stock, and CompuCom will be the Company's largest stockholder. So long
as CompuCom beneficially owns a majority of the outstanding Common Stock,
CompuCom will have the voting power to elect the Company's entire Board of
Directors and will have the practical ability to control all other matters
requiring stockholder approval, even where such matters may not be
advantageous to the other stockholders. However, CompuCom will not have any
rights or preferences as compared to any other stockholder of the Company,
other than those it may have by reason of the number of shares of Common Stock
it owns and pursuant to the Registration Rights Agreement described elsewhere
herein. Four of the seven members of the Board of Directors of the Company are
directors or executive officers of CompuCom or CompuCom's largest stockholder.
Furthermore, the Senior Vice President of Finance and Chief Financial Officer
of CompuCom also serves as Chief Financial Officer, Secretary and a director
of the Company. Conflicts of interest may arise between the Company and
CompuCom in a number of areas relating to their past and ongoing
7
<PAGE>
relationships, including potentially competitive business activities,
marketing functions, tax and employee benefit matters, indemnity arrangements,
registration rights, sales or distributions by CompuCom of its remaining
shares of Common Stock and the exercise by CompuCom of its ability to control
the management and affairs of the Company. There can be no assurance that any
such conflicts will be resolved in favor of the Company. See "Shares Eligible
for Future Sale" and "Relationship Between the Company and CompuCom--Certain
Transactions."
Subject to the restrictions of applicable law and except as provided in any
applicable lock-up agreement, after completion of the Offering, CompuCom may
sell any or all of the shares of Common Stock then owned by it. No prediction
can be made as to the effect, if any, that future sales of Common Stock, or
the availability of Common Stock for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of the Common Stock, or the perception that such sales might occur,
could adversely affect prevailing market prices for the Common Stock and the
ability of the Company to raise capital by issuing equity securities. See
"Principal and Selling Stockholders," "Underwriting" and "Shares Eligible for
Future Sale."
FIXED-PRICE, FIXED-TIMEFRAME CONTRACTS
An important element of the Company's strategy is to expand the portion of
its revenues generated from fixed-price, fixed-timeframe contracts. In
connection with such contracts, however, the Company's failure to accurately
estimate the resources required for a particular project or the failure to
complete the Company's contractual obligations as set forth in the project
plan could adversely affect the Company's overall profitability, damage
existing client relationships or have a material adverse effect on the
Company's business, financial condition or results of operations. In addition,
although the Company generally seeks to adjust its fees in the event that
unforeseen developments lead to higher than anticipated costs under fixed-
price contracts, there can be no assurance that the Company will be successful
in obtaining such adjustments.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGES
The Company has derived substantially all of its revenue from projects based
primarily on client/server architectures. The client/server market is
continuing to develop and is subject to rapid change. The Company's near-term
success is dependent in part on the continued acceptance of information
processing systems that use client/server architectures. Any factors
negatively affecting the acceptance of client/server architectures could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's longer-term success will depend to a
large extent on its ability to anticipate and develop solutions that keep pace
with changes in technology, evolving industry standards and changing client
preferences. The Company's failure to anticipate and address these
developments could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, there can be no
assurance that products, technologies or services developed by third parties
will not render the information technology services of the Company
noncompetitive or obsolete. See "Business--Application Development Framework."
COMPETITION
The market for the Company's services is highly competitive. Generally, the
Company's main competitors are the internal IT departments of its clients. In
addition, the Company currently competes with consulting and software
integration firms, including Andersen Consulting, Computer Sciences
Corporation, Deloitte & Touche LLP, IBM Global Professional Services, Inc.,
Perot Systems, Inc. and SHL Systemhouse, Inc. (a subsidiary of MCI). Many of
these companies have significantly greater financial, technical and marketing
resources than the Company, generate greater revenues and have greater name
recognition than the Company. In addition, there are relatively low barriers
to entry into the Company's markets and the Company has faced, and expects to
continue to face, additional competition from new entrants in its markets. The
Company believes that its ability to compete also depends in part on a number
of competitive factors outside of its control, including the ability of its
competitors to hire, retain and motivate project managers and other senior
technical staff, the development of services that are competitive with those
of the Company's services and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete successfully with its competitors. See "Business--Competition."
8
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent in part upon its object library,
development tools and other intellectual property rights. The Company relies
upon a combination of trade secret, copyright and trademark laws and
contractual arrangements to protect its intellectual property rights. The
Company generally enters into confidentiality agreements with its employees,
contractors and clients. While the Company believes that it takes appropriate
steps to detect and deter any misappropriation of its intellectual property,
there can be no assurance that the Company will be able to detect all
unauthorized uses of, or otherwise successfully protect, its intellectual
property rights. See "Business--Intellectual Property Rights."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. In order to distinguish
21st century dates from 20th century dates, these date code fields must be
able to accept four digit entries. As a result, computer systems and software
programs used by many companies, including companies for which the Company may
have performed services, may need to be upgraded to comply with such "Year
2000" requirements. Significant uncertainty exists concerning the potential
effects associated with such compliance. Although the Company currently offers
products that are designed to be Year 2000 compliant, there can be no
assurance that the Company's software products, or products used by the
Company, contain all necessary date code changes. In addition, the Company has
warranted, and may in the future warrant, to certain customers that its
products will be Year 2000 compliant, and the failure of such products to be
Year 2000 compliant could have a material adverse effect on the Company's
business, financial condition or results of operations.
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; 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 was determined through
negotiations among representatives of the Company, the Selling Stockholders
and the Underwriters, and does not necessarily reflect the price at which the
Common Stock will trade after completion of the Offering. The stock markets
have from time to time experienced significant price and volume fluctuations
and there can be no assurance that an active trading market for the Common
Stock will develop or be sustained. The Company believes that factors such as
actual or anticipated quarterly fluctuations in financial results, changes in
earnings estimates by securities industry analysts and announcements of
material events by the Company, its major clients or its competitors, as well
as general industry or economic conditions, may cause the market price of the
Common Stock to fluctuate, perhaps substantially. See "Underwriting."
SIGNIFICANT MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The Company plans to use the net proceeds from the Offering primarily for
capital expenditures, to pursue geographic expansion by establishing
additional application development centers, and for working capital and other
general corporate purposes. The Company does not believe that it can
accurately estimate the amounts to be used for each purpose at this time. The
exact uses of the net proceeds and the actual amounts allocated for such uses
will, therefore, be subject to the discretion of the Company's management. See
"Use of Proceeds."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's First Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws contain provisions which may make a change in
control of the Company more difficult, even if a change in control were in the
best interests of its stockholders. The Company's Board of Directors may
determine the terms of preferred stock that may be issued by the Company
without approval of the holders of the Common Stock, and as a result may
enable the Board of Directors to prevent changes in management and control of
the Company. In addition, the terms of the Company's Board of Directors are
staggered, whereby approximately one-third of the directors are elected each
year. The inability of the stockholders to replace the entire Board of
Directors in one year may prevent or delay changes in the management and
control of the Company. See "Description of Capital Stock."
9
<PAGE>
DILUTION
The purchasers of the Common Stock in the Offering will experience immediate
and substantial dilution of $8.41 per share in the net tangible book value per
share based upon an assumed initial public offering price of $11.00 per share.
See "Dilution." In addition, if the Company issues additional shares of Common
Stock in the future, including shares that may be issued in connection with
future acquisitions or upon the exercise of stock options which are currently
outstanding or which may be granted in the future under the Company's stock
incentive plans, purchasers of Common Stock in the Offering may experience
further dilution in net tangible book value per share of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The Company, its executive officers and directors and certain stockholders
have agreed that they will not sell or otherwise dispose of any shares of
Common Stock without the consent of the Underwriters for a period of 180 days
from the date of this Prospectus. Following such period, an aggregate of
4,822,300 shares of Common Stock will be eligible for immediate resale by the
existing stockholders, subject to the notice, manner of sale, volume
limitations and current public reporting requirements imposed by Rule 144
under the Securities Act. Sales of substantial amounts of Common Stock in the
open market or the availability of such shares for sale following the Offering
could adversely affect the market price of the Common Stock and may make it
more difficult for the Company to sell its equity securities in the future on
terms it deems appropriate. See "Shares Eligible for Future Sale," "Principal
and Selling Stockholders" and "Underwriting."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $14,920,000
($17,989,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting the estimated underwriting discount and offering expenses. The
Company will not receive any proceeds from the sale of shares of Common Stock
by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company plans to use the net proceeds from the Offering primarily for
capital expenditures, to pursue geographic expansion by establishing
additional application development centers, and for working capital and other
general corporate purposes. The Company may also use a portion of the net
proceeds of the Offering to fund acquisitions of complementary businesses,
products or technologies, although there are currently no plans, commitments
or understandings with respect to any such transactions. Pending such uses,
the Company intends to invest such funds in short-term, investment-grade,
interest-bearing instruments. The Company does not believe that it can
accurately estimate the amounts to be used for each purpose at this time. See
"Risk Factors--Significant Management Discretion as to Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and currently intends to retain all available funds for use in the operation
and expansion of its business. The Company does not anticipate that any cash
dividends will be declared or paid in the foreseeable future. In addition, any
credit arrangements which the Company may establish with third party sources
of financing may contain, among other provisions, restrictions that prohibit
the Company from paying cash dividends or making other distributions of assets
to stockholders.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis and (ii) as adjusted to give effect
to the sale of 1,500,000 shares of Common Stock offered by the Company in the
Offering at an assumed initial public offering price of $11.00 per share,
after deducting the estimated underwriting discount and offering expenses.
This table should be read in conjunction with the Company's Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Long-term debt, less current portion.................... $ $
Stockholders' equity
Preferred stock, par value $0.01 per share, 2,000,000
shares
authorized; no shares outstanding....................
Common stock, par value $0.01 per share, 25,000,000
shares
authorized; 5,336,430 shares outstanding, actual;
6,836,430 shares outstanding, as adjusted(1)......... 53,364 68,364
Additional paid-in capital............................ 261,861 15,166,861
Retained earnings..................................... 2,504,189 2,504,189
---------- -----------
Total stockholders' equity.......................... $2,819,414 $17,739,414
========== ===========
Total capitalization................................ $2,819,414 $17,739,414
========== ===========
</TABLE>
- --------
(1) Does not include shares of Common Stock issuable upon exercise of stock
options outstanding under the Company's stock incentive plans. See
"Management--Stock Incentive Plans."
12
<PAGE>
DILUTION
At December 31, 1997, and based on the 5,336,430 shares of Common Stock
outstanding on that date, the net tangible book value of the Company was
approximately $2.8 million or $0.52 per share of Common Stock. "Net tangible
book value per share" represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding.
Dilution in net tangible book value per share represents the difference
between the amount paid by purchasers of shares of Common Stock in this
Offering and the net tangible book value per share of Common Stock immediately
after completion of this Offering. After giving effect to the sale by the
Company of 1,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share (the midpoint of the
estimated public offering price range), and after deducting the estimated
underwriting discount and offering expenses payable by the Company, the net
tangible book value of the Company at December 31, 1997 would have been
approximately $17.7 million or $2.59 per share. This amount represents an
immediate increase in net tangible book value of $2.07 per share of Common
Stock to existing stockholders and an immediate dilution in net tangible book
value of $8.41 per share to purchasers of Common Stock in the Offering as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value per share at December 31, 1997.... $0.52
Increase per share attributable to the new investors...... 2.07
-----
Net tangible book value per share after this Offering....... 2.59
------
Dilution of net tangible book value per share to new
investors.................................................. $ 8.41
======
</TABLE>
The following table sets forth, since the Company's incorporation in 1992,
the number of shares of Common Stock purchased from the Company, the total
consideration and the average price per share paid by the existing
stockholders and to be paid by new investors purchasing shares of Common Stock
in this Offering assuming an initial public offering price of $11.00 per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 5,336,430 78.1% $ 315,225 1.9% $ 0.06
New investors............... 1,500,000 21.9% 16,500,000 98.1% $11.00
--------- ------ ----------- ------
Total................... 6,836,430 100.0% $16,815,225 100.0%
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1997. Does
not include shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's stock incentive plans. See "Management--
Stock Incentive Plans."
13
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as of
the dates and for the periods indicated. The Statement of Income Data for the
years ended December 31, 1995, 1996 and 1997 and the Balance Sheet Data at
December 31, 1996 and 1997 have been derived from the Company's financial
statements for such years, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, included elsewhere in this
Prospectus. The Statement of Income Data for the period from March 25, 1994
(inception) to December 31, 1994 and the Balance Sheet Data at December 31,
1995 are derived from the Company's financial statements not included herein,
which have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The following table also sets forth selected unaudited financial
data for the Company as of December 31, 1994 and HMP Software Solutions, Inc.
("HMP"), which may be deemed to be a predecessor to the Company. The following
selected financial 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" included elsewhere
in this Prospectus. The Company was incorporated in July 1992 and financial
information prior to inception is insignificant.
<TABLE>
<CAPTION>
HMP SOFTWARE
SOLUTIONS, INC.(1) CLIENTLINK, INC.
------------------ ---------------------------------------------
PERIOD FROM
PERIOD FROM JAN. MARCH 25,
10, 1994 1994
(INCEPTION) (INCEPTION) YEAR ENDED
THROUGH THROUGH DECEMBER 31,
MARCH 24, DEC. 31, ---------------------------------
1994 1994 1995 1996 1997
------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue:
Service................ $488,913 $2,496,342 $5,682,236 $8,406,111 $13,524,397
Product................ 8,067 292,239 610,132 197,502
-------- ---------- ---------- ---------- -----------
Total revenue........... 488,913 2,504,409 5,974,475 9,016,243 13,721,899
Operating expenses:
Project related
expenses.............. 258,150 1,832,104 3,855,186 5,492,114 7,131,685
Cost of products sold.. 8,067 292,239 610,132 197,502
Depreciation and
amortization.......... 50,160 141,919 210,004 326,659
General and
administrative........ 66,224 489,159 1,048,544 1,708,750 2,266,094
Nonrecurring
compensation
expense(2)............ 1,200,000
-------- ---------- ---------- ---------- -----------
Total operating
expenses............. 324,374 2,379,490 5,337,888 8,021,000 11,121,940
-------- ---------- ---------- ---------- -----------
Income from operations.. 164,539 124,919 636,587 995,243 2,599,959
Interest expense
(income) to (from)
stockholder............ (5,973) 25,519 76,319 94,952 (18,330)
-------- ---------- ---------- ---------- -----------
Income before income
taxes.................. 170,512 99,400 560,268 900,291 2,618,289
Income taxes............ 68,204 39,760 222,987 358,316 1,015,896
-------- ---------- ---------- ---------- -----------
Net income.............. $102,308 $ 59,640 $ 337,281 $ 541,975 $ 1,602,393
======== ========== ========== ========== ===========
Earnings per common
share:
Basic.................. $ 0.01 $ 0.07 $ 0.10 $ 0.30
Diluted................ $ 0.01 $ 0.06 $ 0.09 $ 0.27
Average common shares
outstanding:
Basic.................. 4,747,680 4,763,814 5,336,430 5,336,430
Diluted................ 5,626,359 5,663,714 5,861,330 5,861,330
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1994 1995 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......... $ (239,972) $1,103,686 $ 998,104 $1,458,068
Total assets...................... 1,356,403 3,240,452 2,757,704 6,449,391
Long-term debt, less current
portion.......................... 1,148,619 587,511
Total stockholders' equity........ 69,630 657,046 1,199,021 2,819,414
</TABLE>
- --------
(1) The Company commenced operations in March 1994 after hiring the former
employees of HMP, including Mr. Hamilton, and purchasing certain assets
from HMP. See Note 1 to the Company's Financial Statements.
(2) See "Management--Employment Agreements" and Note 13 to the Company's
Financial Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding Selected
Financial Data. Moreover, this Prospectus contains "forward-looking"
statements regarding revenues, operating expenses, earnings, growth rates and
certain business trends that are subject to risks and uncertainties that could
cause actual results to differ materially from the results described herein.
Recipients of this document are cautioned to consider these risks and
uncertainties and not to place undue reliance on these forward-looking
statements. Additionally, the Company's Financial Statements and the Notes
thereto, as well as other data included in this Prospectus, should be read and
analyzed in combination with the analysis below.
OVERVIEW
ClientLink designs, develops and implements customized IT solutions for
organizations with mission-critical business processing needs. Since its
inception in 1994, the Company has operated as a majority-owned subsidiary of
CompuCom. As such, the Company has relied on CompuCom for a number of
administrative services, including, without limitation: general
administration, payroll, financial reporting, sales and income tax reporting,
accounts payable, insurance and human resources services. As consideration for
these services, the Company has historically paid CompuCom a management fee
equal to 2.5% of revenues. In addition, the Company has relied upon CompuCom
for its financing needs. The Company has a $2.5 million line of credit with
CompuCom and is charged interest at an annual rate of prime plus 1% on its
outstanding balance under this line. The Company intends to terminate this
line of credit prior to consummation of the Offering. The Company believes
that the management fee and interest rate charged by CompuCom approximates the
charges that it would have incurred had it contracted for these services
independently. The Company has entered into an Administrative Services
Agreement, effective during the period from January 1, 1998 to December 31,
1999, pursuant to which CompuCom will provide selected administrative services
to the Company in return for a fixed fee of $15,000 per month in 1998 and
$7,500 per month in 1999.
Historically, the Company has generated the majority of its revenue from
services performed on a time and materials basis. For the years ended December
31, 1995, 1996 and 1997, time and materials billings represented approximately
70%, 50% and 71% of the Company's revenue, respectively, while fixed-price,
fixed-timeframe billings represented approximately 30%, 50% and 29% of
revenue, respectively. The Company expects the percentage of its revenue
generated by fixed-price, fixed-timeframe contracts to account for a larger
percentage of its total revenue in the future. However, as the initial phases
of fixed-price, fixed-timeframe projects are usually billed on a time and
materials basis, the percentage of revenue derived on a fixed-price, fixed-
timeframe basis for any particular quarter may vary depending on the number of
projects in process and the phases in progress for each project. The Company
uses an internally developed estimation process to determine its proposed
fixed price for a project. This process takes into account standard billing
rates and the risks associated with the particular project, such as the number
and type of key functions to be developed, the technology environment and
application type to be applied, the project's timetable and the overall
technical complexity of the project. The Company attempts to align the timing
of billings for fixed-price, fixed-timeframe contracts with the amount of
resources required based on the project plan in order to stabilize its cash
flows.
The Company recognizes revenue from fixed-price, fixed-timeframe projects
using the percentage of completion method, which requires revenue to be
recognized over the term of a contract based on the percentage of work
completed. The cumulative impact of any revision in estimates of the
percentage of work completed is reflected in the fiscal period in which the
changes become known. Although the Company from time to time has been required
to make revisions to its work completion estimates, none of these revisions
has had a material adverse effect on the Company's operating results.
Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which the
losses are determined. See "Risk Factors--Fixed-Price, Fixed-Timeframe
Contracts".
15
<PAGE>
Although the Company does not generally sell computer products, it has
occasionally sold computer hardware and software licenses to its clients as an
accommodation. These products are usually sold at the Company's cost and thus
do not generate any profit for the Company. These sales are reported as
product revenue in the Statements of Income based on the shipment dates. The
Company does not intend to actively market computer products and consequently
does not expect product sales to be material in future periods. For the years
ended December 31, 1996 and 1997, product sales represented 6.8% and 1.4% of
total revenue, respectively.
Project related expenses represent the most significant expense that the
Company incurs. These expenses consist primarily of labor costs for personnel,
whether full-time employees or contract development engineers, dedicated to
specific client assignments and are relatively fixed in advance of any
particular quarter. The Company utilizes contract development engineers to
provide it with greater flexibility in adjusting staffing levels when
necessary. However, the Company must maintain a sufficient number of
professionals to oversee existing client projects and to help secure new
business. Accordingly, the unexpected termination of a large client project
could result in under-utilized employees and materially impact the Company's
results of operations.
Since its inception, the Company has been included in the CompuCom
consolidated tax group for federal income tax purposes. However, income tax
expense is calculated using the separate return basis, which reflects the
income tax expense that would have resulted had the Company filed a separate
return.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue of certain items
included in the Company's Statements of Income for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenue:................................................... 100.0% 100.0% 100.0%
Service.................................................. 95.1 93.2 98.6
Product.................................................. 4.9 6.8 1.4
Operating expenses:
Project related expenses................................. 64.5 60.9 52.0
Cost of products sold.................................... 4.9 6.8 1.4
Depreciation and amortization............................ 2.4 2.3 2.4
General and administrative............................... 17.5 19.0 16.5
Nonrecurring compensation expense........................ 8.7
----- ----- -----
Total operating expenses............................... 89.3 89.0 81.0
----- ----- -----
Income from operations..................................... 10.7 11.0 19.0
Interest expense (income) to (from) stockholder............ 1.3 1.0 (0.1)
----- ----- -----
Income before income taxes................................. 9.4 10.0 19.1
Income taxes............................................... 3.7 4.0 7.4
----- ----- -----
Net income................................................. 5.7% 6.0% 11.7%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue increased approximately 52% to $13.7 million in 1997 from
$9.0 million in 1996 due primarily to an increase in the volume of services
delivered to existing clients, as well as the addition of new clients.
Although the Company derives a large portion of its revenue from a relatively
small number of clients, it frequently performs services under purchase orders
from multiple departments within those clients. The Company's two largest
clients accounted for over 85% of the Company's revenue in both periods.
Project related expenses. Project related expenses increased to $7.1 million
in 1997 from $5.5 million in 1996. The increase in project related expenses
was primarily due to an increase in the number of project personnel when
compared to the prior year. However, project related expenses decreased as a
percentage of service revenue from approximately 65% in 1996 to approximately
53% in 1997. The improvement as a
16
<PAGE>
percentage of service revenue was primarily due to improved utilization of
project personnel and increased utilization of the Company's application
development center.
Cost of products sold. Cost of products sold decreased to $197,502 in 1997
from $610,132 in 1996. This decrease was due to the reduction in product sales
during 1997. The Company does not intend to actively market computer products
in the future.
Depreciation and amortization. Depreciation and amortization increased to
$326,659 in 1997 from $210,004 in 1996. This increase was primarily due to
increased investments in computer equipment.
General and administrative expenses. General and administrative expenses
totaled $2.3 million in 1997 and $1.7 million in 1996. Of these amounts,
expenses associated with the Company's management fee paid to CompuCom and
provision for bad debts accounted for approximately $343,000 and $314,000 in
1997, respectively, as compared to approximately $225,000 and $292,000 in
1996, respectively. Total general and administrative expenses represented
approximately 16% of revenues in 1997 as compared to approximately 19% in
1996. This percentage decrease was primarily due to the growth in revenue as
the Company was able to support the increased revenue without incurring a
comparable level of additional administrative costs. The Company expects to
increase its administrative staff in order to perform many of the services
historically provided by CompuCom. Therefore, the Company anticipates an
increase in general and administrative expenses in future periods, partially
offset by a reduction in the management fee paid to CompuCom.
Nonrecurring compensation expense. The Company incurred a nonrecurring $1.2
million expense in the fourth quarter of 1997 in connection with a $1.2
million cash payment to be made in 1998 in exchange for the waiver by certain
employees of the Company, including Mr. Hamilton, of their right to receive
shares of Common Stock. See "Management--Employment Agreements."
Income from operations. Income from operations increased to approximately
$2.6 million in 1997 from approximately $1.0 million in 1996. As a percentage
of revenue, income from operations increased to approximately 19% of revenue
in 1997 from approximately 11% in 1996. The improvement in the Company's
operating margin was primarily due to the improvements noted in project
related expenses above, as well as a reduction in product sales.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue increased approximately 50% to $9.0 million in 1996 from
$6.0 million in 1995. This increase reflected increases in both the size and
number of client projects. Revenue derived from the Company's three largest
clients represented approximately 93% and 87% of total revenue in 1996 and
1995, respectively.
Project related expenses. Project related expenses increased to $5.5 million
in 1996 from $3.9 million in 1995 as the Company increased the size of its
professional staff from 36 at the end of 1995 to 55 at the end of 1996.
However, project related expenses declined as a percentage of service revenue
to 65% in 1996 from 68% in 1995 due primarily to improved utilization of
project personnel and increased utilization of the Company's application
development center.
Cost of products sold. Cost of products sold increased to $610,132 in 1996
from $292,239 in 1995. This increase was due to an increase in products sold
at cost, primarily to one customer.
Depreciation and amortization. Depreciation and amortization increased to
$210,004 in 1996 from $141,919 in 1995, due primarily to increased investments
in computer equipment.
General and administrative expenses. General and administrative expenses
increased to $1.7 million in 1996 from $1.0 million in 1995. Of these amounts,
expenses associated with the Company's management fee paid to CompuCom and
provision for bad debts accounted for approximately $224,000 and $292,000 in
1996, respectively, as compared to approximately $151,000 and $28,000 in 1995,
respectively. The increase in total
17
<PAGE>
general and administrative expenses was primarily due to a provision for bad
debt associated with one particular client, a temporary increase in the number
of administrative personnel during 1996 and an increase in the management fee
paid to CompuCom, which resulted from the increase in total revenue. General
and administrative expenses represented approximately 19% of revenue in 1996
compared to 18% in 1995.
Income from operations. Income from operations increased to $1.0 million in
1996 from $636,587 in 1995. As a percentage or revenue, income from operations
remained relatively flat at approximately 11% for both years, as the
improvements noted in project related expenses above were offset by increased
product sales at cost during 1996.
18
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly results of
operations of the Company for 1996 and 1997. In the opinion of management,
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 quarterly information when read in conjunction with the audited Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
quarterly results are not necessarily indicative of future results of
operations. Although the Company's business is not seasonal, its revenue and
earnings may fluctuate from quarter to quarter based upon such factors as the
number, size and scope of projects in which the Company is engaged, the
contractual terms and degree of completion of such projects, any delays
incurred in connection with a project, employee utilization rates, the
adequacy of provisions for losses, the accuracy of estimates of resources
required to complete ongoing projects and general economic conditions. See
"Risk Factors--Variability of Quarterly Operating Results." In addition,
revenue from a large client may constitute a significant portion of the
Company's total revenues in a particular quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service................ $1,904,037 $2,384,563 $2,029,617 $2,087,894 $2,522,288 $3,066,673 $3,674,087 $4,261,349
Product................ 404,218 174,515 29,567 1,832 125,627 51,218 19,335 1,322
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue........ 2,308,255 2,559,078 2,059,184 2,089,726 2,647,915 3,117,891 3,693,422 4,262,671
Operating expenses:
Project related
expenses.............. 1,382,282 1,428,374 1,337,323 1,344,135 1,346,997 1,506,459 2,003,419 2,274,810
Cost of products sold.. 404,218 174,515 29,567 1,832 125,627 51,218 19,335 1,322
Depreciation and
amortization.......... 46,439 50,872 56,014 56,679 58,643 60,049 99,511 108,456
General and
administrative........ 287,189 583,834 438,739 398,988 329,369 435,210 567,731 933,784
Nonrecurring
compensation expense.. 1,200,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 2,120,128 2,237,595 1,861,643 1,801,634 1,860,636 2,052,936 2,689,996 4,518,372
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.. 188,127 321,483 197,541 288,092 787,279 1,064,955 1,003,426 (255,701)
Interest expense
(income) to (from)
stockholder............ 27,857 42,853 16,875 7,367 24,725 10,657 (14,650) (39,062)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 160,270 278,630 180,666 280,725 762,554 1,054,298 1,018,076 (216,639)
Income taxes............ 64,108 111,452 71,028 111,728 292,821 404,850 390,941 (72,716)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 96,162 $ 167,178 $ 109,638 $ 168,997 $ 469,733 $ 649,448 $ 627,135 $ (143,923)
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per common
share:
Basic.................. $ 0.02 $ 0.03 $ 0.02 $ 0.03 $ 0.09 $ 0.12 $ 0.12 $ (0.03)
Diluted................ $ 0.02 $ 0.03 $ 0.02 $ 0.03 $ 0.08 $ 0.11 $ 0.11 $ (0.03)
Average common shares
outstanding:
Basic.................. 5,336,430 5,336,430 5,336,430 5,336,430 5,336,430 5,336,430 5,336,430 5,336,430
Diluted................ 5,861,330 5,861,330 5,861,330 5,861,330 5,861,330 5,861,330 5,861,330 5,861,330
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue:.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Service................ 82.5 93.2 98.6 99.9 95.3 98.4 99.5 99.9
Product................ 17.5 6.8 1.4 0.1 4.7 1.6 0.5 0.1
Operating expenses:
Project related
expenses.............. 59.9 55.8 65.0 64.3 50.9 48.3 54.2 53.3
Cost of products sold.. 17.5 6.8 1.4 0.1 4.8 1.6 0.5 0.1
Depreciation and
amortization.......... 2.0 2.0 2.7 2.7 2.2 1.9 2.7 2.5
General and
administrative........ 12.4 22.8 21.3 19.1 12.4 14.0 15.4 21.9
Nonrecurring
compensation expense.. 28.2
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 91.8 87.4 90.4 86.2 70.3 65.8 72.8 106.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.. 8.2 12.6 9.6 13.8 29.7 34.2 27.2 (6.0)
Interest expense
(income) to (from)
stockholder............ 1.2 1.7 0.8 0.4 0.9 0.3 (0.4) (0.9)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 7.0 10.9 8.8 13.4 28.8 33.9 27.6 (5.1)
Income taxes............ 2.8 4.4 3.5 5.3 11.1 13.0 10.6 (1.7)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... 4.2% 6.5% 5.3% 8.1% 17.7% 20.9% 17.0% (3.4)%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date the Company's financing requirements have been met through a
combination of funds generated from operations and borrowings under a $2.5
million line of credit from CompuCom. The Company has not previously
established a relationship with a third party lender, as the funds generated
from operations together with the funds available under the line of credit
have been sufficient to meet the Company's financing needs. The Company is
charged interest at a rate of prime plus 1% for amounts outstanding under the
line of credit.
The Company believes that the net proceeds from the Offering, existing cash
and cash generated from operating activities will be adequate to meet its cash
needs for at least the next 12 months. Thereafter, the Company may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financings or from other sources. There can be no assurance that
additional financing will be available at all or that if available, such
financing will be obtainable on terms favorable to the Company or that any
additional financing would not be dilutive.
Net cash provided by operations increased to $2.2 million in 1997 from
$882,574 in 1996 due to the Company's improved profitability. Working capital
increased to $1.4 million as of December 31, 1997 from $1.0 million as of
December 31, 1996. This increase is due primarily to the Company's
profitability and revenue growth. The Company's current assets increased $3.1
million from December 31, 1996 to December 31, 1997 primarily as the result of
a $1.7 million increase in cash and a $1.3 million increase in accounts
receivable, while its current liabilities, which primarily consist of accrued
compensation, increased $2.7 million. During 1997, the Company recorded a
provision for bad debt of approximately $314,000, which relates to accounts
receivable that were deemed uncollectible.
Capital expenditures, which totaled $926,368 in 1997, were primarily related
to investments in computer hardware and software. The Company expects to incur
capital expenditures of approximately $1.0 to $1.5 million in 1998,
principally relating to additional investments in computer hardware and
software and initial expenses relating to opening an additional application
development center.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," was issued. SFAS No. 128, which supersedes
Accounting Principles Board ("APB") Opinion No. 15, requires a dual
presentation of basic and diluted earnings per share on the face of the income
statement or loss attributable to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings per share is computed similarly to fully
diluted earnings per share under APB Opinion No. 15. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. See Note 1 to
the Company's Financial Statements.
In October 1997, Statement of Position (SOP 97-2) "Software Revenue
Recognition" was issued. SOP 97-2 supersedes SOP 91-1 and provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997. Earlier application is
encouraged as of the beginning of fiscal years or interim periods for which
financial statements or information have not been issued. Retroactive
application of the provisions of this SOP is prohibited. The Company has not
determined the effects, if any, that SOP 97-2 will have on its financial
statements.
20
<PAGE>
BUSINESS
OVERVIEW
ClientLink designs, develops and implements customized IT solutions for
organizations with mission-critical business processing needs. The Company
offers IT solutions based upon an operating model that integrates client
personnel in the development process, leverages the Company's centralized
application development center and addresses specific key business functions.
The Company's client/server and Internet/intranet based applications are
designed to improve an organization's business processes and performance. The
Company offers IT solutions using an operating model that integrates client
personnel in the development process, leverages the Company's centralized
application development center and addresses specific key business functions.
The Company targets clients with business processing needs in such areas as
data collection and reporting, financial applications, inventory management,
sales commission calculation, sales force automation and sales pricing. The
Company's principal clients include The Gillette Company, Green Tree, Hewlett-
Packard Company, Honda of America, MCI, National Data Corporation and
Plantation Pipe Line Co.
The Company's application development framework encompasses a series of
development phases that enables the Company to create integrated, customized
solutions. This framework is designed to improve the utility of the Company's
solutions, as well as to identify, address and resolve uncertainties early in
the development process. The framework consists of four phases: Definition,
Detailed Design, Development and Implementation. While the application
development framework is designed as an integrated approach, each phase may
involve a separate contractual commitment and concludes with the delivery of a
discrete value-added deliverable. The Company performs the Definition Phase on
a time and materials basis and generally prices each subsequent phase
separately on either a time and materials basis or pursuant to fixed-price,
fixed-timeframe contracts. In addition, the Company complements its
application development services by offering separately-priced post-
implementation support services such as software enhancements and upgrades.
The Company's objective is to be a leader in developing and implementing
high-quality, customized IT solutions that address the core business needs of
its clients. To achieve this objective, the Company seeks to focus on the
following growth strategies: (i) expand relationships with existing clients,
(ii) focus on fixed-price, fixed-timeframe projects, (iii) attract and retain
highly skilled personnel, (iv) expand its geographic presence, (v) provide
post-implementation support and hosting of applications and (vi) increase its
sales and marketing efforts.
The Company commenced operations in March 1994, at the time it acquired the
rights to a software development library from Fisher Business Systems, Inc.
and began to hire employees. All of the Company's initial employees,
consisting of a software development staff and support personnel, formerly had
been employees of HMP, a software development business formed by Mr. Hamilton
in January, 1994.
INDUSTRY BACKGROUND
The increase in global competition and acceleration of technological
innovation has had a profound impact on organizations across all industries.
In order to develop and maintain a competitive advantage, organizations
continually seek to improve their product and service offerings, as well as
the processes by which they are delivered. Most of these critical business
processes are dependent on advanced information technology systems and
complementary software. Often, however, currently available software
applications do not specifically address these critical business processes. As
a result, organizations are increasingly implementing and utilizing customized
solutions developed by external IT consultants in order to improve their
competitiveness.
There are a number of current trends which the Company believes are
compelling organizations to seek the services of external IT consultants to
design, develop and integrate customized IT solutions:
Increasing Complexity of Implementing Client/Server Solutions. Many
businesses are in the process of migrating from legacy systems, which
use proprietary software, to open systems and client/server
21
<PAGE>
architectures. The development, implementation and management of
business-to-business solutions in an environment of evolving technology
places significant resource demands on business organizations, both in
terms of integration capabilities and expertise in emerging
technologies. As a result, internal IT departments are often at a
disadvantage in designing, integrating, implementing and managing
today's most effective solutions.
Pressure to Minimize Overall IT Costs. Internal IT departments, many of
which have already been reduced in size and scope, are generally
focused on internal systems management. Organizations recognize that it
is not generally cost effective to expand their existing departments to
undertake certain mission-critical development projects. Instead, the
experience of external IT professionals can provide organizations with
a more economical and proven alternative to the internal development of
business solutions.
Clients' Desire to Influence Solutions. Increasingly, clients desire to
influence and participate in the application development process. This
collaboration between clients and developers enables the client to
incorporate its knowledge base into the development process to create a
solution which is best suited for the client promotes acceptance of the
solution by the end-users and more efficiently provides technical
training to the end-users and IT staff. External IT consultants can
often more objectively consider the perspectives of the end-users and
can work in partnership to develop the best solutions.
As a result of these and other trends, the United States market for
application development, implementation/integration and IT consulting services
is extremely large and growing. In November 1996, Dataquest, an industry
research organization, estimated that the U.S. market for these services will
reach $50.9 billion in revenue in 2000, which implies compound annual growth
of 14.9% from the estimated 1997 level of $33.6 billion in revenue. The
Company believes that an increasing share of the revenue generated in this
market will be captured by companies that are able to deliver solutions
rapidly, effectively and with minimal disruption to the client's business
processes.
THE CLIENTLINK SOLUTION
The Company offers IT solutions based upon an operating model that
integrates client personnel in the development process, leverages the
Company's centralized application development center and addresses specific
key business functions. The key attributes of this operating model are:
Apply Client-Driven Development Approach. The Company's development approach
focuses on collaborating with the client to analyze the underlying business
processes and to develop a solution based on that analysis and on the client's
existing systems. The Company believes this approach, which allows the client
to understand and participate in the development process, promotes client
feedback throughout the development phases and improves the utility of the
solution upon its completion. The Company divides its projects into several
smaller solution-oriented phases, which are designed to reduce the risks
associated with larger less-defined projects and to allow the client to
utilize components of the solution more rapidly. The Company has expertise
with respect to multiple software, hardware and operating systems, which
allows it to develop applications based on the systems that it considers to be
best suited for a particular project.
Promote Out-Tasking Rather Than Outsourcing. In developing solutions for
clients, the Company assembles a team consisting of Company and client
personnel to design, develop and implement components of the solution. This
process enables the client to participate in all phases of the development. As
a result, the Company and the client are able to draw upon the collective
knowledge of the team and to align their goals and incentives to jointly
develop a solution that is intended to best serve the client's needs. The
Company believes that this approach allows the client to acquire the technical
knowledge necessary to implement and maintain the customized application,
enhances the acceptance of the solution by the ultimate end-users and
strengthens the ongoing relationship between the Company and its clients. This
out-tasking approach is designed to draw on the expertise of the client's
internal resources rather than impose a solution developed entirely by an
outside consultant.
22
<PAGE>
Leverage the Application Development Center. The foundation of the Company's
operating model is the application development center, where the Company's
development efforts are concentrated. This centralized development site
enhances the Company's ability to leverage the reusable objects in its object
library, promotes the sharing of expertise among the Company's development
staff and improves the Company's ability to implement consistent project
management practices. The Company believes that this centralized approach
better allows it to create quality solutions, retain employees, increase
employee utilization rates and contain project management expenses.
Focus on Mission-Critical Business Solutions. The Company provides solutions
to business functions that are applicable to multiple industries, such as data
collection and reporting, financial applications, inventory management, sales
commission calculations, sales force automation and sales pricing. The Company
believes that this focus allows the Company to increase the reusability of its
object library, leverage its expertise in providing solutions for problems
common to most businesses, expedite the development of customized solutions
and minimize industry-specific economic risks.
STRATEGY
The Company's objective is to be a leader in developing and implementing
high quality, customized IT solutions that address the fundamental business
needs of its clients. To achieve this objective, the Company is pursuing a
strategy which focuses on the following key elements:
Expand Relationships with Existing Clients. The Company seeks to expand the
number and scope of application development services it performs for existing
clients. Often, the Company initiates a relationship by developing a
customized solution for a single department or business unit. The Company
intends to capitalize on the success of its initial projects by marketing its
services to other departments within the client's organization and by pursuing
larger scale projects for such clients. The Company believes that its
operating model, which is designed to foster an ongoing relationship with a
client's IT staff, provides the Company with a competitive advantage in
targeting new opportunities within existing clients.
Focus on Fixed-Price, Fixed-Timeframe Contracts. A fundamental element of
the Company's operating model is to increase the type of services it offers on
a fixed-price, fixed-timeframe basis. The Company believes that properly
structured fixed-price, fixed-timeframe contracts align the Company's
incentives with those of its clients and offer the Company the potential for
greater profitability. In order to reduce the risks that can arise from such
contracts, the Company divides fixed-price, fixed-timeframe projects into
several phases with scheduled deliverables. The Company believes that discrete
project phases enable the Company to estimate the price and timeframe of these
contracts more accurately, meet client expectations, maintain quality and
control costs.
Attract and Retain Highly Skilled, Motivated Employees. The Company seeks to
continue to attract, motivate, reward and retain its employees by compensating
them competitively and providing a stimulating and attractive work environment
that fosters professional development. The Company has adopted stock incentive
plans and believes that its compensation structure effectively aligns the
objectives of its employees with those of the Company. The Company believes
that its operating model provides employees with access to state-of-the-art
development tools and processes, minimizes travel to client locations and
enhances professional development and employee job satisfaction.
Pursue Geographic Expansion. The Company intends to expand into new
geographic markets by establishing additional application development centers
in key information technology markets. The Company believes that its operating
model is transferable to new clients in additional geographic markets and that
geographic expansion will allow the Company to enhance its client base as well
as increase the scope of services it provides to current and future clients
with multiple geographic locations.
Provide Post-Implementation Support and Hosting of Applications. The Company
intends to complement its application development services by offering
separately-priced software enhancements and upgrades, as well as application
hosting services whereby the Company will operate and maintain applications
for clients at the application development center. By providing these
services, the Company will be able to efficiently enhance
23
<PAGE>
and upgrade previously installed applications, develop stronger relationships
with its clients and provide it with a potential source of recurring revenue.
Increase Sales and Marketing Efforts. The Company intends to expand its
sales and marketing department in order to increase direct sales efforts. In
addition, the Company intends to continue to expand its relationships with
software vendors through joint training and certification programs in order to
maintain its ability to provide a broad range of solutions to its clients.
Furthermore, the Company intends to work in cooperation with CompuCom to
develop incentive opportunities for CompuCom's national sales force in order
to stimulate cross-selling and referral opportunities between the Company and
CompuCom's customers.
APPLICATION DEVELOPMENT FRAMEWORK
The Company's application development framework encompasses a series of
development phases that enables the Company to create integrated, customized
solutions. This framework is designed to improve the utility of the Company's
solutions, as well as to identify, address and resolve uncertainties early in
the development process. The framework consists of four phases: Definition,
Detailed Design, Development and Implementation. While the application
development framework is designed as an integrated approach, each phase may
involve a separate contractual commitment and concludes with the delivery of a
discrete value-added deliverable.
The Company performs the Definition Phase on a time and materials basis and
generally prices each subsequent phase separately on either a time and
materials basis or pursuant to fixed-price, fixed-timeframe contracts. Clients
are able to elect at each phase whether to proceed to the next phase of the
process. Historically, the completion periods for this process have ranged
from one to six months for the Definition Phase, two to six months for the
Detailed Design Phase, six to eighteen months for the Development Phase and
one to three months for the Implementation Phase. However, the duration of any
of these phases depends largely upon the particular engagement and the
specific requirements of the client, and therefore is difficult to predict.
24
<PAGE>
The following table summarizes the scope of services the Company typically
provides to clients in connection with each phase of the application
development framework:
PHASE DELIVERABLE KEY CONCEPTS
------------------------------------------------------------------------
Definition .Requirements .Create JAD team
document
.Prototype .Clearly identify and
define objectives and
requirements
.Conduct cost/benefit
analysis
.Employ visual tools
------------------------------------------------------------------------
Detailed Design .Functional design .Develop technical concepts
document from Definition Phase
.Detailed prototype
.Identify appropriate
systems
.Select and enhance objects
from object library
------------------------------------------------------------------------
Development .Components of .Utilize reusable objects
application .Employ open-ended software
and hardware systems
.Deploy and beta test in
client environment on a
limited basis
------------------------------------------------------------------------
.Install the application
Implementation .Completed .Create system
application documentation
.Train end-users
Definition Phase. In the Definition Phase, the Company collaborates with its
clients to analyze their current business processes and outline the goals and
objectives for re-engineering those processes. To more accurately analyze
these processes and the appropriate solution, the Company assembles a joint
application development ("JAD") team, which typically is comprised of between
five and twenty members and consists of representatives from the client's
management, IT personnel and end-users as well as project managers, project
architects and software engineers from the Company. The JAD team conducts the
Definition Phase primarily at the Company's application development center,
which enables the team to access the collective expertise of the Company's
development staff and promotes collaboration between the Company and the
client.
The JAD team's main deliverable during the Definition Phase is a
requirements document, which represents an evaluation of the client's business
processes, current applications, the technical components required to
implement a solution and the procedural parameters involved in developing and
implementing the solution. As a further evaluation tool, the team creates a
prototype of the solution to evaluate the components of the application for
compatibility with the client's existing systems as well as their
functionality for end-users. The prototype often includes sample data
presentation screens, reports and forms. The prototype gives the client a
preview of the proposed solution, and therefore helps foster commitment to the
project from the client's end-users. The Company believes the results of the
Definition Phase allow the Company to minimize costly reconfigurations and
restarts on projects.
Detailed Design Phase. In the Detailed Design Phase, the JAD team uses the
requirements document created during the Definition Phase to develop a
detailed design of each component of the application. The JAD team identifies
the appropriate technical components and how they relate to one another. The
Company's developers also employ application modeling methods to rapidly
evaluate various design alternatives in order to identify the most appropriate
components of the applications. The high-level planning conducted in the
Detailed Design Phase allows the client to better understand the application
on a conceptual level and how it will be implemented.
The JAD team's main deliverable during the Detailed Design Phase is a
functional design document that details the design of each component
identified and expands the technical planning portion of the application
25
<PAGE>
commenced in the Definition Phase. In preparing the functional design
document, the JAD team selects the appropriate objects from the object
library, makes specific software and hardware systems decisions and analyzes
each object which will be contained in the application. The functional design
document also contains a refined, fixed-price, fixed-timeframe budget relating
to the development of the application. The JAD team also utilizes the analysis
contained in the functional design document to develop a more detailed version
of the prototype created in the Definition Phase.
Development Phase. In the Development Phase, the JAD team oversees the
development of the application utilizing the objects and designs identified in
the Detailed Design Phase. The application is developed at the Company's
application development center, which allows the Company to utilize the
relative strengths of its engineers by placing them in daily contact with one
another, rather than dispatching individual engineers to client locations. The
JAD team creates customized applications using, when possible, a series of
reusable objects drawn from the object library as well as new objects created
specifically for the project. The Company's development approach minimizes the
volume of programming code necessary to generate a functional application. The
Company believes that utilizing reusable code objects maximizes the cost
effectiveness and speed of the development process for a client. This approach
also reduces the Company's need for code programmers and promotes consistent
application quality.
Implementation Phase. During the Implementation Phase, the Company deploys
the application, which typically involves installing and documenting the
application, training end-users, integrating application hardware systems with
existing client hardware systems and providing related start-up services.
CUSTOMERS
The Company targets clients with mission-critical business application
requirements such as data collection and reporting, financial applications,
inventory management, sales commission calculation, sales force automation and
sales pricing tools. The Company's clients operate in a variety of industries
and service businesses, and the Company is not dependent on any single
industry or service business as a source of its clients. A representative list
of the Company's principal clients includes: The Gillette Company, Green Tree,
Hewlett-Packard Company, Honda of America, MCI, National Data Corporation and
Plantation Pipe Line Co. In 1995, the Company derived 11% of its revenue from
Green Tree, 21% of its revenue from Executrain, Inc. and 55% of its revenue
from MCI. In 1996 and 1997, the Company derived 48% and 35% of its revenue
from Green Tree, respectively, and 39% and 56% of its revenue from MCI,
respectively.
The Company seeks to establish ongoing relationships with its clients by
adding complementary application development services and by expanding its
offering of related services such as hosting applications. Often, the Company
will initiate a client relationship by developing a customized application for
a specific department within the organization and subsequently offer similar
services to other departments. Following the completion of their initial
projects, a number of the Company's clients have contracted with the Company
for other unrelated projects.
SALES AND MARKETING
The Company focuses its sales and marketing efforts on establishing and
maintaining relationships with companies that have large scale business
processing needs. The Company's sales efforts generally have been coordinated
by its President and Chief Executive Officer. The Company has recently hired a
Senior Vice President of Sales and Marketing, as well as two sales managers,
and intends to continue expanding its sales and marketing department in order
to increase direct sales efforts. In addition, the Company intends to continue
to expand its relationships with software vendors through joint training and
certification programs in order to maintain its ability to provide a broad
range of solutions to its clients. Furthermore, the Company intends to work in
cooperation with CompuCom to develop incentive opportunities for CompuCom's
national sales force in order to stimulate cross-selling and referral
opportunities between the Company and CompuCom's customers.
26
<PAGE>
The Company believes that its emphasis on developing its direct sales force
will lead to better account penetration and management, longer-term client
relationships and more opportunities for follow-on sales to existing clients.
The Company intends to focus its external marketing efforts on developing
awareness of the Company's name through promotions in local business and trade
journals, developing relationships with key business leaders through industry
associations and community service and developing brochures and conducting
telemarketing campaigns.
COMPETITION
The market for customized application development services is highly
competitive. Generally, the Company's main competitors are the internal IT
departments of its clients. In addition, the Company currently competes with
consulting and software integration firms, including Andersen Consulting,
Computer Sciences Corporation, Deloitte & Touche LLP, IBM Global Professional
Services, Inc., Perot Systems, Inc. and SHL Systemhouse, Inc. (a subsidiary of
MCI). Many of these companies have significantly greater financial, technical
and marketing resources than the Company, generate greater revenues and have
greater name recognition than the Company. In addition, there are relatively
low barriers to entry into the Company's markets and the Company has faced,
and expects to continue to face, additional competition from new entrants in
its markets. Within the Company's current target market, the Company also
competes with an increasing number of middle-tier and development outsourcing
organizations.
The Company believes that the principal competitive factors in its markets
include technical and business expertise, quality of service and deliverables,
project management capability, speed of development and implementation and
price. The Company believes that most of the potential clients in its target
markets make decisions on which firm to engage based on quality,
responsiveness and rapid delivery rather than price. The Company attempts to
distinguish itself from its competitors in its target markets on the basis of
its operating model and full service offering capabilities.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent in part upon its object library,
development tools and other intellectual property rights. The Company relies
upon a combination of trade secret, copyright and trademark laws and
contractual arrangements to protect its intellectual property rights. The
Company generally enters into confidentiality agreements with its employees,
independent contractors and clients. While the Company believes that it takes
the appropriate steps to detect and deter any misappropriation of its
intellectual property, there can be no assurance that the Company will be able
to detect all unauthorized uses of, or otherwise successfully protect, its
intellectual property rights.
The Company's business generally involves the development of software
applications for specific client engagements. The Company develops software
applications for clients in part by using objects from its object library and
in part by developing code specifically for the client's application.
Typically, contractual arrangements between the Company and the client provide
that the Company will retain ownership of the objects from the object library
and the client will become the owner of the overall software application. In
addition, these arrangements typically provide that the Company will grant the
client a nonexclusive license to use the objects from the object library in
conjunction with the client's use of the software application. Issues relating
to the ownership of and rights to use software applications can be complicated
and there can be no assurance that disputes will not arise that affect the
Company's ability to reuse the objects from its object library or its other
intellectual property, which could have a material adverse effect on the
business, financial condition or results of operations of the Company. See
"Risk Factors--Intellectual Property Rights."
"ClientLink" and "CL" are registered service marks of the Company for use in
connection with its business.
27
<PAGE>
HUMAN RESOURCES
As of January 13, 1998, the Company employed 90 full-time employees, of whom
80 were engaged as development engineers and 10 were engaged in sales,
administration and management. In addition, as of January 13, 1998, the
Company engaged 17 independent contractors. Generally, the Company's employees
have executed agreements that prohibit them from competing with the Company
for specified periods following termination of their employment with the
Company. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
FACILITIES
The Company's headquarters and principal operations, including its
application development center, are located in approximately 19,000 square
feet of leased office space in Alpharetta, Georgia. The Company expects that
additional space will be required as it expands its business, and believes
that it will be able to obtain suitable space as needed.
LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James H. Hamilton(1)....... 39 President and Chief Executive Officer, Director
M. Lazane Smith(2)......... 43 Chief Financial Officer, Secretary,
Director
Edward R. Anderson(1)(2)... 51 Chairman of the Board, Director
Daniel F. Brown............ 51 Director
Ross A. Cooley(2)(3)....... 57 Director
Christopher J. 43 Director
Moffitt(1)(3).............
Glenn T. Rieger............ 39 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
JAMES H. HAMILTON has over 17 years of experience in technology related
fields. Mr. Hamilton joined the Company in March 1994 and has served as
President and Chief Executive Officer since March 1, 1997. Mr. Hamilton joined
the Company's Board of Directors in 1994. Prior to joining the Company, Mr.
Hamilton served as President of HMP Software Solutions, Inc., a provider of IT
consulting services, between January and March 1994. Prior to joining HMP
Software Solutions, Inc., Mr. Hamilton served as Chief Operating Officer of
Fisher Business Systems, Inc., a point source restaurant service provider,
during 1993. Prior to joining Fisher Business Systems, Inc., Mr. Hamilton
served as Director of Development of MicroBilt Corporation, a software
application development company that was a subsidiary of First Financial
Management Corporation. Mr. Hamilton's current term as a director expires at
the 2000 annual meeting of stockholders.
M. LAZANE SMITH serves as Chief Financial Officer and Secretary. Ms. Smith
joined the Company's Board of Directors in 1997. Ms. Smith has held the
position of Senior Vice President, Finance and Chief Financial Officer of
CompuCom since February 1997, and continues to serve in such capacities. Ms.
Smith joined CompuCom in 1993 as Corporate Controller and was promoted to Vice
President Finance and Corporate Controller in 1994. Prior to joining CompuCom,
she served as Vice President Finance of Score Group, Inc., a trading cards
business, from 1992 to 1993 and worked with Coca-Cola Enterprises from 1986 to
1992, serving in her final role there as Regional Vice President, Finance and
Chief Financial Officer. Ms. Smith's current term as a director expires at the
2000 annual meeting of stockholders.
EDWARD R. ANDERSON joined the Company's Board of Directors in 1995 and
became the Chairman of the Board of Directors in 1997. Mr. Anderson has served
as President and Chief Executive Officer of CompuCom since January 1994. Mr.
Anderson joined CompuCom in August 1993 as Chief Operating Officer and has
been a Director of CompuCom since 1993. Prior to joining CompuCom, he served
as President and Chief Operating Officer of Computerland Corporation from 1989
until 1993. Mr. Anderson's current term as a director expires at the 1998
annual meeting of stockholders.
DANIEL F. BROWN joined the Company's Board of Directors in 1997. Mr. Brown
has served as Executive Vice President, Sales of CompuCom since February 1989,
when he was promoted from Vice President, Sales, a position he had held since
joining CompuCom in 1987. Mr Brown has been a Director of CompuCom since 1990.
Mr. Brown's current term as a director expires at the 1998 annual meeting of
stockholders.
ROSS A. COOLEY joined the Company's Board of Directors in 1997. Mr. Cooley
has served as Chairman and Chief Executive Officer of pcOrder.com, an
electronic commerce software business, since November 1996. Prior
29
<PAGE>
to joining pcOrder.com, Mr. Cooley was Senior Vice President and General
Manager of Compaq Computer Corporation, a computer hardware manufacturer,
since February 1984. Mr. Cooley's current term as a director expires at the
1999 annual meeting of stockholders.
CHRISTOPHER J. MOFFITT joined the Company's Board of Directors in 1997. Mr.
Moffitt co-founded Diamond Technology Partners, Inc. ("Diamond"), a management
consulting firm, in January 1994 and has served as Senior Vice President,
Secretary and a member of the Board of Directors of Diamond since that time.
From 1988 to 1993, he served as Senior Vice President of Technology Solutions
Company, a management consulting firm. From 1986 to 1988, Mr. Moffitt was a
principal in the Management Consulting Group of Arthur Young (now Ernst &
Young LLP) where he became partner in 1988. From 1981 to 1986, Mr. Moffitt
served as Director of Information Systems for Neiman Marcus. Mr. Moffitt began
his career in 1974 with Electronic Data Systems as a systems engineer and
account manager. Mr. Moffitt's current term as a director expires at the 1999
annual meeting of stockholders.
GLENN T. RIEGER joined the Company's Board of Directors in 1997. Mr. Rieger
has served as a Vice President of Safeguard Scientifics, Inc. since January
1994. Prior to joining Safeguard Scientifics, Inc., Mr. Rieger was a Managing
Director of Valley Forge Capital Group, Ltd., a business mergers and
acquisition advisory firm, which he joined prior to 1993. Mr. Rieger's current
term as a director expires at the 1999 annual meeting of stockholders.
BOARD OF DIRECTORS
Pursuant to the Company's First Amended and Restated Certificate of
Incorporation, the Board of Directors, which is currently comprised of seven
members, is classified into three classes, each class being as nearly equal in
number of directors as possible. Currently, one class is serving initially for
a one-year term and thereafter will be elected for a three-year term. A second
class of directors currently is serving initially for a two-year term and
thereafter will be elected for a three-year term. The third class of directors
currently is serving a three-year term. Any director elected to fill a vacancy
will hold office for the remainder of the full term of the class of directors
in which the vacancy occurred and until such director's successor is duly
elected and qualified. If at any time the size of the Board is changed, the
increase or decrease in the number of directors would be apportioned among the
three classes to make all classes as nearly equal as possible. See
"Description of Capital Stock--Delaware Law."
COMMITTEES
The Board of Directors has established Audit, Compensation and Executive
Committees.
The Audit Committee reviews the scope and results of the annual audit of the
Company's consolidated financial statements conducted by the Company's
independent auditors, the scope of other services provided by the Company's
independent auditors, proposed changes in the Company's financial and
accounting standards and the Company's policies and procedures with respect to
its internal accounting controls and compliance with applicable laws relating
to accounting practices. The Audit Committee also examines and considers other
matters relating to the financial affairs and accounting methods of the
Company, including selection and retention of the Company's independent
auditors. Mr. Moffitt and Mr. Cooley currently serve on the Audit Committee.
The Compensation Committee administers the Company's stock incentive plans
including, among other things, determining the amount, exercise price and
vesting schedule of stock options awarded under the plans. The Compensation
Committee administers the Company's other compensation programs and performs
such other duties as may from time to time be determined by the Board of
Directors. Mr. Anderson, Ms. Smith and Mr. Cooley currently serve on the
Compensation Committee.
The Executive Committee reviews the strategic direction of the Company and
has been authorized to act in the place and stead of the Board of Directors,
to the extent permitted by Delaware law and within certain limits set by the
Board, on matters that require Board action between meetings of the Board of
Directors. Messrs. Hamilton, Anderson and Moffitt serve on the Executive
Committee.
30
<PAGE>
DIRECTOR COMPENSATION
Each director of the Company is reimbursed for travel-related expenses
incurred in attending meetings of the Board of Directors. In addition,
pursuant to the Company's 1997 Incentive Plan, each director not employed by
either the Company or CompuCom has received options to purchase 15,000 shares
of Common Stock at an exercise price of $9.00 per share. Additional options to
purchase shares of Common Stock may be granted to nonemployee directors in the
future in accordance with the 1997 Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1997, the compensation of the Company's executive officers
was established by Mr. Hamilton, the President and Chief Executive Officer of
the Company, and Mr. Anderson, who currently serves as the President and Chief
Executive Officer of CompuCom. In the future, all decisions relating to
executive compensation will be made by the Compensation Committee, which
consists of Mr. Anderson and Ms. Smith, each of whom who is an executive
officer of both CompuCom and the Company, and Mr. Cooley. See "Relationship
Between the Company and CompuCom--Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by or on behalf of the Company to the Company's President
and Chief Executive Officer, who is the only executive officer of the Company
whose compensation from the Company exceeded $100,000 during the year ended
December 31, 1997 (the "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2)
--------------------------- ---- -------- ---------- ---------------
<S> <C> <C> <C> <C>
James H. Hamilton
President & Chief Executive
Officer.......................... 1997 $230,000 $1,805,000(3) $101,280
1996 $200,000 $ 400,000 $ 94,315
1995 $179,305 $ 300,000 $ 82,420
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), other compensation in the form of perquisites and
other personal benefits has been omitted because such perquisites and
other personal benefits constituted less than the lesser of $50,000 or ten
percent of the total annual salary and bonus for the Named Executive
Officer for such year.
(2) Includes $4,620, $3,640 and $4,750, which constitutes matching
contributions by CompCom to the CompuCom 401(k) Matched Savings Plan in
1995, 1996 and 1997, respectively, $7,800 each year which constitutes an
automobile allowance and $70,000, $82,875 and $88,730 in 1995, 1996 and
1997, respectively, which constitute the amounts realized upon sales of
CompuCom common stock issued upon the exercise of options granted pursuant
to CompuCom's stock option plan.
(3) Includes a nonrecurring $1.020 million payment to be made in 1998 to Mr.
Hamilton in connection with the waiver by certain employees of the
Company, including Mr. Hamilton, of their right to receive shares of
Common Stock. See "--Employment Agreements. "
31
<PAGE>
OPTION GRANTS, EXERCISES AND YEAR-END OPTION VALUES
The following tables set forth information concerning stock option grants to
and exercises by the Named Executive Officer during the last completed fiscal
year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------- ---------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James H. Hamilton....... 400,000 46.7% $9.00 12/4/07 $2,264,020 $5,737,473
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END (#) AT FISCAL YEAR END($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
James H. Hamilton........... 104,562/469,708 $1,149,962/$1,566,641
</TABLE>
- --------
(1) Based upon an assumed initial public offering price of $11.00 per share.
STOCK INCENTIVE PLANS
On April 14, 1994, the Company's Board of Directors adopted and the
Company's stockholders approved the 1994 Stock Option Plan (the "1994 Plan").
On December 3, 1997, the Company's Board of Directors adopted and the
Company's stockholders approved the 1997 Incentive Plan (the "1997 Plan"). The
1994 Plan provides for the issuance of a maximum of 942,000 shares of Common
Stock, and the 1997 Plan provides for the issuance of a maximum of 1,400,000
shares of Common Stock. Under the terms of the Plans, no options may be
granted under the 1994 Plan after April 14, 2004, and no options may be
granted under the 1997 Plan after December 3, 2007. As of January 15, 1998,
there were options to purchase 359,530 shares of Common Stock outstanding
under the 1994 Plan and options to purchase 916,600 shares of Common Stock
under the 1997 Plan. The Board of Directors does not intend to grant any
additional options under the 1994 Plan.
Both the 1994 Plan and the 1997 Plan (collectively, the "Plans") provide for
the grant of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), to employees, and
"nonstatutory stock options" to employees, nonemployee directors ("Nonemployee
Directors") and consultants. Additionally, the 1997 Plan provides for the
issuance of stock appreciation rights and restricted shares of Common Stock
(collectively, "Awards") to employees. The Plans are not qualified deferred
compensation plans under Section 401(a) of the Code and are not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
The Plans are administered by the Compensation Committee of the Board of
Directors. Subject to special provisions relating to Nonemployee Directors,
the Board of Directors or its designated committee selects the persons to whom
stock options or other Awards may be granted and determines, as applicable,
the number of shares to be subject to each stock option or other Award, the
exercise price and the vesting schedule. In making such determinations, the
Board or its designated committee takes into consideration factors that
include the employee's present and potential contributions to the Company's
success, as well as other factors that the directors may deem relevant, such
as general market and competitive conditions.
32
<PAGE>
EMPLOYMENT AGREEMENTS
In January 1998, the Company entered into an employment agreement with Mr.
Hamilton. Under the terms of such agreement, Mr. Hamilton will continue to be
employed as the Company's President and Chief Executive Officer until January
2, 2002 at an initial base salary of $19,167 per month. In addition, Mr.
Hamilton is eligible for incentive compensation bonuses in an amount and
subject to parameters determined by the Compensation Committee of the Board of
Directors. The Company may, without notice, terminate this employment
agreement for due cause (which is generally defined to include personal
dishonesty, conviction of a crime involving moral turpitude, breach of the
employment agreement, willful misconduct or gross negligence of duties), in
which case the Company shall be obligated to pay Mr. Hamilton his compensation
accrued through the date of termination. The Company may also, upon notice to
Mr. Hamilton, terminate Mr. Hamilton's employment agreement for any reason
other than due cause, in which case the Company will be obligated to pay Mr.
Hamilton his salary which would have been paid during the remaining term of
the employment agreement, such payment to occur within ten days of the date of
termination. Mr. Hamilton is entitled to certain change in control payments if
he terminates his employment with the Company within six months of a change in
control of the Company. The amount of such change in control payments, if
required to be paid, would generally amount to Mr. Hamilton's salary which
would have been paid during the remaining term of the employment agreement,
such payment to occur within thirty days of the date of termination, and Mr.
Hamilton would also be entitled to the immediate accelerated vesting of all of
his unvested stock options. The terms of the employment agreement also provide
that the term of the agreement will automatically be extended for additional
one-year periods following the expiration of the initial term, unless Mr.
Hamilton gives notice to the Company of his intention not to extend the
employment agreement. Pursuant to the employment agreement, Mr. Hamilton has
agreed not to compete with the Company during his employment and for a period
of one year following termination of his employment, and has agreed to
maintain as confidential the Company's proprietary information and trade
secrets.
Pursuant to Mr. Hamilton's original employment agreement, which was replaced
by the employment agreement with the Company entered into in January 1998, Mr.
Hamilton, together with certain additional employees of the Company, was
entitled to the right to receive shares representing up to ten percent (10%)
of the outstanding Common Stock of the Company prior to December 31, 1997,
subject to the Company achieving certain financial objectives. In December
1997, Mr. Hamilton entered into an agreement with the Company, pursuant to
which such right was waived in exchange for a cash payment to be made by the
Company to the employees in the aggregate amount of $1.2 million, which was
paid in January 1998.
RELATIONSHIP BETWEEN THE COMPANY AND COMPUCOM
--CERTAIN TRANSACTIONS
OWNERSHIP OF COMMON STOCK
Upon completion of the Offering, CompuCom and its directors and executive
officers will beneficially own more than 50% of the Company's outstanding
Common Stock, and CompuCom will be the Company's largest stockholder. So long
as CompuCom beneficially owns a majority of the outstanding Common Stock,
CompuCom will have the voting power to elect the Company's entire Board of
Directors and will have the practical ability to control all other matters
requiring stockholder approval, even where such matters may not be
advantageous to the other stockholders. Four of the seven members of the Board
of Directors of the Company will be directors or executive officers of
CompuCom or CompuCom's largest stockholder. Furthermore, the Senior Vice
President, Finance and Chief Financial Officer of CompuCom also serves as the
Chief Financial Officer, Secretary and a director of the Company. Since March
1994, CompuCom has provided capital and management and administrative services
to the Company, and the Company's employees have participated in a number of
employee benefit plans maintained by CompuCom, all in return for certain fees.
While the Company intends to reduce its dependence upon CompuCom for
management and administrative services, in order to assure the continued
provision of these services after the completion of the Offering, the Company
has entered into an agreement pursuant to which CompuCom will continue to
provide certain of such services on an interim basis. See "Risk Factors--
Control by and Relationship with CompuCom," "Management" and "Principal and
Selling Stockholders."
33
<PAGE>
In addition, since March 1994, CompuCom and the Company have entered into
several transactions with one another. These previous transactions were not
entered into as the result of arm's-length negotiations. However, the Company
believes that all transactions between the Company and CompuCom, or between
the Company and any other affiliated party, have been entered into on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties. It is the Company's intention that any future transactions with
CompuCom or other affiliates will be determined through arm's-length
negotiations between the parties and will be subject to the approval of a
majority of the outside directors. The following is a description of the
historical and currently contemplated transactions between CompuCom and the
Company.
HISTORICAL TRANSACTIONS
Administrative Services. The Company has relied on CompuCom for a variety of
services on an ongoing basis. These services include, but are not limited to,
general administration, payroll, financial reporting, sales and income tax
reporting, accounts payable, insurance and human resources. In return for
providing these services, the Company has paid CompuCom a management fee equal
to 2.5% of the Company's revenue on a monthly basis. During 1995, 1996 and
1997, the Company paid CompuCom $149,362, $225,406 and $343,048, respectively,
for such services.
Financing Arrangements. In March 1994, the Company issued to CompuCom a
Subordinated Convertible Note in the principal amount of $500,000 (the
"Subordinated Note"), which accrued interest monthly at an annual rate of
prime plus 1%. The Subordinated Note, which had a maturity date of August 1,
1996, was convertible into Common Stock at a rate of $.667 per share. On
December 29, 1995 the $250,125 in outstanding principal of the Subordinated
Note was converted into 375,000 shares of Common Stock.
Also in March 1994, the Company issued to CompuCom a Revolving Note in the
principal amount of $250,000 (the "Revolving Note"), which accrued interest
monthly at an annual rate of prime plus 1%. On December 29, 1995 the Revolving
Note was amended to increase the amount available thereunder to $1,000,000.
The amended Revolving Note had an original maturity of August 31, 1997 and
accrued interest monthly at an annual rate of prime plus 1%. On September 5,
1996, the Company executed an Amended and Restated Revolving Note (the "Second
Amended Revolving Note") in replacement of the amended Revolving Note and
increased the Company's borrowing availability to $2.5 million. The Second
Amended Revolving Note bears interest at a rate of prime plus 1% and has an
original maturity of April 1, 1998. In the past three fiscal years the largest
outstanding aggregate amount owed by the Company to CompuCom was $1,319,769.
Interest paid pursuant to the foregoing financing arrangements in 1995, 1996
and 1997 totalled $76,319, $94,952 and $35,382, respectively. The outstanding
balance under the Second Amended Revolving Note as of December 31, 1995, 1996
and 1997 was $1,148,619, $587,511 and $0, respectively. The Company will repay
any outstanding balance on the Second Amended and Restated Revolving Note, and
terminate such line of credit, prior to consummation of the Offering.
At various times during 1997, the Company advanced funds to CompuCom on a
revolving short-term basis, which borrowings accrued interest at an annual
rate of prime plus 1/2%. At December 31, 1997, CompuCom owed the Company
$58,841. The Company received aggregate interest payments of $53,712 on such
advances during 1997. During 1998 and prior to the consummation of the
Offering, the Company expects to advance additional funds to CompuCom. Any of
such advances will be repaid, together with interest accrued thereon at an
annual rate of prime plus 1/2%, prior to the consummation of the Offering.
Savings Plan. Currently, substantially all of the Company's employees who
have completed at least six months of qualifying service are eligible to be
included in CompuCom's defined contribution plan (401(k) Matched Savings
Plan). Participants may contribute to the Plan an amount between 1% and 10% of
their total annual compensation. The Company matches 50% of each participant's
qualifying contributions up to 4%, and an additional 25% of the next 2% of the
participants' qualifying contributions. The Company anticipates that its
employees will continue to participate in CompuCom's plans after completion of
the Offering.
34
<PAGE>
Hamilton Note. In March 1994 CompuCom loaned $100,000 to Mr. Hamilton. The
note bears interest at prime rate and is payable in four equal annual
installments beginning March 25, 1996. The outstanding balance of the note as
of December 31, 1997 was $50,000. Mr. Hamilton has made principal payments of
$25,000 in each of 1996 and 1997 and interest payments of $7,250, $9,216 and
$6,443 in 1995, 1996 and 1997, respectively.
CONTRACTUAL AGREEMENTS
In connection with the Offering, the Company and CompuCom have entered into
a number of agreements, which will become effective upon completion of the
Offering, for the purpose of defining certain ongoing relationships between
them. These previous agreements were not the result of arms-length
negotiations between independent parties, although the Company believes that
the pricing and other terms are comparable to what could be achieved through
arms-length negotiations with unaffiliated parties. The Company did not retain
separate counsel from that retained by CompuCom in negotiating such
agreements. Following the consummation of the Offering, additional or modified
agreements, arrangements or transactions may be entered into between the
Company and CompuCom. Any such future agreements, arrangements and
transactions will be determined through arms-length negotiations between the
parties and will be subject to the approval of a majority of the outside
directors. The following discussion of the agreements between the Company and
CompuCom is qualified in its entirety by reference to such agreements, which
have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. See "Additional Information."
Administrative Services Agreement. The Company and CompuCom have entered
into an administrative services agreement (the "Services Agreement") pursuant
to which CompuCom will provide various administrative services to the Company,
upon the Company's request, including payroll, treasury functions, insurance
and risk management, tax, human resources and employee benefit plan
administration services that CompuCom has historically provided to the
Company. Pursuant to the Services Agreement, the Company will compensate
CompuCom for such services at a rate of $15,000 per month between January 1,
1998 and December 31, 1998, and $7,500 per month between January 1, 1999 and
December 31, 1999, subject to proration for partial months or early
termination. In addition, pursuant to the Services Agreement, (i) the Company
has agreed to pay all amounts which constitute its tax liabilities or its
allocable portion of CompuCom's consolidated tax liabilities for tax periods
prior to January 1, 1998, and (ii) the Company has agreed to pay to CompuCom,
and CompuCom has agreed to pay to the Company, as the case may be, amounts
which represent additional tax payments owed or refunds received in connection
with prior tax periods. The Company anticipates that during 1998 it will pay
to CompuCom approximately $1,016,000, representing its allocable share of tax
liabilities through 1997. The Services Agreement will automatically terminate
upon the earlier of December 31, 1999 or such time as CompuCom no longer owns
a majority of the outstanding Common Stock, unless earlier terminated by
either party on 90 days' prior written notice.
Indemnification Agreement. The Company and CompuCom have entered into an
indemnification agreement (the "Indemnification Agreement"), pursuant to which
the Company and CompuCom have agreed to indemnify each other and their
respective directors, officers, employees, agents and representatives for
liabilities arising under federal or state securities laws as a result of the
Offering. The indemnification obligations include liabilities arising out of
or based upon: (i) alleged misrepresentations in or omissions from this
Prospectus or the Registration Statement of which this Prospectus forms a
part; (ii) the businesses and operations conducted or formerly conducted, or
assets owned or formerly owned, by the indemnifying party; or (iii) the
failure to comply with any other agreements executed in connection with the
Offering. The Indemnification Agreement also provides that the Company will
indemnify CompuCom from any liabilities arising from CompuCom's obligations on
behalf of the Company under or in respect of all material guarantees or other
arrangements guaranteeing or securing any liability or obligation in effect on
the date of this Prospectus.
Registration Rights Agreement. The Company has granted registration rights
to CompuCom and the Company's other stockholders (the "Registration Rights
Agreement"), including demand registration rights and certain "piggy-back'
registration rights with respect to Common Stock owned by CompuCom after the
Offering. The Company's obligation is subject to certain limitations relating
to a minimum amount of Common Stock required for registration, the timing of
registration and other similar matters. The Company is obligated to pay
35
<PAGE>
all expenses incidental to such registration, excluding underwriters'
discounts and commissions and certain legal fees and expenses.
CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company and CompuCom in a number
of areas relating to their past and ongoing relationships, including potential
competitive business activities, marketing functions, tax and employee benefit
matters, indemnity arrangements, registration rights, sales or distributions
by CompuCom of its remaining shares of Common Stock and the exercise by
CompuCom of its ability to control the management and affairs of the Company.
There are no contractual or other restrictions on the ability of either the
Company or CompuCom to engage in such activities. Accordingly, circumstances
could arise in which the Company and CompuCom would engage in activities in
competition with one another.
Directors of the Company who are also directors or officers of CompuCom will
have conflicts of interest with respect to matters potentially or actually
involving or affecting the Company and CompuCom, such as acquisitions,
financing and other corporate opportunities that may be suitable for both the
Company and CompuCom. To the extent that such opportunities arise, such
directors may consult with their legal advisors and make a determination after
consideration of a number of factors, including whether such opportunity is
presented to any such director in his capacity as a director of the Company,
whether such opportunity is within the Company's line of business or
consistent with its strategic objectives and whether the Company will be able
to undertake or benefit from such opportunity. There can be no assurance that
conflicts will be resolved in favor of the Company.
So long as Safeguard Scientifics, Inc. continues to own at least 50% of the
outstanding common stock of CompuCom and so long as CompuCom continues to own
at least 50% of the outstanding Common Stock, the directors and officers of
the Company will, subject to certain limitations, be indemnified by and
insured under insurance policies maintained by Safeguard Scientifics, Inc.
against liability for actions taken or omitted to be taken in their capacities
as directors and officers of the Company, including actions or omissions that
may be alleged to constitute breaches of the fiduciary duties owed by such
persons to the Company and its stockholders. It is contemplated that, if
Safeguard Scientifics, Inc. ceases to own at least 50% of CompuCom or if
CompuCom ceases to own at least 50% of the outstanding shares of Common Stock,
the Company would obtain insurance coverage for its directors and officers in
respect of such matters comparable to that currently provided under the
existing policy.
36
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of December 31, 1997, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
by (i) each person who is known to the Company to own beneficially more than
5% of the outstanding shares of Common Stock, (ii) each of the Company's
directors and the Named Executive Officer, (iii) all current directors and
executive officers of the Company as a group and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1)(2) SHARES OFFERING(1)(2)
----------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ------------ ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
CompuCom Systems, Inc.
(3)..................... 4,367,740 81.8% 202,830 4,164,910 60.9%
James H. Hamilton (4)(5). 418,562 7.7 -- 418,562 6.0
Edward R. Anderson
(3)(6).................. 47,100 * -- 47,100 *
Daniel F. Brown (3)...... 28,260 * -- 28,260 *
Ross A. Cooley........... -- * -- -- *
M. Lazane Smith (3)...... 4,710 * -- 4,710 *
Christopher J. Moffitt... -- * -- -- *
Glenn T. Rieger.......... -- * -- -- *
James W. Dixon........... 235,500 4.4 170,000 65,500 *
Heather A. Dixon......... 9,420 * 9,420 -- *
Betty J. Dolsberry....... 4,710 * 4,710 -- *
Charles E. Dolsberry, IV. 4,710 * 4,710 -- *
Shawntel Dixon Jones..... 9,420 * 9,420 -- *
Robin McKean............. 89,490 1.7 89,490 -- *
Brian P. O'Connell....... 4,710 * 4,710 -- *
Mark M. Warshauer........ 4,710 * 4,710 -- *
All directors and
officers as a group (7
persons) (7)............ 498,632 9.2 -- 498,632 7.2
</TABLE>
- --------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(2) Shares of Common Stock that are not outstanding, but that may be acquired
by a person within the 60 day period following December 31, 1997, are
included in the number of shares beneficially owned for such person and in
computing the percentage ownership for such person, but are not included
in the number of shares beneficially owned or in computing the percentage
ownership for any other person.
(3) The address for each of CompuCom Systems, Inc., Edward R. Anderson, M.
Lazane Smith and Daniel F. Brown is 7171 Forest Lane, Dallas, Texas 75230.
(4) The address for James H. Hamilton is 3025 Windward Plaza, Suite 200,
Alpharetta, Georgia 30005.
(5) Includes an aggregate of 104,562 shares of Common Stock underlying options
which are immediately exercisable.
(6) Includes an aggregate of 4,710 shares of Common Stock underlying options
which will be exercisable within 60 days.
(7) Includes an aggregate of 109,272 shares of Common Stock underlying options
granted to individuals listed in the table, 104,562 of which are
immediately exercisable and 4,710 of which will be exercisable within 60
days.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of 25,000,000
shares of Common Stock, par value $0.01 per share, and 2,000,000 shares of
Preferred Stock, par value $0.01 per share.
COMMON STOCK
As of December 31, 1997, there were issued and outstanding an aggregate of
5,336,430 shares of Common Stock held of record by 20 stockholders.
Holders of 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 outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available for distribution
after the payment of all debts and other liabilities of the Company. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company hereby 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 holders
of shares of any series of Preferred Stock that the Company may designate and
issue in the future.
PREFERRED STOCK
The Company's First Amended and Restated Certificate of Incorporation
provides that the Company's Board of Directors may, without further action by
the Company's stockholders, from time to time direct the issuance of up to
2,000,000 shares of Preferred Stock in one or more series and may, at the time
of issuance, determine the rights, preferences and limitations of each series,
including dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, voting rights, conversion rights and
liquidation preferences of the shares constituting such series. The holders of
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of the Common Stock.
Although the Board of Directors has no present intention of doing so, the
Board of Directors has the authority to issue shares of Preferred Stock
(within the limits imposed by applicable law) that could, depending on the
terms of such shares, make more difficult or discourage an attempt to obtain
control of the Company by merger, tender offer, proxy contest or other means
and in doing so adversely impact the market value of the stock. In addition,
issuances of Preferred Stock could render the removal of the incumbent Board
of Directors and management more difficult. See "Risk Factors--Control by and
Relationship with CompuCom" and "--Certain Anti-Takeover Provisions."
DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless
(i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time such transaction commenced (excluding stock held by
directors
38
<PAGE>
who are also officers of the corporation and by employee stock plans that do
not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer) or (iii) following the transaction in which such persons became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by
the affirmative vote of the holders of at least two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder. Under
Section 203, the restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors and
which transaction is approved or not opposed by a majority of the board of
directors then in office.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, 6,836,430 shares of Common Stock will
be outstanding (7,136,430 shares of Common Stock if the Underwriters' over-
allotment option is exercised in full). Of those shares, 6,822,300 shares of
Common Stock sold by the Company in the Offering will be freely tradable
without restriction or further registration under the Securities Act, unless
held by an "affiliate" of the Company (as such term is defined under the
Securities Act). Any such affiliate will be subject to the resale limitations
of Rule 144 adopted under the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including a person who may deemed to be an "affiliate" of the
Company, is entitled to sell within any three-month period a number of shares
beneficially owned for at least one year that does not exceed the greater of
(i) 1.0% of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume of the outstanding shares of Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain requirements as to the manner of sale, notice and the availability
of current public information about the Company. However, a person (or persons
whose shares are aggregated) who is not deemed to be an "affiliate" of the
Company at any time during the 90 days preceding a proposed sale by such
person and who has beneficially owned "restricted securities" for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume, manner of sale or notice requirements.
The Company, together with each of its executive officers and directors and
certain stockholders, who collectively, upon completion of the Offering, will
own an aggregate of 4,729,042 shares of Common Stock, have, subject to certain
limited exceptions, agreed not to, directly or indirectly, offer, pledge,
sell, contract to sell, grant any option for the purchase or sale of, or
otherwise dispose of (or announce any offer, sale, grant of an option to
purchase or other disposition), any shares of Common Stock or securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
for shares of Common Stock for a period of 180 days following the date of this
Prospectus without the prior written consent of, The Robinson-Humphrey
Company, LLC, as a Representative.
The Company has reserved an aggregate of 1,759,530 shares of Common Stock
for issuance upon exercise of options or other equity awards granted or to be
granted under the Plans. See "Management--Stock Incentive Plans." The Company
intends to file registration statements on Form S-8 under the Securities Act
to register all of the shares of Common Stock reserved for issuance under the
Plans. Such registration statements are expected to be filed subsequent to
completion of the Offering and will automatically become effective upon
filing. Shares issued under the Plans after such registration statements are
effective may thereafter be sold in the public market, subject, however, to
the limitations imposed by Rule 144 on affiliates of the
39
<PAGE>
Company, the lock-up agreements described above and any transfer or vesting
restrictions imposed on options or equity awards at the time of grant.
An increase in the number of shares of Common Shares that may come available
for sale in the public market may adversely affect the market price prevailing
from time to time of the Common Stock in the public market and could impair
the Company's ability to raise additional capital through the sale of its
equity securities.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom The
Robinson-Humphrey Company, LLC and Lehman Brothers Inc. are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
The Robinson-Humphrey Company, LLC.......................
Lehman Brothers Inc......................................
---------
Total................................................ 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by counsel and
to various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain other dealers at such price less a concession not in
excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share in
sales to certain other dealers. After the Offering, the public offering price
and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 300,000 shares of Common Stock, at the initial public
offering price less the underwriting discount, as set forth on the cover page
of this Prospectus solely to cover over-allotments, if any. To the extent the
Underwriters exercise such option, each of the Underwriters will be obligated,
subject to certain conditions, to purchase approximately the same percentage
of shares of Common Stock pursuant to such option as the number of shares of
Common Stock purchased initially by such Underwriter bears to the total number
of shares of Common Stock to be purchased initially by the Underwriters.
Prior to the Offering made hereby, there has been no public market for the
Common Stock. The initial public offering price for the Common Stock will be
determined through negotiations among the Company and the Representatives and
will not be based upon any independent appraisal or valuation of the Company.
Among the factors to be considered in making such determination are prevailing
market and general economic conditions, the market capitalization of publicly-
traded companies that the Company and the Representatives believe to be
comparable to the Company, the revenues and earnings of the Company in recent
periods, the experience of the Company's management, the economic
characteristics of the business in which the Company competes, estimates of
the business potential of the Company, the present state of the Company's
development and other factors deemed relevant. The Company has applied for
quotation of the shares of Common Stock on the Nasdaq National Market under
the symbol "CLNK."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority. The Representatives have advised the Company that they intend to
make a market in the Common Stock after completion of the Offering.
41
<PAGE>
The Company, certain stockholders and each of the Company's executive
officers and directors have entered into lock-up agreements with the
Representatives pursuant to which they have agreed not to, directly or
indirectly, offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose (or announce any offer, sale, grant of an option
to purchase or other disposition), of any shares of Common Stock or securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
for a period of 180 days from the date of this Prospectus, without the prior
written consent of the Representatives, except, in the case of the Company,
for the granting of options or the issuance of Common Stock upon the exercise
of stock options pursuant to the Plans.
In order to facilitate the offering of the shares of Common Stock, the
Underwriters may engage in transactions on the Nasdaq National Market or
otherwise that stabilize, maintain or otherwise affect the price of the shares
of Common Stock. Specifically, the Underwriters may over-allot in connection
with the Offering, creating a short position in the shares of Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the shares of Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an Underwriter or a
dealer for distributing the shares of Common Stock in the Offering, if the
syndicate repurchases previously distributed shares of Common Stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market
price of the shares of Common Stock above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jenkens & Gilchrist, a Professional Corporation,
Austin, Texas, and for the Underwriters by Jones, Day, Reavis & Pogue,
Atlanta, Georgia.
EXPERTS
The Financial Statements of the Company as of December 31, 1996 and 1997 and
for each of the years in the three-year period ended December 31, 1997, have
been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and in the Registration Statement, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus concerning the provisions or contents of any
contract, agreement, or any other document referred to herein are not
necessarily complete. With respect to each such contract, agreement, or
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description of the matters involved, and
each statement shall be deemed qualified in its entirety by such reference
42
<PAGE>
to the copy of the applicable document filed with the Commission. A copy of
the Registration Statement, including the exhibits and schedules thereto, may
be inspected without charge at the Public Reference section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of the Registration Statement and the exhibits and
schedules thereto can be obtained from the Public Reference Section of the
Commission upon payment of prescribed fees. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of that site is http://www.sec.gov.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement, the Company will
become subject to the informational and periodic reporting requirements of the
Exchange Act, and in accordance therewith, will file periodic reports, proxy
statements, and other information with the Commission. Such periodic reports,
proxy statements, and other information will be available for inspection and
copying at the public reference facilities and other regional offices referred
to above. The Company intends to register the securities offered by the
Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and to furnish its stockholders
with annual reports containing audited financial statements and such other
reports as may be required from time to time by law or the Nasdaq National
Market.
43
<PAGE>
CLIENTLINK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets as of December 31, 1996 and 1997............................ F-3
Statements of Income for the years ended December 31, 1995, 1996 and 1997.. F-4
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997............................................................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997...................................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ClientLink, Inc.:
We have audited the accompanying balance sheets of ClientLink, Inc. as of
December 31, 1996 and 1997, and the related statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 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, the financial statements referred to above present fairly,
in all material respects, the financial position of ClientLink, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
January 15, 1998
F-2
<PAGE>
CLIENTLINK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1996 1997
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash............................................... $ 51,861 $1,753,352
Accounts receivable, less allowance for doubtful
accounts of $82,064 in 1996, and $121,587 in 1997. 1,772,845 3,097,740
Unbilled receivables............................... 1,269 109,464
Deferred income taxes.............................. 35,606 28,982
Other.............................................. 81,424 45,445
---------- ----------
Total current assets............................. 1,943,005 5,034,983
Property and equipment, net.......................... 698,632 1,352,704
Intangible assets, net............................... 116,067 61,704
---------- ----------
$2,757,704 $6,449,391
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 161,510 $ 51,434
Accrued compensation............................... 724,383 2,474,717
Deferred revenue................................... 8,669
Payable to stockholder............................. 957,055
Other accrued liabilities.......................... 50,339 93,709
---------- ----------
Total current liabilities........................ 944,901 3,576,915
Long-term payable to stockholder..................... 587,511
Deferred income taxes................................ 26,271 53,062
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
2,000,000 shares, none issued.....................
Common stock, $.01 par value. Authorized 25,000,000
shares; issued and outstanding 5,298,750 shares in
1996 and 5,336,430 shares in 1997................. 52,987 53,364
Additional paid-in capital......................... 244,238 261,861
Retained earnings.................................. 901,796 2,504,189
---------- ----------
Total stockholders' equity....................... 1,199,021 2,819,414
---------- ----------
$2,757,704 $6,449,391
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CLIENTLINK, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Service................................... $5,682,236 $8,406,111 $13,524,397
Product................................... 292,239 610,132 197,502
---------- ---------- -----------
Total revenue........................... $5,974,475 $9,016,243 $13,721,899
Operating expenses:
Project related expenses.................. 3,855,186 5,492,114 7,131,685
Cost of products sold..................... 292,239 610,132 197,502
Depreciation and amortization............. 141,919 210,004 326,659
General and administrative (note 7)....... 1,048,544 1,708,750 2,266,094
Nonrecurring compensation expense......... 1,200,000
---------- ---------- -----------
Total operating expenses................ 5,337,888 8,021,000 11,121,940
---------- ---------- -----------
Income from operations...................... 636,587 995,243 2,599,959
Interest expense (income) to (from)
stockholder................................ 76,319 94,952 (18,330)
---------- ---------- -----------
Income before income taxes.................. 560,268 900,291 2,618,289
Income taxes................................ 222,987 358,316 1,015,896
---------- ---------- -----------
Net income.............................. $ 337,281 $ 541,975 $ 1,602,393
========== ========== ===========
Earnings per common share:
Basic..................................... $ 0.07 $ 0.10 $ 0.30
Diluted................................... $ 0.06 $ 0.09 $ 0.27
Average common shares outstanding:
Basic..................................... 4,763,814 5,336,430 5,336,430
Diluted................................... 5,663,714 5,861,330 5,861,330
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CLIENTLINK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1994.................... 4,710,000 47,100 22,540 69,640
Conversion of convertible
debt.................... 588,750 5,887 244,238 250,125
Net income............... 337,281 337,281
--------- ------- -------- ---------- ----------
Balances at December 31,
1995.................... 5,298,750 52,987 244,238 359,821 657,046
Net income............... 541,975 541,975
--------- ------- -------- ---------- ----------
Balances at December 31,
1996.................... 5,298,750 52,987 244,238 901,796 1,199,021
Exercise of options...... 37,680 377 17,623 18,000
Net income............... 1,602,393 1,602,393
--------- ------- -------- ---------- ----------
Balances at December 31,
1997.................... 5,336,430 $53,364 $261,861 $2,504,189 $2,819,414
========= ======= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CLIENTLINK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 337,281 $ 541,975 $ 1,602,393
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 141,919 210,004 326,659
Noncurrent deferred income taxes......... 18,465 24,757 26,791
Changes in assets and liabilities:
Receivables............................. (1,334,841) 354,464 (1,324,895)
Unbilled receivables.................... 58,979 40,490 (108,195)
Other current assets.................... (86,228) 33,664 35,979
Accounts payable........................ 451,744 (290,234) (110,076)
Accrued compensation.................... (562,157) 287,040 1,750,334
Deferred revenue........................ 224,273 (475,209) (8,669)
Current deferred income taxes........... (122,451) 165,592 6,624
Other accrued liabilities............... 32,640 (9,969) 43,370
----------- --------- -----------
Net cash provided by (used in)
operating activities.................. (840,376) 882,574 2,240,315
Cash flows from investing activities--
Capital expenditures...................... (561,011) (321,210) (926,368)
Cash flows from financing activities:
Payable to stockholder, net............... 1,328,257 (561,108) 369,544
Issuance of common stock.................. 18,000
----------- --------- -----------
Net cash provided by (used in)
financing activities.................. 1,328,257 (561,108) 387,544
----------- --------- -----------
Net increase (decrease) in cash............ (73,130) 256 1,701,491
Cash at beginning of period................ 124,735 51,605 51,861
----------- --------- -----------
Cash at end of period...................... $ 51,605 $ 51,861 $ 1,753,352
=========== ========= ===========
Supplemental schedule of noncash financing
activities:
Conversion of long-term debt to common
stock..................................... $ 250,125
===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATIONAL HISTORY AND NATURE OF BUSINESS
ClientLink, Inc. ("ClientLink" or the "Company") designs, develops, and
implements large-scale Information Technology ("IT") solutions for companies
with critical business information systems needs. The Company primarily
focuses on developing and supporting client/server and Internet-based custom
applications. The Company also provides additional services to clients
including high-level information technology consulting, developing detailed
business process IT recommendations, maintaining and supporting applications
in production, and hosting Internet and client/server applications for its
clients.
The Company was incorporated in July 1992 under the name "CompuCom
Acquisition Corp. of Texas". The Company did not have any operations until
March 25, 1994, at which time it acquired the rights to a software development
object library from Fisher Business Systems, Inc. and hired a software
development staff. Certain employees of the Company were previously engaged in
the custom software development business at HMP Software Solutions, Inc.
("HMP"). In August 1994, the Company changed its name to ClientLink, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
The Company's financial instruments, principally cash, accounts receivable,
accounts payable and accrued liabilities, are carried at cost which
approximates fair value due to the short-term maturity of these instruments.
As amounts outstanding under the Company's credit arrangement bear interest
approximating current market rates, the carrying amount approximates fair
value. Financial instruments which potentially subject the Company to a
concentration of credit risk consist of accounts receivable.
The Company derives a significant portion of its revenues from a limited
number of large clients. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral on accounts
receivable. The Company maintains allowances for potential credit losses. The
Company operates in one industry segment and its customers are headquartered
primarily in North America.
Property and Equipment
Property and equipment, consisting primarily of computer hardware and
software, is stated at cost less accumulated depreciation and amortization.
Provision for depreciation and amortization is computed using the straight-
line method over the estimated useful lives of the related assets ranging from
three to seven years. Leasehold improvements are amortized over the lesser of
the estimated useful lives of the assets or the lease term.
Intangible Assets
Intangible assets consist of a software development object library which is
amortized using the straight-line method over a 5 year period.
Revenue Recognition
The Company derives substantially all of its revenues from information
technology and management consulting, software development and implementation
services. The Company recognizes revenues from fixed-price projects using the
percentage of completion method, which requires revenues to be recognized over
the term of a contract based on the percentage of work completed. The
cumulative impact of any revision in estimates of the percent complete is
reflected in the period in which the changes become known. Provisions for
F-7
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
estimated losses on uncompleted contracts are made on a contract by contract
basis and are recognized in the period in which the losses are determined.
Revenues on products and other materials sold are recognized upon shipment.
Unbilled receivables represent revenue recognized based on services performed
in excess of billings in accordance with terms of client contracts. Billings
in excess of recognized revenue are classified as deferred revenue.
Income Taxes
Since inception, the Company has been a member of the CompuCom Systems, Inc.
consolidated group for federal income tax purposes. The income tax expense
recognized by the Company is calculated as if the Company filed separate
income tax returns. The Company uses the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Stock Dividend
In December 1994, the Company completed a three-for-one stock split in the
form of a stock dividend. In December 1997, the Company completed a 1.57-for-
one stock split in the form of a stock dividend. The effect of both of these
splits has been retroactively applied to all share and option amounts,
including the option exercise prices.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("Statement
128"). Statement 128 supersedes APB Opinion No. 15, Earnings Per Share ("APB
15") and specifies the computations, presentation, and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Statement 128 replaces the presentation of primary EPS
and fully diluted EPS with a presentation of basic EPS and diluted EPS.
Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997.
Basic earnings per share is computed by dividing net income by the weighted-
average number of common shares outstanding.
Diluted earnings per share is computed using the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares from
stock options using the treasury stock method. Such computations include all
common and common equivalent shares issued within twelve months of the initial
public offering ("IPO") as if they were outstanding for all periods presented
using the treasury stock method and the IPO price.
F-8
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following reconciliation details the numerator and denominator used to
calculate basic and diluted earnings per share for the years ended December
31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- -------------------------- ----------------------------
INCOME SHARES PER INCOME SHARES PER INCOME SHARES PER
(NUMER- (DENOMIN- SHARE (NUME- (DENOMIN- SHARE (NUME- (DENOMIN- SHARE
ATOR) ATOR) AMOUNT RATOR) ATOR) AMOUNT RATOR) ATOR) AMOUNT
-------- ---------- ------ -------- ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income.............. $337,281 $541,975 $1,602,393
Basic EPS............... $337,281 4,763,814 $0.07 $541,975 5,336,430 $0.10 $1,602,393 5,336,430 $0.30
===== ===== =====
Effect of Dilutive
Securities
Convertible debt........ $ 15,008 375,000
Options................. 524,900 524,900 524,900
-------- ---------- -------- ---------- ---------- ----------
Diluted EPS............. $352,289 5,663,714 $0.06 $541,975 5,861,330 $0.09 $1,602,393 5,861,330 $0.27
======== ========== ===== ======== ========== ===== ========== ========== =====
</TABLE>
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions affecting the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Accounting for Impairment of Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
Stock-Based Compensation
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which gives companies the option to adopt the fair-value method
for expense recognition of employee stock options or to continue to account
for stock options and stock-based awards using the intrinsic-value method as
outlined under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and to make pro forma disclosures of net
earnings and net earnings per share as if the fair-value method had been
applied. The Company has elected to continue to apply APB 25 for stock options
and stock-based awards.
Research and Development
Research and development costs are expensed as incurred. To date,
substantially all research and development activities of the Company have been
pursuant to customer contracts and, accordingly, have been expensed as a cost
of the projects. For the years ended December 31, 1995, 1996 and 1997, the
Company did not incur material research and development costs.
F-9
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncement
In October 1997, Statement of Position (SOP) 97-2, "Software Revenue
Recognition" was issued. SOP 97-2 supersedes SOP 91-1 and provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997. Earlier application is
encouraged as of the beginning of fiscal years or interim periods for which
financial statements or information have not been issued. Retroactive
application of the provisions of this SOP is prohibited. The Company has not
determined the effects, if any, that SOP 97-2 will have on its financial
statements.
Reclassifications
Certain reclassifications have been made to prior periods financial
statements to conform to the 1997 presentation. All prior period EPS data has
been restated to conform to the provisions of Statement 128.
(3) PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment at December
31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Furniture, fixtures, and other equipment............ $130,125 $ 245,601
Computer hardware and software...................... 793,960 1,558,787
Leasehold improvements.............................. 36,466 42,778
-------- ----------
960,551 1,847,166
Less accumulated depreciation....................... (261,919) (494,462)
-------- ----------
Net property and equipment...................... $698,632 $1,352,704
======== ==========
</TABLE>
(4) PAYABLE TO STOCKHOLDER
On March 25, 1994, the Company issued a $500,000 Subordinated Convertible
Note (the "Subordinated Note") to CompuCom Systems, Inc. ("CompuCom"). The
Subordinated Note, which had an original maturity date of August 1, 1996, was
convertible into common shares of the Company at a rate of $.667/share.
Interest on the Subordinated Note accrued monthly at a rate of Prime plus 1%.
Also on March 25, 1994 the Company issued a $250,000 Revolving Note (the
"Revolving Note") to CompuCom. The Revolving Note was due and payable on
August 1, 1996 and accrued interest monthly at a rate of Prime plus 1%. On
December 29, 1995 the Revolving Note was amended to increase the amount
available to $1,000,000. The amended Revolving Note had an original maturity
of August 31, 1997 and accrued interest at a rate of Prime plus 1%. On
December 29, 1995, the Subordinated Note was converted into 375,000 shares of
the Company's common Stock. On September 5, 1996, the company executed an
Amended and Restated Revolving Note (the "Second Amended Revolving Note"). The
Second Amended Revolving Note increased the Company's borrowing availability
to $2.5 million. This note bears interest at a rate of Prime plus 1% (9.5% at
December 31, 1997) and is due and payable on April 1, 1998. Amounts
outstanding under the respective credit agreements are reflected on the
Balance Sheets as Note Payable to Stockholder.
Cash generated from operations is used to pay down any amounts outstanding
on the Second Amended Revolving Note. During 1997, the Company generated
sufficient cash from operations to completely repay the Second Amended
Revolving Note. At various times during 1997, the Company advanced funds to
CompuCom on a revolving short-term basis at an annual rate of prime plus 1/2%.
Amounts outstanding are reflected on the Balance Sheets as Payable to
Stockholder.
Income taxes payable is reflected on the Balance Sheets as Payable to
Stockholder (see Note 5).
F-10
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net interest paid and accrued in 1995 and 1996 amounted to $76,319 and
$94,952, respectively. Net interest received and earned during 1997 amounted
to $18,330.
(5) INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal......................................... $274,712 $140,734 $ 826,505
State........................................... 52,261 27,233 155,976
-------- -------- ----------
326,973 167,967 982,481
Deferred Federal.................................. (103,986) 190,349 33,415
-------- -------- ----------
Income Tax Expense................................ $222,987 $358,316 $1,015,896
======== ======== ==========
</TABLE>
Income tax expense for the years ended December 31, 1995, 1996 and 1997
differed from the amounts computed by applying the U.S. Federal Income tax
rate of 34% to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
U.S. Federal Income tax rate.................................. 34.0% 34.0% 34.0%
State taxes, net of U.S. Federal income tax benefit........... 4.0% 4.0% 4.0%
Other, net.................................................... 1.8% 1.8% 0.8%
----- ----- -----
Effective Income tax rate..................................... 39.8% 39.8% 38.8%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting purposes and the amounts used for income tax purposes. The Company
believes it is more likely than not that existing deferred tax assets will be
recognized through reversals of tax timing differences and taxable income in
future periods. The Company had the following net deferred tax assets and
liabilities as of December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Percentage of completion...................... $175,963 $ 2,945 $ (42,472)
Accounts receivable, principally due to
allowance for doubtful accounts.............. 25,235 32,661 47,176
Accrued expenses.............................. 24,278
-------- -------- ---------
Net current deferred tax assets............. $201,198 $ 35,606 $ 28,982
======== ======== =========
Noncurrent deferred tax assets (liabilities):
Intangible assets............................. 24,243 37,091 50,236
Accelerated depreciation...................... (19,371) (49,739) (14,986)
Other......................................... (6,386) (13,623) (88,312)
-------- -------- ---------
Net noncurrent deferred tax liabilities..... $ (1,514) $(26,271) $ (53,062)
======== ======== =========
</TABLE>
Income taxes of $222,987, $358,316 and $1,015,896 were added to the note
payable to stockholder for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-11
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) STOCK-BASED COMPENSATION
The Company maintains a stock option plan covering certain key employees and
directors. Under the 1994 Stock Option Plan, options are granted with an
exercise price that approximates the fair value of the stock on the grant
date. All grants to date have been nonstatutory stock options. These options
vest 20% each year and expire after 10 years.
The Company applies APB 25 and related interpretations in accounting for its
stock option plan. Had compensation been recognized consistent with SFAS No.
123, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Net earnings
As reported.................................................... $1,602,393
Pro forma...................................................... $1,509,792
Basic earnings per share
As reported.................................................... $ .30
Pro forma...................................................... $ .29
Diluted earnings per share
As reported.................................................... $ .28
Pro forma...................................................... $ .27
The per share weighted-average value of stock options issued by the Company
during 1997 was $5.85 on the date of grant using the Black Scholes option-
pricing model. The Company used the following weighted-average assumptions to
determine the fair value of stock options granted:
Dividend yield................................................... 0%
Expected volatility.............................................. 79%
Average expected option life..................................... 4.5 years
Risk-free interest rate.......................................... 5.8%
</TABLE>
Pro forma net earnings reflects only options granted in 1997. All of these
options were granted in December, therefore, the above pro forma net earnings
include only one month of compensation expense. The full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.
Option activity under the Company's plan is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 549,500 $0.07 549,500 $0.07 405,060 $0.08
Granted............... 856,600 9.00
Exercised............. (37,680) 0.47
Canceled.............. (144,440) 0.03 (7,850) 0.47
------- ----- -------- ----- --------- -----
Outstanding at end of
year................... 549,500 0.07 405,060 0.08 1,216,130 6.35
Options exercisable at
year-end............... 109,900 0.07 162,024 0.08 210,066 0.02
Shares available for
future grant........... 392,500 392,500 392,500
</TABLE>
F-12
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The exercise prices of the options granted range from $0.0021 to $9.00 per
share. The share number and per share price reflect the effect of the 1.57-to-
1 stock split.
(7) RELATED PARTY TRANSACTIONS
The Company's majority stockholder, CompuCom Systems, Inc. ("CompuCom")
provides a number of administrative services to the Company on an ongoing
basis. These services include, but are not limited to general administration,
payroll, financial reporting, sales and income tax reporting, accounts
payable, insurance and human resources. In return for providing these
services, the Company pays CompuCom a management fee equal to 2.5% of revenues
on a monthly basis. Amounts paid and accrued during 1995, 1996 and 1997 were
$149,362, $225,406, and $343,048, respectively. Although the fees for the
services performed for these periods were not determined as the result of
arm's-length negotiations, the Company believes these fees approximate what it
would have been charged had it contracted for such fees with an unaffiliated
party.
Revenue included $68,430, $1,416 and $24,682 for services performed for
CompuCom during the years ended December 31, 1995, 1996 and 1997,
respectively. The Company purchased $27,548, $7,970 and $47,257 of computer
equipment from CompuCom during the years ended December 31, 1995, 1996 and
1997, respectively.
In March 1994, CompuCom loaned $100,000 to an officer of the Company. The
note bears interest at the Prime rate and is payable in four equal annual
installments beginning March 25, 1996. At December 31, 1997 the outstanding
balance of this note was $50,000.
(8) PREFERRED STOCK
In December 1997, the Company amended and restated its Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
25,000,000 and authorized the Board of Directors to issue up to 2,000,000
shares of Preferred Stock, $.01 par value, without shareholder approval, with
such rights, preferences, privileges and restrictions as the Board of
Directors may determine.
(9) SIGNIFICANT CUSTOMERS
Revenue from certain of the Company's largest customers individually
exceeded 10% of the Company's revenue as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A....................................................... 55% 39% 56%
Customer B....................................................... 11 48 35
Customer C....................................................... 21 ** **
</TABLE>
- --------
**less than 10%.
F-13
<PAGE>
CLIENTLINK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(10) LEASES
The Company maintains its executive office in Alpharetta, Georgia. This
executive office is subject to an operating lease expiring in 2001. Future
minimum payments in excess of one year are as follows at December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1998......................................................... 395,597
1999......................................................... 403,509
2000......................................................... 411,579
2001......................................................... 419,810
----------
$1,630,495
==========
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$202,966, $232,466 and $387,840, respectively.
(11) SAVINGS PLAN
Substantially all of the Company's employees who have completed at least six
months of qualifying service are included in CompuCom's defined contribution
plan (401(k) Matched Savings Plan). Participants may contribute to the plan an
amount between 1% and 10% of their total annual compensation. The Company
matches 50% of each participant's qualifying contributions up to 4%, and an
additional 25% of the next 2% of the participant's qualifying contributions.
Amounts expensed relating to the Plan were $9,619, $23,160 and $33,884 for the
years ended December 31, 1995, 1996 and 1997, respectively.
(12) CONTINGENCIES
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
(13) FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1997, the Company recorded $1.2 million ($0.14
basic EPS and $0.13 diluted EPS net of tax) in nonrecurring compensation
expense in connection with the waiver of the contractual right of certain
employees of the Company, including the Company's President and Chief
Executive Officer, to receive shares of the Company's common stock.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS
OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLIC-
ITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Dilution.................................................................. 13
Selected Financial Data................................................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................ 15
Business.................................................................. 21
Management................................................................ 29
Relationship Between the Company and CompuCom--Certain Transactions....... 33
Principal and Selling Stockholders........................................ 37
Description of Capital Stock.............................................. 38
Shares Eligible for Future Sale........................................... 39
Underwriting.............................................................. 41
Legal Matters............................................................. 42
Experts................................................................... 42
Additional Information.................................................... 42
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEAL-
ERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO OF CLENTLINK APPEARS HERE]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
THE ROBINSON-HUMPHREY
COMPANY
LEHMAN BROTHERS
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD
filing fee. All of these fees are being paid by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 8,142
NASD Filing Fee................................................. 3,260
Nasdaq National Market Listing Fee.............................. 15,000
Accounting Fees and Expenses.................................... 100,000
Legal Fees and Expenses......................................... 180,000
Printing and Engraving.......................................... 85,000
Miscellaneous................................................... 33,598
--------
Total....................................................... $425,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which that person is or is
threatened to be made a party by reason of such position, if that person acted
in good faith and in a manner that person reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful; provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter
as to which that person has been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Certificate of Incorporation of the Company limits the liability of
directors and officers of the Company to the Company or its stockholders to
the fullest extent permitted by Delaware law. Specifically, directors and
officers of the Company will not be personally liable for money damages for
breach of a duty as a director or an officer, except for liability (i) for any
breach of the director's or officer's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve a
knowing violation of law, (iii) as to directors only, under the Delaware
Business Corporation Act, which relates to unlawful declarations of dividends
or other distributions of assets to stockholders or the unlawful purchase of
shares of the corporation, or (iv) for any transaction from which the director
or officer derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, the Company has issued the following securities in
unregistered sales:
1. On December 29, 1995, the Company issued 375,000 shares to CompuCom
Systems, Inc. in exchange for cancellation of indebtedness owed by the
Company in the amount of $250,125.00. These securities were issued in
reliance on the exemption provided by section 4(2) of the Securities Act.
The offering was made only to CompuCom Systems, Inc., a sophisticated
investor who, as principal stockholder of the Company, had access to all
material information about the Company. The Company did not engage in any
public solicitation in connection with this offering.
II-1
<PAGE>
2. On July 24, 1997, the Company issued 15,000 shares of Common Stock to
Robert J. Boutin, a former officer of the Company, upon his exercise of
stock options at an exercise price of $.75 per share. These securities were
issued in reliance on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder. At the time of this
issuance, the Company was not subject to the reporting requirements of the
Exchange Act. The Company issued these securities pursuant to a written
compensatory benefit plan. The aggregate offering price of the securities
issued pursuant to this exemption, together with the value of securities
sold pursuant to Rule 701 in the preceding 12 months, did not exceed
$500,000.
3. On December 3, 1997, the Company issued 1,932,300 shares of Common
Stock to its existing shareholders as part of a 1.57-to-1 stock split. The
Company received no consideration for these shares.
4. On December 4, 1997, the Company issued options to purchase 841,600
shares of Common Stock, at an exercise price of $9.00 per share to 78
officers, employees and directors of the Company. These shares were issued
in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act and Rule 701 promulgated thereunder. At the time of this
issuance, the Company was not subject to the reporting requirements of the
Exchange Act. The Company issued these securities pursuant to a written
compensatory benefit plan. The aggregate offering price of the securities
issued pursuant to this exemption, together with the value of securities
sold pursuant to Rule 701 in the preceding 12 months, did not exceed
$500,000.
5. On December 23, 1997, the Company issued options to purchase 15,000
shares of Common Stock, at an exercise price of $9.00 per share to Ross A.
Cooley, a director of the Company. These shares were issued in reliance on
the exemption from registration provided by Section 4(2) of the Securities
Act and Rule 701 promulgated thereunder. At the time of this issuance, the
Company was not subject to the reporting requirements of the Exchange Act.
The Company issued these securities pursuant to a written compensatory
benefit plan. The aggregate offering price of the securities issued
pursuant to this exemption, together with the value of securities sold
pursuant to Rule 701 in the preceding 12 months, did not exceed $500,000.
6. On December 30, 1997, the Company issued 14,130 shares of Common Stock
to Edward R. Anderson, the Chairman of the Board of Directors, upon his
exercise of stock options at an exercise price of $.477 per share. These
securities were issued in reliance on the exemption provided by Section
4(2) of the Securities Act and Rule 701 promulgated thereunder. At the time
of issuance, the Company was not subject to the reporting requirements of
the Exchange Act. The Company issued these securities pursuant to a written
compensatory benefit plan. The aggregate offering price of the securities
issued pursuant to this exemption, together with the value of securities
sold pursuant to Rule 701 in the preceding 12 months, did not exceed
$500,000.
7. On January 2, 1998, the Company issued options to purchase 60,000
shares of Common Stock, at an exercise price of $9.00 per share to Donald
Graham, an employee of the Company. These shares were issued in reliance on
the exemption from registration provided by Section 4(2) of the Securities
Act and Rule 701 promulgated thereunder. At the time of this issuance, the
Company was not subject to the reporting requirements of the Exchange Act.
The Company issued these securities pursuant to a written compensatory
benefit plan. The aggregate offering price of the securities issued
pursuant to this exemption, together with the value of securities sold
pursuant to Rule 701 in the preceding 12 months, did not exceed $500,000.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1 Form of Underwriting Agreement**
3(i) First Amended and Restated Certificate of Incorporation of the
Registrant+
3(ii) Amended and Restated Bylaws of the Registrant+
4 Specimen certificate for Common Stock of the Registrant**
5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities being registered**
10.1 CompuCom Acquisition Corp. of Texas 1994 Stock Option Plan,
dated April 14, 1994*+
10.2 First Amendment to ClientLink, Inc. 1994 Stock Option Plan,
dated January 17, 1995*+
10.3 1997 Incentive Plan, dated December 4, 1997*+
10.4 Administrative Services Agreement between the Company and
CompuCom, dated December 4, 1997+
10.5 Indemnification Agreement between the Company and CompuCom,
dated December 4, 1997+
10.6 Registration Rights Agreement between the Company and CompuCom,
dated December 4, 1997**
10.7 Employment Agreement between James H. Hamilton and the Company,
dated January 16, 1998
10.8 Form of Indemnification Agreement for Directors and Officers of
the Company+
10.9 Office Lease between CK Windward and ClientLink, dated September
27, 1996 for property located at Windward Fairways I, 2nd Floor,
Suite 200
10.10 Amended and Restated Revolving Note, dated September 5, 1996,
between the Company and CompuCom in the amount of $2,500,000+
10.11 Letter Agreement between CompuCom and James H. Hamilton dated
December 2, 1997+
11 Statement re computation of net income per share
23.1 Consent of KPMG Peat Marwick LLP (included on page S-1)
23.2 Consent of Jenkens & Gilchrist (included in Exhibit 5)
24 Powers of Attorney (contained on Page II-4)+
27 Financial Data Schedule
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
S-1 Independent Auditors' Consent and Report on Financial Statement Schedule
S-2 Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
thereto.
- --------
* Compensatory plan required to be filed pursuant to Item 16(a) of Form S- 1
** To be filed by amendment.
+ Previously filed
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws of the Registrant
and the laws of the State of Delaware, 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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Alpharetta, State of
Georgia, on January 16, 1998.
ClientLink, Inc.
By:/s/ James H. Hamilton
---------------------------------
Name: James H. Hamilton
Title: President and Chief Executive
Officer
Each individual whose signature below hereby designates and appoints James
H. Hamilton and M. Lazane Smith, and each of them, any one of whom may act
without joinder of the other, as his or her true and lawful attorney-in-fact
and agents (the "Attorneys-in-Fact") with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, which amendments may
make such changes in this Registration Statement as either Attorney-in-Fact
deems appropriate, and any registration statement relating to the same
offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and
requests to accelerate the effectiveness of such registration statements, and
to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto such Attorneys-in-Fact and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that such
Attorneys-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
____________________________________ Chairman of the Board of January 16, 1998
Directors
Edward R. Anderson
*
____________________________________ President, Chief Executive January 16, 1998
James H. Hamilton Officer and Director
/s/ M. Lazane Smith
____________________________________ Chief Financial Officer, January 16, 1998
M. Lazane Smith Secretary and Director
(Principal Financial and
Accounting Officer)
*
____________________________________ Director January 16, 1998
Daniel F. Brown
____________________________________ Director January , 1998
Christopher J. Moffitt
____________________________________ Director January , 1998
Glenn T. Rieger
____________________________________ Director January , 1998
Ross A. Cooley
*By: /s/ M. Lazane Smith
____________________________________
M. Lazane Smith, Attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Clientlink, Inc.:
The audits referred to in our report dated January 15, 1998, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1997, included in the registration statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Experts" and "Selected Financial Data" in the
prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
January 16, 1998
S-1
<PAGE>
CLIENTLINK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS OF BALANCE AT
BEGINNING OF COSTS AND UNCOLLECTIBLE END OF
PERIOD EXPENSES ACCOUNTS PERIOD
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Accounts receivable--
Allowance for doubtful
accounts
1995 $38,000 $ 28,090 $ 2,685 $ 63,405
1996 $63,405 $292,252 $273,593 $ 82,064
1997 $82,064 $313,645 $274,122 $121,587
</TABLE>
S-2
<PAGE>
Index to Exhibits
1 Form of Underwriting Agreement**
3(i) First Amended and Restated Certificate of Incorporation of the
Registrant+
3(ii) Amended and Restated Bylaws of the Registrant+
4 Specimen certificate for Common Stock of the Registrant**
5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities being registered**
10.1 CompuCom Acquisition Corp. of Texas 1994 Stock Option Plan, dated
April 14, 1994*+
10.2 First Amendment to ClientLink, Inc. 1994 Stock Option Plan, dated
January 17, 1995*+
10.3 1997 Incentive Plan, dated December 4, 1997*+
10.4 Administrative Services Agreement between the Company and CompuCom,
dated December 4, 1997+
10.5 Indemnification Agreement between the Company and CompuCom, dated
December 4, 1997+
10.6 Registration Rights Agreement between the Company and CompuCom, dated
December 4, 1997**
10.7 Employment Agreement between James H. Hamilton and the Company, dated
January 16, 1998
10.8 Form of Indemnification Agreement for Directors and Officers of the
Company+
10.9 Office Lease between CK Windward and ClientLInk, dated September 27,
1996 for property located at Windward Fairways 1, 2nd Floor, Suite
200
10.10 Amended and Restated Revolving Note, dated September 5, 1996, between
the Company and CompuCom in the amount of $2,500,00+
10.11 Letter Agreement between CompuCom and James H. Hamilton, dated
December 2, 1997+
11 Statement re computation of per share earnings
23.1 Consent of KPMG Peat Marwick LLP (included on page S-1)
23.2 Consent of Jenkens & Gilchrist (included in Exhibit 5)
24 Powers of Attorney (contained on Page II-4)+
27 Financial Data Schedule
_______________
* Compensatory plan required to be filed pursuant to Item 16(a) of Form S-1
** To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated January 16, 1998 is made and entered into by and
between ClientLink, Inc., a Delaware corporation ("Employer"), and James H.
Hamilton, an executive employee of Employer ("Executive").
Recitals
A. Executive is employed by Employer in an executive capacity and
Executive has agreed to continue as an employee of Employer pursuant to the
terms of this Agreement.
B. Employer desires that the Executive continue as an employee of Employer
in order to provide the necessary leadership and senior management skills that
are important to the success of Employer. Employer believes that retaining the
Executive's services as an employee of Employer and the benefits of his business
experience are of material importance to Employer and Employer's shareholders.
Agreement
NOW, THEREFORE, in consideration of Executive's continued employment by
Employer and the mutual promises and covenants contained herein the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive intend by
this Agreement to specify the terms and conditions of Executive's employment
relationship with Employer.
Section 1. General Duties of Employer and Executive.
1.1. Employer agrees to employ Executive and Executive agrees to accept
employment by Employer and to serve Employer in an executive capacity upon the
terms and conditions set forth herein. The duties and responsibilities of
Executive shall include those described for the particular position held by
Executive while employed hereunder in the Bylaws of Employer or other documents
of Employer, and shall also include such other or additional duties, for
Employer, as may from time-to-time be assigned to Executive by the Board of
Directors of Employer or any duly authorized committee thereof. The executive
capacity that Executive shall hold while this Agreement is in effect shall be
that position as determined by the Board of Directors, or any duly authorized
committee thereof, from time to time in its sole discretion. While employed
hereunder, the initial position that Executive shall hold (until such time as
such position may be changed as aforesaid) shall be the position of President
and Chief Executive Officer.
1.2. While employed hereunder, Executive shall obey the lawful directions
of the Board of Directors of Employer, or any duly authorized committee thereof,
and shall use his best efforts to promote the interests of Employer and to
maintain and to promote the reputation thereof. While employed hereunder,
Executive shall devote his time, efforts, skills and attention to the affairs of
Employer in order that he shall faithfully perform his duties and
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<PAGE>
obligations hereunder and such as may be assigned to or vested in him by the
Board of Directors of Employer, or any duly authorized committee thereof.
1.3. While this Agreement is in effect, Executive may from time to time
engage in any businesses or activities that do not compete directly and
materially with Employer, provided that such businesses or activities do not
materially interfere with his performance of the duties assigned to him in
compliance with this Agreement by the Board of Directors of Employer or any duly
authorized committee thereof. In any event, Executive is permitted to (i)
invest his personal assets as a passive investor in such form or manner as
Executive may choose in his discretion, (ii) participate in various charitable
efforts, and (iii) serve as a director or officer of any other entity or
organization that does not compete with Employer.
Section 2. Compensation and Benefits.
2.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$19,167. Any increases to such rate shall be at the discretion of the
Compensation Committee duly elected by the Board of Directors. The salary shall
be payable in equal bi-weekly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions applied
generally to employees of Employer for insurance and other employee benefit
plans. In addition, Executive shall be entitled to a bonus subject to the
parameters set forth by the Compensation Committee each year, the amount of
which will be determined by such Committee, but will be in an amount of not
less than 100% of base salary subject to achievement of certain goals as
determined by the Committee.
2.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Executive shall be reimbursed for such
costs and expenses in accordance with Employer's normal expense reimbursement
policy.
2.3. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a guaranteed renewable term life insurance
policy having a death benefit of not less than $1 million. Unless prohibited by
any policy or plan under which such insurance is provided, Executive will have
the right to purchase at Executive's cost additional coverage under such policy
or plan. Employer will not permit, even in the event of termination of this
Agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
2.4. Executive shall have the right to participate in any additional
compensation, medical and dental insurance plan, 401(k) plan, other benefit,
life insurance or other plan or arrangement of Employer now or hereafter
existing for the benefit of executive officers of Employer.
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<PAGE>
2.5. Executive shall be entitled to such vacation (in no event less than
three (3) weeks per year), holidays and other paid or unpaid leaves of absence
as consistent with Employer's normal policies or as otherwise approved by the
Board of Directors.
2.6. Executive agrees to submit to and Employer agrees to pay for one
complete physical examination on an annual basis at a medical clinic mutually
acceptable to Employer and Executive.
2.7. As long as this Agreement is in effect, Employer will purchase and
maintain for Executive's benefit a comprehensive long-term disability insurance
policy. Employer will not permit, even in the event of termination of this
agreement for any reason, any such policy to lapse without offering Executive
the opportunity to take up the premium payments and continue the policy in
force.
Section 3. Preservation of Business; Fiduciary Responsibility.
3.1. Executive shall use his best efforts to preserve the business and
organization of Employer, to keep available to Employer the services of present
employees and to preserve the business relations of Employer. Executive shall
not commit any act, or in any way assist others to commit any act, that would
injure Employer. So long as the Executive is employed by Employer, Executive
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon his service and office.
Section 4. Initial Term; Extensions of the Term.
4.1. The term of this Agreement shall commence on the effective date
hereof and shall end on January 2, 2002.
4.2. The term of this Agreement shall automatically be extended for
additional one-year periods commencing on January 3, 2002 and continuing each
year thereafter, unless Executive gives written notice to Employer on or before
December 2, 2001 and each year thereafter on December 2nd, of his intention not
to extend this Agreement.
Section 5. Termination other than by Expiration of the Term. Employer or
Executive may terminate Executive's employment under this Agreement at any time,
but only on the following terms:
5.1. Executive may terminate his employment under this Agreement at any
time upon at least thirty (30) days prior written notice to Employer.
5.2. Employer may terminate Executive's employment under this Agreement at
any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of Employer that "due cause" exists for
the termination of the employment relationship. As used herein, the term "due
cause" shall mean any of the following events:
-3-
<PAGE>
(i) any intentional misapplication by Executive of Employer's
funds, or any other act of dishonesty injurious to Employer committed by
Executive; or
(ii) Executive's conviction of a crime involving moral turpitude; or
(iii) Executive's use or possession of any controlled substance or
chronic abuse of alcoholic beverages; or
(iv) Executive's breach, non-performance or non-observance of any of
the terms of this Agreement if such breach, non-performance or non-
observance shall continue beyond a period of ten (10) business days
immediately after notice thereof by Employer to Executive; or
(v) any other action by the Executive involving willful and
deliberate malfeasance or gross negligence in the performance of
Executive's duties.
5.3. In the event Executive is incapacitated by accident, sickness or
otherwise so as to render Executive mentally or physically incapable of
performing the services required under Section 1 of this Agreement for a period
of one hundred eighty (180) consecutive business days, and such incapacity is
confirmed by the written opinion of two (2) practicing medical doctors licensed
by and in good standing in the state in which they maintain offices for the
practice of medicine, upon the expiration of such period or at any time
reasonably thereafter, or in the event of Executive's death, Employer may
terminate Executive's employment under this Agreement upon giving Executive or
his legal representative written notice at least thirty (30) days' prior to the
termination date. Executive agrees, after written notice by the Board of
Directors of Employer or a duly authorized committee or officer of Employer, to
submit to examinations by such practicing medical doctors selected by the Board
of Directors of Employer or a duly authorized committee or officer of Employer.
5.4. Employer may terminate Executive's employment under this Agreement at
any time for any reason whatsoever, even without "due cause," by giving a
written notice of termination to Executive, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
Section 6. Effect of Termination.
6.1. In the event the employment relationship is terminated (a) by
Executive upon thirty (30) days' written notice pursuant to Subsection 5.1
hereof, (b) by Employer for "due cause" pursuant to Subsection 5.2 hereof, or
(c) by Executive breaching this Agreement by refusing to continue his employment
and failing to give the requisite thirty (30) days' written notice, all
compensation and benefits shall cease as of the date of termination, other than:
(i) those benefits that are provided by retirement and benefit plans and
programs specifically adopted and approved by Employer for Executive that are
earned and vested by the date of termination, (ii) Executive's pro rata annual
salary through the date of termination, and (iii) those benefits required by law
to be made available to terminating employees.
-4-
<PAGE>
6.2. If Executive's employment relationship is terminated pursuant to
Subsection 5.3 hereof due to Executive's incapacity or death, Executive (or, in
the event of Executive's death, Executive's legal representative) will be
entitled to those benefits that are provided by retirement and benefits plans
and programs specifically adopted and approved by Employer for Executive that
are earned and vested at the date of termination and, even though no longer
employed by Employer, shall continue to receive the salary compensation (payable
in the manner as prescribed in the second sentence of Subsection 2.1) and retain
the ability to participate in the Employer's group insurance plan to the extent
allowed by the plan, for the remaining term of this Agreement.
6.3. If Employer (i) terminates the employment of Executive other than
pursuant to Subsection 5.2 hereof for "due cause" or other than for a disability
or death pursuant to Subsection 5.3 hereof, (ii) demotes the Executive to a
position below the level of the position described in Subsection 1.1, or (iii)
decreases Executive's salary below the level or reduces the employee benefits
and perquisites below the level provided for by the terms of Section 2 hereof,
other than as a result of any amendment or termination of any employee and/or
executive benefit plan or arrangement, which amendment or termination is
applicable to all qualifying executives of Employer, then such action by
Employer, unless consented to in writing by Executive, shall be deemed to be a
constructive termination by Employer of Executive's employment (a "Constructive
Termination"). In the event of a Constructive Termination, the Executive shall
be entitled to receive, in a lump sum within ten (10) days after the date of the
Constructive Termination, an amount equal to the salary that would have been
paid for the remainder of the Agreement; provided, however, the amount paid
shall not be less than one year's salary determined as of the date of such
Constructive Termination.
6.4. For purposes of this Section 6, the term "salary" shall mean the sum
of (i) the annual rate of compensation provided to Executive by Employer under
Subsection 2.1 immediately prior to the Constructive Termination plus (ii) the
average annual cash bonuses or other cash incentive compensation paid to
Executive by Employer for the two calendar year period immediately preceding the
year in which there shall occur a Constructive Termination.
6.5. In the event of a Constructive Termination, all other rights and
benefits Executive may have under the employee and/or executive benefit plans
and arrangements of Employer generally shall be determined in accordance with
the terms and conditions of such plans and arrangements.
Section 7. Covenants of Noncompetition.
7.1. Executive acknowledges that he has received and/or will receive
specialized knowledge and training from Employer during the term of this
Agreement, and that such knowledge and training would provide an unfair
advantage if used to compete with Employer. In order to avoid such unfair
advantage, Executive agrees that while he is employed with Employer and for a
period of one (1) year after the date of termination of employment (the
"Restricted Period") or one (1) year after the date of the final Constructive
Termination payment, he shall not, directly or indirectly, individually or as an
owner,
-5-
<PAGE>
lender, consultant, adviser, independent contractor, employee, partner,
officer, director or in any other capacity, alone or in association with other
persons or entities, own, assist, finance, participate in or be employed by any
business or other endeavor that is in any way in competition with Employer in
any business identified by the SIC codes of 5045. Executive also agrees that,
for the Restricted Period, he will not, either directly or indirectly, solicit
any employee or other independent contractor of the Employer to terminate his
employment or contract with the Employer.
7.2. Executive represents and acknowledges to Employer that his education,
experience and/or abilities are such that he can obtain employment in a non-
competing business and that enforcement of the terms of this Agreement through
temporary and/or permanent injunctive relief will not prevent him from earning a
livelihood and will not cause an undue hardship upon him. Executive hereby
acknowledges that $9,000 of his monthly salary described in Subsection 2.1 is
paid by Employer in consideration for Executive's agreement to be bound by the
non-competition provisions of this Agreement.
Section 8. Change in Control.
8.1. Notwithstanding anything to the contrary in this Agreement, if a
"Change in Control" (as defined below) of the Employer occurs and, within six
months from the date of the Change in Control, the Executive voluntarily
terminates his employment under Subsection 5.1, then the Executive, even though
no longer employed by the Employer, shall be entitled to all payments provided
in Subsection 6.3, payable in a lump sum within thirty (30) days after the date
of termination.
8.2. If a Change of Control occurs during the course of this Agreement,
the Board of Directors will cause to vest, within ten (10) days of the effective
date of the Change of Control, all remaining unvested stock options granted to
Executive.
8.3. For the purposes of this Agreement, the term "Change in Control" of
the Employer shall be deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended) other than any Employer employee stock ownership plan or the
Employer, becomes the beneficial owner (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Employer representing 25% or more of the combined voting power
of the Employer's then outstanding securities, (ii) the Board ceases to consist
of a majority of Continuing Directors (as defined below) or (iii) a person (as
defined in clause (i) above) acquires (or, during the 12-month period ending on
the date for the most recent acquisition by such person or group of persons, has
acquired) gross assets of Employer that have an aggregate market value greater
than or equal to over 50% of the fair market value of all of the gross assets of
Employer immediately prior to such acquisition or acquisitions. It is clearly
understood, however, that no change of control will be considered as having
occurred as long as CompuCom Systems, Inc.continues to maintain effective
control of the Company, evidenced by their ownership of more than 35% of the
outstanding common shares of the Company and/or the effective control of the
Board of Directors. It is also understood that the change of control provisions
will not become
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<PAGE>
effective if Executive is offered and willingly accepts a position in a newly
formed Company in the event a merger occurs.
8.4. For purposes of this Agreement, a "Continuing Director" shall mean a
member of the Board of Directors who either (i) is a member of the Board of
Directors at the date of this Agreement or (ii) is nominated or appointed to
serve as a director by a majority of the then Continuing Directors.
8.5. Notwithstanding any other provision of this Agreement, if (a) there
is a change in the ownership or effective control of the Employer or (b) in the
ownership of a substantial portion of the assets of the Employer within the
meaning of Section 280G of the Internal Revenue Code ("Section 280G"), the
payments to be paid to the Executive in the nature of compensation to be
received by or for the benefit of the Executive and contingent upon such event
(the "Termination Payments") would create an "excess parachute payment" within
the meaning of Section 280G, then the Employer shall make the Termination
Payments in substantially equal installments, the first installment being due
within thirty (30) days after the date of termination and each subsequent
installment being due on January 31st of each year, such that the aggregate
present value of all Termination Payments, whether pursuant to this Agreement or
otherwise, will be as close as possible to two times the Executive's base salary
and average cash bonuses, within the meaning of Section 280G. It is the
intention of this Subsection 8.5 to avoid excise taxes on the Executive under
Section 4999 of the Code and the disallowance of a deduction to the Employer
pursuant to Section 280G. However, if the Company makes an error which triggers
the excise tax, Executive will be entitled to receive a gross up to cover
incremental taxes owed due to such error.
Section 9. Inventions.
9.1. Any and all inventions, product, discoveries, improvements,
processes, formulae, manufacturing methods or techniques, designs or styles
(collectively, "Inventions") made, developed or created by Executive, alone or
in conjunction with others, during regular hours of work or otherwise, during
the term of Executive's employment with the Employer and for a period of one (1)
year thereafter that may be directly or indirectly related to the business of,
or tests being carried out by, the Employer, or any of its subsidiaries, shall
be promptly disclosed by Executive to Employer and shall be the Employer's
exclusive property.
9.2. Executive will, upon the Employer's request and without additional
compensation, execute any documents necessary or advisable in the opinion of the
Employer's counsel to direct the issuance of patents to the Employer with
respect to Inventions that are to be the Employer's exclusive property under
this Section 9 or to vest in the Employer title to such Inventions; the expense
of securing any patent, however, shall be borne by the Employer.
9.3. Executive will hold for the Employer's sole benefit any Invention
that is to be the Employer's exclusive property under this Section 9 for which
no patent is issued.
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<PAGE>
9.4. Executive grants to Employer a royalty-free, nonexclusive irrevocable
license for any Inventions developed prior to the employment with the Company
that he has not reserved that are used by Executive in the performance of his
duties for the Employer. Employee represents and warrants that any work
produced by Executive will not, to the best knowledge of Executive, infringe on
any other person's or entity's copyright or other proprietary rights, and
Employee will hold the Employer harmless from any claims and losses based on
such infringements.
Section 10. No Violation. Executive represents that he is not bound by
any agreement with any former employer or other party that would be violated by
Executive's work for Employer.
Section 11. Confidential and Proprietary Information.
11.1. Executive acknowledges and agrees that he will not, without the
prior written consent of the Employer, at any time during the term of this
Agreement or any time thereafter, except as may be required by competent legal
authority or as required by the Employer to be disclosed in the course of
performing Executive's duties under this Agreement for the Employer, use or
disclose to any person, firm or other legal entity, any confidential records,
secrets or information related to the Employer or any parent, subsidiary or
affiliated person or entity (collectively, "Confidential Information").
Confidential Information shall include, without limitation, information about
the Employer's Inventions, customer lists, customer contracts, vendor contracts,
and non-public financial information. Executive acknowledges and agrees that
all Confidential Information of Employer and/or its affiliates that he has
acquired, or may acquire, were received, or will be received in confidence and
as a fiduciary of the Employer. Executive will exercise utmost diligence to
protect and guard such Confidential Information.
11.2. Executive agrees that he will not take with him upon the termination
of this Agreement, any document or paper, or any photocopy or reproduction or
duplication thereof, relating to any Confidential Information.
Section 12. Return of Employer's Property. Upon the termination of this
Agreement or whenever requested by Employer, Executive shall immediately deliver
to Employer all property in his possession or under his control belonging to
Employer, in good condition, ordinary wear and tear excepted.
Section 13. Injunctive Relief. Executive acknowledges that the breach, or
threatened breach, by the Executive of the provisions of this Agreement shall
cause irreparable harm to the Employer, which harm cannot be fully redressed by
the payment of damages to the Employer. Accordingly, the Employer shall be
entitled, in addition to any other right or remedy it may have at law or in
equity, to an injunction enjoining or restraining Executive from any violation
or threatened violation of this Agreement.
-8-
<PAGE>
Section 14. Arbitration.
14.1. As concluded by the parties and as evidenced by the signatures of
the parties, any dispute between the parties arising out of any section of this
Agreement except Sections 7, 9 and 11, will, on the written notice of one party
served on the other, be submitted to arbitration complying with and governed by
the rules and procedures of the American Arbitration Association.
14.2. Each of the parties will appoint one person as an arbitrator to hear
and determine the dispute and if they are unable to agree, then the two
arbitrators so chosen will select a third impartial arbitrator whose decision
will be final and conclusive upon the parties.
14.3. The expenses of such arbitration will be borne by the losing party
or in such proportion as the arbitrators decide.
14.4 A material or anticipatory breach of any section of this Agreement
shall not release either party from the obligations of this Section 14.
Section 15. Miscellaneous.
15.1. If any provision contained in this Agreement is for any reason held
to be totally invalid or unenforceable, such provision will be fully severable,
and in lieu of such invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in terms as may
be valid and enforceable.
15.2 All notices and other communications required or permitted hereunder
or necessary or convenient in connection herewith shall be in writing and shall
be deemed to have been given when mailed by registered mail or certified mail,
return receipt requested, as follows (provided that notice of change of address
shall be deemed given only when received):
if to Employer:
3025 Windward Plaza, Suite 200
Alpharetta, GA 30005
Attn: Chief Financial Officer
if to Executive:
3025 Windward Plaza, Suite 200
Alpharetta, GA 30005
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<PAGE>
or to such other names or addresses as Employer or Executive, as the case may
be, shall designate by notice to the other party hereto in the manner specified
in this Subsection 15.2.
15.3. This Agreement shall be binding upon and inure to the benefit of
Employer, its successors, legal representatives and assigns, and upon Executive,
his heirs, executors, administrators, representatives, legatees and assigns.
Executive agrees that his rights and obligations hereunder are personal to him
and may not be assigned without the express written consent of Employer.
15.4. This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Executive
and Employer with respect to the subject matter of this Agreement. This
Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative of
Employer or by any written agreement unless signed by an officer of Employer who
is expressly authorized by Employer to execute such document.
15.5. The laws of the State of Georgia will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and Employer and Executive agree that the
state and federal courts situated in Fulton County, Georgia shall have personal
jurisdiction over Employer and Executive to hear all disputes arising under this
Agreement.
15.6. Executive and Employer shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
15.7. The descriptive headings of the several sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
15.8. If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover reasonable attorneys' fees and costs of suit in addition to any other
relief awarded such prevailing party.
15.9. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
15.10 Executive acknowledges that Executive has had the opportunity to
read this Agreement and discuss it with advisors and legal counsel, if Executive
has so chosen.
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<PAGE>
Executive also acknowledges the importance of this Agreement and that Employer
is relying on this Agreement in continuing an employment relationship with
Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
EMPLOYER:
ClientLink, Inc.
By: /s/ M. Lazane Smith
-------------------------------
M. Lazane Smith, CFO, Secretary
EXECUTIVE:
/s/ James H. Hamilton
---------------------------
James H. Hamilton
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<PAGE>
BASIC LEASE INFORMATION
<TABLE>
<S> <C> <C>
LEASE DATE: _________ day of ____________, 19__
LANDLORD: CK WINDWARD #1, LLC, a North Carolina limited liability
company
ADDRESS OF 300 Galleria Parkway, Suite 600
LANDLORD: Atlanta, Georgia 30339
TENANT: ClientLink, Incorporated, a Delaware corporation
ADDRESS OF 3025 Windward Plaza
TENANT: Suite 200
Alpharetta, GA 30202
CONTACT: Office Manager
TELEPHONE:
-----------------------------
PREMISES: On the second floor, suite 200 of the Windward Fairways
I office building as outlined in red on Exhibit "B"
hereto. The approximate rentable area of the Premises
for purposes of this Lease is 18,691 square feet.
The approximate percentage of the Building occupied by
Tenant based on the above-referenced calculations
equals 13.99%. Such percentage shall change in the
event Tenant's premises increases or decreases in size.
The rentable area of the Premises is the product of the
usable area of the premises as reasonably determined by
Landlord's architect using BOMA standards (ANSI Z65 1-
1980, July 31, 1980) multiplied by a factor of 1.095.
Tenant shall have the right to conduct field
measurements of the Premises prior to commencement of
tenant improvements to verify the rentable area.
Commencement of Tenant improvements shall establish
conclusively that the Premises contains the square
footage indicated by this lease. Any dispute between
Landlord and Tenant as to the BOMA field measurement of
the Premises shall be resolved by an independent
architecture firm mutually selected by Landlord and
Tenant. Landlord shall not be responsible for any
delays in the substantial completion of the Premises
due to dispute by Tenant over such field measurement.
Paragraph 1 BUILDING: The approximate rentable area of the Building is
133,540 square feet.
PROPERTY: The land on which the Building is to be erected,
per the legal description of the Property attached
hereto as Exhibit "G".
Paragraph 2 USE: General office purposes
</TABLE>
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<TABLE>
<S> <C> <C>
Paragraph 3 LEASE TERM: Sixty (60) months commencing on the Commencement
Date as specified in Paragraph 3(b) herein.
Paragraph 4 RENT: Thirty-Two Thousand Three Hundred Twenty Dollars
($32,320) per month. Said monthly rental consists
of Net Rent and the Expense Stop Rent. The Net
Rent is $14.75 per rentable square foot per year
or Twenty-Two Thousand Nine Hundred Seventy-Four
Dollars ($22,974) per month. The Expense Stop Rent
is $6.00 per rentable square foot per year or Nine
Thousand Three Hundred Forty-Six Dollars ($9,346)
per month. The Net Rent and Expense Stop Rent
shall be adjusted in accordance with Paragraph 27
of the Lease.
Paragraph 32 SECURITY N/A Dollars ($ )
DEPOSIT: ------------------------ ------------
The foregoing Basic Lease Information is hereby
incorporated into and made a part of this Lease.
Each reference in this Lease to any of the Basic
Lease Information shall mean the respective
information hereinabove set forth and shall be
construed to incorporate all of the terms provided
under the particular Lease paragraph pertaining to
such information. In the event of any conflict
between any Basic Lease Information and the Lease,
the latter shall control.
</TABLE>
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LEASE
THIS LEASE made as of this ___ day of _________, 19___, between CK WINDWARD #1,
LLC, a North Carolina limited liability company, hereinafter called "Landlord"),
and ClientLink, Incorporated, a Delaware corporation (hereinafter called
"Tenant").
W I T N E S S E T H:
1. PREMISES AND PROPERTY
Landlord hereby demises and leases to Tenant and Tenant hereby accepts and
leases from Landlord those premises (hereinafter called "Premises") outlined in
red on Exhibit "B" attached hereto, made a part hereof, and specific in the
Basic Lease Information, being a portion of a multi-story office building (the
"Building") constructed or being constructed on a parcel of land (the
"Property") located as described in the Basic Lease Information.
2. USE
Tenant shall use and occupy the Premises for the purpose specified in the
Basic Lease Information and for no other use or purpose without the prior
written consent of Landlord. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or injure or annoy them,
nor use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose or for any business, use or purpose deemed to be
disreputable or inconsistent with the operation of a first-class office
building, nor shall Tenant cause, maintain or permit any nuisance in, on, or
about the Premises. Tenant shall not commit or suffer the commission of any
waste in, on, or about the Premises.
3. TERM AND POSSESSION
(a) The term of this Lease shall be for the period specified in the Basic
Lease Information (or until sooner terminated as herein provided) beginning on
the "Commencement Date" as hereinafter defined, except that if the Commencement
Date is other than the first day of a calendar month, the term hereof shall be
extended for the remainder of that calendar month at the end of the term unless
otherwise specified in the Basic Lease Information.
(b) The Commencement Date shall be the date, if any, specified in the
Basic Lease Information, or, if no such date is specified, the earlier of (A)
the date upon which the Premises have been substantially completed as defined in
subparagraph 3(c) below in accordance with the plans and specifications of
Landlord (other than any work which cannot be completed on such date provided
such incompletion will not substantially interfere with Tenant's use of the
Premises), or (B) the date on which Tenant takes possession of, or commences the
operation of its business in, any or all of the Premises; provided, however,
that if Landlord shall be delayed in such substantial completion as a result of:
(i) Tenant's failure to agree to plans, specifications, and cost estimates
before the dates referred to in the Office Lease Improvement Agreement attached
hereto as Exhibit "C" and made a part hereof; (ii) Tenant's request for
materials, finishes or installations other than Landlord's standard; (iii)
Tenant's changes in plans; or (iv) the performance or completion by a part
employed by Tenant, the date of substantial completion for purposes of
determining the Commencement Date and the payment of rent hereunder shall be
accelerated by the number of days of such delay, and provided further that if
Landlord cannot substantially complete the Premises as a result of any of events
(i) through (iv) above, Landlord may, at its election complete so much of
Landlord's work as may be practical under the circumstances and, by written
notice to Tenant, establish the Commencement Date as the date of such partial
completion, subject to any applicable accelerations due to delays resulting from
events (i) through (iv) above. Landlord shall notify Tenant in writing as soon
as Landlord deems the Premises to be substantially completed and ready for
occupancy as aforesaid. In the event that the Premises have not in fact been
substantially completed as aforesaid, Tenant shall notify Landlord in writing of
its objections within five (5) days after Tenant received the aforesaid notice
from Landlord. Landlord shall have reasonable time after delivery of such notice
in which to take such corrective action as Landlord deems necessary and shall
notify Tenant in writing as soon as it deems such corrective action, if any, has
been completed so that the Premises are substantially completed and ready for
occupancy. Landlord shall use reasonable
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best efforts to substantially complete Premises on or about December 20, 1996
(the "Scheduled Date") and Tenant shall have the right to enter the Premises or
any portion thereof prior to the Commencement Date for work to be performed by
Tenant under the provisions of the Office Lease Improvement Agreement. If the
Commencement Date occurs after December 31, 1996, Landlord shall, as liquidated
damages, abate Tenant's rental one day for each day the Commencement Date is
delayed. The parties hereto acknowledge that the amount of actual damages in
such event would be difficult, if not impossible, to determine and that the
foregoing amount of liquidated damages is a reasonable pre-estimate of the
amount of damages and not a penalty. The Scheduled Date shall be automatically
extended by the period of any delay in substantial completion of construction
caused by (a) Acts of God; casualty (except for any damage or destruction caused
by the neglect, fault, or omission of Landlord, its agents, servants, employees,
or contractors acting under authority of Landlord) damage, extraordinary delays
in obtaining necessary ______ material resulting from causes outside of
Landlord's control (in the event of labor shortages or delays, Landlord will use
diligent efforts to ______ qualified labor to perform professional tasks; in the
event of supply shortages or delays, Landlord will use diligent efforts to
obtain like materials or equivalent quality from alternative sources or
supplies), taking by eminent domain of any part of the Premises which
materially, substantially, and actually causes such delay, or changes in laws,
codes, or ordinances which materially affect Landlord's ability to adhere to the
contemplated construction schedule, or (b) delays caused by Tenant, including
delays in approving plans or changes thereto, change orders initiated by Tenant
which actually delay Landlord's required construction, and failure to coordinate
any work done by Tenant or Tenant's contractors with Landlord's contractors.
(c) Landlord agrees to complete the Building if now under construction and
shall perform the work required to be performed by Landlord under Exhibit "C"
with diligence, subject to events and delays due to causes beyond its reasonable
control. The Premises shall be deemed substantially completed and possession
delivered when Landlord has substantially completed the work to be constructed
or installed pursuant to the provisions of the Office Lease Improvement
Agreement, subject only to the completion of items on Landlord's punch list and
all latent defects, except for those latent defects which are not reported to
Landlord within a reasonable period of time after Tenant's discovery thereof
(and exclusive of the installation of all telephone and other communications
facilities and equipment and other finish work to be performed by parties other
than Landlord). In the event of any dispute as to when and whether the work
performed or required to be performed by Landlord has been substantially
completed, the certificate of an A.I.A. registered architect or a temporary or
final certificate of occupancy issued by the local governing authority shall be
conclusive evidence of such completion, effective on the date of the delivery of
a copy of any such certificate to Tenant.
(d) If substantial completion of the Premises or possession thereof by
Tenant is delayed because any tenant or other occupant thereof holds over, and
the Landlord is delayed, using good faith efforts to Landlord's discretion, in
acquiring possession of the Premises, Landlord shall not be deemed in default,
nor in any way liable to Tenant because of such delay, and Tenant agrees to
accept possession of the Premises at such time as Landlord is able to tender the
same, which date shall thenceforth be deemed the Commencement Date
notwithstanding any other provision hereof to the contrary.
(e) The taking of possession by Tenant shall be deemed conclusively to
establish that the Building, other improvements, and the Premises have been
completed in accordance with the plans and specifications and are in good and
satisfactory condition as of when possession was so taken (except for such items
as Landlord is permitted to complete at a later date, which items shall be
specified by Landlord to Tenant in writing). Upon the Commencement Date, Tenant
shall execute and deliver to Landlord a letter of acceptance of delivery of the
Premises, such ________ to be on Landlord's standard form therefor.
4. RENT
(a) Tenant shall pay to Landlord throughout the term of this Lease rent as
specified in the Basic Lease Information, payable monthly in advance on or
before the first day of each month during the term hereby demised in lawful
money of the United States, without demand, deduction or offset whatsoever, to
Landlord at the address specified in the Basic Lease Information or to such
other firm or to such other place as Landlord may from time to time designate in
writing. Said rental is subject to adjustment as provided in Paragraph 27
hereof. If this Lease commences on a day other than the first day
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<PAGE>
of a calendar month or ends on a day other than the last day of a calendar
month, the monthly rental for the fractional month shall be appropriately
prorated.
(b) Tenant agrees that if rent or any other payment due hereunder from
Tenant to Landlord remains unpaid ten (10) days after said amount is due, the
amount of such unpaid rent or other payment shall be increased by a late charge
to be paid to Landlord by Tenant in an amount equal to five percent (5%) of the
amount of the delinquent rent or other payment). The amount of the late charge
to be paid to Landlord by Tenant for any month shall be computed on the
aggregate amount of delinquent rents and other payments, including all accrued
late charges then outstanding. Tenant agrees that such amount is a reasonable
estimate of the loss and expense to be suffered by Landlord as a result of such
late payment by Tenant and may be charged by Landlord to defray such loss and
expense. The provisions of this paragraph in no way relieve Tenant of the
obligation to pay rent or other payments on or before the date on which they are
due, nor do the terms of this paragraph in any way affect Landlord's remedies
pursuant to Paragraph 19 of this Lease in the event said rent or other payment
is unpaid after the date due.
5. COMPLIANCE WITH LAWS
Tenant shall not use the Premises or permit anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance, or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall not do or permit anything to be done on or about
the Premises or bring or keep anything therein which will in any way increase
the rate of any insurance upon the Building or any of its contents or cause a
cancellation of said insurance or otherwise affect said insurance in any manner,
and Tenant shall at its sole cost and expense promptly comply with all laws,
statutes, ordinances, and governmental rules, regulations, or requirements now
in force or which may hereafter be in force and with the requirements of any
board of fire underwriters or other similar body now or hereafter constituted
contributing to or affecting the condition, use, or occupancy of the Premises,
excluding structural changes not related to or affected by alterations or
improvements made by or for Tenant or Tenant's acts. The judgment of any court
of competent jurisdiction or the admission of Tenant in an action against
Tenant, whether Landlord be a party thereto or not, that Tenant has so violated
any such law, statute, ordinance, rule, regulation, or requirement, shall be
conclusive evidence of such violation as between Landlord and Tenant. Landlord
agrees to make, at its sole cost and expense, any structural changes within the
Premises that (i) are not related to or affected by alterations or improvements
made by or for Tenant or Tenant's acts, and (ii) are necessary to comply with
any laws, statutes, ordinances, and governmental rules, regulations, or
requirements in force on the Commencement Date.
6. ALTERATIONS
Tenant shall not make or suffer to be made any alterations, additions, or
improvements in, on, or to the Premises or any part thereof without the prior
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. However, it shall not be unreasonable for Landlord to withhold its
consent under this paragraph 6 if the proposed alteration will adversely affect
the Building's mechanical, electrical, plumbing, or structural systems. Any
such alterations, additions, or improvements in, on, or to said Premises, except
for Tenant's movable furniture and equipment, shall immediately become
Landlord's property and, at the end of the term hereof, shall remain on the
Premises without compensation to Tenant. In the event Landlord consents to the
making of any such alteration, addition, or improvement by Tenant, the same
shall be made by Tenant, at Tenant's sole cost and expense, in accordance with
all applicable laws, ordinances, and regulations and all requirements of
Landlord's and Tenant's insurance policies, and in accordance with plans and
specifications approved by Landlord and any contractor or person selected by
Tenant to make the same and all subcontractors must first be approved in writing
by Landlord, or, at Landlord's option, the alteration, addition or improvement
shall be made by Landlord for Tenant's account and Tenant shall reimburse
Landlord for the reasonable market cost thereof within twenty (20) days after
receipt of a statement. Upon the expiration or sooner termination of the term
herein provided, and provided that Landlord has specified in its notice of
consent to Tenant that subject alteration, addition, or improvement made by or
for the account of Tenant shall be removed upon such expiration or termination.
Tenant shall, upon demand by Landlord, at Tenant's sole cost and expense,
forthwith and with all due diligence, remove any or all alterations, additions,
or improvements made by
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<PAGE>
or for the account of Tenant and designated by Landlord to be removed, and
Tenant shall forthwith and with all due diligence, at its sole cost and expense,
repair and restore the Premises to their condition as of the Commencement Date
of this Lease.
7. REPAIR
(a) By taking possession of the Premises, Tenant accepts the Premises as
being in the condition in which Landlord is obligated to deliver ______ and
otherwise in good order, condition and repair. Tenant shall, at all times
during the term hereof at Tenant's sole cost and expense, keep the Premises and
every part thereof in good order, condition and repair, excepting ordinary wear
and tear, damage thereto by fire, earthquake, Act of God or the elements. Tenant
shall upon the expiration or sooner termination of the term hereof, unless
Landlord demands otherwise as in Paragraph 6 hereof provided, surrender to
Landlord the Premises and all repairs, changes, alterations, additions and
improvements thereto in the same condition as when received, or when first
installed, ordinary wear and tear, damage by fire, earthquake, Act of God or the
elements excepted. It is hereby understood and agreed that Landlord has no
obligation to alter, remodel, improve, repair, decorate, or paint the Premises
or any part thereof except as specified in Exhibit "C", and that no
representations respecting the condition of the Premises or the Building have
been made by Landlord to Tenant, except as specifically herein set forth.
(b) Tenant shall repair all damage to the Building, including common
areas, restrooms, hallways, elevators, or any other area, fixture, or equipment
of the Building caused by Tenant's installation or removal of its property or
resulting from any act or conduct of Tenant, its employees, contractors, agents,
licensees or invitees.
(c) All maintenance or repairs made by Tenant shall be made in accordance
with all applicable laws, ordinances and regulations, and all requirements of
Landlord's and Tenant's insurance policies and any contractor or person
selected by Tenant to make the same, and all subcontractors must first be
approved in writing by Landlord, or, at Landlord's option, the maintenance or
repair shall be made by Landlord for Tenant's account and Tenant shall reimburse
Landlord for the reasonable cost thereof within twenty (20) days after receipt
of a statement. In any event, all repairs shall be equal in quality and
workmanship to the original work.
8. LIENS
Tenant shall keep the Premises free from any liens arising out of any work
performed, material furnished, or obligations incurred by Tenant. In the event
that Tenant shall not, within ten (10) days, or so long as Tenant uses best
efforts to do so as soon as possible within thirty (30) days following the
imposition of any such lien, cause the same to be released of record by payment
or posting of a proper bond, Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including payment
of the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith shall be considered additional
rent and shall be payable to it by Tenant on demand and with interest at the
rate of eighteen percent (18%) per annum or the rate four percent (4%) higher
than the prime commercial lending rate from time to time of Wachovia Bank of
Georgia; whichever is more, provided however that if such rate exceeds the
maximum rate permitted by law, the maximum lawful rate shall apply; the interest
rate so determined is hereinafter called the "Agreed Interest Rate." Landlord
shall have the right at all times to post and keep posted the Premises any
notices permitted or required by law, or which Landlord shall deem proper for
the protection of Landlord, the Premises, the Building, and any other party
having an interest therein, from mechanics' and materialmen's liens, and Tenant
shall give to Landlord at least five business days prior written notice of
commencement of any construction on the Premises.
9. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not sell, assign, encumber or otherwise transfer by
operation of law or otherwise this Lease or any interest herein, sublet the
Premises or any portion thereof, or suffer any other person to occupy or use the
Premises or any portion thereof, without the prior written consent of Landlord
as provided herein, nor shall Tenant permit any lien to be placed on the
Tenant's interest by operation of law. Tenant shall, by written notice, advise
Landlord of its desire from and after a stated date (which shall not be less
than thirty (30) days nor more than ninety (90) days after the date of Tenant's
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<PAGE>
notice) to sublet the Premises or any portion for any part of the term hereof;
and in such event Landlord shall have the right, to be exercised by giving
written notice to Tenant within fifteen (15) business days after receipt of
Tenant's notice, to terminate this Lease as to the portion of the Premises
described in Tenant's notice and such notice shall, if given, terminate this
Lease with respect to the portion of the Premises therein described as of the
date stated in Tenant's notice. Said notice by Tenant shall state the name and
address of the proposed subtenant, and Tenant shall deliver to Landlord a true
and complete copy of the proposed sublease with said notice. If said notice
shall specify all of the Premises and Landlord shall give said termination
notice with respect thereto, this Lease shall terminate on the date stated in
Tenant's notice. If, however, this Lease shall terminate pursuant to the
foregoing with respect to less than all the Premises, the rent, as defined and
reserved hereinabove and as adjusted pursuant to Paragraph 27, shall be adjusted
on a pro rata basis to the number of square feet retained by Tenant, and this
Lease as so amended shall continue thereafter in full force and effect. If
Landlord, upon receiving said notice by Tenant with respect to any of the
Premises, shall not exercise its right to terminate, Landlord will not
unreasonably withhold its consent to Tenant's subletting the Premises specified
in said notice. Tenant shall, at Tenant's own cost and expense, discharge in
full any outstanding commission obligation on the part of Landlord with respect
to this Lease, and any commissions which may be due and owing as a result of any
proposed assignment or subletting, whether or not the Lease is terminated
pursuant hereto and rented by Landlord to the proposed subtenant or any other
tenant. Tenant shall pay to Landlord immediately upon receipt fifty percent
(50%) of all rent or other consideration received by Tenant from any such
assignee or subtenant, either initially or over the term of the assignment or
sublease which is in excess of the rental obligation required under the terms of
this Lease for the premises or portion for which consent is granted, unless such
assignee or subtenant is an "Affiliate" as defined below, or the Guarantor
_______ Lease as specified in the Guaranty attached hereto as Exhibit "F", in
which case Tenant shall have the right to retain one hundred percent (100%) of
all rent or other consideration received by Tenant.
(b) Any subletting hereunder by Tenant shall not result in Tenant being
released or discharged from any liability under this Lease. As a condition to
Landlord's prior written consent as provided for in this Paragraph 9, the
subtenant or subtenants shall agree in writing to comply with and be bound by
all of the terms, covenants, conditions, provisions and agreements of this
Lease, and Tenant shall deliver to Landlord promptly after execution, an
executed copy of each sublease and an agreement of said compliance by each
subtenant. If an event of default, as hereinafter defined, should occur while
the Premises or any part thereof are then sublet, Landlord, in addition to any
other remedies herein provided or provided by law, may at its option collect
directly from the subtenant all rents and other sums becoming due to Tenant
under the sublease and apply the rent against any sums due to Landlord by Tenant
hereunder, and Tenant hereby authorizes and directs any such subtenant to make
payments of rent directly to Landlord upon receipt of notice from Landlord. No
direct collection by Landlord from any subtenant will be construed to constitute
a novation or a release of Tenant from the further performance of its
obligations hereunder. Receipt by Landlord of rent from any assignee, subtenant
or occupant of the Premises will not be deemed a waiver of the covenants
contained in this Lease or a release of Tenant under the Lease. The receipt by
Landlord from any subtenant obligated to make payments of rent will be a full
and complete release, discharge and acquittance to the subtenant of its
obligations to Tenant to the extent of any such amount of rent so paid to
Landlord. Landlord is authorized and empowered, on behalf of Tenant, to endorse
the name of Tenant upon any check, draft or other instrument payable to Tenant
with respect to the Premises and evidencing payment of rent, and any part
thereof, and to receive and apply the proceeds therefrom in accordance with the
terms hereof.
(c) Landlord's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be consent to any subsequent occurrence.
Any sale, assignment, encumbrance, subletting, occupation, lien or other
transfer of this Lease which does not comply with the provisions of this
Paragraph 9 shall be void.
(d) Any transfer of this Lease by merger, consolidation, or liquidation or
any change in ownership of or power to vote the majority of outstanding voting
stock of Tenant or, if Tenant is a partnership, any withdrawal, replacement or
substitution of any partner or partners, either general or limited, shall
constitute an assignment, whether the result of a single or series of
transactions, and shall be subject to Landlord's approval under Paragraph 9(a).
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(e) Tenant may assign (or the parent company that wholly owns Tenant may
cause Tenant to assign) the Lease at any time, or sublease all or part of the
Premises, without receipt of Landlord's consent, to any entity which acquires
all or substantially all of Tenant, or which is acquired in whole or
substantially in whole by Tenant, or which entity controls or is controlled by,
directly or indirectly, Tenant, or which is a wholly owned subsidiary of the
parent company that wholly owns Tenant ("Affiliate"), so long as such
transaction was not entered into as of subterfuge to avoid obligations and
restrictions of the Lease and provided that the Affiliate assumes, in writing,
all of Tenant's obligations under this Lease, and provided further, that Tenant
notifies Landlord in writing at least thirty (30) days prior to such assignment
or subletting. Notwithstanding anything to the contrary herein, in no event
shall the Guarantor of this Lease be relieved of its liability for the
obligations of Tenant or an Affiliate of this Lease.
10. INSURANCE AND INDEMNIFICATION
(a) Landlord shall not be liable to Tenant and Tenant hereby waives all
claims against Landlord and any of its partners for any injury or damage to any
person or property in or about the Premises by or from any cause whatsoever,
excepting Landlord's gross negligence or willful acts, and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
from the roof, walls, basement, or other portion of the Premises or the
Building, or caused by gas, fire, Acts of God, discharge of sprinklers,
excessive heat or cold, sewage, odors, noise, bursting or leakage of pipes or
plumbing fixtures, riot, strike, court order, governmental body or authority,
other tenants, or explosion of the Building or the complex of which it may be a
part or any part thereof. Tenant will hold Landlord harmless from damages due
to the interruption of Tenant's business caused by any damage whatsoever.
(b) Tenant shall hold Landlord harmless from and defend Landlord against
any and all claims or liability from any injury or damage to any person or
property whatsoever: (i) occurring in, on, or about the Premises or any part
thereof, (ii) occurring in, on, or about any facilities (including without
limitations, elevators, stairways, passageways or hallways), the use of which
Tenant may have in conjunction with other tenants of the Building, when such
injury or damage shall be caused in part or in whole by the act, neglect, fault
of, or omission of any duty with respect to the same by Tenant, its agents,
servants, employees, or any other person entering the Premises with express or
implied invitation of Tenant. Tenant further agrees to indemnify and save
harmless the Landlord against and from any and all claims by or on behalf of any
person, firm, or corporation, arising from the conduct or management of any work
or thing whatsoever done by the Tenant in or about the Premises, and will
further indemnify and save the Landlord harmless against and from any and all
claims arising from any breach or default on the part of the Tenant in the
performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to the terms of this Lease, or arising from any act or
negligence of the Tenant, or any of its agents, contractors, servants, employees
or licensees, and from and against all costs, counsel fees, expenses and
liabilities incurred in connection with any such claim or action or proceeding
brought thereon. All property in the Building or Premises belonging to Tenant,
its agents, employees or invitees shall be there at the risk of Tenant. Tenant
agrees to indemnify and save harmless Landlord against claims for damage to,
theft, misappropriation, or loss of said property. Furthermore, in case any
action or proceeding be brought against Landlord by reason of any claims or
liability, Tenant agrees to defend such action or proceeding at Tenant's sole
expense by counsel reasonably satisfactory to Landlord. The provisions of this
Paragraph 10 shall survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.
(c) Tenant agrees to purchase at its own expense and to keep in force
during the term of this Lease a policy or policies of worker's compensation and
comprehensive general liability insurance, including personal injury and
property damage, with contractual liability endorsement in the amount of Five
Hundred Thousand Dollars ($500,000.00) for property damage and One Million
Dollars ($1,000,000.00) per occurrence for personal injuries or deaths of
persons occurring in or about the Premises and a policy or policies of contents'
insurance to protect Tenant's personal property, and all improvements and
alterations provided by Landlord or Tenant for Tenant, and any other fixtures or
equipment controlled or in use by Tenant within the Premises, in the amount of
the replacement cost of said property, such amount being subject to Landlord's
approval. Said policies shall: (i) name Landlord as an additional named
insured and insure Landlord's
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contingent liability under this Lease (except for the worker's compensation
policy, which shall instead include a waiver of subrogation endorsement in favor
of Landlord), (ii) be issued by an insurance company which is acceptable to
Landlord and licensed to do business in the State of Georgia, and (iii) provide
that said insurance shall not be canceled unless thirty (30) days prior written
notice shall have been given to Landlord. Said policy or policies or certificate
thereof shall be delivered to Landlord by Tenant upon commencement of the term
of the Lease and upon each renewal of said insurance. The purchase of such
insurance shall not release Tenant of any legal obligations contained within
this Lease.
(d) Landlord agrees to purchase at its own expense and to keep in force
during the term of this Lease a policy or policies of comprehensive general
liability insurance, including bodily injury and property damage, with
contractual liability endorsement, in the amount of Five Hundred Thousand
Dollars ($500,000.00) for property damage and One Million Dollars
($1,000,000.00) per occurrence for bodily injuries or deaths of persons
occurring in or about the Property exclusive of the Premises and to insure the
Building and work to be done pursuant to the terms of Exhibit "C" against damage
with insurance, in such amounts commercially reasonable (but with respect to
property insurance covering the Building not less than 90% of the full
replacement cost thereof).
11. WAIVER OF SUBROGATION
Each of Landlord and Tenant hereby releases the other from any and all
liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured in policies of insurance covering
such property, even if such loss or damage shall have been caused by the fault
of the other party, or anyone for whom such party may be responsible, including
any other tenants or occupants of the remainder of the Building; provided,
however, that this release shall be applicable and in force and effect only to
the extent that such release shall be lawful at that time and in any event only
with respect to loss or damage occurring during such times as the releaser's
policies shall contain a clause or endorsement to the effect that any such
release shall not adversely affect or impair said policies or prejudice the
right of the releaser to recover thereunder and then only to the extent of the
insurance proceeds payable under such policies. Each of Landlord and Tenant
agrees that it will request its insurance carriers to include in its policies
such a clause or endorsement. Failure to obtain such an endorsement shall not
release the waiver contained in this Lease.
12. SERVICES AND UTILITIES
(a) Landlord shall maintain the public and common areas of the Building,
including lobbies, stairs, elevators, corridors and restrooms, the windows in
the Building, the mechanical, plumbing and electrical equipment serving the
Building, and the structure itself, and the land, appurtenances, grounds,
surface parking lots, sidewalks, public and common areas of the property in a
manner that is, in Landlord's judgment, customarily furnished in comparable
first class office buildings in the immediate market area in reasonably good
order and condition except for damage occasioned by the act of Tenant, which
damage shall be repaired by Landlord at Tenant's expense.
(b) Provided the Tenant shall not be in default hereunder and Subject to
the provisions elsewhere herein contained, including the Rules and Regulations
of the Building, Landlord agrees to furnish to the Premises during ordinary
business hours:
(1) heating and air conditioning required to maintain temperature inside
the Premises as follows: to an inside temperature of seventy-five
(75) degrees Fahrenheit when the outside temperature is seventeen (17)
degrees Fahrenheit and to an inside temperature of seventy-five (75)
degrees Fahrenheit when the outside temperature is not above ninety-
five (95) degrees Fahrenheit.
(2) elevator service to Tenant's floor, which shall mean service either by
automatic elevators or elevators with attendants, or both, at the
option of the Landlord;
(3) hot or cold water to the restrooms and water to the drinking
fountains;
(4) electric current in reasonably sufficient amounts for normal business
use, including operation of building standard lighting and general
office machines of a type which require no more than a 110 volt duplex
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outlet, including desk top personal computers, desk top personal
printers, and desk top calculators, but excluding mainframe computers,
telephone switching equipment, and other non-standard office machines;
and
(5) janitorial services during the times and in a manner that such
services are in Landlord's judgment customarily furnished in
comparable office buildings in the immediate market area (generally as
outlined in Exhibit "H" attached hereto).
(6) Building's freight elevator with reasonable notice to Landlord.
(c) Provided the Tenant shall not be in default hereunder and Subject to
the provisions elsewhere herein contained, including the Rules and Regulations
of the Building, Landlord agrees that with respect to the Premises, and only
during normal business hours or, at Landlord's option, after normal business
hours, it will maintain and adjust at its expense.
(1) All building standard fluorescent lighting. All incandescent and
nonstandard fluorescent lights shall be maintained at Tenant's
expense;
(2) All temperature control devices and air diffusers; and
(3) All Tenant entry door hardware including locks, hinges and closures.
(d) For the purpose of this Lease, normal business hours shall be from
8:00 A.M. to 6:00 P.M. Monday through Friday and from 8:00 A.M. to 1:00 P.M. on
Saturday, excluding the following holidays: New Year's Day, Memorial Day,
Independence Day (4th of July), Labor Day, Thanksgiving Day, Christmas Day and
any other holidays generally recognized from time to time by owners of office
buildings in the Atlanta, Georgia metropolitan area.
(e) Landlord may, at its option, provide additional or after hours heating
or air conditioning at Tenant's request upon reasonable notice, Tenant shall pay
the building standard charge for such services as determined from time to time
by Landlord. The obligation hereunder to ___ such additional utilities will be
subject to the rules and regulations of any municipal or any other governmental
authority regulating the business of providing such utility service. Tenant
agrees to keep closed all window coverings, if any, when necessary because of
the sun's position, and Tenant also agrees at all times to cooperate fully with
Landlord and to abide by all regulations and requirements which Landlord may
prescribe for the proper functioning and protection of said heating,
ventilating, and air conditioning system. Tenant will not without the written
consent of Landlord use any heat generating equipment, machines, or excess
lighting in the Premises which affects the amount of energy required to maintain
the temperature otherwise maintained by the heating, ventilating and air
conditioning system. In the event of such consent, Landlord reserves the right
to install supplementary air conditioning equipment and the cost thereof,
including the ongoing cost of additional electricity, chilled water (if
available at a nominal charge), and/or domestic water (at a nominal charge)
consumed as a result of the use of such equipment, shall be paid by Tenant to
Landlord upon demand. The type, size and location of such supplemental air
conditioning equipment shall be determined or approved by Landlord.
(f) Tenant will not, without written consent of Landlord, use within the
Premises or Building any device or machine, in any number or combination thereof
or for any number of hours, which will in any way increase the amount of
electricity or water normally furnished for use of the Premises as general
office space as defined in Paragraph 12(b)(4). If Tenant in Landlord's judgment
shall require such additional water or electrical current, Tenant shall first
procure the consent of Landlord, which Landlord may refuse, and Landlord may
cause a special meter to be installed so as to measure such additional domestic
water, chilled water (if available), or electrical current. The cost of any
such meters and of installation, maintenance, and repair thereof shall be paid
for by Tenant, and Tenant agrees to pay Landlord or the utility company, as the
case may be, on demand, for the ongoing cost of consumption of such additional
water or electricity. In the event that Landlord is responsible for reading the
meter and invoicing the Tenant, Landlord shall be entitled to charge the Tenant
the reasonable additional expenses for so doing. The Building electrical system
shall be capable of providing a maximum of seven and one-half (7 1/2) watts
live load of power per square foot of Tenant's Premises, exclusive of building
standard lighting. This Paragraph 12(f) only establishes the maximum power
available and does not alter the provisions of Paragraph
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12(f) or Landlord's ability to charge Tenant for electricity use above that
normally furnished (in comparable office buildings in the immediate market area)
for use of the Premises as general office space.
(g) Landlord shall not be in default hereunder or be liable for any damage
directly or indirectly resulting from, nor shall the rental herein reserved be
abated by reason of, the (i) installation, use or interruption of use of any
equipment in connection with the furnishing of any of the following services or
utilities, or (ii) failure to furnish or delay in furnishing any such services
or utilities when such failure is caused by Acts of God or the elements,
strikes, governmental orders, accidents, or other conditions beyond the
reasonable control of he Landlord or by the making of repairs or improvements to
the Premises or to the Building in which case Landlord shall diligently work to
mitigate such interruption in services.
(h) It shall be Tenant's responsibility and expense to install, move,
maintain, adjust, and repair its property and fixtures, including but not
limited to, its: signage, pictures, bulletin boards, plaques, furniture, filing
cabinets, computer cables, computer equipment, business machines, draperies,
blinds, kitchen appliances, special water heaters, kitchen cabinets, private
restroom fixtures, special air conditioning or power conditioning equipment,
locks for furniture and filing cabinets, paging systems, modular furniture
components (including task lighting, flat wiring, and power distribution
cables), combination locks, specialty electrical devices, exhaust fans, fire
extinguishers, carpet squares, and/or other furniture, fixtures, or equipment
installed by Tenant, or which were supplied, specified or requested by Tenant
and installed by Landlord.
(i) Any sums payable under this Paragraph shall be considered additional
rent, and Landlord shall have the same remedies for a default in payment of such
sums as for a default in the payment of rent.
(j) Tenant shall not provide any janitorial services to the Premises
without Landlord's written consent and then only subject to the terms and
conditions of Landlord.
(k) If, in order to protect Tenant's property in the building, it shall be
necessary to make emergency repairs to any portion thereof which is the
responsibility of Landlord to repair, and if Landlord, after receipt of notice,
is unable to make such emergency repairs in sufficient time to protect Tenant's
property, Tenant shall have the right to make such repairs. Landlord shall
fully reimburse Tenant for the reasonable costs of such emergency repairs by
direct payment to Tenant. Such payment shall be due within thirty (30) days of
receipt of an invoice from Tenant, and if paid at a later date by Landlord,
shall bear interest at the lesser of twelve percent (12%) per annum or the
maximum rate authorized by law from the date the sum is paid by Tenant until
Tenant is fully reimbursed by Landlord. Landlord, at Landlord's sole option,
may elect to reimburse Tenant by an adjustment in the amount of rent payable by
making written notice of such election to Tenant.
13. ESTOPPEL CERTIFICATE
Within ten (10) days following any written request which Landlord may make
from time to time, Tenant shall execute and deliver to Landlord a certificate
substantially in the form attached hereto as Exhibit "D" and made a part hereof,
indicating thereon any exceptions thereto that may exist at that time. Failure
of the Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included in Exhibit "D" are true and correct without exception. Landlord and
Tenant intend that the statement delivered pursuant to this paragraph may be
relied upon by any mortgage, beneficiary, purchaser, or prospective purchaser of
the Building or any interest therein.
14. HOLDING OVER
Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the Premises or any part thereof after such termination or if any
of Tenant's property remains which Landlord has previously requested be removed,
then Landlord may, at its option, serve written notice upon Tenant that such
holding over constitutes any one of (i) creation of a month to month tenancy,
upon the terms and conditions set
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forth in this Lease, or (ii) creation of a tenancy at sufferance, in any case
upon the terms and conditions set forth in this Lease; provided, however, that
the monthly rental [or daily rental under (ii)] shall, in addition to all other
sums which are to be paid by Tenant hereunder, whether or not as additional
rent, be equal to one hundred and fifty percent (150%) of the rental being paid
monthly to Landlord under this Lease immediately prior to such termination
[prorated in the case of (iii) on the basis of a 365 day year for each day
Tenant remains in possession]. If no such notice is served, then a tenancy at
sufferance shall be deemed to be created at the rent in the preceding sentence.
Tenant shall also pay to Landlord all damages sustained by Landlord resulting
from retention of possession by Tenant, including the loss of any proposed
subsequent tenant for any portion of the Premises. The provisions of this
paragraph shall not constitute a waiver by Landlord of any right of entry as
herein set forth; nor shall receipt of any rent or any other act in apparent
affirmance of the tenancy operate as a wavier of the right to terminate this
Lease for a breach of any of the terms, covenants, or obligations herein on
Tenant's part to be performed.
15. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to: (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building, the Property, or
any part thereof, and (b) the lien of any first mortgage or deed of trust which
may now exist or hereafter be executed in any amount for which said Building,
land, ground leases or underlying leases, or Landlord's interest or estate in
any of said items is specified as security together with all renewals,
modifications, consolidations, partitions, replacements, and extensions of any
such first mortgage or deed of trust. Notwithstanding the foregoing, Landlord
or the holder of any first mortgage or deed of trust on the Building or the
Property or any part thereof shall have the right to subordinate or cause to be
subordinated in whole or in part any such ground leases or underlying leases or
any such _______ to this Lease (but not in respect to priority of entitlement of
insurance or condemnation proceeds). In the event that any ground lease or
underlying lease terminates for any reason or any first mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and become
the Tenant of the successor in interest to Landlord at the option of such
successor in interest. Tenant covenants and agrees to execute and deliver, upon
demand by Landlord or the holder of any first mortgage or deed of trust on the
Building or the Property or any part thereof and in the form requested by
Landlord or the holder of any first mortgage or deed of trust on the Building
or the Property or any part thereof any additional documents evidencing the
priority of subordination of this Lease with respect to any such ground leases
or underlying leases or the lien of any such mortgage or deed of trust. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such documents in the name and on behalf of Tenant.
16. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the Rules and Regulations
annexed to this lease as Exhibit "A" and all reasonable modifications thereof
and additions thereto from time to time put into effect by Landlord so long as
the modifications do not materially increase Tenant's obligations or diminish
Tenant's rights granted in this Lease. Landlord shall not be responsible for
the nonperformance by any other tenant or occupant of the Building of any said
Rules and Regulations; however, Landlord shall use good faith efforts to enforce
said rules and regulations for all tenants of the Building.
17. ENTRY BY LANDLORD
Landlord reserves and shall at all times have the right to enter the
Premises to inspect the same to determine if Tenant is complying with all terms
and provisions of this Lease, to perform Tenant's obligations under this Lease
in accordance with Paragraph 23 hereof, to supply janitorial service and any
other service to be provided by Landlord to Tenant hereunder, to show said
Premises to prospective purchasers, mortgagees or tenants, to post notices of
nonresponsibility, and to alter, improve, or repair the Premises and any portion
of the Building of which the Premises are a part or to which access is
conveniently made through the Premises, without abatement of rent, and may for
that purpose erect, use, and maintain scaffolding, pipes, conduits, and other
necessary structures in and through the Premises where reasonably required by
the character of the work to be performed, provided that entrance to the
Premises shall not be blocked thereby, and further provided that the business of
Tenant shall not be interfered with unreasonably. Except during emergencies,
Landlord will provide Tenant with notice of intent to make repairs within
Premises. Tenant hereby waives any claim for damages for any
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injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises and any other loss occasioned
thereby. For each of the aforesaid purposes Tenant agrees that its doors shall
be keyed to Landlord's building standard master keying system and that Landlord
shall at all times have and retain master or pass keys with which to unlock all
of the doors in, upon, and about the Premises, excluding Tenant's vaults and
safes, or special security areas (designated in advance), and Landlord shall
have the right to use any and all means which Landlord may deem necessary or
proper to open said doors in an emergency, in order to gain entry to any portion
of the Premises, and any entry to the Premises, or portions thereof obtained by
Landlord by any of said means, or otherwise, shall not under any circumstances
be construed or deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or an eviction, actual or constructive, of Tenant from the
Premises or any portions thereof. Landlord shall also have the right at any
time, without the same constituting an actual or constructive eviction and
without incurring any liability to Tenant therefor, to change the arrangement
and/or location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets, or other public parts of the Building.
18. INSOLVENCY OR BANKRUPTCY
The appointment of a receiver to take possession of all or substantially
all of the assets of Tenant, or an assignment of Tenant for the benefit of
creditors, or any action taken or suffered by Tenant under any insolvency,
bankruptcy, or reorganization act, shall at Landlord's option constitute a
breach of this Lease by Tenant. Upon the happening of any such event or at any
time thereafter, this Lease shall terminate five (5) days after written notice
of termination from Landlord to Tenant. In no event shall this Lease be
assigned or assignable by operation of law or by voluntary or involuntary
bankruptcy proceedings or otherwise and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant under any bankruptcy,
insolvency, or reorganization proceedings.
19. DEFAULT
(a) The following events shall be deemed to be events of default by Tenant
under this Lease:
(1) Tenant shall fail to pay when or before due any sum of money becoming
due to be paid to Landlord hereunder, whether such sum be any installment of the
rent herein reserved, any other amount treated as additional rent hereunder, or
any other payment or reimbursement to Landlord required herein, whether or not
treated as additional rent hereunder, and such failure shall continue for a
period of five (5) days after receipt of written notice of default from Landlord
(however, Landlord shall not be required to give such notice when Landlord has
already given such notice at least once in a twelve (12) month period); or
(2) Tenant shall fail to comply with any term, provision or covenant of
this Lease other than by failing to pay when or before due any sum of money
becoming due to Landlord hereunder, and shall not cure such failure within ten
(10) days (forthwith, if the default involves a hazardous condition) after
written notice thereof to Tenant; provided, however, that if the nature of the
cure of the failure is such that it cannot be reasonably completed within such
ten (10) days, then so long as Tenant commences such cure within ten (10) days
and thereafter diligently and in good faith pursues completion of the cure, the
time to do so will be extended; or
(3) Tenant shall abandon or vacate any substantial portion of the
Premises, unless Tenant is satisfying all its obligations of this Lease except
those associated with occupying the Premises; or
(4) Tenant shall fail to vacate the Premises immediately upon termination
of this Lease, by lapse of time or otherwise, or upon termination of Tenant's
right to possession only; or
(5) The leasehold interest of Tenant shall be levied upon under execution
or be attached by process of law or Tenant shall fail to contest diligently the
validity of any lien or claimed lien and give sufficient security to Landlord to
insure payment thereof or shall fail to satisfy any judgment rendered thereon
and have the same released, and such default shall continue for ten (10) days
after written notice thereof to Tenant; or
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(6) Tenant shall fail to perform any of its obligations under any
agreement with Landlord; or
(7) Default by any guarantor of this Lease of the terms of its
guaranty, or the bankruptcy or insolvency of any guarantor.
(b) Upon the occurrence of any such events of default described in this
Paragraph or elsewhere in this Lease, Landlord shall have the option to pursue
any one or more of the following remedies without any notice or demand
whatsoever:
(1) Landlord may, at its election, terminate this Lease or terminate
Tenant's right to possession only, without terminating the Lease;
(2) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease. Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to landlord full and free license to enter into and upon the
Premises in such event with or without process of law and to repossess Landlord
of the Premises as of Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Premises and to remove any and all
property therefrom, without being deemed in any manner guilty of trespass,
eviction or forcible entry or detainer, and without incurring any liability for
any damage resulting therefrom, Tenant hereby waiving any right to claim damage
for such re-entry and expulsion, and without relinquishing Landlord's right to
rent or any other right given to Landlord hereunder or by operation of law;
(3) Upon termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent, including
any amounts treated as additional rent hereunder, and other sums due and payable
by Tenant on the date of termination, plus the sum of: (1) an amount equal to
the then present value of the entire amount of the rent calculated using a
discount rate equal to the average discount rate of auctioned 3-month Treasury
Bills as of the date of termination of this Lease, including any amounts treated
as additional rent hereunder, and other sums provided herein to be paid by
Tenant for the residue of the stated term hereof, less the fair rental value of
the Premises for such residue taking into account the time and expense necessary
to obtain a replacement tenant or tenants, including expenses hereinafter
described in paragraph 19(b)(4) relating to recovery of the Premises,
preparation for reletting and for reletting itself, and (ii) the cost of
performing any other covenants which would have otherwise been performed by
Tenant.
(4) (i) Upon any termination of Tenant's right to possession only without
termination of the Lease, Landlord may, at Landlord's option, enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as provided in Paragraph 19(b)(2) above, without such
entry and possession terminating the Lease or releasing Tenant, in whole or in
part, from any obligation, including Tenant's obligation to pay therein,
including any amounts treated as additional rent, hereunder for the full term.
In any such case, Tenant shall pay forthwith to Landlord, if Landlord so elects,
a sum equal to the entire amount of the rent, including any amounts treated as
additional rent hereunder, for the residue of the stated term hereof plus any
other sums provided herein to be paid by Tenant for the remainder of the term of
this Lease;
(ii) Landlord may, but need not, relet the Premises or any part thereof
for such rent and upon such terms as Landlord in its sole discretion shall
determine (including the right to relet the Premises for a greater or lesser
term than that remaining under this Lease, the right to relet the Premises as a
part of a larger area, and the right to change the character or use made of the
Premises) and Landlord shall not be required to accept any tenant offered by
Tenant or to observe any instructions given by Tenant about such reletting. In
any such cases, Landlord may make repairs, alterations and additions in or to
the Premises, and redecorate the same to the extent Landlord deems necessary or
desirable, and Tenant shall, upon demand, pay the cost thereof, together with
Landlord's expenses of reletting including, without limitation, any broker's
commission incurred by Landlord. If the consideration collected by Landlord upon
any such reletting plus any sums
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previously collected from Tenant are not sufficient to pay the full amount of
all rent, including any amounts treated as additional rent hereunder and other
sums reserved in this Lease for the remaining term hereof, together with the
costs of any repairs, alterations, additions, redecorating, and Landlord's
expenses or reletting and the collection of the rent accruing therefrom
(including attorney's fees and broker's commissions). Tenant shall pay to
Landlord the amount of such inconsistency.
(5) Landlord may, at Landlord's option, enter into and upon the Premises,
with or without process of law, if Landlord determines in its sole discretion
that Tenant is not acting within a commercially reasonable time to maintain,
repair or replace anything for which Tenant is responsible hereunder and correct
the same, without being deemed in any manner guilty of trespass, eviction or
forcible entry and detainer and without incurring any liability for any damage
resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as
additional rent, for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease;
(6) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or by law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by or
at the direction of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option, be
deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord to Tenant.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided by
law (all such remedies being cumulative), nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Landlord hereunder
or any damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants herein contained. No act or thing done by
Landlord or its agents during the term hereby granted shall be deemed a
termination of this Lease or an acceptance of the surrender of the Premises, and
no agreement to terminate this Lease or accept a surrender of the Premises shall
be valid unless in writing signed by Landlord. Landlord's acceptance of the
payment of rental or other payments hereunder after the occurrence of an event
of default shall not be construed as a waiver of such default, unless Landlord
so notifies Tenant in writing. Forbearance by Landlord in enforcing one or more
of the remedies herein provided upon an event of default shall not be deemed or
constitute a waiver of such default or of Landlord's right to enforce any such
remedies with respect to such default or any subsequent default. If, on account
of any breach or default by Tenant in Tenant's obligations under the terms and
conditions of this Lease, it shall become necessary or appropriate for Landlord
to employ or consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay attorney's fees so
incurred.
(d) Without limiting the foregoing, Tenant hereby appoints and designates
the Premises as a proper place for service of process upon Tenant, and agrees
that service of process upon any person apparently employed by Tenant upon the
Premises or leaving process in a conspicuous place within the Premises shall
constitute personal service of such process upon Tenant (provide, however,
Landlord does not hereby waive the right to serve Tenant with process by any
other lawful means).
20. DAMAGE BY FIRE, ETC.
(a) If the Building, improvements, or Premises are rendered partially or
wholly untenantable by fire or other casualty, and if such damage cannot, in
Landlord's reasonable estimation, be materially restored within one hundred
twenty (120) days of such damage, then Landlord may, at its sole option,
terminate this Lease as of the date of such fire or casualty. Landlord shall
exercise its option provided herein by written notice to Tenant within sixty
(60) days of such fire or other casualty. For purposes hereof, the Building,
improvements, or Premises shall be deemed "materially restored" if they are
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in such condition as would not prevent or materially interfere with Tenant's use
of the Premises for the purpose for which it was then being used.
(b) If this Lease is not terminated pursuant to Paragraph 20(a), then
Landlord shall proceed with all due diligence to repair and restore the
Building, at Landlord's cost, or the improvements or Premises at Tenant's cost,
as the case may be (except that Landlord may elect not to rebuild if such damage
occurs during the last year of the term exclusive of any option which is
unexercised at the date of such damage).
(c) If this Lease shall be terminated pursuant to this Paragraph 20(a),
the term of this lease shall end on the date of such damage as if that date had
been originally fixed in this Lease for the expiration of the term hereof. If
this Lease shall not be terminated by Landlord pursuant to this Paragraph 20(a)
and in the event that Landlord should fail to complete such repairs and material
restoration within one hundred fifty (150) days after the date of such damage,
Tenant may at its option and as its sole remedy terminate this Lease by
delivering written notice to Landlord, whereupon the Lease shall end on the date
of such notice as if the date of such notice were the date originally fixed in
this Lease for the expiration of the term hereof; provided, however, that if
construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, Acts of God,
war, material or labor shortages, governmental regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount of time Landlord is so
delayed.
(d) Tenant agrees that during any period of restoration or repair of the
Premises, Tenant shall continue the operation of Tenant's business within the
Premises to the extent practicable. During the period from the date of the
damage until the date that the untenantable portion of the Premises is
materially restored, the rent shall be reduced to the extent of the proportion
of the Premises which is untenantable, however, there shall be no abatement of
other sums to be paid by Tenant to Landlord as required by this Lease.
(e) In no event shall Landlord be required to rebuild, repair or
replace any part of the partitions, fixtures, additions and other improvements
which may have been placed in or about the Premises by Tenant after the
Commencement Date, however Landlord has the right but not the obligation to
rebuild, repair or replace at Tenant's expense so much of the partitions,
fixtures, additions and other improvements as may be necessary to ensure that
the Premises are materially restored. Any insurance which may be carried by
Landlord or Tenant against loss or damage to the Building or Premises shall be
for the sole benefit of the party carrying such insurance and under its sole
control except that Landlord's insurance may be subject to control by (i) the
holder or holders of any indebtedness secured by a mortgage or deed of trust
covering any interest of Landlord in the Premises, the Building, or the Property
and/or (ii) the ground lessor of the Property.
(f) Notwithstanding anything herein to the contrary, in the event the
holder of indebtedness secured by a mortgage or deed of trust covering the
Premises, Building or Property or the ground lessor of the Property requests
that any insurance proceeds be paid to it, then Landlord shall have the right to
terminate the Lease by delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such person, whereupon
the Lease shall end on the date of such damage as if the date of such damage
were the date originally fixed in this Lease for the expiration of the term.
(g) In the event of any damage or destruction to the Building or he
Premises by any peril covered by the provisions of this Paragraph 20, Tenant
shall, upon notice from Landlord, remove forthwith, at its sole cost and
expense, all or such portion of the property belonging to the Tenant or its
licensees from all of the Building or the Premises, or such portion, as Landlord
shall request. Tenant hereby indemnifies and holds Landlord harmless from any
loss, liability, costs, and expenses, including attorney's fees, arising out of
any claim or damage or injury as a result of any alleged failure to secure the
Premises property prior to such removal and/or during such removal.
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21. CONDEMNATION
(a) If any substantial part of the building, improvements, or Premises
should be taken for any public or quasi-public use under governmental law,
ordinance or regulation, or by right of eminent domain, or by private purchase
in lieu thereof and the taking would prevent or materially interfere with
Tenant's then existing permitted use of the Premises, this Lease shall terminate
effective when the physical taking shall occur in the same manner as if the date
of such taking were the date originally fixed in this Lease for the expiration
of the term hereof.
(b) If part of the Building, improvements, or Premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and this Lease is not terminated as provided in Paragraph 21(a), this
Lease shall not terminate but the rent payable hereunder during the unexpired
portion of this Lease shall be reduced to such extent, if any, as may be fair
and reasonable under all of the circumstances, and Landlord shall undertake to
restore the Building, improvements, and Premises to a condition suitable for
Tenant's use, as near to the condition thereof prior to such taking as is
reasonably feasible under all circumstances.
(c) Tenant shall not share in any condemnation award or payment in lieu
thereof or in any award for damages resulting from any grade change of adjacent
streets, the same being hereby assigned to Landlord by Tenant, provided,
however, that Tenant may separately claim and receive from the condemning
authority, if legally payable, compensation for Tenant's removal and relocation
costs and for Tenant's loss of business and/or business interruption, except
that no such claim shall diminish or otherwise adversely affect Landlord's award
or the awards of any and all ground and underlying lessors and mortgagees
(including deed of trust beneficiaries).
(d) Notwithstanding anything to the contrary contained in this Paragraph
21, if the temporary use or occupancy of any part of the Premises shall be taken
or appropriated under power of eminent domain during the term of this Lease,
this Lease shall be and remain unaffected by such taking or appropriation and
Tenant shall continue to pay in full all rent payable hereunder by Tenant during
the term of this Lease; in the event of any such temporary appropriation or
taking, Tenant shall be entitled to receive that portion of any award which
represents compensation for the use of occupancy of the Premises during the term
of this Lease, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises after the end of the term of this Lease.
22. SALE BY LANDLORD
The covenants and obligations of Landlord hereunder shall be binding upon
the Landlord named herein and its successors and assigns, _______ with respect
to their respective periods of time as Landlord hereunder. In the event of a
sale or conveyance by Landlord of the Building, the ________ shall operate to
release Landlord from any future liability upon any of the covenants or
conditions, express or implied, herein contained in favor of Tenant, and in such
event Tenant agrees to look solely to the successor in interest of Landlord in
and to this Lease. Tenant agrees to attorn to the purchaser or assignee in any
such sale.
23. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by the Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If the Tenant shall fail to pay any
sum of money, other than rent, required to be paid by it hereunder or shall fail
to perform any other act on its part to be performed hereunder, and such failure
shall continue for ten (10) days after notice thereof by the Landlord, the
Landlord may, but shall not be obligated so to do, and without waiving or
releasing the Tenant from any obligations of the Tenant, make any such payment
or perform any such act on the Tenant's part to be made or performed as in this
Lease provided. All sums so paid by the Landlord and all necessary incidental
costs, together with interests thereon at the Agreed Interest Rate as defined in
Paragraph 8 hereof from the date of such payments by the Landlord shall be
payable as additional rent to the Landlord on demand, and the Tenant covenants
to pay any such sums, and the Landlord shall have, in addition to any other
right or remedy of the Landlord, the same rights and remedies in the event of
nonpayment thereof by the Tenant as in the case of default by the Tenant in the
payment of the rent.
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24. SURRENDER OF PREMISES
(a) At the end of the term or any renewal thereof or other sooner
termination of this Lease, the Tenant will peaceably deliver up to the Landlord
possession of the Premises, together with all improvements or additions upon or
belonging to the same, by whomsoever made, in the same condition as received, or
first installed, reasonable wear and tear, damage by fire, earthquake, Act of
God, or the elements alone excepted. Tenant may, upon the termination of this
Lease, remove all movable furniture and equipment belonging to Tenant, at
Tenant's sole cost, repairing any damage caused by such removal. Property not
so removed shall be deemed abandoned by the Tenant, and title to the same shall
thereupon pass to Landlord. Upon request by Landlord, unless otherwise agreed
to in writing by Landlord, Tenant shall remove, at Tenant's sole cost, any or
all permanent improvements or additions to the Premises installed by or at the
expense of Tenant, provided that Landlord so requested such approval at the time
of giving its consent to the addition or improvement, and all movable furniture
and equipment belonging to Tenant which may be left by Tenant and repair any
damage resulting from such removal.
(b) The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of the
Landlord, either terminate all or any existing subleases or subtenancies, or
operate as an assignment to Landlord of any or all such subleases or
subtenancies.
25. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent break or nonperformance of the same or any other term,
covenant or condition contained herein. Furthermore, the acceptance of rent by
Landlord shall not constitute a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, regardless of Landlord's knowledge of
such preceding breach at the time Landlord accepted such rent. Failure by
Landlord to enforce any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or to decrease the right of
Landlord to insist thereafter upon strict performance by Tenant. Waiver by
Landlord of any term, covenant or condition contained in this Lease may only be
made by a written document signed by Landlord.
26. NOTICES
All notices and demands which may or are required to be given by either
party to the other hereunder shall be in writing and shall be deemed given when
delivered or mailed as required below. All notices and demands by the Landlord
to the Tenant shall be either delivered to the Premises or sent by a commercial
interstate courier service offering proof of delivery or by United States
Certified or Registered mail, postage and fees prepaid, addressed to the Tenant
at the Premises, with a copy of such notices sent to: CompuCom Systems, Inc.,
Attention: Property Management, 10100 North Central Expressway, Dallas, Texas
75231, or to such other place as the Tenant may from time to time designate in a
notice to the Landlord. All notices and demands by the Tenant to the Landlord
shall be sent by United States Certified or Registered mail, postage prepaid,
addressed to the Landlord at each of the addresses specified in the Basic Lease
Information, or to such other firm or to such other place as Landlord may from
time to time designate in a notice to the Tenant. If requested by Landlord,
Tenant shall send copies of any notices and demands by Tenant to the holder or
holders of any mortgage or deed of trust on the Property or any part thereof.
27. RENTAL ADJUSTMENT
The Net Rent is Fourteen Dollars and Seventy-Five Cents ($14.75) per
rentable square foot per year on Twenty-Two Thousand Nine Hundred and Seventy-
Four ($22,974.00) per month and the Expense Stop Rent is Six Dollars ($6.00) per
rentable square foot per year, or Nine Thousand Three Hundred and Forty-Six
Dollars ($9,346.00) per month as set forth in the Basic Lease Information on
Page 2 of the Lease. Said Net Rent and Expense Stop Rent shall be subject to
adjustment on the first day of each January after the Commencement Date (the
"Rental Adjustment Date") in the manner set forth below:
(a) On and as of the Rental Adjustment Date for each year, the monthly
Net Rent shall be multiplied by 1.02 and that product shall be the monthly Net
Rent payable commencing with said Rental Adjustment Date.
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(b) Rental Adjustment, Operating Cost Increases. In addition to the
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payment of Net Rent and Expense Stop Rent, and all other charges provided for in
this Lease, Tenant shall pay as Pro Rata Share of any increase in the total
annual Operating Costs of the Building as hereinafter defined:
1. Definitions
(i) Pro Rata Share: Tenant's Pro Rata Share is defined as the ratio
of the rentable square footage of the Premises to the total rentable
square footage of the Building. In this Lease, Tenant's Pro Rata
Share is 13.99 percent (13.99%) subject to increase or decrease due
to an increase or decrease of the rentable square footage of either
the Building or the Premises. Tenant's Pro Rata Share shall be
adjusted for partial years at the beginning and end of the term.
(ii) Expense Stop: The Expense Stop, for purpose of this Paragraph
27 is $6.00 per square foot of rentable area of the Premises. The
Expense Stop is based upon Landlord's reasonable best estimates of
the Operating Costs for a fully assessed and ninety-five percent
(95%) occupied building.
(iii) Comparison Year. Each calendar year during the term of this
Lease.
(iv) Operating Costs: All expenses incurred by Landlord as
reasonably determined by Landlord to be necessary or appropriate for
the operation, maintenance, and repair of the Building, the personal
property used in conjunction therewith, the land upon which the
Building is situated, and the parking facility situated on the land.
Operating Costs shall include, but are not limited to, all expenses
incurred by Landlord for heating, cooling, electricity, water, gas,
sewers, refuse collection, telephone services not chargeable to
tenants, and similar utility services; the cost of supplies;
janitorial and cleaning, security services, landscaping maintenance
and replacements, window washing, insurance, management fees,
services of independent contractors performing duties necessary to
the operation of the Building, personal and real property taxes, the
Building's pro rata share of assessments made by the Windward
Property Owner's Association, non-capitalized alterations or
improvements made to the Building by reason of the laws and/or the
requirements of any insurer, mortgagee (only where such requirements
form insurer or mortgagee concern safety or structural features of
the Building and are commercially reasonable in light of requirements
generally imposed in the insurance or real estate lending industries
with respect to similar buildings), or governmental agency, the cost
of any capital improvements (a) which are made to the Building by
Landlord during the term which reduce the Operating Costs to the
extent such Operating Costs are actually reduced in any comparison
Year, or (b) which are made to the Building by Landlord after the
date of this Lease and which are required under any governmental law
or regulation which was not applicable to the Building at the
Commencement Date or was not enacted prior to the Commencement Date
(Operating Costs under (a), (b) or the prior item shall be amortized
over the useful life of the improvements at a market rate of
interest), the cost of compensation (including employment taxes and
fringe benefits) of all persons who perform duties in connection with
such Operating Costs, including the Building Manager, and any other
expense or charge which in accordance with generally accepted
accounting and management principles would be considered an expense
of maintaining, operating, or repairing the Building and the land
upon which it is situated.
Operating Costs shall not include the following items:
Leasing commissions, finders fees, brokerage fees and similar fees,
and costs incurred with the registration or enforcement of leases but
not management fees; Rent under any ground leases; Costs of
furnishing services to other tenants or occupants to the extent that
such services are materially in excess of services Landlord offers to
all tenants at Landlord's expense; Lease takeover costs incurred by
Landlord
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in connection with new leases at the Property, Costs and expenses of
the sale of all or any portion of the Property, Amounts received by
Landlord through the proceeds of insurance to the extent the proceeds
are compensation for expenses which were previously included in
uprooting expenses; Costs incurred by Landlord with respect to
repairs, goods and services (including utilities sold and supplied to
tenants and occupants of the Property) to the extent that Landlord is
entitled to reimbursement for such costs; Except as otherwise
provided herein, costs incurred by Landlord for alterations which are
considered capital improvements and replacements under generally
accepted accounting principles, consistently applied; Except as
otherwise provided herein, costs of a capital nature, including,
without limitation, capital improvements, capital repairs, capital
equipment and capital tools, all as determined in accordance with
generally accepted accounting principles, consistently applied; Costs
incurred by Landlord due to the violation by landlord of the terms
and conditions of any lease of space in the Property; Interest,
points and fees on debt or amortization or for any mortgage or
mortgages encumbering the Property, or any part thereof, and all
principal, escrow deposits and other sums paid on or in respect to
any indebtedness; whether or not secured by a mortgage lien) and on
any equity participations of any lender or lessor, and all costs
incurred in connection with any financing, refinancing or syndication
of the Property, or any part thereof; Depreciation and amortization;
the costs of the original construction of the Property and the
improvements; Income, franchise, transfer, inheritance, capital
stock, estate, profit, gift, gross receipts or succession taxes;
salaries, fringe benefits and other compensation for personnel not
directly involved in the operation or management of the Building;
costs and expenses of the sale of all or a portion of the Property,
costs of repairs or replacements incurred by reason of fire or other
casualty or condemnation in excess of the value of the insurance
deductible; costs for performing tenant installations for any
individual tenant or for performing work or furnishing services to or
for individual tenants at such tenant's expense and any other
contribution by Landlord to the cost of tenant improvements to the
extent such work is reimbursed or capitalized; Landlord's general
corporate overhead and general administrative expenses, except as
related to the operation or maintenance of the Building; rentals and
other related expenses incurred in leasing air-conditioning systems,
elevators or other equipment ordinarily considered to be of a capital
nature except for customary office equipment. All special assessments
by the local governing authority which may be paid by Landlord in
installments, shall be paid by Landlord in the maximum number of
installments permitted by law and charged as operating expenses only
in the year in which the assessment installment is actually paid.
(v) Actual Costs: The actual amount paid or incurred by Landlord
for Operating Costs during any Comparison year.
(vi) Estimated Costs: Landlord's reasonable estimate of Actual Costs
for each Comparison Year which shall be prepared in good faith by
Landlord.
2. Gross Up: In the event that the Building is not at least 95% occupied
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during any period of the Comparison Year, Landlord shall make
reasonable adjustments necessary to project what the Actual Costs
would have been had the Building been 95% occupied during the full
term of the year and those projected Operating Costs shall be deemed
to be the Actual Costs for purposes of this Paragraph.
3. Payment of Tenant's Pro Rata Share of Estimated Costs: At least
-----------------------------------------------------
thirty (30) days prior to the commencement of each Comparison Year
during the term hereof, Landlord shall furnish Tenant with a written
statement, prepared in good faith, setting forth the Estimated Costs
for such Comparison Year, and a statement showing the amount by which
Tenant's Pro Rata Share of the Estimated costs exceed the Expense
Stop. Tenant shall pay one-twelfth (1/12) of its Pro Rata Share of
such excess monthly.
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4. Payment of Tenant's Pro Rata Share of Actual Costs: Within forty-five
--------------------------------------------------
(45) days after the close of each Comparison Year, Landlord shall
deliver to Tenant a written statement setting forth the Actual Costs
during that Comparison Year, together with appropriate documentation,
if so requested by Tenant. If such Actual Costs exceed the Estimated
Costs paid by Tenant to Landlord for such Comparison Year, Tenant
shall pay to Landlord its Pro Rata Share of such excess within forty-
five (45) days after receipt of such statement. If the statement
shows such Actual Costs to be less than the Estimated Costs, then
Landlord shall credit the difference against rent due for the
calendar months next following receipt of Landlord's written
statement, or refund the difference to Tenant if the term has
expired.
5. Inspection of Landlord's Books: Tenant shall be entitled to
------------------------------
supporting documentation of operating costs as it shall reasonably
request. Tenant may, upon reasonable notice to Landlord, inspect
Landlord's books and records pertaining to operating cost charges at
their usual location.
28. CERTAIN RIGHTS RESERVED TO THE LANDLORD
The Landlord may enter upon the Premises and/or may exercise any or all of
the following rights hereby reserved without being deemed guilty of an eviction
or disturbance of the Tenant's use or possession and without being liable in any
manner to the Tenant and without abatement of rent or affecting any of the
Tenant's obligations hereunder:
(a) To change the name or street address of the Building;
(b) To install and maintain a sign or signs on the exterior of the
Building;
(c) To designate all sources furnishing sign painting and lettering, food
and beverage vending services, towels, carpet cleaning service, toilet
supplies, lamps and bulbs used on the Premises;
(d) To retain at all times pass keys to the Premises;
(e) To grant to any the exclusive right to conduct any particular
business or undertaking in the Building;
(f) To close the Building after regular working hours and on the legal
holidays subject, however to Tenant's right of admittance, under such
reasonable regulations as Landlord may prescribe from time to time, which
may include by way of example but not of limitation, that persons entering
or leaving the Building identify themselves to a watchman by registration
or otherwise and that said persons establish their right to enter or leave
the Building; and
(g) To take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Premises or the
Building, and identification and admittance procedures for access to the
Building as may be necessary or desirable for the safety, protection,
preservation or security of the Premises or the Building or the Landlord's
interests, or as Landlord may deem necessary or desirable in the operation
of the Building.
29. ABANDONMENT
Tenant shall not vacate or abandon the Premises at any time during the
term, and if Tenant shall abandon, vacate, or surrender said Premises or be
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the Premises shall, at the option of Landlord, be deemed to
be abandoned and title thereto shall thereupon pass to Landlord, in addition to
other remedies available to Landlord for Tenant's defaults under this lease.
Notwithstanding the foregoing, so long as Tenant is satisfying all its
obligations of this Lease except those associated with occupying the Premises,
Tenant may vacate the Premises.
30. SUCCESSORS AND ASSIGNS
Subject to the provisions of Paragraph 9 hereof, the terms, covenants, and
conditions contained herein shall be binding upon and inure to the benefit of
the heirs, successors, executors, administrators and assigns of the parties
hereto.
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31. ATTORNEY'S FEES
In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to reasonable attorney's
fees to be fixed by the court in such action or proceeding.
32. SECURITY DEPOSIT
(a) Tenant shall pay to Landlord upon execution of this Lease the
security deposit specified in the Basic Lease Information for the faithful
performance of all terms, covenants and conditions of this Lease. Tenant agrees
that Landlord may apply said security deposit to remedy any failure by Tenant to
repair or maintain the Premises or to perform any other terms, covenants, and
conditions contained herein. If Tenant has kept and performed all terms,
covenants, and conditions of this Lease during the term hereof, Landlord will on
the termination hereof promptly return said sum to Tenant or the last permitted
assignee of Tenant's interest hereunder at the expiration of the Lease term.
Should Landlord use any portion of said sum to cure any default by Tenant
hereunder, Tenant shall forthwith replenish said sum to such original amount.
Landlord shall not be required to keep any security deposit separate from its
general funds, and Tenant shall not be entitled to interest on any such deposit.
Upon the occurrence of any events of default described in Paragraph 19 of this
Lease, said security deposit shall become due and payable to Landlord.
(b) Subject to other terms and conditions contained in this Lease, if
the Building is conveyed by Landlord, said security deposit may be turned over
to the Landlord's grantee and, if so, Tenant hereby releases Landlord from any
and all liability with respect to said deposit and its application or return.
33. TENANT AUTHORITY
If Tenant signs as a corporation or partnership, each of the persons
executing this Lease on behalf of Tenant does hereby covenant and warrant that
Tenant is a duly authorized and existing corporation or partnership, as the case
may be, that Tenant has and is qualified to do business in Georgia, that the
corporation or partnership has full right and authority to enter into this
Lease, and that each and all of the persons signing on behalf of the corporation
or partnership are authorized to do so. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord confirming
the foregoing and warranties.
34. MORTGAGEE AND GROUND LESSOR APPROVALS
The approval or consent of Landlord shall not be deemed to have been
unreasonably withheld for purposes of any provisions of this Lease requiring
such consent if any mortgagee (which shall include the holder of any deed of
trust) of the Premises, Building or Property or any portion thereof, or the
ground lessor of the Property, shall refuse or withhold its approval or consent
thereto. Any requirement of Landlord pursuant to this Lease which is imposed
pursuant to the direction of any such mortgagee or ground lessor shall be deemed
to have been reasonably imposed by Landlord if made in good faith.
35. MISCELLANEOUS
(a)(i) The term "Premises" wherever it appears herein includes and shall
be deemed or taken to include (except where such meaning would clearly repugnant
to the context) the office space demised and improvements now or at any time
hereinafter comprising or built in the space hereby demised. (ii) The paragraph
headings herein are for convenience of reference and shall in no way define,
increase, limit, or describe the scope or intent of any provision of this Lease.
(iii) The term "Landlord" in these presents shall include the Landlord, its
successors and assigns. In any case where the Lease is signed by more than one
person, the obligations hereunder shall be joint and several. (v) The term
"Tenant" or the pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural number, individuals, firms or
corporations, and their and each of their respective successors, executors,
administrators, and permitted assigns, according to the context hereof. (vi)
The term "Lease" wherever it appears herein shall be deemed or taken to include
the Basic Lease Information and all paragraphs and exhibits attached hereto and
made a part hereof.
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(b) Time is of the essence of this Lease and all of its provisions.
Periods of time expressed in days for performance, unless otherwise specified,
shall mean calendar days.
(c) This Lease shall in all respects be governed by the laws of the State
of Georgia.
(d) This Lease, together with its exhibits, contains all the agreements
of the parties hereto and supersedes any previous negotiations. There have been
no representations made by the Landlord or understandings made between the
parties other than those set forth in this Lease and its exhibits. This Lease
may not be modified except by a written instrument by the parties hereto.
(e) All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof.
(f) If any clause, phrase, provision or portion of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease or any other clause,
phrase, provision or portion hereof, nor shall it affect the application of any
other clause, phrase, provision or portion hereof to other persons or
circumstances, and it is also the intention of the parties to this Lease that in
lieu of each such clause, phrase, provision or portion of this Lease that is
invalid or unenforceable, there be added as a part of this Lease contract a
clause, phrase, provision or portion as similar in terms to such invalid or
unenforceable clause, phrase, provision or portion as may be possible and be
valid and enforceable.
(g) Whenever a period time is herein described for action to be taken by
Landlord, the Landlord shall not be liable for responsible for, and there shall
be excluded from the computation for any such period of time, any delays due to
causes of any kind whatsoever which are beyond the control of Landlord.
(h) Notwithstanding any other provision of this Lease to the contrary, if
the Commencement Date hereof shall not have occurred before the twentieth (20th)
anniversary of the date hereof, this Lease shall be null and void and neither
party shall have any liability or obligation to the other hereunder. The
purpose and intent of this provision is to avoid the application of the rule
against perpetuities to this Lease.
36. QUIET ENJOYMENT
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements herein set forth, shall peaceably and quietly
have, hold and enjoy the Premises for the term hereof without hindrance or
molestation from Landlord subject to the terms and provisions of this Lease. In
the event this Lease is a sublease, then Tenant agrees to take the Premises
subject to the provisions of the prior leases. Landlord shall not be liable for
any interference or disturbance by other tenants or third persons, nor shall
Tenant be released from any of the obligations of this Lease because of such
interference or disturbance.
37. LANDLORD'S LIABILITY
In no event shall Landlord's liability for any breach of this Lease exceed
the amount of rental then remaining unpaid for the current term (exclusive of
any renewal periods which have not then actually commenced). This provision is
not intended to be a measure or agreed amount of the Landlord's liability with
respect to any particular breach, and shall not be utilized by any court or
otherwise for the purpose of determining any liability of Landlord hereunder,
except only as a maximum amount not to be exceeded in any event. Furthermore,
any liability of Landlord hereunder shall be enforceable only out of Landlord's
interest in the Building or Property and in no event out of the separate assets
of any constituent partner of Landlord. No holder or beneficiary of any
mortgage or deed of trust on any part of the Property shall have any liability
to Tenant hereunder for any default of Landlord.
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38. NO ESTATE
This contract shall create the relationship of Landlord and Tenant, and no
estate shall pass out of Landlord. Tenant has only a usufruct, not subject to
levy and sale and not assignable by Tenant, except as provided for herein and in
compliance herewith.
39. SUBSTITUTION OF PREMISES
At any time after the date of this Lease, Landlord may substitute for the
Premises other premises in the Building or premises in another building if such
other building is located within the same business park (the "New Premises"), in
which event the New Premises shall be deemed to be the Premises for all purposes
under this Lease, provided: (i) the New Premises shall be similar to the
Premises in area and appropriateness for the use of Tenant's purposes; (ii) if
Tenant is then occupying the Premises, Landlord shall pay the expense of moving
Tenant, its property and equipment to the New Premises and such moving shall be
done at such time and in such manner so as to cause the least inconvenience to
Tenant; (iii) Landlord shall give to Tenant not less than ninety (90) days'
prior written notice of such substitution; and (iv) Landlord shall, at its sole
cost, improve the New Premises with improvements substantially similar to those
in the Premises.
40. LEASE EFFECTIVE DATE
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not effective as
a lease or otherwise until execution by both Landlord and Tenant.
41. HAZARDOUS MATERIALS
Tenant shall not cause or permit the escape, disposal or release of any
biologically or chemically active or other hazardous substances, or materials
in, on, or about the Premises. Tenant shall not allow the storage or use of
such substances or materials in, on, or about the Premises in any manner not
sanctioned by law or by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to be brought into
the Premises in any such materials or substances except to use in the ordinary
course of Tenant's business, and then only after written notice has been given
to Landlord of the identity of such substances or materials excepting, however,
ordinary office and cleaning supplies. Without limitation, hazardous substances
and materials shall include those described in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act, as amended. 42 U.S.C.
Section 6901 et seq., any applicable state or local laws and the regulations
adopted under these acts. If any lender or governmental agency shall ever
require testing to ascertain whether or not there has been any release of
hazardous materials in, on, or about the Premises, then the reasonable costs
thereof shall be reimbursed by Tenant to Landlord upon demand as additional
charges if such requirement applies to Tenant's use and occupancy of the
Premises. In addition, Tenant shall execute affidavits, representations and the
like from time to time at Landlord's request concerning Tenant's best knowledge
and belief regarding the presence of hazardous substances or materials
introduced by Tenant on the Premises. In all events, Tenant shall indemnify
Landlord in the manner elsewhere provided in this Lease from any release of
hazardous materials in, on, or about on the Premises occurring while Tenant is
in possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the depreciation or earlier termination of
the lease term. Landlord represents and warrants that the Building does not,
and will not, on the Commencement Date contain hazardous materials or substances
as defined herein, other than those materials that may have been introduced by
Tenant, Tenant's contractor or Tenant's employees.
42. SCHEDULED EXPANSION
Tenant hereby agrees to lease for a term commencing on the first day of the
nineteenth (19th) month of the Lease Term and coterminous with the Lease Term
for the original Premises, an additional 5,000 rentable square feet, being that
remaining portion of the 2nd floor not already then occupied by Tenant, as
outlined in red on Exhibit "H" (the "Scheduled Expansion Space"), brining the
total area of the Premises to approximately 23,691 rentable square feet, and
Tenant's Pro Rata Share in accordance with Paragraph 27 shall adjust
accordingly. Beginning on the first day of the nineteenth (19th) month of the
Lease Term, the Scheduled Expansion Space shall be added to the Premises without
the need for further amendment to the Lease, and the Net Rent and Expense Stop
Rent, as calculated in Paragraph 27 of this Lease, shall be
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adjusted to reflect the increase in the Premises. Tenant shall receive no
allowance beyond that provided by Exhibit "C" of this Lease for the improvements
of the Scheduled Expansion Space, it being understood that a portion of the
allowance provided for by Exhibit "C" is for the improvements of the Scheduled
Expansion Space. Improvements to the Scheduled Expansion Space may be made at
the time of improvements to the original Premises in order to take advantage of
construction efficiencies.
43. NON-DISTURBANCE
Landlord shall use reasonable best efforts to secure a Non-Disturbance
Agreement on behalf of Tenant from any present or future mortgages or holders of
other superior interests in the Building.
44. GUARANTY
The guarantee of this Lease ("Guaranty") is set forth as Exhibit "F"
attached hereto and made a part hereof.
45. RENEWAL OPTIONS
Tenant shall have the right and option to renew this Lease for an
additional term of sixty (60) months by delivering written notice thereof to
Landlord at least twelve (12) months prior to the expiration of the primary
term, provided that at the time of such notice, and the end of the Lease Term,
Tenant is not in default hereunder beyond any applicable period for cure. Upon
the delivery of said notice and subject to any conditions set forth in the
preceding sentence, and upon the execution by Landlord and Tenant of an
extension agreement containing such terms and provisions which are consistent
with the provisions of this Paragraph, this Lease shall be extended upon the
same terms, covenants and conditions as provided in this Lease, except that:
(i) the monthly rental payable under Paragraph 4 of the Lease during said
renewal term shall be the prevailing market rate for Premises at the
commencement of such extended term; provided, however, in no event shall the
monthly rental calculated by this Paragraph 46 be less than the monthly rental
payable closest to an prior to the commencement of renewal term;
(ii) any termination of this Lease, any assignment of this Lease or
subletting of the Premises in effect at the time of notice to Landlord of the
exercise of such renewal option (except in the case of assignments or sublets
for which Landlord's consent is not required as provided in Paragraph 9) shall
terminate the option of Tenant contained in this Paragraph 46.
47. MICROWAVE ANTENNA
Tenant shall have the right, subject to approvals of Landlord, including,
but not limited to, approvals of Landlord as to placement position, screening
and coloring, to install a satellite dish antenna in an area designated by
Landlord. Tenant shall install the smallest antennas reasonablely available to
it to accomplish its intended use but in no event shall such antenna exceed 6'
in diameter. The installation, maintenance or operation shall not interfere
with the quiet enjoyment or business operations of other tenants in the
Building. The costs of installation, including compliance with Landlord's rules
and all regulations of a governmental entity or regulatory body, shall be borne
solely and exclusively by Tenant. Landlord shall not be responsible for the
suitability of the Building or Property for the proper operation of the
antennas.
48. SIGNAGE
Tenant, at Tenant's sole cost and expense (but Tenant may use a portion of
Landlord's Allowance for the same), shall be entitled to install signage,
including Tenant's corporate name and logo, on the Building monument sign, as
well as in the Building on the walls of elevator lobbies and entrance doors on
any full floors leased by Tenant. Tenant's exterior signage shall be limited to
the Building monument sign, and such signage shall be underneath and smaller
than signage provided on the monument sign for Vanity Fair. Tenant shall first
provide Landlord with detailed specifications for the design and placement of
any signage for Landlord's approval, which shall not be unreasonably withheld or
delayed. It shall not be unreasonable for Landlord to withhold approval of the
submitted signage if such signage is incompatible with the
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design of the Building monument sign or the Building's standard signage or if
such signage would materially detract from the appearance of the Building or the
Building monument sign. Landlord and the Tenant hereby confirm that all exterior
signage is subject to the ordinances of Fulton County and Alpharetta, Georgia,
as well as restrictions imposed by the Windward Business Park. Landlord shall
assist Tenant, to the extent reasonably possible, in obtaining proper
governmental approvals and permits for the requested signage. Signage on any
floor occupied in its entirety by Tenant is not required to conform to the
Building standard signage.
49. BROKER'S FEES
With the exception of The Wesley Co., Landlord and Tenant warrant and
represent, each to the other, that it has had no dealings with any broker or
agent in connection with this Lease, and Landlord and Tenant hereby indemnify
each other against, and agree to hold each other harmless from, any liability or
claim (and all expenses, including attorneys' fees, incurred in defending any
such claim or in enforcing this indemnity) for a real estate brokerage
commission or similar fee or compensation arising out of or in any way connected
with any claim dealings with the indemnitor and relating to this Lease or the
negotiation thereof.
IN WITNESS WHEREOF, the parties have executed this Lease under seal the day
and year first above written.
LANDLORD TENANT
CK WINDWARD #1, LLC, ClientLink, Incorporated, a Delaware
corporation
a North Carolina limited liability
company
By: By: /s/ James H. Hamilton
------------------------------- -------------------------------
(Seal)
Date: Name: James H. Hamilton
---------------------------- -----------------------------
Title: President
----------------------------
Date: September 27, 1996
-----------------------------
ATTEST/WITNESS: ATTEST/WITNESS:
/s/ Bettina May
- ------------------------------- ------------------------------
Its: Its: Operations Manager
--------------------------- -------------------------
(Affix Corporate Seal) (Affix Corporate Seal)
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EXHIBIT "A"
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators and stairways shall
not be obstructed by tenants or used by them for any purpose other than for
ingress to and egress from their respective premises. The halls, passages,
exits, entrances, elevators, escalators and stairways are not intended for
the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence,
in the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of such
tenant's business unless such persons are engaged in illegal activities.
No tenant, no employees or invites of any tenant, shall go upon the roof of
the Building, except as authorized by Landlord.
2. No sign, placard, picture, name, advertisement or notice, visible from the
exterior of the premises shall be inscribed, painted, affixed, installed or
otherwise displayed by any tenant either on its premises or any part of the
Building without the prior written consent of Landlord, and Landlord shall
have the right to remove any such sign, placard, picture, name,
advertisement, or notice without notice to and at the expense of that
tenant.
If Landlord shall have given such consent to any tenant at any time,
whether before or after the execution of the lease, such consent shall in
no way operate as a waiver or release of any of the provision hereof or of
such lease, and shall be deemed to relate only to the particular sign,
placard, picture, name, advertisement or notice so consented to by Landlord
and shall not be construed as dispensing with the necessity of obtaining
the specific written consent of Landlord with respect to any other such
sign, placard, picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of the tenant by a person
approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awing, hangings or decorations shall be attached to, hung or
placed in or used in connection with, any window or door on the premises of
any tenant without the prior written consent of Landlord. In any event and
with the prior written consent of Landlord, all such items shall be
installed in such a manner that they shall in no way be visible from the
exterior of the Building. No articles shall be placed or kept on the
window sills so as to be visible from the exterior of the Building. No
articles shall be placed against glass partitions or doors which might
appear unsightly from outside the premises of any tenant.
5. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 8 a.m. Monday through Friday and at all hours on Saturdays,
Sundays, and holidays all persons who are not tenants or their accompanied
guests in the Building. Each tenant shall be responsible for all persons
whom it allows to enter the Building and shall be liable to Landlord for
all acts of such persons.
Landlord shall in co case be liable for damages for error with regard to
the admission to or exclusion from the Building of any person.
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During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right to prevent access to the Building by closing
the doors, or otherwise, for the safety of tenants and protection of the
Building and property in the Building.
No tenant shall employ any person or persons other than the janitor or
Landlord for the purpose of cleaning the Premises unless otherwise agreed
to by Landlord in writing. Except with the written consent of Landlord no
person or persons other than those approved by Landlord shall be permitted
to enter the Building for the purpose of cleaning the same. No tenant
shall cause any unnecessary labor by reason of such tenant's carelessness
or indifference in the preservation of good order and cleanliness of the
premises. Landlord shall in no way be responsible to any tenant for any
loss of property on the premises, however occurring, or for any damage done
to the effects of any tenant by the janitor or any other employee or any
other person. Landlord shall not be responsible for the preservation of
good order and cleanliness of the premises when the premises are occupied
after normal business hours.
8. Each tenant shall see that all doors of its premises are closed and
securely locked and must observe strict care and caution that all water
faucets or water apparatus are entirely shut off before the tenant or its
employees leave such premises, and that all utilities shall likewise be
carefully shut off, so as to prevent waste or damage, and for any default
or carelessness the tenant shall make good all injuries sustained by other
tenants or occupants of the Building. On multiple-tenancy floors, all
tenants shall keep the door or doors to the Building corridors closed at
all times except for ingress and egress.
9. As more specifically provided in each tenant's lease, each tenant shall not
waste electricity, water or air conditioning and agrees to cooperate fully
with Landlord to assure the most effective operation of the Building's
heating and air conditioning, and shall refrain from attempting to adjust
any controls. Each tenant shall keep window coverings in its premises
closed when the effect of sunlight or cold weather would impose unnecessary
loads on the Building's heating or air conditioning systems.
10. No tenant shall alter any lock or access device or install a new or
additional lock or access device to any bolt on any door of its premises
without the prior written consent of Landlord. If Landlord shall give its
consent, the tenant shall in each case furnish Landlord with a key for any
such lock.
11. No tenant shall make or have made additional copies of any keys or access
devices provided by Landlord. Each tenant, upon the termination of the
tenancy, shall deliver to Landlord all keys or access devices for the
Building, offices, rooms and toilet rooms which have been furnished to the
tenant or which the tenant shall have made. In the event of the loss of
any keys or access devices so furnished by Landlord, tenant shall pay
Landlord therefor.
12. The toilet rooms, toilets, urinals, wash bowls, and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever, including coffee grounds,
shall be thrown therein, and the expense of any breakage, stoppage or
damages resulting from violation of this rule shall be borne by the tenant
who, or whose employees or invitees, shall have caused it.
13. No tenant shall use or keep on its premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material other than limited
quantities necessary for the operation or maintenance of office equipment.
Such limited quantities shall be only stored in containers approved by
appropriate regulatory agencies. No tenant shall use any method of heating
or air conditioning other than that supplied by Landlord.
14. No tenant shall use, keep or permit to be used or kept in its premises any
foul or noxious gas or substance or permit or suffer such premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason or noise, odors and/or vibrations
or interfere in any way with other tenants or
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those having business therein, nor shall any birds or animals other than
seeing eye dogs and like animals be brought or kept in or about any
premises of the Building.
15. No cooking shall be done or permitted by any tenant on its premises (except
that use by the tenant of Underwriter's Laboratory approved equipment for
the preparation of coffee, tea, hot chocolate and similar beverages for
tenants and their employees shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, and
city laws, codes, ordinances, rules and regulations) nor shall its premises
be used for lodging.
16. Except with the prior written consent of Landlord, no tenant shall sell or
permit the sale, at retail, of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise in or on its premises, nor shall
tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, typewriting, printing, photocopying or any
similar business in or from its premises for the service or accommodation
of occupants of any other portion of the Building, nor shall its premises
be used for the storage of merchandise or for manufacturing of any kind, or
the business of a public barber shop, beauty parlor, nor shall its premises
be used for any improper, immoral or objectionable purpose, or any business
activity other than that specifically provided for in that tenant's lease.
17. If tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
for their installation. No tenant shall operate any television, radio,
recorder or sound system in such a manner as to cause a nuisance to any
other tenant of the Building.
18. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the premises shall be subject to the written
approval of Landlord.
19. No tenant shall install any radio or television antenna, loudspeaker or any
other device on the exterior walls or the roof of the Building. No tenant
shall interfere with radio or television broadcasting or reception from or
in the Building or elsewhere.
No tenant shall lay linoleum, title, carpet or any other floor covering so
that the same shall be affixed to the floor of its premises in any manner
except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the removal of any floor
covering shall be borne by the tenant by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
21. No furniture, freight, equipment, materials, supplies, packages,
merchandise, or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Landlord shall have the right to prescribe the weight, size and position of
all safes, furniture, files, bookcases or other heavy equipment brought
into the Building. Safes or other heavy objects shall, if considered
necessary by Landlord, stand on wood strips of such thickness as determined
by Landlord to be necessary to distributed properly the weight thereof.
Landlord will not be responsible for loss of or damage to any such safe,
equipment or property from any cause, and all damage done to the Building
by moving or maintaining any such safe equipment or other property shall be
repaired at the expense of the responsible tenant.
Business machines and mechanical equipment belonging to any tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building shall be placed and maintained
by tenant, at tenant's expense, on
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vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the
Building must be acceptable to Landlord.
22. No tenant shall place a load upon any floor of its premises which exceeds
the loan per square foot which such floor was designed to carry and which
is allowed by law. No tenant shall mark, or drive nails, screw or drill
into, the partitions, woodwork or plaster or in any way deface its premises
or any part thereof.
23. No tenant shall install, maintain or operate upon its premises any vending
machines without the written consent of Landlord.
24. There shall not be used in any space, or in the public areas of the
Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards or other such material-handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any tenant into or kept in or about its premises.
25. Each tenant shall store all its trash and garbage within the interior of
its premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of trash
and garbage in the city without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entryways and elevators provided for such purposes and at such
times as Landlord shall designate.
26. Canvassing, soliciting, distribution of handbills or any other written
materials, and peddling in the Building are prohibited and each tenant
shall cooperate to prevent the same. No tenant shall make room-to-room
solicitation of business from other tenants in the Building.
27. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence
of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
28. Without the prior written consent of Landlord, no tenant shall use the name
of the Building in connection with or in promoting or advertising the
business of such tenant except as that tenant's address.
29. Each tenant shall comply with all energy conservation, safety, fire
protection and evacuation procedures and regulations established by
Landlord or any governmental agency.
30. Tenant assumes any and all responsibility for protecting its premises from
theft, robbery and pilferage, which includes keeping doors locked and other
me of entry to the premises closed.
31. The requirements of each tenant will be attended to only upon application
at the office of the Building by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employees
will admit any person (tenant or otherwise) to any office without specific
instructions from Landlord.
32. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the building.
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33. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the
preservation of good order therein. Each tenant agrees to abide by all
such Rules and Regulations hereinabove stated and any additional rules and
regulations which adopted.
34. All wallpaper or vinyl fabric materials which any tenant may install on
painted walls shall be applied with a strippable adhesive. The use of
nonstrippable adhesives will cause damage to the walls when materials are
removed and repairs made necessary thereby shall be made by Landlord at
that tenant's expense.
35. Each tenant will refer all contractors, contractor's representatives and
installation technicians, rendering any service to such tenant, to Landlord
for Landlord's supervision, approval, and control before performance of any
contractual service. This provision shall apply to all work performed in
the Building, including installations of telephones, telegraph equipment,
provision shall apply to all work performed in the Building, including
installations of telephones, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, trim,
windows, ceilings, equipment or any other physical portion of the Building
37. Each tenant shall give prompt notice to Landlord of any accidents to or
defects in plumbing, electrical fixtures, or heating apparatus so that such
accidents or defects may be attended to promptly.
38. Each tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by its employees, agents, clients, customers,
invitees and guests.
39. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part the terms,
covenants, agreements and conditions of any lease of any premises in the
Building.
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EXHIBIT "B"
[GRAPHICAL REPRESENTATION OF
OFFICE SPACE - OMITTED]
32
<PAGE>
EXHIBIT "C"
OFFICE LEASE IMPROVEMENT AGREEMENT
1. IMPROVEMENTS
(a) At Tenant's expense, Landlord shall furnish and install substantially
in accordance with the construction drawings and specifications approved by
Tenant and landlord, partitions, doors, lighting fixtures, acoustical ceiling,
floor coverings, electrical outlets, telephone outlets, air conditioning, fire
sprinklers, signage, wall finishes, and construction clean-up and other
improvements required by Tenant which are normally performed by the construction
trades. Tenant shall cause to be prepared at Tenant's expense all architectural
plans and specifications, and all structural, mechanical and electrical
engineering plans and specifications (the "Plans") required for Tenant's
occupancy. The preparation of the Plans shall not include selection of non-
building standard finishes, or any fixtures or furniture, or any other elements
of interior design. Tenant has selected, and Landlord hereby approves, Godwin &
Associates ("Tenant's Architect") to prepare the Plans.
(b) At Landlord's expense, Landlord shall or has provided the following
(hereinafter referred to as "Landlord's Work"):
1. HEATING, VENTILATION AND AIR-CONDITIONING: Building standard primary
duct work and perimeter supply and return grilles served by a central air system
to provide normal air conditioning and heating. The cost of changes
necessitated by Tenant's work shall be paid by Tenant.
2 CEILING GRID AND STANDARD LIGHTING: Building standard ceiling grid.
Building standard acoustical ceiling tiles in crates stacked on floor. Twenty-
four (24) fluorescent building standard lighting fixtures per 2,000 rentable
square feet in vacuum packed containers stacked on floor. All costs to install
ceiling tiles and light fixtures to be at Tenant's expense.
3. SUBFLOOR: Concrete floor, finished, ready for application of carpet,
vinyl composition tile or other floor covering.
4. FIRE SPRINKLERS: Building standard sprinkler heads in a general
protective pattern as required by code. The cost of changes necessitated by
Tenant's work shall be paid by Tenant.
2. LANDLORD'S ALLOWANCE
As Landlord's contribution to work provided in paragraph 1, Landlord shall
provide Tenant with an allowance of Four Hundred Seventy-Three Thousand Eight
Hundred and Twenty Dollars ($473,820.00), hereinafter referred to as "Landlord's
Allowance"). Notwithstanding the above, Tenant may, at Tenant's discretion, use
all or any portion of the Landlord Allowance for costs related to design and
construction of the Tenant Improvements, Tenant's signage costs, moving expenses
and installation of Tenant's furniture. Any unused portion of the Landlord
Allowance, not to exceed $2.00 per rentable square foot will be used as a credit
towards the initial rent.
3. TENANT'S COST
(a) Tenant shall bear the cost, if any, of the work described in Paragraph
1 over and above the Allowance provided by Landlord under Paragraph 2 (Paragraph
3 work is hereinafter referred to as "Tenant's Cost"). Any modifications of any
part of the work described in Paragraph 1 already completed that are requested
by Tenant shall constitute part of Tenant's Cost.
(b) Tenant shall pay for all costs associated with any Tenant-requested
changes or modifications of the improvements as defined by the Plans in
Paragraph 1 of this Exhibit "C" after the Plans have been approved by Tenant.
Tenant will be liable for any increase in construction costs if Tenant causes
delays as defined in Paragraph 3(b) of this Lease.
33
<PAGE>
(c) Tenant shall pay one-half (1/2) of the amounts payable by Tenant to
Landlord pursuant to this Exhibit "C" immediately following Tenant's approval of
the price to be paid to Landlord as per Paragraph 4(b) hereof, and Tenant shall
pay the remaining amounts immediately upon the Commencement Date of the Lease.
4. PLANNING SCHEDULE
(a) Preparation and Approval of Plans:
(i) Landlord and Tenant shall diligently pursue the preparation of the
Plans. Tenant, at its expense, shall provide Landlord with Preliminary Plans
and Pricing Notes no later than August 19, 1996. Failure of Tenant to provide
said instructions by the date specified above shall constitute a delay by the
Tenant in accordance with the provisions of Paragraph 3(b) of the Lease.
Landlord shall obtain preliminary pricing for Tenant's review based on the
Preliminary Plans and Pricing Notes and deliver such pricing to Tenant within
seven (7) days.
(ii) The Plans shall then be prepared in conformance with Landlord's
requirements and all applicable codes and shall be subject to approval by the
City of Alpharetta Building and Inspections Department. Tenant shall submit
complete construction plans to Landlord no later than October 7, 1996. Failure
of Tenant to provide said plans shall constitute a delay by Tenant in accordance
with Paragraph 3(b) of the Lease.
(b) Upon receipt of the approved Plans, Landlord shall provide a quotation
based upon competitively bid sub-contract pricing for the work to Tenant for
approval as the price to be paid by Tenant to Landlord for Tenant's Cost. Upon
written approval of such price by Tenant, Landlord and Tenant shall be deemed to
have given final approval to the Plans as the basis on which the quotation was
made, and Landlord shall be authorized to proceed with the improvements of the
Premises in accordance with such Plans. Tenant will not unreasonably withhold
its approval of such price. Failure of Tenant to approve or disapprove such
price within seven (7) days after submission thereof by Landlord, or
unreasonable disapproval of such price, shall constitute a delay by Tenant in
accordance with the provisions of Paragraph 3(b) of the Lease. Landlord shall
not be obligated to proceed with any improvements of the Premises until such
time as Tenant approves a price for the Tenant's Cost. Exhibit "C-1" provides
the intermediate actions required of both Landlord and Tenant to satisfy the
schedule hereof.
5. TENANT'S WORK
All work not within the scope of the normal construction trades employed in
the Building, including, but not limited to, furnishing and installing of
telephones, furniture, and office equipment, shall be furnished and installed by
Tenant at Tenant's expense. Tenant shall adopt a schedule in conformance with
the schedule of Landlord's contractors and conduct its work in such a manner as
to maintain harmonious labor relations and as not to interfere unreasonably with
or delay the work of Landlord's contractors. Tenant's contractors,
subcontractors, and labor shall be acceptable to and approved by Landlord and
shall be subject to the administrative supervision of Landlord. Contractors and
subcontractors engaged by Tenant shall employ persons and means to insure so far
as may be possible the progress of the work without interruption on account of
strikes, work stoppages or similar causes for delay. Landlord shall give access
and entry to the Premises to Tenant and its contractors and subcontractors and
reasonable opportunity and time and reasonable use of facilities to enable
Tenant to adapt the Premises for Tenant's use; provided, however, that if such
entry is prior to the Commencement Date, such entry shall be subject to all the
terms and conditions of the Lease, except the payment of rent.
34
<PAGE>
EXHIBIT "C-1"
THE FOLLOWING SCHEDULE MORE CLEARLY DEFINES THE INTERMEDIATE STEPS ESSENTIAL TO
MEET THE DATES AS PROVIDED IN EXHIBIT "C".
<TABLE>
<CAPTION>
ACTION DATE
<S> <C>
1. PRELIMINARY SPACE PLAN PRICING NOTES AUGUST 19
DELIVERED TO LANDLORD BY TENANT NO LATER
THAN:
2. DETAILED PRELIMINARY ESTIMATE COMPLETED BY
LANDLORD AND DELIVERED TO TENANT WITHIN
SEVEN (7) CALENDAR DAYS OF RECEIPT OF TENANT'S
PRELIMINARY SPACE PLAN AND PRICING NOTES.
3. 50% CONSTRUCTION DOCUMENTS DELIVERED TO SEPTEMBER 13
LANDLORD BY TENANT NO LATER THAN:
4. BUDGET PRICING AND PRELIMINARY LANDLORD
COMMENTS ON 50% CONSTRUCTION DOCUMENTS
DELIVERED TO TENANT BY LANDLORD WITHIN TEN
(10) CALENDAR DAYS FROM RECEIPT OF TENANT'S
DOCUMENTS.
5. 100% CONSTRUCTION DOCUMENTS DELIVERED TO OCTOBER 7
LANDLORD BY TENANT NO LATER THAN:
6. FINAL PRICING AND LANDLORD'S COMMENTS ON
100% CONSTRUCTION DOCUMENTS DELIVERED TO
TENANT BY LANDLORD WITHIN TEN (10) DAYS FROM
RECEIPT OF TENANT'S DOCUMENTS.
7. TENANT'S FINAL ACCEPTANCE OF ALL PLANS AND OCTOBER 24
PRICING DELIVERED TO LANDLORD NO LATER THAN:
8. SUBSTANTIAL COMPLETION AND START OF DECEMBER 20
WORKSTATION INSTALLATION ON OR ABOUT:
9. OCCUPANCY AND COMMENCEMENT OF RENT
WITHIN SEVEN (7) CALENDAR DAYS OR
SUBSTANTIAL COMPLETION.
</TABLE>
NOTE: SCHEDULE ASSUMES ALL MATERIALS, EQUIPMENT, AND FINISHES ARE IN STOCK OR
AVAILABLE IN A TIMELY MANNER SO AS TO NOT DELAY THE JOB PROGRESS. SUBSTITUTION
OR DELETION OF SPECIFIED ITEMS MAY BE REQUIRED TO MAINTAIN SCHEDULE.
35
<PAGE>
EXHIBIT "D"
TENANT LEASE ESTOPPEL CERTIFICATE
---------------------------------
Landlord: CK WINWARD #1, LLC. a North Carolina limited liability company
Tenant: ClientLink, Incorporated, a Delaware corporation
Premises:
-----------------------------------------------------------------
Area: Sq. Ft. Lease Date:
---------------------- ----------------------------
The undersigned Tenant under the above-referenced lease (the "Lease")
hereby ratifies the Lease and certifies to ________________________ ("Landlord")
as owner of the real property of which the premises demised under the Lease (the
"Premises") is a part, as follows:
1. That the term of the Lease commenced on _________, 19____ and the
Tenant is in full and complete possession of the Premises demised under the
Lease and has commenced full occupancy and use of the Premises, such possession
having been delivered by Landlord and having been accepted by the Tenant.
2. That the Lease call for monthly rent installments of $_________ to
date, and that the Tenant is paying monthly installments of rent of $______
which commenced to accrue on the day of ________________, 19____.
3. That no advance rental or other payment has been made in connection
with the Lease, except rental for the current month. There is no "free rent" or
other concession under the remaining term of the Lease, and the rent has been
paid to and including ___________________, 19___.
4. That a security deposit in the amount of $______________ is being held
by Landlord, which amount is not subject to any set off reduction or to any
increase for interest or other credit due to Tenant.
5. That all obligations and conditions under said Lease to be performed
to date by Landlord or Tenant have been satisfied, free of defenses and set-offs
including all construction work in the Premises.
6. That the Lease is a valid lease and in full force and effect and
represents the entire agreement between the parties; that there is no existing
default on the part of Landlord or the Tenant in any of the terms and conditions
thereof and no event has occurred which, with the passing of time or giving of
notice to both, would constitute an event of default, and that said Lease has:
(Initial One)
( ) not been amended, modified, supplemented, extended, renewed
or assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned as follows by the following described agreements:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
36
<PAGE>
7. That the Lease provides for a primary term of ______ months; the term
of the Lease expires on the ______ day of ___________, 19____; and that:
(Initial One)
( ) neither the Lease nor any of the documents listed in Paragraph 6
(if any), contain an option for any additional term or terms.
( ) the Lease and/or the documents listed under Paragraph 6, above,
contain an option for _________ additional term(s) of ________ year(s)
and _________ month(s) (each) at a rent to be determined as follows:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
8. That Landlord has not rebated, reduced or waived any amounts due from
Tenant under the Lease, whether orally or in writing, nor has Landlord provided
financing for, made loans or advances to, or invested in the business of Tenant.
9. That, to the best of Tenant's knowledge, there is no apparent or
likely contamination of the real property or the Premises by hazardous
materials, and Tenant does not use, nor has Tenant disposed of, hazardous
materials in violation of environmental laws on the real property or the
Premises.
10. That there are no actions, voluntary or involuntary, pending against
the Tenant under the bankruptcy laws of the United States or any state thereof.
11. That this certification is made knowing that the Landlord is relying
upon the representation herein made.
12. That this certification is made knowing that the Landlord is relying
upon the representation herein made.
Tenant:
-----------------------------
Dated: ---------------- By: ----------------------------
Typed Name: -------------------
Title: --------------------------
37
<PAGE>
CLIENTLINK, INC.
SECRETARY'S CERTIFICATE
The undersigned, Robert J. Boutin, certifies that he is the duly elected
and qualified Secretary of ClientLink, Inc., a Delaware corporation (the
"Company"), and further certifies that the preambles and resolutions attached
hereto as Exhibit A were adopted by the Board of Directors of the Company in
---------
accordance with applicable law. Such resolutions have been entered in the
minute book of the Company, have not been amended, altered or repealed and
remain in full force and effect on the date hereof.
The undersigned further certifies that the following individuals are as of
the date hereof officers of the Company holding the offices indicated below:
James H. Hamilton President
Robert J. Boutin Secretary
IN WITNESS WHEREOF, I have hereunto signed this Certificate on the 26th day
of September, 1996.
CLIENTLINK, INC.
By: -----------------------------
Robert J. Boutin,
Secretary
38
<PAGE>
EXHIBIT A
---------
New Lease Agreement
- -------------------
A discussion then took place with respect to the Possibility of the Company
entering into a lease agreement for new office space. Upon motion duly made and
seconded, the following resolutions were unanimously adopted:
RESOLVED, that the Company is hereby authorized and directed to
enter into a lease agreement with CK Windward #1, LLC providing for
the lease by the Company of new office space for a term of up to 60
months at a rental rate of $32,320 per month (the "Lease Agreement").
FURTHER RESOLVED, that any officer of the Company is hereby
authorized, directed and empowered, acting either alone or together
with another officer of the Company, to execute and deliver all
documents necessary or appropriate, including, but not limited to,
the Lease Agreement, and to take any such other action as any such
officer may deem necessary to effect the intent of the foregoing
resolution, the taking of any such action, for, on behalf or in the
name of the Company, and/or the execution and delivery for, on behalf
and in the name of the Company, of any such document or instrument to
be conclusive evidence that such officer did so deem the same to be
necessary or desirable and in the best interests of the Company.
FURTHER RESOLVED, that any and all actions heretofore taken by the
officers or representatives of the Company, for, on behalf or in the
name of the Company with respect to the foregoing resolutions, be,
and they are hereby ratified, confirmed and approved in all respects
for all purposes.
39
<PAGE>
EXHIBIT E
GENERAL CLEANING SPECIFICATIONS
-------------------------------
Page Two
<TABLE>
<CAPTION>
Item Procedure Frequency
- -------------------------------------------------------------------------------------------
<S> <C> <C>
6. Wet mop all floors using germicidal detergent Daily
7. Refill all towel, tissue holders and soap dispensers Daily
8. Spot clean toilet partitions with germicidal cleaner Weekly
9. Spot scrub floors with band brush Monthly
10. Wash all restroom walls (ceiling to floor and partitions) Monthly
11. Clean air vents Monthly
12. Squeegee clean mirrors Monthly
<CAPTION>
ELEVATORS
- ---------
Item Procedure Frequency
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1. Clean and polish finishes (brass, chrome, wood) Daily
2. Vacuum carpets Daily
3. Clean elevator tracks Daily
4. Dust elevator doors Daily
5. Clean carpets As needed
6. Steam extract carpets As needed
7. Edge vacuum carpets Daily
<CAPTION>
BUILDING EXTERIOR
- -----------------
Item Procedure Frequency
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1. Police area around building, parking lot, shrubbery Daily
and dumpster pad
2. Remove cigarette butts from sidewalk entrance Daily
3. Clean building first floor reachable atrium exterior
glass inside and out Weekly
4. Polish entrance sign Monthly
5. Clean mailbox area Daily
6. Clean light bollard and front door entrance Weekly
7. Wash windows Twice annually
ATRIUM AND ELEVATOR LOBBIES
- ---------------------------
Item Procedure Frequency
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1. Spot clean all entrance glass Daily
2. Polish all metal and wood trim Daily
3. Clean and polish building directory on each floor Daily
4. Vacuum all carpet Daily
5. Spot clean carpet Daily
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6. Low dust Weekly
7. Dust walls within reach Monthly
8. Completely clean entrance door glass Weekly
9. Clean elevator carpet As needed
10. Damp mop hard surface floors Daily
11. Dust mop hard surface floors Daily
12. Clean ash urns in elevator lobbies Daily
</TABLE>
41
<PAGE>
EXHIBIT "F"
LEASE GUARANTY
--------------
Annexed to and forming a part of Lease dated ___________, by and between CK
Windward #LLC, a North Carolina limited liability company, as Landlord, and
ClientLink, Incorporated, a Delaware corporation, as Tenant.
The undersigned, CompuCom Systems, Inc., whose address is 10100 North
Central Expressway, Dallas, Texas 75231 (hereinafter sometimes referred to as
"Guarantor"), in consideration of the leasing of the leased Premises described
in the annexed Lease ("Lease") to the above-named Tenant ("Tenant"), and for Ten
Dollars ($10.00) in hand paid and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, does hereby covenant
and agrees as follows:
A. The undersigned does hereby unconditionally and irrevocably guarantee the
full, faithful and timely payment by Tenant of all the payments, under or
pursuant to the Lease. If Tenant shall default at any time in the payment of
any rent or other sums, costs or charges whatsoever, under or pursuant to the
Lease (and such default shall remain uncured after notice to Tenant and the
undersigned as required by the Lease), then the undersigned, at its expense,
shall on demand of the Landlord fully and promptly, and will and truly, pay all
rent, sums, costs, and charges to be paid by Tenant, under or pursuant to the
Lease, and in addition shall, on Landlord's demand, pay to Landlord any and all
sums due to Landlord, including (without limitation) all interest on past due
obligations of Tenant, costs advanced by Landlord, and damages and all expenses
(including attorneys' fees and litigation costs) that may arise in consequence
of Tenant's default. The undersigned hereby waives all requirements of notice
of the acceptance of the Guaranty, notice of default, demand for payment, and
all other notices or demands of any kind.
B. The obligations of the undersigned hereunder are independent of the
obligations of Tenant. A separate action or actions may, at Landlord's option,
be brought and prosecuted against the undersigned, whether or not any action is
first or subsequently brought against Tenant, or whether or not Tenant is joined
in any such action, and the undersigned may be joined in any action or
proceeding commenced by Landlord against Tenant arising out of, in connection
with, or based upon the Lease. The undersigned waives any right to require
Landlord to proceed against tenant or pursue any other remedy in Landlord's
power whatsoever (Guarantor hereby expressly waiving any rights under O.C.G.A.
(S) 10-7-24), any right to complain or delay in the enforcement of Landlord's
rights under the Lease, and any demand by Landlord and/or prior action by
Landlord of any nature whatsoever against Tenant or otherwise.
C. The undersigned agrees that the liability of the undersigned hereunder
shall be based upon the obligations of Tenant set forth in the Lease as the same
may be altered, renewed, extended, modified, or amended. No such alteration,
renewal, extension, or modification, with or without notice to Guarantor, shall
in any manner affect or impair any rights or remedies of Landlord against
Guarantor, Guarantor hereby consenting to any such action. Landlord shall
endeavor to notify Guarantor of any proposed alteration, modification, or
amendment to the Lease, provided, however, that the failure to give any such
notice shall not in any manner affect or impair Landlord's rights or remedies
against Guarantor. No assignment of the Lease by Tenant shall be effective
without Guarantor's prior consent.
D. The undersigned's obligations hereunder shall remain fully binding although
Landlord may have, with or without notice to Guarantor, waived one or more
defaults by Tenant, extended the time of performance by Tenant, released,
returned, or misapplied other collateral at any time given as security for
Tenant's obligations (including other guaranties) and/or released Tenant or any
other obligor for the performance of its obligations under or with respect to
the Lease.
E. This Guaranty shall remain in full force and effect notwithstanding the
institution by or against Tenant, of bankruptcy, reorganization, readjustment,
receivership, or insolvency proceedings of any nature, or the disaffirmance of
the
42
<PAGE>
Lease in any such proceedings or otherwise, Guarantor hereby agreeing to assume
and perform all of Tenant's obligations under the Lease for the original term if
the Lease should be disaffirmed or rejected by any trustee in bankruptcy for
Tenant.
F. The Guaranty shall be applicable to and binding upon the heirs, executors,
administrators, representatives, successors, and assigns of the Landlord,
Tenant, and the Guarantor. Landlord may, without notice, assign this Guaranty
in whole or in part.
G. In the event that Landlord should institute any suit against the Guarantor
for violation of or to enforce any of the covenants or conditions of this
Guaranty or to enforce any right of Landlord hereunder, or should the
undersigned institute any suit against Landlord arising out of or in connection
with this Guaranty, or should either party institute a suit against the other
for a declaration of rights hereunder, or should either party intervene in any
suit in which the other is a party, to enforce or protect its interests or
rights hereunder, the prevailing party in any such suit shall be entitled to the
fees of its attorney(s) in the reasonable amount thereof, to be determined by
the court and taxed as a part of the costs therein.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this ______
day of ___________, 1996.
GUARANTOR
CompuCom Systems, Inc., A Delaware corporation
Attest: By:
------------------------ --------------------------------------------
Its: Its:
--------------------------- -------------------------------------------
(Authorized Person to Bind Said Entity)
43
<PAGE>
EXHIBIT G
[legal description of the Property omitted from executed Office Lease
Agreement]
44
<PAGE>
EXHIBIT H
[graphical representation of scheduled expansion space--omitted]
45
<PAGE>
EXHIBIT 11
CLIENTLINK, INC.
COMPUTATION OF NET INCOME PER SHARE
The following reconciliation details the numerator and denominator used to
calculate basic and diluted earnings per share for the years ended December 31,
1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- -------------------------- ----------------------------
INCOME SHARES PER INCOME SHARES PER INCOME SHARES PER
(NUMER- (DENOMIN- SHARE (NUME- (DENOMIN- SHARE (NUME- (DENOMIN- SHARE
ATOR) ATOR) AMOUNT RATOR) ATOR) AMOUNT RATOR) ATOR) AMOUNT
-------- ---------- ------ -------- ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income.............. $337,281 $541,975 $1,602,393
Basic EPS............... $337,281 4,763,814 $0.07 $541,975 5,336,430 $0.10 $1,602,393 5,336,430 $0.30
===== ===== =====
Effect of Dilutive
Securities
Convertible debt........ $ 15,008 375,000
Options................. 524,900 524,900 524,900
-------- ---------- -------- ---------- ---------- ----------
Diluted EPS............. $352,289 5,663,714 $0.06 $541,975 5,861,330 $0.09 $1,602,393 5,861,330 $0.27
======== ========== ===== ======== ========== ===== ========== ========== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CLIENTLINK, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,753,352
<SECURITIES> 0
<RECEIVABLES> 3,219,327
<ALLOWANCES> 121,857
<INVENTORY> 0
<CURRENT-ASSETS> 5,034,983
<PP&E> 1,847,166
<DEPRECIATION> 494,462
<TOTAL-ASSETS> 6,449,391
<CURRENT-LIABILITIES> 3,576,915
<BONDS> 0
0
0
<COMMON> 53,364
<OTHER-SE> 2,766,050
<TOTAL-LIABILITY-AND-EQUITY> 6,449,391
<SALES> 13,721,899
<TOTAL-REVENUES> 13,721,899
<CGS> 197,502
<TOTAL-COSTS> 11,121,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,330)
<INCOME-PRETAX> 2,618,289
<INCOME-TAX> 1,015,896
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,602,393
<EPS-PRIMARY> .30
<EPS-DILUTED> .28
</TABLE>
