<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-16231
XETA Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1130045
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1814 West Tacoma, Broken Arrow, OK 74012-1406
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
918-664-8200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
4500 S. Garnett, Suite 1000, Tulsa, OK 74146
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at June 1, 1999
- -------------------------------- ---------------------------
Common Stock, $.10 par value 1,986,587
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - April 30, 1999
and October 31, 1998
Consolidated Statements of Operations - For the
Three and six months ending April 30, 1999 and 1998
Consolidated Statement of Shareholders' Equity -
November 1, 1998 through April 30, 1999
Consolidated Statements of Cash Flows - For the
Six months ending April 30, 1999 and 1998
Notes to Consolidated Financial Statements
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30, 1999 October 31,1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,935,477 $ 3,238,218
Current portion of net investment in
sales-type leases 1,690,605 1,500,095
Other receivables, net 4,046,190 3,561,201
Inventories, net 2,790,658 2,022,256
Deferred tax asset, net 549,045 575,587
Prepaid expenses and other assets 185,712 73,895
------------ ------------
Total current assets 11,197,687 10,971,252
------------ ------------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 2,504,875 1,210,939
Purchased service and long distance contracts,
net 1,627,389 2,537,437
Property, plant & equipment, net 3,960,316 2,817,370
Capitalized software production costs, net of
accumulated amortization of $513,066 at April
30, 1999 and $453,066 at Oct. 31, 1998 649,392 655,370
Other assets 247,287 99,618
------------ ------------
Total noncurrent assets 8,989,259 7,320,734
------------ ------------
Total assets $ 20,186,946 $ 18,291,986
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,212,784 $ 1,747,009
Unearned revenue 4,005,674 3,096,217
Accrued liabilities 835,819 824,454
Accrued federal and state income taxes 59,432 181,876
------------ ------------
Total current liabilities 6,113,709 5,849,556
------------ ------------
Unearned service revenue 1,377,388 730,314
------------ ------------
Noncurrent deferred tax liability, net 513,052 526,881
------------ ------------
Commitments
Shareholders' equity:
Preferred stock; $.10 par value; 50,000 shares
authorized, 0 issued -- --
Common stock; $.10 par value; 10,000,000
shares authorized, 2,316,284 and 2,286,284
issued at April 30, 1999 and October
31, 1998, respectively 231,628 228,628
Paid-in capital 5,336,218 5,135,818
Retained earnings 9,521,110 7,568,905
------------ ------------
15,088,956 12,933,351
Less treasury stock, at cost (2,906,159) (1,748,116)
------------ ------------
Total shareholders' equity 12,182,797 11,185,235
------------ ------------
Total liabilities & shareholders' equity $ 20,186,946 $ 18,291,986
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
XETA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ending April 30, Ending April 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Installation and service revenues $ 4,432,943 $ 3,240,683 $ 8,428,542 $ 6,131,198
Sales of systems 4,664,806 3,080,100 7,493,974 5,036,909
Long distance services 143,172 245,565 364,687 449,064
----------- ----------- ----------- -----------
Net sales and service revenues 9,240,921 6,566,348 16,287,203 11,617,171
----------- ----------- ----------- -----------
Installation and service cost 2,895,024 2,047,259 5,418,165 3,801,392
Cost of sales 2,712,666 2,035,226 4,400,490 3,280,483
Cost of long distance services 37,766 88,149 123,823 163,371
----------- ----------- ----------- -----------
Total cost of sales and service 5,645,456 4,170,634 9,942,478 7,245,246
----------- ----------- ----------- -----------
Gross profit 3,595,465 2,395,714 6,344,725 4,371,925
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 1,213,634 1,134,053 2,222,233 2,009,836
Engineering, research and development 125,954 89,927 228,588 190,586
Amortization 491,953 81,216 970,048 162,432
----------- ----------- ----------- -----------
Total operating expenses 1,831,541 1,305,196 3,420,869 2,362,854
----------- ----------- ----------- -----------
Income from operations 1,763,924 1,090,518 2,923,856 2,009,071
Interest and other income 132,742 154,719 280,349 333,865
----------- ----------- ----------- -----------
Income before provision for income
taxes 1,896,666 1,245,237 3,204,205 2,342,936
Provision for income taxes 741,000 462,000 1,252,000 869,000
----------- ----------- ----------- -----------
Net income $ 1,155,666 $ 783,237 $ 1,952,205 $ 1,473,936
=========== =========== =========== ===========
Earnings per share
Basic $ 0.57 $ 0.38 $ 0.97 $ 0.73
=========== =========== =========== ===========
Diluted $ 0.50 $ 0.33 $ 0.84 $ 0.63
=========== =========== =========== ===========
Weighted average shares outstanding 2,016,252 2,037,090 2,023,002 2,020,226
=========== =========== =========== ===========
Weighted average shares equivalents 2,305,012 2,357,606 2,310,869 2,357,990
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1998 THROUGH APRIL 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------------- ---------------------------
Number of
Shares Issued Paid-in Retained
& Outstanding Par Value Shares Amount Capital Earnings
------------- --------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance -
October 31, 1998 2,286,284 $228,628 (264,547) $(1,748,116) $5,135,818 $7,568,905
Stock options
exercised 30,000 3,000 27,000
Tax benefit of stock
Options exercised 173,400
Treasury stock
acquired (65,150) (1,158,043)
Net Income 1,952,205
--------- --------- -------- ----------- ---------- ----------
Balance -
April 30, 1999 2,316,284 $ 231,628 (329,697) $(2,906,159) $5,336,218 $9,521,110
========= ========= ======== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
XETA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ending April 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,952,205 $ 1,473,936
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 189,451 142,286
Amortization 970,048 162,432
Loss on sale of assets -- 14,517
Provision for doubtful accounts receivable 18,000 58,000
Change in assets and liabilities:
(Increase) decrease in net investment in
sales-type leases (1,484,446) 188,158
Increase in other receivables (502,989) (1,709,637)
Increase in inventories (768,402) (1,055,345)
(Increase) decrease in deferred tax asset 26,542 (266,131)
Increase in prepaid expenses and
other assets (259,486) (33,909)
Increase (decrease) in accounts payable (534,225) 784,235
Increase in unearned revenue 1,556,531 627,942
Increase in accrued income taxes 50,956 433,630
Increase (decrease) in accrued liabilities 11,365 (56,917)
Decrease in deferred tax liabilities (13,829) (73,128)
------------ ------------
Total adjustments (740,484) (783,867)
------------ ------------
Net cash provided by
operating activities 1,211,721 690,069
------------ ------------
Cash flows from investing activities:
Additions to capitalized software (54,022) (103,468)
Additions to property, plant & equipment (1,332,397) (842,342)
Proceeds from sale of assets -- 852
------------ ------------
Net cash used in
investing activities (1,386,419) (944,958)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (1,158,043) (942,738)
Exercise of stock options 30,000 92,900
------------ ------------
Net cash used in financing activities (1,128,043) (849,838)
------------ ------------
Net decrease in cash and cash equivalents (1,302,741) (1,104,727)
Cash and cash equivalents, beginning of period 3,238,218 6,011,841
------------ ------------
Cash and cash equivalents, end of period $ 1,935,477 $ 4,907,114
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 10,284 $ 3,743
Cash paid during the period for income taxes $ 1,170,972 $ 761,106
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
XETA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein include the
accounts of XETA Corporation and its wholly-owned subsidiary, Xetacom, Inc.
Xetacom's operations have been insignificant to date. All significant
intercompany accounts and transactions have been eliminated.
The consolidated financial statements have been prepared by the
Company, without an audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the disclosures made in these
financial statements are adequate to make the information presented not
misleading when read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's latest financial statements
filed as part of the Company's Annual Report on Form 10-KSB, Commission File No.
0-16231. Management believes that the financial statements contain all
adjustments necessary for a fair statement of the results for the interim
periods presented. All adjustments made were of a normal recurring nature.
(2) INVENTORIES
The following are the components of inventories:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Raw materials $ 1,260,666 $ 1,092,278
Finished goods and spare parts 1,854,992 1,254,978
------------ ------------
3,115,658 2,347,256
Less reserve for excess and
obsolete inventory (325,000) (325,000)
------------ ------------
$ 2,790,658 $ 2,022,256
============ ============
</TABLE>
7
<PAGE> 8
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Building $ 2,397,954 $ 1,565,601
Data processing and computer field equipment 1,506,755 1,368,075
Land 611,582 611,582
Office furniture 435,290 136,143
Other 333,388 271,171
------------ ------------
5,284,969 3,952,572
Less accumulated depreciation (1,324,653) 1,135,202
------------ ------------
$ 3,960,316 $ 2,817,370
============ ============
</TABLE>
(4) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Service contracts $ 1,472,881 $ 1,245,506
Customer deposits 1,302,744 688,778
Warranty service 1,071,284 951,238
Systems shipped, but not installed 79,254 69,364
Other deferred revenue 79,511 141,331
------------ ------------
Total current deferred revenue 4,005,674 3,096,217
Noncurrent unearned service revenues 1,377,388 730,314
------------ ------------
$ 5,383,062 $ 3,826,531
============ ============
</TABLE>
8
<PAGE> 9
(5) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 452,605 $ 347,322
Nondeductible reserves 293,703 315,585
Unamortized cost of service contracts 66,518 --
Other 56,054 35,078
------------ ------------
Total deferred tax asset 868,880 697,985
------------ ------------
Deferred tax liabilities:
Unamortized capitalized software
development costs 220,793 222,826
Tax income to be recognized on sales-type
lease contracts 505,479 250,479
Unamortized cost of long distance contracts 89,002 110,190
Other 17,613 65,784
------------ ------------
Total deferred tax liability 832,887 649,279
------------ ------------
Net deferred tax asset $ 35,993 $ 48,706
============ ============
</TABLE>
(6) INTEREST AND OTHER INCOME
Interest and other income recorded in the accompanying financial
statements consists primarily of interest income earned from sales-type leases
and cash investments.
(7) EARNINGS PER SHARE
All earnings per share amounts disclosed herein have been calculated
under the provisions of SFAS 128. Basic earnings per common share were computed
by dividing net income by the weighted average number of shares of common stock
outstanding during the reported period. A reconciliation of net income and
weighted average shares used in computing basic and diluted earnings per share
is as follows:
<TABLE>
<CAPTION>
For the Quarter Ending April 30
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS - 1999
Net income $1,155,666 2,016,252 $.57
Options issued to employees 288,760
Diluted EPS
Net income $1,155,666 2,305,012 $.50
Basic EPS - 1998
Net income $783,237 2,037,090 $.38
Options issued to employees 320,516
Diluted EPS
Net income $783,237 2,357,606 $.33
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
For the Six Months Ending April 30
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS - 1999
Net income $1,952,205 2,023,002 $.97
Options issued to employees 287,867
Diluted EPS
Net income $1,952,205 2,310,869 $.84
Basic EPS - 1998
Net income $1,473,936 2,020,226 $.73
Options issued to employees 337,764
Diluted EPS
Net income $1,473,936 2,357,990 $.63
</TABLE>
(8) FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the consolidated financial
statements, but would be substantially unchanged from those presented in the
Company's Annual Report on Form 10-KSB, Commission File No. 0-16231, filed with
the Securities and Exchange Commission on January 28, 1999. Accordingly,
reference should be made to those statements for the following:
<TABLE>
<CAPTION>
Note Description
---- -----------
<S> <C>
1 Business and summary of significant accounting policies
4 Accrued liabilities
6 Income taxes
7 Revolving Credit Agreement
8 Purchased Service and Long Distance Contracts
9 Stock options
11 Commitments
12 Major Customers and Concentration of Credit Risk
13 Employment Agreements
14 Contingency
15 Retirement plan
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the quarter ending April 30, 1999, XETA Corporation (the "Company") earned
net income of $1.156 million or $.50 per share (diluted) on revenues of $9.241
million compared to net income of $.783 million or $.33 per share (diluted) on
revenues of $6.566 million reported for the quarter ending April 30, 1998. For
the six month period ending April 30, 1999, the Company earned net income of
$1.952 million or $.84 per share (diluted) on revenues of $16,287 million. This
compares to net income of $1.474 million or $.63 per share (diluted) on revenues
of $11.617 million for the six months ending April 30, 1998.
The growth in the Company's revenues and earnings is the result of many factors
including a surge in orders for the Company's call accounting systems, continued
market acceptance of its PBX product and service offerings, and a favorable mix
in revenues which enhanced the gross margins earned on total systems sales.
These factors offset declines in the gross margins earned on service revenues.
Additionally, the quarterly and year-to-date results were achieved while
simultaneously amortizing approximately one-fourth and one-half, respectfully,
of the cost of the PBX contracts which were purchased in the fourth quarter of
fiscal 1998.
The discussion which follows provides further analysis of the matters mentioned
above as well as other major factors and trends which management believes had
the most significant impact on the financial condition of the Company as of
April 30, 1999 and the results of operations for the quarter and six month
periods then ended as compared to the same periods a year ago. Also included in
this discussion are the major factors, trends and risks which management
believes will affect the outlook for the Company. This analysis should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
contained in this report.
FINANCIAL CONDITION
During the first half of fiscal 1999, the Company's cash balances decreased
$1.303 million. This decline consisted of cash earned from operations of $1.211
million offset by $1.386 million used in investing activities and $1.128 million
used in financing activities.
Investing activities primarily included cash used for completing the
construction of the Company's new headquarters and purchases of furnishings for
the building. The Company relocated its operations to its new facilities in
mid-March. The facility is approximately 75% larger than its previous, leased
space. While no assurance can be given, management believes that the new
building can accommodate the Company's future growth for the next three to five
years without expansion.
The cash spent on financing activities was spent primarily on the Company's
on-going stock repurchase program. On February 5, 1999, the Company's board of
directors approved an increase in the repurchase program to include one-half of
each quarter's net income. Previously, one-third of net income had been
allocated to stock repurchases. In addition, the directors approved a one-time
allocation of $500,000 to the program. Purchases made under the program are made
in open market transactions, the timing of which are dictated by overall
financial and market conditions. The directors review the program
11
<PAGE> 12
regularly. During the first six months of the year, the Company spent $1.158
million to purchase 65,150 common shares. The amount spent was partially offset
by $30,000 received from the exercise of employee stock options.
In September, 1998, the Company purchased approximately 100 Hitachi PBX service
contracts and the associated spare parts inventory from Williams Communications
Solutions, LLC ("WCS"). Since the closing, WCS has been shipping the inventory
to the Company for testing. On May 12, 1999, the Company made a final payment of
$156,000. This payment represented the negotiated purchase price for the tested
inventory and a reduction in the purchase price of the service contracts to
reflect the net effect of additional contracts identified after the initial
closing and contracts which, by subsequent agreement of the parties, were not
eligible to be purchased.
Management believes that the Company's financial condition is strong. The
Company will continue to evaluate opportunities to expand its business through
acquisition of existing businesses or assets as well as through the addition of
synergistic products or services. The Company remains debt free, and while no
assurance can be given, management believes that it would have access to
significant debt or equity financing should any contemplated expansion require
additional capital.
RESULTS OF OPERATIONS
Total revenues increased 41% and 40% for the three and six month periods ending
April 30, 1999, respectively, compared to those same periods in fiscal 1998. The
increase in the second quarter consisted of an increase of installation and
service revenues of $1.192 million or 37%, an increase in systems sales of
$1.585 million or 51%, and a decrease in long distance revenues of $102,000 or
42%. The increase in total revenues for the six months ending April 30, 1999
consisted of an increase in installation and service revenues of $2.297 million
or 37%, an increase in systems sales of $2.457 million or 49%, and a decrease in
long distance revenues of $84,000 or 19%. The following discussion analyzes the
Company's revenues by product line.
PBX Revenues. Sales of PBX systems increased $.711 million or 28% during the
second quarter of fiscal 1998 and increased $1.181 million or 29% for the year
to date period. Revenues earned from PBX service related activities increased
$.922 million or 41% for the second quarter of fiscal 1999 and increased $1.834
million or 44% for the year to date period. This growth is being fueled by
continued strong market acceptance of the Company's PBX product and service
offering, by a relatively healthy hotel industry, and by an increased focus on
technology by hotel owners and managers. This focus on technology is due to a
variety of factors including the increased use of local and wide area networks
by the hotel industry and the desire to ensure that all technology systems are
able to function properly in the year 2000. All of the Company's revenues earned
from sales of new PBX systems were earned from sales of Hitachi systems. The
Company has received four orders for Lucent PBX systems, for which the Company
became a distributor in November, 1998. Installations of those systems has begun
during the third quarter. The Company expects to continue to sell both
manufacturers' systems for the foreseeable future. In addition to the factors
described above, a portion of the growth in PBX service related revenues
reflects revenues earned from the service contracts purchased from WCS in the
fourth quarter of fiscal 1998.
12
<PAGE> 13
Call Accounting Revenues. Sales of call accounting systems increased $.873
million or 152% in the second quarter and $1.276 million or 128% for the year to
date period. Revenues earned from call accounting installation and service
related activities increased $270,000 or 27% in the second quarter and $463,000
or 23% for the year to date period. The Company is enjoying a surge in orders
for its new, network-friendly Virtual XL(TM) Series call accounting system. This
product, introduced in 1998, performs all of the functions of the Company's
XL(R) Series call accounting system, but can also be connected to private and/or
public networks to allow remote access to reports. Most of the orders for these
new systems represent upgrades or replacements of existing systems, however the
healthy hotel industry and the Company's continued market penetration have
resulted in sales to new customers as well. The Company's backlog of call
accounting systems remains very large and management expects call accounting
related revenues to continue to show strong gains for the last half of fiscal
1999 compared to the prior year.
Long Distance Services. Revenues earned from long distance services decreased
$102,000 or 42% for the quarter ending April 30, 1999 and decreased $84,000 or
19% for the six months ending April 30, 1999 compared to those same periods a
year ago. This decline represents lower usage of 0+ services at customer hotels.
It is not known whether this trend will continue or whether revenues will
recover to previous levels. Due to competitive pressures in the long distance
segment of the hotel industry, the Company is not focusing on this segment of
its product offerings.
Gross Margins. The gross margins earned on total revenues were 39% in the second
quarter of fiscal 1999 compared to 36% in the second quarter of fiscal 1998.
Gross margins earned on total revenues for the year to date period ending on
April 30, 1999 were 39% compared to 38% for the same period in fiscal 1998.
Gross margins earned on service revenues were 35% for the second quarter of
fiscal 1999 compared to 37% for the second quarter of fiscal 1998. For the six
month period, the gross margins on service revenues were 36% in the current year
compared to 38% in the previous year. The margins on service revenues are
slightly below management's target range for this revenue stream. Management is
evaluating its cost structure and processes in its service department. It is not
known at this time whether those evaluations will result in changes that could
produce higher gross margins on service revenues.
The gross margins earned on systems sales during the second quarter of fiscal
1999 were 42% compared to 34% a year earlier and were 41% for the year to date
period in fiscal 1999 compared to 35% a year earlier. These increases reflect
the higher proportion of higher margin call accounting sales during these
periods. While no assurance can be given, management expects this trend to
continue throughout the remainder of fiscal 1999. Sales of call accounting
systems are expected to trend back to historical levels in fiscal 2000.
Operating Expenses. Operating expenses for the quarter ending April 30, 1999
increased $526,000 or 40% compared to the quarter ending April 30, 1998.
Operating expenses incurred for the year to date period ending April 30, 1999
increased $1,058,000 or 45% compared to the first half of fiscal 1998. The
majority of this increase is due to the increase in amortization expense
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<PAGE> 14
associated with the purchase of service contracts from WCS. The increase in
amortization expense was $411,000 in the second quarter and was $808,000 for the
six month period. This amortization is primarily related to the purchase of
service contracts from WCS. Amortization of the purchase price will continue
into the fourth quarter of fiscal 1999. Other increases in operating expenses
for both periods under comparison are primarily related to sales expenses,
commissions and executive bonuses which increased in conjunction with increases
in sales and net income. Partially offsetting the increases in operating
expenses was collection of a judgement against a former customer of the Company.
This judgement was for $116,000 and represented payment on trade receivables
which had been previously written-off as a bad debt.
Interest and Other Income. When compared to the previous year, interest and
other income decreased $22,000 or 14% in the second quarter and decreased
$54,000 or 16% in the year to date period. These decreases included declines in
interest income from cash investments due to lower cash balances during the
periods and lower interest income earned from XETAPLAN sales-type leases.
Tax Expense. The Company has recorded a combined federal and state tax provision
of 39% of income before taxes compared to a combined rate of 37% in fiscal 1998.
The increase in the tax rate reflects primarily an increase in estimated state
income taxes, which fluctuate based on the Company's sales volumes in each
state.
OUTLOOK AND RISK FACTORS
The statements contained in this section are based on current expectations. The
statements are forward-looking in nature and actual results may differ
materially. All such statements should be read in conjunction with the risk
factors discussed herein and elsewhere in this report. Those statements should
also be read in conjunction with the Company's Form 10-KSB for the year ended
October 31, 1998 which contains an expanded discussion of risk factors that
should be read in conjunction with this report. Particular attention should be
paid to the Company's disclosures in the Form 10-KSB regarding the potential
effect of the year 2000 ("Y2k") on its business.
The Company is in the early stages of its relationship with Lucent. Many of the
Company's sales and service technicians have been trained on the Lucent system
and the Company is actively marketing the Lucent Guestworks(TM) PBX. To date,
the Company has received four orders for Lucent systems. While no assurance can
be given, management believes that the Lucent system will enable the Company to
compete more effectively in some segments of the market, specifically large
hotels. For the Lucent product offering to be successful however, the Company
must quickly establish itself as a quality installer and service provider of
Lucent products. The Company's performance in these areas over the next few
quarters will largely determine the success of its Lucent product offering.
As a supplier of PC-based computer systems and proprietary software, the issues
surrounding the potential effect of the year 2000 ("Y2k") on the Company's
business are extremely complex. The evaluation of those issues is ongoing and
will continue up to and through the beginning of that year. As of the date of
this report, management believes that the disclosures provided in
14
<PAGE> 15
the Company's 1998 Annual Report accurately reflect the current state of its
evaluations and its response to the Y2k issues that have come to its attention.
The discussion below provides a brief update regarding the Company's actions
regarding Y2k as it relates to the Company's proprietary PC-based products.
The Company is continuing to contact all of its customers regarding the
availability of a software upgrade developed by the Company for its PC-based
call accounting products. This upgrade includes patches designed to compensate
for all Y2K issues of which the Company has become aware. The Company is also
providing its customers under service contracts with a hardware test diskette
which the Company developed for its systems. This diskette is designed to test
for Y2K problems related to a system's hardware. The Company believes that many
of the Y2K problems that will occur in the computer industry will be related to
the hardware systems. To date, there have been no reported test failures and
management does not expect there to be any as the testing continues. Management
believes that should a customer's system report a failure during testing,
additional software can be written to "patch" the problem. Management expects
the process of notifying customers of the availability of the software upgrade
will be substantially complete by the end of the fiscal year on October 31, 1999
and that those customers who respond to the notification will have received and
tested their upgrade by that time. Customers who fail to respond to the
Company's notices cannot be assured that their systems will function
satisfactorily when using dates after December 31, 1999.
The Company is involved in three matters of pending litigation. See "Legal
Proceedings" under Part II below for a further discussion of this litigation.
Item 3 of Part I has been omitted as inapplicable.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company first reported on the matter of ALLENDALE MUTUAL INSURANCE CO. V.
XETA CORPORATION, HITACHI TELECOM (USA), INC., PUBLIC SERVICE COMPANY OF
COLORADO, AT&T, US WEST LONG DISTANCE, INC., AND DOES 1-100, in its Quarterly
Report on Form 10-Q for the fiscal quarter ending January 31, 1999. In May,
1999, an order of the court was entered upon motion of the plaintiff in this
matter, dismissing without prejudice all of the defendants except the Company
and Does 1-100, and granting the plaintiff leave to amend its complaint. The
Company is currently conducting discovery for the purpose of designating
non-party fault, which would allow a jury to consider the fault of non-parties
to the litigation in determining the extent of the Company's responsibility, if
any. The Company's insurance carrier has assumed the defense of this lawsuit on
behalf of the Company under reservation of rights.
Since the Company last reported in detail on the matter of ASSOCIATED BUSINESS
TELEPHONE SYSTEMS, INC. ("ABTS"), PLAINTIFF, VS. XETA CORPORATION, DEFENDANT AND
THIRD-PARTY PLAINTIFF, VS. D&P INVESTMENTS, INC. ("D&P"), in its Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1998, the parties
participated in a court-mandated settlement conference which was held on May 18,
1999. The parties continue to negotiate settlement under direction of the court
and are scheduled to continue the settlement conference before the court during
the week of June 7, 1999; however, at this time no agreement has been reached.
Since 1994, when the Company was first notified by one of its hotel customers
that the customer had been sued in Federal court for patent infringement by
PHONOMETRICS, INC., a Florida company, the Company has been monitoring numerous
patent infringement lawsuits filed by Phonometrics against certain
telecommunications equipment manufacturers and hotels who use such equipment.
While the Company has not been named as a defendant in any of these cases,
several of its customers are named defendants and have notified the Company that
they seek indemnification under the terms of their contracts with the Company.
Other than the filing of briefs in Phonometrics' appeal of the Florida court's
October 26, 1998 order, no significant developments have occurred in this case,
to the knowledge of the Company, since the Company last reported on this matter
in its Annual Report on Form 10-KSB for the fiscal year ended October 31, 1998.
Items 2 and 3 of Part II have been omitted because they are inapplicable or the
response thereto is negative.
16
<PAGE> 17
Item 4
At the regularly scheduled annual shareholders' meeting held on March
25, 1999, management's nominees for election to the Board of Directors
were elected to office without contest by votes cast as follows:
<TABLE>
<CAPTION>
Name of Director For Against
---------------- --- -------
<S> <C> <C>
Ron Barber 1,859,611 6,860
Donald Duke 1,859,611 6,860
Robert Hisrich 1,859,611 6,860
Jack Ingram 1,859,611 6,860
Ron Siegenthaler 1,859,611 6,860
Robert Wagner 1,859,611 6,860
</TABLE>
Shareholders' at the annual meeting also voted upon a proposal to grant
the Board of Directors discretion to declare a stock split on a basis
of 5-to-4, 4-to-3, 3-to-2, or 2-to-1, if at all, and to amend the
Company's Certificate of Incorporation to effect a corresponding
reduction in the par value of the stock, if the Board deems it to be
appropriate and in the best interests of the Company to do so at any
time prior to the next annual meeting of shareholders. The proposal was
passed by an affirmative vote of 1,790,808 shares of outstanding voting
stock in favor, 11,647 shares against, and 2,168 shares abstaining.
Item 5 of Part II has been omitted because it is inapplicable or the response
thereto is negative.
Item 6.
(a) Exhibits - See the Exhibit Index at Page 19.
(b) Reports on Form 8-K - During the quarter for which this report is
filed, the Registrant did not file any reports with the Securities and
Exchange Commission on Form 8-K.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XETA CORPORATION
(Registrant)
Dated: June 9, 1999 By: /s/ Jack R. Ingram
Jack R. Ingram
President
Dated: June 9, 1999 By: /s/ Robert B. Wagner
Robert B. Wagner
Vice President of Finance
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC. NO. Description
- -------- -----------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession - None.
(3) Articles of Incorporation and Bylaws - previously filed as Exhibits
3.1, 3.2, and 3.3 to the Registrant's Registration Statement on
Form 5.1, Registration No. 33-7841.
(4) Instruments defining rights of security holders, including indentures -
previously filed as Exhibits 3.1, 3.2 and 3.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-7841.
(10) Material Contracts -
10.1 Dealer Agreement Among Lucent Technologies; Distributor and
Inacom Communications, Inc.; and XETA Corporation, for
Business Telecommunications Systems.
(11) Statement re: computation of per share earnings - Inapplicable.
(15) Letter re: unaudited interim financial information - Inapplicable.
(18) Letter re: change in accounting principles - Inapplicable.
(19) Report furnished to security holders - None.
(22) Published report regarding matters submitted to a vote of security
holders - None.
(23) Consents of experts and counsel
23.1 Consent of Arthur Andersen LLP
(24) Power of attorney - None.
(27) Financial Data Schedule
(99) Additional exhibits - None.
</TABLE>
19
<PAGE> 1
DEALER AGREEMENT AMONG LUCENT TECHNOLOGIES, INC;
DISTRIBUTOR, INACOM COMMUNICATIONS, INC.;
AND XETA CORPORATION
FOR BUSINESS COMMUNICATIONS SYSTEMS
TABLE OF CONTENTS
<TABLE>
<S> <C>
1.0 DEFINITIONS..................................................................1
2.0 DEALER APPOINTMENT...........................................................2
3.0 DEALER RESPONSIBILITIES......................................................3
4.0 INSTALLATION, WARRANTY AND POST-WARRANTY SERVICES............................5
5.0 PRODUCT, PRODUCT COMPONENTS, AND SOFTWARE LICENSE CHANGES....................5
6.0 DEALER FORECAST AND REPORTS..................................................6
7.0 INSURANCE....................................................................6
8.0 USE OF INFORMATION...........................................................6
9.0 LICENSE......................................................................7
10.0 TRADEMARKS..................................................................7
11.0 PRODUCT WARRANTY............................................................7
12.0 LIMITATION OF LIABILITY.....................................................8
13.0 INDEMNITY...................................................................9
14.0 INFRINGEMENT...............................................................10
15.0 TERMINATION OF AGREEMENT...................................................10
16.0 EFFECTS OF TERMINATION.....................................................11
17.0 SURVIVAL OF OBLIGATIONS....................................................12
18.0 FORCE MAJEURE..............................................................12
19.0 SEVERABILITY...............................................................12
20.0 ASSIGNMENT.................................................................12
21.0 NON-WAIVER.................................................................12
22.0 CHOICE OF LAW AND DISPUTES.................................................12
23.0 NOTICES....................................................................14
24.0 ENTIRE AGREEMENT...........................................................14
25.0 TERM.......................................................................14
APPENDIX: ADDRESSES............................................................15
APPENDIX: AREA.................................................................16
PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS
PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS
ATTACHMENT: EXISTING LUCENT DEALERS WITH EXCLUSIVE PRIMARY AREAS OF
RESPONSIBILITY
</TABLE>
<PAGE> 2
AGREEMENT NO.: NEDA5I INDIRECT 990349
DEALER AGREEMENT AMONG LUCENT TECHNOLOGIES INC.;
DISTRIBUTOR, INACOM COMMUNICATIONS, INC.; AND XETA CORPORATION FOR BUSINESS
COMMUNICATIONS SYSTEMS
This Dealer Agreement ("Agreement") is effective as of March 19,1999
and is among Lucent Technologies Inc. ("Lucent"), a Delaware corporation,
through its Business Communications Systems unit ("BCS"), with offices at 211
Mount Airy Road, Basking Ridge, New Jersey 07920; XETA Corporation, ("Dealer"),
an Oklahoma corporation, with its principal place of business at 5350 Manhattan
Circle, Suite 210, Boulder, CO 80303; and Inacom Communications, Inc.
("Distributor"), a Delaware Corporation, with its principal place of business at
Technologies Center, 13831 Chalco Valley Parkway, Omaha, NE 68138.
LUCENT, DISTRIBUTOR AND DEALER HEREBY AGREE AS FOLLOWS:
1.0 DEFINITIONS
For the purposes of this Agreement, the following terms and their
definitions shall apply:
1.1 "Area" means the specific geographic area in which Dealer has
agreed to market Lucent Products in accordance with this Agreement. The specific
geographic areas that comprise the Area are identified by city, state, county
and zip code or other appropriate description in the Appendix: Area.
1.2 "Dealer Service" means one or more of those services Dealer may
choose to perform itself for Lucent Products in the Area. Dealer Services
include system configuration to the End User, installation, warranty, and
provision of post-warranty on-site maintenance.
1.3 "End User" means a third party to whom Dealer markets or sells
Lucent Products within the Area for use by such third party in the ordinary
course of its business and not for resale; see Section 2.8 of this Agreement for
further limitations.
1.4 "Lucent Product" means a Lucent equipment model identified in a
Product Appendix to this Agreement that Dealer has purchased from Distributor
and that Distributor has purchased directly from Lucent through its BCS
Distribution Development and Management group or an order source within Lucent
designated by the BCS Distribution Development and Management group
(collectively, "DDM") and that carries the standard Lucent warranty when resold
to an End User. Lucent Products under this agreement are new only. Each Lucent
Product consists of one or more Product Components. The set of Product
Components that may be used to equip a Lucent Product is determined solely by
Lucent.
1.5 "Lucent Service" means one or more of those services provided by
Lucent that Dealer may choose to resell as a Lucent Service Sales Agent,
including system configuration, installation, provision of post-warranty and
on-site and remote maintenance service, and Professional Services. Lucent
Service also includes post-warranty remote maintenance service separate from
post-warranty on-site maintenance service, which Dealer may offer in conjunction
with Dealer Service. Lucent Services, including the prices at which they may be
offered to end users and the commissions payable on their sale, and the price at
which Lucent will provide remote maintenance service as a subcontractor for
Dealer Service are described and identified in an Appendix.
1.6 "Product Component" means an item of equipment identified by a
Lucent equipment price element code. To the extent that a Product Component
contains or consists of any firmware or software, an End User shall have the
right to use such firmware or software in accordance with Section 9.0.
1
<PAGE> 3
1.7 "Software" means any computer program that is composed of routines,
subroutines, instructions, processes, algorithms, and like ideas or know-how,
owned by or licensed to Lucent and or one or more of its suppliers, regardless
of the medium of delivery, including revisions, patches and updates of the same.
1.8 "Territory" means the United States of America, including the
District of Columbia but excluding 1) the Commonwealth of Puerto Rico and all
other territories, protectorates and possessions of the United States of
America, and 2) the geographical areas defined as the "Primary Area of
Responsibility" for Cincinnati Bell Telecommunication Services Inc. (the
Cincinnati Bell Telephone Company operating area in the states of Ohio, Kentucky
and Indiana). The above listed exclusions do not preclude Dealer from making
sales calls and obtaining contracts with customers headquartered in the
excluded areas so long as all Lucent Products under such contracts are
installed outside the excluded areas.
2.0 DEALER APPOINTMENT
2.1 Lucent hereby authorizes Distributor to sell to Dealer, for resale
to End User customers only who are located in Dealer's Area, the Lucent Products
purchased from DDM and listed in a Product Appendix hereto. Dealer's authorized
marketing location(s) and shipping location(s) are set forth in the Appendix:
Addresses. If Dealer has marketed or sold new Lucent Products to an End User as
defined in Section 1.3 hereof, which Lucent Products are installed and used at
premises within Dealer's Area, Dealer may market and sell limited quantities of
Lucent Products to other locations of that End User outside the Area but in the
Territory. Lucent's authorization is predicated on Dealer's agreement to market
the Lucent Products in the Area and to achieve the Area forecast submitted
pursuant to Section 6.0 of this Agreement. Lucent Products installed outside the
Area will not be considered by Lucent when determining whether Dealer has
achieved its Area forecast submitted pursuant to Section 6.0 of this Agreement.
Dealer's sales of Lucent Products outside the Area (unless specifically
permitted by this Section 2.1), Dealer's failure to limit its marketing efforts
and sales of Lucent Products to authorized End-Users, or Dealer's failure to
achieve levels of sales acceptable to Lucent in the Area shall, among others, be
grounds for termination or nonrenewal of this Agreement.
2.2 Dealer and Distributor acknowledge that Distributor is obligated to
provide Lucent with its best efforts to prevent or cure any breach of this
Agreement by Dealer and that if Distributor fails to provide such assistance or
if Distributor causes or contributes to such breaches, Lucent has the right to
terminate its agreements with Distributor and all subtending Dealer Agreements,
including this one. In the event of issues between Dealer and Distributor that
do not rise to the level of breaches of this Agreement, but may cause one or the
other to terminate this Agreement without cause, both Dealer and Distributor
acknowledge that Lucent intends not to become involved in resolving any such
issues.
2.3 Dealer shall have no right to authorize others to resell or market
Lucent Products and any such authorization or attempted authorization shall be
void and without effect. Dealer's sales of Lucent Products to other resellers
shall be grounds for termination or nonrenewal of this Agreement. Dealer is not
authorized to employ sales agents (other than an employee of Dealer located at
an authorized Dealer marketing location) or other independent contractors to
market Lucent Products. Dealer agrees that it has no exclusive right to market
the Lucent Products set forth in a Product Appendix hereto in the Area or
Territory, and that no franchise is granted to Dealer herein. No payment of any
fee or equivalent charge is required of Dealer by Lucent as a condition of this
Agreement.
2.4 Lucent expressly reserves both the right to contract with others to
market Lucent Products in the Territory and the Area and to itself directly
engage in such marketing.
2.5 The relationship of the parties under this Agreement shall be, and
shall at all times remain, one of independent contractors and not that of
franchisor and franchisee, joint venturers, or principal and agent. Neither
Dealer nor Distributor shall have any authority to assume or create obligations
on behalf of Lucent with respect to Lucent Products, and neither Dealer nor
Distributor shall take any action that has the effect of creating the appearance
of its having such authority.
2
<PAGE> 4
2.6 Dealer, directly or through a contractor, shall be solely
responsible for payment of all their unemployment, Social Security and other
payroll taxes including contributions from Dealer when required by law. No
person furnished by Dealer to sell Products or provide Services under this
agreement shall under any circumstances be deemed to be an employee of Lucent.
2.7 Dealer may market Lucent Products only from the authorized
marketing locations in its Area. During the term of this Agreement, no new or
additional Dealer marketing location(s) may be established in or outside of the
Area to market Lucent Products without prior written authorization from Lucent.
2.8 Dealer may not market or sell Lucent Products to any office,
department, agency, or defense installation of the United States Government.
Dealer is not appointed or authorized to market or sell Lucent Products to the
United States Government by reason of the fact that Dealer has, in the past,
sold used or unused products manufactured by Lucent to the United States
Government.
3.0 DEALER RESPONSIBILITIES
3.1 Dealer has previously submitted an "Authorized Dealer Application".
Dealer certifies and warrants that, to the best of its knowledge, such
information is current, accurate, complete and not misleading. Dealer also
agrees during the term of this Agreement to notify Distributor and Lucent
immediately in writing and describe in detail any significant or material change
in such information.
3.2 Dealer represents that it has the necessary marketing capabilities,
integrity and dedication to sell forecast quantities of complete Lucent business
telecommunications systems to End Users located in Dealer's Area. Dealer agrees
to devote its best efforts to promote and market Lucent Products to End Users
within the Area. Dealer also warrants that it will conduct its business in a
manner that reflects favorably on the quality image of Lucent Products and on
the good name, goodwill or reputation of Lucent and will not employ deceptive,
misleading or unethical practices that are or might be detrimental to Lucent or
its Products.
3.3 Dealer shall not purchase or otherwise obtain Lucent Products for
resale from any source other than Distributor unless a Lucent Product is not
available from Distributor on a timely basis, in which case Dealer may purchase
that Lucent Product from the Lucent Catalogs or the NPSC, provided that such
purchases are only to meet a specific customer need. Dealer's purchase or resale
of an unused product originally manufactured by Lucent that, if purchased from
Distributor, would be a Lucent Product under this Agreement, shall be grounds
for immediate termination of this Agreement.
3.4 Dealer shall provide and consistently maintain a staff of
adequately trained and competent sales personnel, knowledgeable of the
specifications, features and advantages of the Lucent Products. Such personnel
shall be made aware of the restrictions on use of Lucent's Information as set
forth in Section 8.0. All training that Lucent requires Dealer personnel to
undergo that enables Dealer to market and demonstrate Lucent Products
effectively shall be provided at no charge to Dealer. All other marketing or
Lucent Product training requested by the Dealer and offered by Lucent, will be
furnished to Dealer at Lucent's standard rates, terms and conditions. However,
Lucent will waive such fees to train the first 10 Dealer sales personnel.
3.5 Dealer represents that it has or will acquire the service
capabilities necessary to meet Lucent's quality standards for design,
installation, and provision of warranty and maintenance on-site services for
Lucent Products, if Dealer opts to provide such services. If Dealer chooses to
provide Dealer Service, Dealer shall provide and consistently maintain a staff
of services personnel, trained on the Lucent Products to Lucent's
specifications. Such personnel shall be made aware of the restrictions on use of
Lucent's Information as set forth in Section 8.0. All services training that
Lucent requires Dealer personnel to undergo, or other services training
requested by the Dealer and offered by Lucent, will be furnished to Dealer at
Lucent's standard rates, terms and conditions. However, Lucent will waive such
fees to train the first 50 Dealer technicians and 5 dealer CSR's. If Dealer has
subcontracted with Lucent to perform all or part of Dealer Service to an End
User and Dealer installs unused product(s) manufactured by Lucent but not
purchased from DDM as part of that End User's system, in addition to
3
<PAGE> 5
any other remedies available to Lucent, Lucent may terminate any Dealer licenses
to use Lucent maintenance software and also terminate its subcontracts with
Dealer to perform Dealer Service. If Dealer has sold a Lucent Product system and
a Lucent Post-Warranty Maintenance service contract to an End User, Dealer will
advise such End User that addition of used and unused product(s) to the Lucent
Product system may void Lucent's warranty and cause Lucent to terminate the
service contract.
3.6 Dealer agrees to purchase and maintain a working Lucent system
either as a demonstration model or as Dealer's primary telecommunications system
at Dealer's principal marketing location.
3.7 Dealer shall inform End Users of the Services available from
Dealer.
3.8 Dealer shall report promptly to Lucent all known or suspected
Lucent Product defects or safety problems and keep Lucent informed of End User
complaints with respect to Lucent Products or Services.
3.9 Dealer shall provide Lucent reasonable access to Dealer's premises
during normal business hours to inspect and verify Dealer performance of its
obligations under this Agreement, including the right to inspect and audit
Dealer's records relating to Lucent Product transactions in and out of Dealer's
Area, Dealer's purchases and sales of unused products, Distribution Functions
and Dealer Services.
3.10 Dealer shall comply with all applicable requirements of federal,
state and local laws, ordinances, administrative rules and regulations,
including, by way of illustration and not limitation, all requirements of Part
68 of the Federal Communication Commission's (FCC) Rules and Regulations and the
Federal Export Administration Act of 1969, 50 U.S.C. app. Sections 2401-2414.
3.11
a. To ensure fulfillment of Lucent's Product and Software
warranties to End Users, to ensure End User safety, to ensure End Users
receive the latest information concerning the use of Lucent Products
and enhancements thereto, to maintain End User satisfaction, and to
assist Lucent in tracking equipment maintenance obligations and
materiel accountability, Dealer agrees to maintain and make available
to Lucent on reasonable request an accurate and complete list of
Dealer's Lucent Product and Software End Users by name, installation
address, the Lucent Product Components furnished to each End User, the
transaction date, and (for End Users who elect to install their own
systems only), all serial numbers associated with the new Lucent
Products, Software or new Lucent Product Components. The obligation to
maintain and make such information available to Lucent shall survive
expiration or termination of this Agreement. Lucent will use this
information solely for the purposes set forth in this Section 3.11.
b. If Lucent is to install the Products, Dealer shall give the
information described in 3.11a., above, to the Lucent Branch where the
End User is located, in the agreed format, as soon as Dealer's order
process is completed. This will enable the customer to receive the
Lucent Warranty on the new Lucent Products and Software, and if the
customer has a Post Warranty Maintenance contract and has like
products, the new Lucent Products will automatically be added to that
contract when the Warranty expires.
3.12 Dealer shall keep accurate accounts, books and records relating to
the business of Dealer with respect to Lucent Products and Dealer Services in
accordance with generally accepted commercial and business accounting principles
and practices that are sufficient for Lucent to ascertain Dealer's compliance
with its obligations under this Agreement.
3.13 To maintain Lucent's high standards for End User satisfaction and
Lucent Product and Service quality, Dealer agrees to abide by Lucent's Dealer
Quality Policy. Dealer agrees to participate in Lucent's Customer
4
<PAGE> 6
Satisfaction Surveys. Lucent may conduct performance reviews of all Dealer
responsibilities and Dealer fulfillment of the Lucent Dealer Quality Policy.
3.14 By the fifth (5th) business day of each month, in a format to be
provided by Lucent to Dealer, Dealer will submit a point-of-sale report of sales
made the previous month, by Lucent order code, ZIP code, and quantity.
4.0 INSTALLATION, WARRANTY AND POST-WARRANTY SERVICES
4.1 Any installation or post-warranty Services required by End Users
purchasing Products from Dealer may be furnished by Dealer. To ensure the
provision of high quality installation and post-warranty Services to End Users,
Dealer shall: (i) be adequately trained; and (ii) perform such Services
competently and in accordance with any applicable Lucent standards. The
indemnity obligations of Dealer under Section 13.1 shall apply to any Services
furnished by Dealer to End Users. If Dealer desires to have Lucent perform
installation and post warranty Services for Dealer's End Users, Dealer may apply
for appointment as a Lucent Service Sales Agent.
4.2 If Dealer desires to furnish Services directly to End Users, Lucent
will provide installation and maintenance training for the Products Dealer is
authorized to market. Initial training will be furnished to Dealer without
charge under Lucent's standard terms and conditions. Additional training will be
provided at Lucent's standard rates, terms and conditions.
4.3 Replacement, spare or maintenance Product Components required by
Dealer, to the extent that Lucent in its sole discretion makes such Product
Components available, can be purchased either directly from Lucent pursuant to
this Agreement or through Lucent's National Parts Sales Center (NPSC). In the
event Dealer elects to purchase such Product Components from the NPSC, such
purchases shall be at the prices, terms and conditions established by the NPSC.
Replacement, spare and maintenance Product Components provided to Dealer or
purchased by Dealer under this Agreement may, at Lucent's option, be either new
or refurbished.
4.4 Dealer may incorporate Lucent's remote maintenance support features
in all its Services Offers to End Users. Lucent will serve as Dealer's
subcontractor for such remote maintenance. NO LICENSE IS GRANTED, AND NO TITLE
OR OTHER OWNERSHIP RIGHTS IN LUCENT'S INTELLECTUAL PROPERTY RELATED TO LUCENT'S
PROVISION OF REMOTE MAINTENANCE SUPPORT SHALL PASS TO DEALER UNDER THIS
AGREEMENT OR AS A RESULT OF ANY PERFORMANCE HEREUNDER. Dealer agrees to provide
Lucent with accurate information on End User port capacity, software
attachments, and other information required in order for Lucent to invoice
Dealer accurately for such remote support. Failure to provide such accurate
information or to update it on a timely basis shall entitle Lucent to terminate
this Agreement upon written notice to Dealer. Connection of unused product(s)
manufactured by Lucent but not purchased from DDM as part of an End User's
system may, in addition to any other remedies available to Lucent, permit Lucent
to terminate any Dealer licenses to use Lucent maintenance software and also to
terminate all its subcontract(s) with Dealer to perform Dealer Service.
5.0 PRODUCT, PRODUCT COMPONENTS, AND SOFTWARE LICENSE CHANGES
5.1 Lucent may without the consent of Dealer, but with ninety(90) days
advance written notice to Dealer, delete any Lucent Product from Product
Appendix(ces) and, upon thirty (30) days advance written notice to Dealer,
delete any Lucent Product Component listed in Product Appendix(ces).
5.2 Lucent may, at any time without advising Dealer, make changes in
the Lucent Products or Lucent Product Components or modify the drawings and
specifications relating thereto, or substitute Lucent Products or Lucent Product
Components of later design to fill an order, provided the changes, modifications
or substitutions under normal and proper use do not adversely impact upon form,
fit or function or are recommended by Lucent to enhance safety. Lucent may, at
any time with ten days advance notice to Dealer, change the terms of its End
User Software License.
5
<PAGE> 7
6.0 DEALER FORECAST AND REPORTS
6.1 Upon execution of this Agreement, Dealer shall submit to Lucent a
forecast of total Lucent Product orders to be placed by Dealer during the
contract term. The forecast must specify, for each quarter, the total unit
quantities of each Lucent Product construct (i.e., average configuration of
Lucent Product Components in an initial End User installation of a Lucent
Product model) to be ordered.
6.2 Lucent may reject any forecast submitted by Dealer if, in Lucent's
sole judgment, such forecast does not project either: (1) the level of Lucent
Product orders Lucent reasonably requires of Dealer to achieve its marketing
objectives in the Area; or (2) a realistic assessment of Dealer's potential
successful marketing opportunities in the Area during the forecast period.
Lucent shall notify Dealer in writing within thirty (30) days of receipt of
Dealer's forecast if Lucent has rejected such forecast or it will be deemed to
have been accepted by Lucent.
6.3 Dealer shall submit the forecast of Lucent Product orders and
actual Lucent Product installation data specified in Section 3.12 in a format
specified by Lucent.
7.0 INSURANCE
Dealer shall maintain, during the term of this Agreement, all insurance
and bonds required by any applicable law, including but not limited to: (1)
workers' compensation insurance as prescribed by the laws of all states in which
work pursuant to this Agreement is performed; (2) employer's liability insurance
with limits of at least $1 million per occurrence; and (3) comprehensive
personal liability insurance coverage (including products liability coverage and
comprehensive automobile liability coverage) with limits of at least $1 million
for bodily injury, including injury to any one person and $1 million on account
of any single occurrence, and $1 million for each occurrence of property damage,
or in lieu of such limits, bodily injury and property damage liability insurance
(including products liability and comprehensive automobile coverage) with a
combined single limit of at least $2 million per occurrence. Dealer shall name
Lucent as an Additional Insured on all such policies. Upon request of
Distributor or Lucent, Dealer shall furnish adequate proof of such insurance.
8.0 USE OF INFORMATION
All technical and business information, National List prices, discounts
or rebates, and trade secrets in any form, furnished to any party under or in
contemplation of this Agreement and identified as or known by the receiving
party or parties to be proprietary to the furnishing party (all hereinafter
designated "Information") shall remain the property of the furnishing party.
Unless the furnishing party otherwise expressly agrees in writing, such
Information: (i) shall be treated in confidence by the receiving party or
parties and used only for the purposes of performing the receiving party's or
parties' obligations under this Agreement; (ii) shall not be disclosed to
anyone, except to employees of the receiving party or parties and End Users to
whom such disclosure is necessary to the use for which rights are granted
hereunder; (iii) shall not be reproduced or copied in whole or in part, except
as necessary for use as authorized in this Agreement; and (iv) shall, together
with any copies thereof, be returned, be destroyed or, if recorded on an
erasable storage medium, be erased when no longer needed or when this Agreement
terminates, whichever occurs first. Any copies made as authorized herein shall
contain the same copyright notice or proprietary notice or both that appear on
the Information copied. The above conditions do not apply to any part of the
Information (i) which is or becomes known to the receiving party or parties free
of any obligation to keep same in confidence; (ii) which is or becomes generally
available to the public without breach of this Agreement; or (iii) which is
independently developed by the receiving party or parties. The obligation of
confidentiality and restrictions on use of Information shall exist for a period
of (i) two (2) years after the termination of this Agreement, or (ii) seven (7)
years after the receipt of such Information, whichever is longer.
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9.0 LICENSE
9.1 Upon delivery of Lucent Product firmware and software to Dealer,
Lucent grants to Dealer a personal and non-exclusive right to use such licensed
materials ("Licensed Materials") in the Area and Territory solely to fulfill its
duties and obligations under this Agreement. NO TITLE OR OTHER OWNERSHIP RIGHTS
IN INTELLECTUAL PROPERTY OR OTHERWISE IN THE LICENSED MATERIAL OR ANY COPY
THEREOF SHALL PASS TO DEALER UNDER THIS AGREEMENT OR AS A RESULT OF ANY
PERFORMANCE HEREUNDER.
9.2 Dealer agrees: (i) to make only those copies of Software necessary
for its use under this Agreement and assure that such copies contain any
proprietary or copyright notice appearing on the Software being copied; (ii) not
to reverse engineer, decompile or disassemble the Licensed Materials or
otherwise attempt to learn the source code, structure, algorithms or ideas
underlying the Licensed Materials; (iii) not to export the Licensed Materials
out of the Territory, and (iv) not to use the Software directly for any third
person or permit any third person to use the Software except as necessary under
this Agreement.
9.3 Lucent further grants to Dealer the right to furnish Licensed
Materials to End Users coincident with the sale of Lucent Products utilizing
such Licensed Materials, provided, however, that unless the Licensed Materials
come with a limited use license, which may be in the form of a shrink-wrap
(break-the-seal) agreement, provided by Lucent, Dealer obtains agreement in
writing from the End User, before or at the time of furnishing each copy of
Licensed Materials, in the form set forth in an Appendix to this Agreement.
10.0 TRADEMARKS
10.1 Lucent grants Dealer permission to utilize certain Lucent
designated trademarks, insignia, and symbols ("Marks") in Dealer's advertising
and promotion of Lucent Products furnished hereunder, provided such use conforms
to Lucent's standards and guidelines. Dealer shall not do business under any
Mark or any derivative or variation thereof, and Dealer shall not directly or
indirectly hold itself out as having any relationship to Lucent or its
affiliates other than as an "Authorized Lucent Dealer" or other Lucent approved
term. Except as provided in Section 16.1, Marks may only be used by Dealer to
advertise and promote the Lucent Products during the term of this Agreement.
Marks are not to be used by Dealer in any way to imply Lucent's endorsement of
products, licensed materials or services not furnished hereunder, such as used
or unused products originally manufactured by Lucent. Marks are not to be used
by Dealer in advertising or marketing materials, including print media, radio,
television, broadcast facsimile, telemarketing or Internet websites, that
principally reach End User prospective customers outside Dealer's Area. Such
uses of Marks will be cause for immediate termination of this Agreement. Dealer
will not alter or remove any Mark applied to Lucent Products without the prior
written approval of Lucent. Nothing in this Agreement creates in Dealer and
Dealer agrees not to assert, any rights in the Marks.
10.2 All Dealer-initiated advertisements or promotions using Marks or
any reference thereto, whether under a promotional allowance program or
otherwise, shall receive pre-publication review and approval by Lucent with
respect to, but not limited to context, style, appearance, composition, timing
and media.
10.3 This Agreement does not give Dealer any rights to use the logo or
trademark of AT&T Corp. Such rights cannot be obtained under this Agreement or
any other Agreement with Lucent Technologies Inc.
11.0 PRODUCT WARRANTY
11.1 Dealer may, but is not required to, provide warranties and
remedies in addition to but not less than the warranties and remedies set forth
in Section 11.2. Dealer shall inform the End User of Lucent's Limitation of
Liability as set forth in Section 12 of this Agreement, in a reasonable manner.
Lucent has warranted to Distributor the title of the Lucent Products purchased
by Distributor from DDM and resold to Dealer under this Agreement. This warranty
of title is the only warranty provided to Dealer.
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11.2 Dealer shall, before or at the time of delivery of Lucent
Products, advise an End User of the following:
(i) that the Lucent Products may contain remanufactured parts that
are equivalent to new in performance and appearance;
(ii) that there is a toll fraud exclusion in Lucent's warranty,
with a specific reference to the words of that exclusion and an explanation of
the meaning of those words;
(iii) that the Lucent Products are warranted to the end user on
the Delivery or In-Service Date, whichever is applicable, and for a period of
one (1) year thereafter to operate in accordance with Lucent's standard
published specifications; and if any Lucent Products are not operational during
the warranty period, that the End User shall notify the Dealer who at its option
will replace or repair those Lucent Products without charge. Replaced Lucent
Products become the property of Dealer; and
(iv) THAT LUCENT AND ITS AFFILIATES AND SUPPLIERS MAKE NO OTHER
WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY DISCLAIM ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
11.3 EXCEPT FOR THE WARRANTY OF TITLE TO DISTRIBUTOR AND THE LIMITED
PRODUCT WARRANTY TO DEALER'S END USERS REFERENCED IN THIS SECTION, LUCENT, ITS
AFFILIATES AND SUPPLIERS MAKE NO WARRANTIES EXPRESS OR IMPLIED AND SPECIFICALLY
DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
11.4 The indemnity obligations of Dealer under Section 13.1 shall apply
to Dealer's provision of End User warranty assistance services and to any
failure to refer to and explain the toll fraud exclusion to an End User. Dealer
may return Lucent Products replaced under Section 11.2 (iii) to Lucent for
replacement by Lucent.
11.5 Dealer shall, before or at the time of delivery of used or unused
Lucent products, advise an End User of the following:
(i) Used or unused Lucent products were not purchased by Dealer
under this Agreement, and if purchased from Distributor, Distributor did not
purchase such products from Lucent under its Distributor Agreement with Lucent;
(ii) Used or unused products are not warranted by Lucent;
(iii) Dealer has no knowledge of the conditions under which unused
products may have been stored or shipped prior to their delivery to Dealer; and
(if End User has a Service Agreement with Lucent);
(iv) Used or unused products may not be certifiable for addition
to the Service Agreement.
12.0 LIMITATION OF LIABILITY
EXCEPT FOR PERSONAL INJURY AND EXCEPT FOR THE LIABILITY EXPRESSLY
ASSUMED BY LUCENT UNDER SECTIONS 13 AND 14 OF THIS AGREEMENT, THE LIABILITY OF
LUCENT AND ITS PARENT OR AFFILIATES FOR ANY CLAIMS, LOSSES, DAMAGES OR EXPENSES
FROM ANY CAUSE WHATSOEVER (INCLUDING CLAIMS OF INFRINGEMENT AND ACTS OR
OMISSIONS OF THIRD PARTIES) REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE DIRECT DAMAGES
PROVEN OR THE REPAIR, REPLACEMENT COSTS (INCLUDING THE COSTS OF COVER) OR
PURCHASE PRICE OF THE PRODUCTS OR SERVICE THAT DIRECTLY GIVES RISE TO THE CLAIM.
IN NO EVENT SHALL LUCENT OR ITS PARENT OR AFFILIATES BE LIABLE TO DEALER OR TO
ANY OTHER COMPANY OR
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ENTITY FOR ANY INCIDENTAL, RELIANCE, CONSEQUENTIAL OR ANY OTHER INDIRECT LOSS OR
DAMAGE (INCLUDING LOST PROFITS OR REVENUES OR CHARGES FOR COMMON CARRIER
TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO
PRODUCTS ["TOLL FRAUD"]) ARISING OUT OF THIS AGREEMENT. NO ACTION OR PROCEEDING
AGAINST LUCENT MAY BE COMMENCED MORE THAN TWELVE (12) MONTHS AFTER THE CAUSE OF
ACTION ACCRUES. THIS SECTION SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY.
EXCEPT FOR PERSONAL INJURY, THE LIABILITY OF DEALER AND ITS PARENT OR
AFFILIATES FOR ANY CLAIMS, LOSSES, DAMAGES OR EXPENSES FROM ANY CAUSE WHATSOEVER
(INCLUDING CLAIMS OF INFRINGEMENT AND ACTS OR OMISSIONS OF THIRD PARTIES)
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL
NOT EXCEED THE LESSER OF THE DIRECT DAMAGES PROVEN OR THE REPAIR, REPLACEMENT
COSTS (INCLUDING THE COSTS OF COVER) OR PURCHASE PRICE OF THE PRODUCTS OR
SERVICE THAT DIRECTLY GIVES RISE TO THE CLAIM. IN NO EVENT SHALL DEALER OR ITS
PARENT OR AFFILIATES BE LIABLE TO LUCENT OR TO ANY OTHER COMPANY OR ENTITY FOR
ANY INCIDENTAL, RELIANCE, CONSEQUENTIAL OR ANY OTHER INDIRECT LOSS OR DAMAGE
(INCLUDING LOST PROFITS OR REVENUES OR CHARGES FOR COMMON CARRIER
TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO
PRODUCTS ["TOLL FRAUD"]) ARISING OUT OF THIS AGREEMENT. NO ACTION OR PROCEEDING
AGAINST DEALER MAY BE COMMENCED MORE THAN TWELVE (12) MONTHS AFTER THE CAUSE OF
ACTION ACCRUES. THIS SECTION SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY.
13.0 INDEMNITY
13.1 Unless Dealer's liability is otherwise limited or excluded in
other sections of this Agreement, Dealer will indemnify Lucent for the full
amount of any settlement or final judgment that arises out of a claim or suit by
a third party to the extent that such claim or suit is based on strict tort
liability, breach of a warranty provided by Dealer, or the intentional or
negligent acts or omissions of Dealer. Dealer's obligation to indemnify Lucent
will be reduced in proportion to which the settlement or final judgment is
attributable to the strict tort liability of Lucent, breach of a Lucent
warranty, or the intentional or negligent acts or omissions of Lucent, unless
liability for such acts or omissions of Lucent is otherwise excluded in other
sections of this Agreement, or the negligent acts or omissions of any other
third party not under Dealer's direct control. Dealer's obligation to indemnify
Lucent shall be contingent upon: (1) Lucent promptly notifying Dealer in writing
of the existence of any claim or suit that may result in a settlement or
judgment for which Dealer may be obligated to indemnify Lucent; (2) Lucent
giving Dealer full opportunity and authority to assume sole responsibility to
settle and defend any such claim or suit; and (3) Lucent furnishing to Dealer
upon reasonable request all information and assistance that Dealer deems to be
reasonably required to settle or defend such claim or suit. Dealer will also
indemnify Lucent for the full amount of any settlement or final judgment that
arises out of a claim or suit by a third party based on Dealer's establishment
of its relationship with Lucent, whatever the nature of the claim or suit. These
indemnities are in lieu of all other obligations of Dealer, express or implied,
in law or in equity, to indemnify Lucent for claims or suits covered by this
section. Dealer's liability to indemnify Lucent shall in no event exceed
$500,000.
13.2 Unless Lucent's liability is otherwise limited or excluded in
other sections of this Agreement, Lucent will indemnify Dealer for the full
amount of any settlement or final judgment that arises out of a claim or suit by
a third party to the extent that such claim or suit is based on the strict tort
liability of Lucent, breach of a Lucent warranty, or the intentional or
negligent acts or omissions of Lucent. Lucent's obligation to indemnify Dealer
shall be reduced in proportion to which the settlement or final judgment is
attributable to the strict tort liability of Dealer, breach of a Dealer
warranty, or the intentional or negligent acts or omissions of Dealer or any
other third party not under Lucent's direct control. Lucent's obligation to
indemnify Dealer will be contingent upon: (1) Dealer promptly notifying Lucent
in writing of the existence of any claim or suit that may result in a settlement
or final judgment for which Lucent may be obligated to indemnify Dealer; (2)
Dealer giving Lucent full opportunity and authority to assume sole
responsibility to settle or defend any such claim or suit; and (3) Dealer
furnishing to Lucent upon reasonable request all information and assistance
available to Dealer that Lucent deems to be reasonably required to settle or
defend such claim or suit. THIS INDEMNITY IS IN LIEU OF ALL OTHER
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OBLIGATIONS OF LUCENT, EXPRESS OR IMPLIED, IN LAW OR IN EQUITY, TO INDEMNIFY
DEALER FOR CLAIMS OR SUITS COVERED BY THIS SECTION. LUCENT'S LIABILITY TO
INDEMNIFY DEALER SHALL IN NO EVENT EXCEED $500,000.
13.3 The party electing to take responsibility for settling or
defending any claim or suit covered by this Section 13.0 will be responsible for
the attorney's fees and costs incurred by said party to settle or defend such
claim or suit.
14.0 INFRINGEMENT
14.1 Lucent will defend or settle, at its own expense, any action
brought against Dealer or an End User, to the extent that it is based on a claim
that the normal use or sale of any Lucent Products provided under this Agreement
infringe any United States patent, trademark or copyright, that any licensed
materials provided under this Amendment infringe any United States copyright or
violate the trade secret of a third party. Lucent will pay those costs, damages
and attorneys' fees finally awarded against Dealer or an End User in any such
action attributable to any such claim, but such defense, settlements and
payments are conditioned on the following: (i) that Lucent shall be notified
promptly in writing by Dealer or an End User of any such claim; (ii) that Lucent
shall have sole control of the defense of any action on such claim and of all
negotiations for its settlement or compromise; (iii) that Dealer or End User
shall cooperate in a reasonable way to facilitate the settlement or defense of
such claim, and that Dealer or End User has made no statement or taken any
action that might hamper or undermine Lucent's defense or settlement; (iv) that
such claim does not arise from modifications to Lucent Products or licensed
materials not authorized by Lucent or from use or combination of the Lucent
Products with software and/or apparatus or equipment not supplied or specified
by Lucent; (v) that such claim does not arise from adherence to Dealer's or End
User's instructions or the use of items, materials or information of Dealer's or
End User's origin, design or selection; and (vi) that should Lucent Products or
licensed materials become, or in Lucent's opinion, be likely to become, the
subject of such claim of infringement, then Dealer or End User shall permit
Lucent, at Lucent's option and expense, either to: (1) procure for Dealer or End
User the right to continue using the Lucent Products or licensed materials, or
(2) replace or modify the same so that it is not subject to such claim and is
functionally equivalent or (3) upon failure of (1) and (2) above despite the
reasonable efforts of Lucent, remove the infringing Lucent Product or terminate
Dealer's or End User's rights under the license and refund the purchase price or
fee paid less a reasonable allowance for use, damage and obsolescence. In the
event that a claim of infringement arises for which the liability of Lucent is
excepted under (iv) or (v) above, Dealer or End User will defend and save Lucent
harmless to the same extent and subject to the same limitations as apply to
Lucent when Lucent is liable hereunder. This Section 14.0 states the entire
liability of Lucent with respect to infringement by Lucent Products or licensed
materials provided hereunder.
15.0 TERMINATION OF AGREEMENT
15.1 Unless a party gives written notice of its intent not to renew to
the other parties ninety (90) days in advance of the termination date, this
Agreement will automatically renew for an additional term. Any party may
terminate this Agreement without cause on ninety (90) days notice, except that
all parties agree not to terminate this Agreement without cause during the first
six months of the initial term of this Agreement.
15.2 Lucent may terminate this Agreement upon thirty (30) days prior
written notice to Dealer and Distributor if: (i) Dealer markets or sells Lucent
Products outside the Area except as specifically permitted in Section 2.1; (ii)
Dealer fails to limit its marketing efforts to authorized locations or End-Users
as defined in Section 1.3; (iii) Dealer fails to make reasonable commercial
efforts to achieve levels of sales that comply with the Lucent Product forecasts
for the Area submitted pursuant to Section 6.0; (iv) Dealer fails to provide an
acceptable quality of service to End Users; or (v) there occurs any material
change in the management or control of Dealer.
15.3 Except as otherwise provided in this Agreement, either party may
terminate this Agreement upon thirty (30) days prior written notice if the party
has defaulted in the performance or has breached its obligations under this
Agreement, and such breach or default remains uncured for a period of twenty
(20) business days following receipt of notice of such breach or default.
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15.4 Lucent or Distributor may terminate this Agreement upon
twenty-four (24) hours written notice if Dealer has: (i) become insolvent,
invoked as a debtor any laws relating to the relief of debtors' or creditors'
rights, or has had such laws invoked against it; (ii) become involved in any
liquidation or termination of its business; (iii) been involved in an assignment
for the benefit of its creditors; (iv) sold or attempted to resell Lucent
Products to any third party other than an End User; (v) appointed or attempted
to appoint any unauthorized agent or unauthorized manufacturer's representatives
for Lucent Products; (vi) purchased from a source other than Distributor, sold
or attempted to resell any unused products manufactured by Lucent that, if
purchased from DDM through Distributor, would be a Lucent Product under this
Agreement; (vii) remotely accessed PBX locations maintained by Lucent directly;
(viii) activated software features without compensation to Lucent when
compensation is due to Lucent; (ix) misrepresented, by statement or by omission,
Dealer's authority to resell under this or any other written agreement with
Lucent that is limited to specific Lucent products or services, by stating or
implying, by use of a Lucent Mark or otherwise, that the authority granted in
this or such other agreement applies to any Lucent product or service not
covered by this or such other agreement, or (x) failed to comply with Lucent's
guidelines for the proper use of Lucent's Marks.
15.5 Dealer may terminate this Agreement on twenty-four (24) hours
written notice if Lucent or Distributor has: (i) become insolvent, invoked as a
debtor any laws relating to the relief of debtors' or creditors' rights, or has
had such laws invoked against it; or (ii) become involved in any liquidation or
termination of its business; (iii) been involved in an assignment for the
benefit of its creditors.
15.6 Notwithstanding such termination rights, each party reserves all
of its legal rights and equitable remedies, including without limitation those
under the Uniform Commercial Code.
15.7 No party shall be liable to any other on account of termination of
this Agreement, either for compensation or for damages of any kind or character
whatsoever, on account of the loss by Lucent, Distributor or Dealer of present
or prospective profits on sales or anticipated sales, good will, or
expenditures, investments or commitments made in connection therewith or in
connection with the establishment, development or maintenance of Distributor's
or Dealer's business.
16.0 EFFECTS OF TERMINATION
Upon termination or expiration of this Agreement, Dealer shall
immediately:
16.1 discontinue any and all use of Marks, including but not limited to
such use in advertising or business material of Dealer, except to identify the
Lucent Products; provided that if Lucent does not repurchase Dealer's remaining
inventory, Dealer may continue using Marks as authorized in this Agreement for
an additional ninety (90) days for the limited purpose of marketing such
inventory to End Users after termination is effective;
16.2 remove and return to Lucent or destroy at Lucent's request, any
and all promotional materials supplied without charge by Lucent except those
necessary for the limited purpose of marketing existing Dealer inventory
pursuant to Section 16.1;
16.3 return all Lucent proprietary Information, Licensed Materials and
Software, except that which Lucent determines is necessary to operate and
maintain previously furnished Lucent Products;
16.4 cease holding itself out, in any manner, as a Lucent authorized
Dealer of the Lucent Products; and
16.5 notify and arrange for all publishers and others (including, but
not limited to, publisher of telephone and business directories) who may
identify, list or publish Dealer's name as a Lucent authorized Dealer of Lucent
Products, to discontinue such listings.
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17.0 SURVIVAL OF OBLIGATIONS
The respective obligations of Dealer and Lucent under this Agreement
that by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, shall survive termination, cancellation or
expiration hereof, such as, by way of example only, the obligations pursuant to
the following Sections: USE OF INFORMATION, LICENSE, TERMINATION OF AGREEMENT,
LIMITATION OF LIABILITY, INDEMNITY and TRADEMARKS.
18.0 FORCE MAJEURE
Except for Dealer's obligation to make timely payments, neither party
shall be held responsible for any delay or failure in performance to the extent
that such delay or failure is caused by fires, embargoes, explosions, labor
disputes, government requirements, civil or military authorities, acts of God,
inability to secure raw materials or transportation facilities, acts or
omissions of carriers or suppliers or any other causes beyond the parties'
control whether or not similar to the foregoing.
19.0 SEVERABILITY
If any section, or clause thereof, in this Agreement is held to be
unenforceable, then the meaning of such section or clause will be construed so
as to render it enforceable, to the extent feasible; and if no reasonable
interpretation would save such section or clause, it will be severed from this
Agreement and the remainder will remain in full force and effect. However, in
the event such section or clause is considered an essential element of this
Agreement by either Lucent or Dealer, the parties shall promptly negotiate a
replacement therefor.
20.0 ASSIGNMENT
Dealer shall not assign any right or interest under this Agreement or
delegate any work or other obligation to be performed or owed by Dealer under
this Agreement without the prior written consent of Lucent, which consent shall
not be unreasonably withheld. Any assignment or delegation by Dealer without
such consent shall be void and ineffective. By the provision of notice thereof
in accordance with this Agreement, Lucent shall have the right to assign this
Agreement and to assign its rights and delegate its obligations and liabilities
under this Agreement, either in whole or in part (an "Assignment"), to any
entity that is, or that was immediately preceding such Assignment, a current
subsidiary, business unit, division or other affiliate of Lucent. The notice of
Assignment shall state the effective date thereof. Upon the effective date and
to the extent of the Assignment, Lucent shall be released and discharged from
all obligations and liabilities under this Agreement. Such Assignment, release
and discharge shall be complete and shall not be altered by the termination of
the affiliation between Lucent and the entity assigned rights or delegated
obligations and liabilities under this Agreement.
21.0 NON-WAIVER
No course of dealing, course of performance or failure of either party
strictly to enforce any term, right or condition of this Agreement shall be
construed as a waiver of any term, right or condition.
22.0 CHOICE OF LAW AND DISPUTES
22.1 The construction, interpretation and performance of this Agreement
shall be governed by the local laws of the State of Delaware.
22.2 Any controversy or claim, whether based on contract, tort, strict
liability, fraud, misrepresentation, or any other legal theory, related directly
or indirectly to this Agreement (the "Dispute") shall be resolved solely in
accordance with the terms of this Section, except as set forth in paragraph 22.6
below.
22.3 If the Dispute cannot be settled by good faith negotiation between
the parties, Lucent and Dealer will submit the Dispute to non-binding mediation.
If complete agreement cannot be reached within thirty (30) days of submission to
mediation, any remaining issues will be resolved by binding arbitration in
accordance with
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paragraphs 22.4 and 22.5 below. The Federal Arbitration Act, 9 U.S.C. Sections 1
to 15, not state law, will govern the arbitrability of all Disputes.
22.4 A single arbitrator who is knowledgeable in the telecommunications
products field or in commercial matters will conduct the arbitration. The
arbitrator's decision and award will be final and binding and may be entered in
any court with jurisdiction. The arbitrator will not have authority to limit,
expand or otherwise modify the terms of this Agreement.
22.5 The mediation and, if necessary, the arbitration will be conducted
under the then current rules of the alternate dispute resolution (ADR) firm
selected by the parties, or if the parties are unable to agree on an ADR firm,
the parties will conduct the mediation and, if necessary, the arbitration under
the then current rules and supervision of the American Arbitration Association
(AAA). Lucent and Dealer will each bear its own attorneys' fees associated with
the mediation and, if necessary, the arbitration. Lucent and Dealer will pay all
other costs and expenses of the mediation/arbitration as the rules of the
selected ADR firm provide. The parties and their representatives shall hold the
existence, content and result of the mediation and arbitration in confidence.
22.6 Unless both parties agree otherwise, Disputes relating to Dealer's
compliance with Section 10 of this Agreement (Trademarks) shall be exempt from
the dispute resolution processes described in this Section.
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23.0 NOTICES
All notices under this Agreement shall be in writing and shall be given
in person, by facsimile, by receipted courier or by certified U.S. mail,
addressed to the addresses set forth at the beginning of this Agreement or to
such other address as either party may designate by written notice to the other.
All written notices sent by mail shall be sent first class or better, postage
prepaid. All notices shall be deemed to have been given on the earlier of the
date actually received or the fifth day after mailing.
24.0 ENTIRE AGREEMENT
The terms and conditions contained in this Agreement supersede all
prior oral or written understandings between the parties and constitute the
entire Agreement between them concerning the subject matter of this Agreement
and shall not be contradicted, explained or supplemented by any course of
dealing between Lucent or any of its affiliates and Distributor and any of its
affiliates or Dealer or any of its affiliates. This Agreement shall not be
modified or amended except by a writing signed by an authorized representative
of the party to be charged.
25.0 TERM
This Agreement shall be effective as of March 19, 1999, and shall have
a term of two years beginning on said date.
IN WITNESS WHEREOF the parties have caused this Agreement to be signed by their
duly authorized representatives.
LUCENT TECHNOLOGIES INC. INACOM COMMUNICATIONS, INC.
By: /s/ CONRAD T. TRIDENTE By: /s/ PAUL REITMEIER
Name: Conrad T. Tridente Name: Paul Reitmeier
Title: District Manager Title: President
Date: March 19, 1999 Date: March 18, 1999
XETA CORPORATION
By: /s/ JACK R. INGRAM
Name: Jack R. Ingram
Title: President
Date: March 10, 1999
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APPENDIX: ADDRESSES
A. Marketing Location(s):
XETA CORPORATION NATIONAL SALES OFFICES
MR. STEVE BROWN MR. ERROL INGRAM
National Account Manager National Account Manager
XETA Corporation XETA Corporation
4003 Lincoln Drive West, Suite 1 3500 Oak Lawn, Suite 400
Mariton, NJ 08053 Dallas, TX 75219
PH: 609-988-7179 PH: 214-528-8838
FX: 609-988-7197 FX: 214-528-9990
E-mail: [email protected] E-mail: [email protected]
MR. SEAN BUSCH MR. DONALD E. REIGEL
National Account Manager Vice President of Sales and Marketing
XETA Corporation XETA Corporation
300 Main Street, Suite 510 5350 Manhattan Circle, Suite 210
Lafayette, IN 47901 Boulder, CO 80303
PH: 765-742-8844 PH: 303-499-8578
FX: 765-742-6672 FX: 303-499-8579
E-mail: [email protected] E-mail: [email protected]
MR. MARTY CASTENS MR. RON RIVERA
National Account Manager National Account Sales Engineer
XETA Corporation XETA Corporation
4500 South Garnett Road, Suite 1000 5350 Manhattan Circle, Suite 210
Tulsa, OK 74146 Boulder, CO 80303
PH: 918-664-8200 PH: 303-543-0286
FX: 918-664-6876 FX: 303-499-8579
E-mail: [email protected] E-mail: [email protected]
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MR. CLYDE EDSON MS. DARLENE SCHRINER
National Account Manager PBX Project Manager
XETA Corporation XETA Corporation
1180 Spring Centre South Boulevard, 5350 Manhattan Circle, Suite 210
Suite 340 Boulder, CO 80303
Altamonte Springs, FL 32714 PH: 303-499-8578
PH: 407-774-1235 FX: 303-499-8579
FX: 407-774-3242 E-mail: [email protected]
E-mail: [email protected]
MR. HARVE HOWARD MR. MIKE SHADDOW
National Account Manager National Account Manager
XETA Corporation XETA Corporation
4500 South Garnett Road, Suite 1000 19130 Wind Dancer Street
Tulsa, OK 74146 Lutz, FL 33549
PH: 918-664-8200 PH: 813-920-7030
FX: 918-664-6876 FX: 813-926-2928
E-mail: [email protected] E-mail: [email protected]
MS. LISA ROSENTHAL
National Account Sales Assistant
XETA Corporation
5350 Manhattan Circle, Suite 210
Boulder, CO 80303
PH: 303-499-8577
FX: 303-499-8579
E-mail: [email protected]
B. Shipping Location(s):
Inacom Distribution Center
13900 Chalco Valley Parkway
Omaha, Nebraska 68138
16
<PAGE> 18
APPENDIX: AREA
A. Authorized Area for XETA Corporation for:
PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS
PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS
<TABLE>
<CAPTION>
State County
----- ------
<S> <C>
United States The Fifty States of the United States
of America including Washington D.C.,
excluding the Areas defined in Section
1.8 of the Agreement, and the Areas
covered by the Attachment: Existing
Lucent Dealers with Exclusive Primary
Areas of Responsibility.
</TABLE>
17
<PAGE> 19
PRODUCT APPENDIX: DEFINITY(R) ECS & ASSOCIATED ADJUNCTS
A. Products: DEFINITY(R) ECS Products & Associated Adjuncts and
Accessories as it strictly relates to the Hospitality Industry.
DEFINITY G3vs
DEFINITY G3si
DEFINITY AUDIX(R)
Intuity(TM) AUDIX
6400 Series Voice Terminals
8400 Series Voice Terminals
Basic Call Management Systems
Call Management Systems
Standby Power Systems
Passageway
-Telephony Services
-Direct Connect
B. For the products covered by this Product Appendix, the following is the
End User Software License referred to in Section 9 of the Agreement:
END USER SOFTWARE LICENSE
LIMITED WARRANTY AND LIMITED LIABILITY
COMPATIBILITY. THE SOFTWARE IS NOT WARRANTED FOR NONCOMPATIBLE SYSTEMS.
SOFTWARE. Lucent Technologies warrants that if the Software does not
substantially conform to its specifications, the end-user customer
("You") may return it to the place of purchase within 90 days after the
date of purchase, provided that You have deployed and used the Software
solely in accordance with this License Agreement and the applicable
Lucent Technologies installation instructions. Upon determining that
the returned Software is eligible for warranty coverage, Lucent
Technologies will either replace the Software or, at Lucent
Technologies's option, will offer to refund the License Fee to You upon
receipt from You of all copies of the Software and Documentation. In
the event of a refund, the License shall terminate.
DISCLAIMER OF WARRANTIES. LUCENT TECHNOLOGIES MAKES NO WARRANTY,
REPRESENTATION, OR PROMISE to you NOT EXPRESSLY SET FORTH IN THIS
AGREEMENT. Lucent TECHNOLOGIES DISCLAIMS AND EXCLUDES ANY AND ALL
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE OR
DOCUMENTATION WILL SATISFY YOUR REQUIREMENTS, THAT THE SOFTWARE OR
DOCUMENTATION ARE WITHOUT DEFECT OR ERROR, OR THAT THE OPERATION OF THE
SOFTWARE WILL BE UNINTERRUPTED. ALSO, LUCENT TECHNOLOGIES DOES NOT
WARRANT THAT THE SOFTWARE WILL PREVENT, AND LUCENT TECHNOLOGIES WILL
NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF
COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED
THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD). Some states do not
allow the exclusion of implied warranties or limitations on how long an
implied warranty lasts, so the above limitation may not apply to You.
This warranty gives You specific legal rights which vary from state to
state.
EXCLUSIVE REMEDY AND LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY
PROXIMATELY CAUSED BY LUCENT TECHNOLOGIES' NEGLIGENCE, YOUR EXCLUSIVE
REMEDY AND LUCENT TECHNOLOGIES' ENTIRE LIABILITY ARISING FROM OR
RELATING TO THIS LICENSE AGREEMENT OR TO THE SOFTWARE OR DOCUMENTATION
SHALL BE LIMITED TO DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $10,000.
LUCENT
18
<PAGE> 20
TECHNOLOGIES SHALL NOT IN ANY CASE BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE DAMAGES, EVEN IF
LUCENT TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. LUCENT TECHNOLOGIES IS NOT RESPONSIBLE FOR LOST PROFITS OR
REVENUE OR SAVINGS, LOSS OF USE OF THE SOFTWARE, LOSS OF DATA, COSTS OF
RECREATING LOST DATA, THE COST OF ANY SUBSTITUTE EQUIPMENT OR PROGRAM,
CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES
ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD), OR CLAIMS
BY ANY PERSON OTHER THAN YOU. THESE LIMITATIONS OF LIABILITY SHALL
APPLY NOTWITHSTANDING THE FAILURE OF AN EXCLUSIVE REMEDY. Some states
do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation or exclusion may not apply to You.
Lucent Technologies grants You a personal, non-transferable and
non-exclusive right to use, in object code form, all software and
related documentation furnished under the Agreement between Lucent
Technologies and [Dealer]. This grant shall be limited to use with the
equipment for which the software was obtained or, on a temporary basis,
on back-up equipment when the original equipment is inoperable. Use of
software on multiple processors is prohibited unless otherwise agreed
to in writing by Lucent Technologies. You agree to use your best
efforts to see that your employees and users of all software licensed
under this Agreement comply with these terms and conditions and You
will refrain from taking any steps, such as reverse assembly or reverse
compilation, to derive a source code equivalent of the software.
You are permitted to make a single archive copy of software. Any copy
must contain the same copyright notice and proprietary marking as the
original software. Use of software on any equipment other than that for
which it was obtained, removal of the software from the United States,
or any other material breach shall automatically terminate this
license.
If the terms of this license differ from the terms of any license
packaged with the software, the terms of the license packaged with the
software shall govern.
C. [For Dealers licensing the Orange Label Flash Card only.] The following
new Section 26 is added to the Agreement with respect to this Product Appendix:
26. SOFTWARE LICENSE, ORANGE LABEL FLASH CARD MEDIUM
A. Lucent grants Dealer a personal, non-transferable and non-exclusive
right to use, in object code form, DEFINITY ECS software ("the
Software") solely for the purpose of providing maintenance service on
DEFINITY ECS PBX systems. Title to and ownership of all Software shall
remain with Lucent. Dealer will refrain from taking any steps, such as
reverse assembly or reverse compilation, to derive a source code
equivalent of the Software or to develop other software. Dealer will
use its best efforts to ensure that its employees and users of the
Software comply with these terms and conditions.
B. Dealer may make a single archive copy of software. Any such copy
must contain the same copyright notice and proprietary markings that
the original Software contains. Use of the Software on any equipment
other than that for which it was obtained, removal of the Software from
the United States, use of the Software for any purpose other than
maintenance of DEFINITY ECS PBX systems or any other material breach of
the software license shall immediately and automatically terminate this
license and will be cause for immediate termination of all Authorized
Dealer Agreements between Dealer and Lucent.
D. [For Dealers licensing the Orange Label Flash Card only]. Section 15.4
of the Agreement is amended by adding the language that is underscored and
printed in bold, as follows:
15.4 Lucent may terminate this Agreement upon twenty-four (24) hours
written notice if Dealer has: (i) become insolvent, invoked as a
debtor any laws relating to the relief of debtors' or creditors'
rights, or has had such laws invoked against it; (ii) become involved
in any liquidation or termination of its business; (iii) been involved
in an assignment for the benefit of its creditors; (iv) sold or
attempted to resell Lucent Products to any third party other than an
End User without Lucent's written consent; (v) appointed or
19
<PAGE> 21
attempted to appoint any unauthorized agent or unauthorized
manufacturer's representatives for Lucent Products; (vi) sold or
attempted to resell any Lucent Products not previously authorized by
Lucent under this Agreement or that are obtained from a source other
than Lucent; (vii) remotely accessed PBX locations maintained by Lucent
directly; (viii) activated software features without compensation to
Lucent OR VIOLATED THE TERMS OF THE SOFTWARE LICENSE GRANTED BY ADDING
SECTION 26 TO THE AGREEMENT IN CONNECTION WITH A PRODUCT APPENDIX FOR
DEFINITY ECS SYSTEMS; (ix) misrepresented, by statement or by omission,
Dealer's authority to resell under this or any other written agreement
with Lucent that is limited to specific Lucent products or services, by
stating or implying, by use of a Lucent Mark or otherwise, that the
authority granted in this or such other agreement applies to any Lucent
product or service not covered by this or such other agreement, or (x)
failed to comply with Lucent's guidelines for the proper use of
Lucent's Marks. Notwithstanding such termination rights, Lucent
reserves all of its legal rights and equitable remedies, including
without limitation those under the Uniform Commercial Code.
20
<PAGE> 22
PRODUCT APPENDIX: GUESTWORKS(TM) SERVER & ASSOCIATED ADJUNCTS
A. Products: GuestWorks(TM), and Associated Adjuncts and Accessories
Guestworks Server (All Models)
Intuity Audix Lodging
Limited compatible Definity circuit packs
and telephones, when ordered in conjunction
with a Guestworks Server
B. For the Products covered by this Product Appendix, the following
replaces Section 1.3 of the Agreement:
1.3 "End User" means a third party with a hotel or motel business to
whom Dealer markets or sells Products within the Area for hotel or motel use by
such third party in the ordinary course of its business and not for resale; End
User does not include any office, department, agency, or defense installation of
the United States Government Marketing opportunities for sales of GuestWorks
systems to third parties for use in health care or senior citizens' residence
facilities must be individually reviewed with and approved by Lucent
Technologies to be certain that the system will meet the customer's needs and
that the sale will not expose Lucent Technologies to claims based on the
system's unsuitability for such uses or similar theories.
C. For the products covered by this Product Appendix, the following is
added to the Agreement as Section 2.9:
2.9 Circuit packs and 8400 Series DCP telephones offered under this
Product Appendix are intended for use with GuestWorks systems only. Orders for
DCP telephones beyond those provided in the GuestWorks packaged offers will be
rejected if the number of telephones ordered exceeds 10% of the total telephone
capacity of the system ordered. Orders for circuit packs will be considered on
an exception basis only. Failure to meet the requirements of this subsection
will be grounds for immediate termination of this Product Appendix, and
depending on the circumstances, may lead to termination of the Agreement to
which this is appended.
D. For the products covered by this Product Appendix, the following is the
End User Software License referred to in Section 9 of the Agreement:
END USER SOFTWARE LICENSE
LIMITED WARRANTY AND LIMITED LIABILITY
COMPATIBILITY. THE SOFTWARE IS NOT WARRANTED FOR NONCOMPATIBLE SYSTEMS.
SOFTWARE. Lucent Technologies warrants that if the Software does not
substantially conform to its specifications, the end-user customer
("You") may return it to the place of purchase within 90 days after the
date of purchase, provided that You have deployed and used the Software
solely in accordance with this License Agreement and the applicable
Lucent Technologies installation instructions. Upon determining that
the returned Software is eligible for warranty coverage, Lucent
Technologies will either replace the Software or, at Lucent
Technologies's option, will offer to refund the License Fee to You upon
receipt from You of all copies of the Software and Documentation. In
the event of a refund, the License shall terminate.
DISCLAIMER OF WARRANTIES. LUCENT TECHNOLOGIES MAKES NO WARRANTY,
REPRESENTATION, OR PROMISE TO YOU NOT EXPRESSLY SET FORTH IN THIS
AGREEMENT. LUCENT TECHNOLOGIES DISCLAIMS AND EXCLUDES ANY AND ALL
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
21
<PAGE> 23
LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE SOFTWARE OR DOCUMENTATION
WILL SATISFY YOUR REQUIREMENTS, THAT THE SOFTWARE OR DOCUMENTATION ARE
WITHOUT DEFECT OR ERROR, OR THAT THE OPERATION OF THE SOFTWARE WILL BE
UNINTERRUPTED. ALSO, LUCENT TECHNOLOGIES DOES NOT WARRANT THAT THE
SOFTWARE WILL PREVENT, AND LUCENT TECHNOLOGIES WILL NOT BE RESPONSIBLE
FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF COMMON CARRIER
TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED
TO THE SOFTWARE (TOLL FRAUD). Some states do not allow the exclusion of
implied warranties or limitations on how long an implied warranty
lasts, so the above limitation may not apply to You. This warranty
gives You specific legal rights which vary from state to state.
EXCLUSIVE REMEDY AND LIMITATION OF LIABILITY. EXCEPT FOR BODILY INJURY
PROXIMATELY CAUSED BY LUCENT TECHNOLOGIES'S NEGLIGENCE, YOUR EXCLUSIVE
REMEDY AND LUCENT TECHNOLOGIES'S ENTIRE LIABILITY ARISING FROM OR
RELATING TO THIS LICENSE AGREEMENT OR TO THE SOFTWARE OR DOCUMENTATION
SHALL BE LIMITED TO DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED $10,000.
LUCENT TECHNOLOGIES SHALL NOT IN ANY CASE BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE DAMAGES, EVEN IF
LUCENT TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. LUCENT TECHNOLOGIES IS NOT RESPONSIBLE FOR LOST PROFITS OR
REVENUE OR SAVINGS, LOSS OF USE OF THE SOFTWARE, LOSS OF DATA, COSTS OF
RECREATING LOST DATA, THE COST OF ANY SUBSTITUTE EQUIPMENT OR PROGRAM,
CHARGES FOR COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES
ACCESSED THROUGH OR CONNECTED TO THE SOFTWARE (TOLL FRAUD), OR CLAIMS
BY ANY PERSON OTHER THAN YOU. THESE LIMITATIONS OF LIABILITY SHALL
APPLY NOTWITHSTANDING THE FAILURE OF AN EXCLUSIVE REMEDY. Some states
do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation or exclusion may not apply to You.
Lucent Technologies grants You a personal, non-transferable and
non-exclusive right to use, in object code form, all software and
related documentation furnished under the Agreement between Lucent
Technologies and [Dealer]. This grant shall be limited to use with the
equipment for which the software was obtained or, on a temporary basis,
on back-up equipment when the original equipment is inoperable. Use of
software on multiple processors is prohibited unless otherwise agreed
to in writing by Lucent Technologies. You agree to use your best
efforts to see that your employees and users of all software licensed
under this Agreement comply with these terms and conditions and You
will refrain from taking any steps, such as reverse assembly or reverse
compilation, to derive a source code equivalent of the software.
You are permitted to make a single archive copy of software. Any copy
must contain the same copyright notice and proprietary marking as the
original software. Use of software on any equipment other than that for
which it was obtained, removal of the software from the United States,
or any other material breach shall automatically terminate this
license.
If the terms of this license differ from the terms of any license
packaged with the software, the terms of the license packaged with the
software shall govern.
22
<PAGE> 24
E. [For Dealers licensing the Orange Label Flash Card only.] The following
new Section 26 is added to the Agreement with respect to this Product Appendix:
26. SOFTWARE LICENSE, ORANGE LABEL FLASH CARD MEDIUM
A. Lucent grants Dealer a personal, non-transferable and non-exclusive
right to use, in object code form, Guestworks software ("the Software")
solely for the purpose of providing maintenance service on Guestworks
PBX systems. Title to and ownership of all Software shall remain with
Lucent. Dealer will refrain from taking any steps, such as reverse
assembly or reverse compilation, to derive a source code equivalent of
the Software or to develop other software. Dealer will use its best
efforts to ensure that its employees and users of the Software comply
with these terms and conditions.
B. Dealer may make a single archive copy of software. Any such copy
must contain the same copyright notice and proprietary markings that
the original Software contains. Use of the Software on any equipment
other than that for which it was obtained, removal of the Software from
the United States, use of the Software for any purpose other than
maintenance of Guestworks PBX systems or any other material breach of
the software license shall immediately and automatically terminate this
license and will be cause for immediate termination of all Authorized
Dealer Agreements between Dealer and Lucent.
F. [For Dealers licensing the Orange Label Flash Card only]. Section 15.4
of the Agreement is amended by adding the language that is underscored and
printed in bold, as follows:
15.4 Lucent may terminate this Agreement upon twenty-four (24)
hours written notice if Dealer has: (i) become insolvent,
invoked as a debtor any laws relating to the relief of
debtors' or creditors' rights, or has had such laws invoked
against it; (ii) become involved in any liquidation or
termination of its business; (iii) been involved in an
assignment for the benefit of its creditors; (iv) sold or
attempted to resell Lucent Products to any third party other
than an End User without Lucent's written consent; (v)
appointed or attempted to appoint any unauthorized agent or
unauthorized manufacturer's representatives for Lucent
Products; (vi) sold or attempted to resell any Lucent Products
not previously authorized by Lucent under this Agreement or
that are obtained from a source other than Lucent; (vii)
remotely accessed PBX locations maintained by Lucent directly;
(viii) activated software features without compensation to
Lucent OR VIOLATED THE TERMS OF THE SOFTWARE LICENSE GRANTED
BY ADDING SECTION 26 TO THE AGREEMENT IN CONNECTION WITH A
PRODUCT APPENDIX FOR GUESTWORKS; (ix) misrepresented, by
statement or by omission, Dealer's authority to resell under
this or any other written agreement with Lucent that is
limited to specific Lucent products or services, by stating or
implying, by use of a Lucent Mark or otherwise, that the
authority granted in this or such other agreement applies to
any Lucent product or service not covered by this or such
other agreement, or (x) failed to comply with Lucent's
guidelines for the proper use of Lucent's Marks.
Notwithstanding such termination rights, Lucent reserves all
of its legal rights and equitable remedies, including without
limitation those under the Uniform Commercial Code.
23
<PAGE> 25
ATTACHMENT: EXISTING LUCENT DEALERS WITH EXCLUSIVE PRIMARY AREAS OF
RESPONSIBILITY
CINCINNATI BELL TELEPHONE COMPANY:
In Ohio, the counties of Butler, Clermont, Hamilton, Warren, and a portion of
Brown. In Kentucky, the counties of Boone, Campbell, Grant, Kenton, and portions
of Harrison and Pendleton. In Indiana, the counties of Dearborn, Franklin,
Switzerland and portions of Ohio (county) and Ripley.
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of the Form S-8
made by Xeta Corporation on August 28, 1995. It should be noted that we have not
audited any financial statements of the Company subsequent to October 31, 1998
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
June 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 & 4 OF THE COMPANY'S 10Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 1,935,477
<SECURITIES> 0
<RECEIVABLES> 4,046,190
<ALLOWANCES> 0
<INVENTORY> 2,790,658
<CURRENT-ASSETS> 11,197,687
<PP&E> 3,960,316
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,186,946
<CURRENT-LIABILITIES> 6,113,709
<BONDS> 0
0
0
<COMMON> 231,628
<OTHER-SE> 11,948,169
<TOTAL-LIABILITY-AND-EQUITY> 20,186,946
<SALES> 9,240,921
<TOTAL-REVENUES> 9,240,921
<CGS> 5,645,456
<TOTAL-COSTS> 5,645,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,896,666
<INCOME-TAX> 741,000
<INCOME-CONTINUING> 1,155,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155,666
<EPS-BASIC> .57
<EPS-DILUTED> .50
</TABLE>
